Part 3: Organisational capability
Our operating model
The Auditor-General's staff are organised into two business units – the Office of the Auditor-General (OAG) and Audit New Zealand.
The OAG carries out strategic planning, sets policy and standards, appoints auditors and oversees their performance, carries out performance audits, provides reports and advice to Parliament, and carries out inquiries and other special studies.
Audit New Zealand is the operating arm, and carries out annual audits allocated by the Auditor-General. It also provides other assurance services to public entities within the Auditor-General's mandate and in keeping with the Auditor-General's auditing standard on the independence of auditors.
The Auditor-General also engages private sector accounting firms to carry out audits of some public entities.
We employ about 350 staff in eight locations, and engage about 60 private sector accounting firms to carry out annual audits of public entities.
Figure 3 shows how all these parts fit together in our operating model.
Figure 3
Our operating model
Our people
The core expertise of the Auditor-General is our expertise in public management and auditing. Underlying this expertise are both our technical competencies (for example, in accounting and auditing) and the exercise of our professional judgement by:
- listening to and knowing our clients, our stakeholders, and the public sector so that we understand their expectations and the context for our work, and know the effect of our work; and
- building our individual and collective expertise, experience, and judgement so that we can strengthen our contribution to improving public sector performance.
We will continue to recruit a number of new staff each year. Some of these will be experienced professionals – replacing those who have left us – but we also hire a number of accounting graduates. When evaluating candidates we are careful to select people who have not only the required expertise, but also a strong affinity with the core ethical and public service values of the Office. Through their work for the Office, we expect to see our staff develop both their vocational and leadership expertise, strengthening their contribution to the Office and the public sector and being sought by other public sector organisations for their knowledge of, and contribution to, improving public sector performance.
We will continue our focus on each individual's needs in developing skills identified in our competency frameworks, on our leadership development programmes, and on improving the level of engagement of our people (as measured by our annual staff survey).
A particular area of development focus from 2010 through to 2013 is our auditors' understanding of, and expertise in, the changed audit requirements in the Auditor-General's revised auditing standard about service performance reporting by public entities. It is critical not only that entities are assessed appropriately according to the standard, but also that these assessments are consistent throughout the public sector.
Historically, our highest area of staff attrition is in recently qualified accountants. However, the global and local economic downturn has resulted in a reduced turnover of staff in 2009/10 overall. As we emerge from the downturn, we expect that attrition of recently qualified accountants will increase again in 2010/11 and future years. We continue to expect lower levels of attrition among our more experienced staff, which should improve the feedback we receive on the knowledge, skills, and consistency of audit teams.
The Office benefits from a diverse workforce, and we are committed to recognising and valuing different skills, talents, experiences, and perspectives among our employees. A diverse workforce will help the Office relate to our clients and bring a variety of perspectives to bear on our work.
Our main measures of our organisational health and capability are set out in Figure 4. As information is not yet available in most instances for 2009/10, we have not given actual achievements for that year. Instead, for comparative purposes, we have provided actual achievements against measures and standards for 2008/09 and 2007/08.
Figure 4
Organisational health and capability – main impact measures and standards
| 2010–13 main impact measures and standards | 2008/09 Actual | 2007/08 Actual |
|---|---|---|
| Staff engagement | ||
| Improve (or at least maintain) the engagement and satisfaction of our staff measured against the previous two years (on a scale of 1 to 5). | Overall engagement 3.8 Overall satisfaction 3.7 Basic needs met 4.0 Individual contribution 3.7 Teamwork 3.7 Growth 4.2 |
Overall engagement 3.7 Overall satisfaction 3.5 Basic needs met 4.0 Individual contribution 3.5 Teamwork 3.5 Growth 4.0 |
| Staff experience and expertise | ||
| Improve (or at least maintain) the average years of experience of our staff measured against the previous two years. | Office of the Auditor-General 7.6 Audit New Zealand 4.2 Corporate Services 2.9 |
Office of the Auditor-General 7.2 Audit New Zealand 4.3 Corporate Services 5.4 |
| Achieve a pass rate of staff undertaking NZICA accreditation of not less than 95%. | 94% | 100% |
| Quality assurance reviews for all appointed auditors are completed during a three-year period. Of the auditors reviewed in any given year, 95% achieve a result of satisfactory or better. | All completed 100% achieved satisfactory or better |
All completed 93% achieved satisfactory or better |
| Listening, understanding, and exercising judgement | ||
Client survey feedback shows that auditors' knowledge of entities' business and operating context is improving and that auditors are investing in work to understand that context. Our clients give us improved (or at least maintained) ratings compared with the previous two years for their auditors':
|
New measure in 2010/11 Baseline information being collected in 2009/10 |
New measure in 2010/11 Baseline information being collected in 2009/10 |
| Our quality assurance review of audit and assurance work confirms that auditors are carrying out the requirements of AG-4 (revised). | New measure in 2010/11 | New measure in 2010/11 |
The Office addresses equal employment opportunities through its recruitment and employment policies. The principles of equal opportunity are embedded in the Office's policies and procedures. Our recruitment programme in particular aims to attract and appoint the best people, who have the appropriate skills, values, and attributes to meet the Office's needs, objectives, and strategic direction, in a manner that provides equal employment opportunities to Māori, women, ethnic or minority groups, and people with disabilities (see Figure 5). Recruitment and employment decisions and practices (such as feedback from exit interviews) are monitored to confirm that policies are applied. Managers are coached and supported to be aware of their good employer obligations both through specific programmes and courses and through one-on-one coaching.
Figure 5
Staff profile and diversity
| As at 30 June | 2009 | 2008 |
|---|---|---|
| Staff numbers (full-time equivalents) | ||
| Office of the Auditor-General | 61 | 57 |
| Audit New Zealand | 249 | 216 |
| Corporate Services* | 44 | 38 |
| Total | 354 | 311 |
| Gender distribution – all staff | ||
| Women | 52% | 52% |
| Men | 48% | 48% |
| Gender distribution – executive management | ||
| Women | 42% | 42% |
| Men | 58% | 58% |
| Ethnicity distribution | ||
| NZ European | 48% | 42% |
| NZ Māori | 2% | 4% |
| Pacific Islander | 3% | 3% |
| Asian | 12% | 12% |
| Other European | 7% | 12% |
| Other ethnic groups | 4% | 2% |
| Undeclared | 24% | 25% |
| Functional distribution | ||
| Audit/assurance | 65% | 74% |
| Technical and advisory | 10% | 9% |
| Corporate support | 22% | 13% |
| Senior management | 3% | 4% |
* Corporate Services function is shared between the OAG and Audit New Zealand.
Financial trends
The Office has been broadly maintaining the quality and quantity of its outcome, impact, and output results in the last three years. These results have been achieved within our appropriations, with adjustments made in recent years only for remuneration costs, with no adjustments to these levels since 2008/09.
In particular, audit and assurance services comprise 87% of the Office's expenditure, with the cost of each audit (audit fee) paid by each public entity according to the Office's revenue-dependent appropriation. The trend in audit and assurance services expenditure has been moderately stable over the last three years, after increases in 2005/06 driven mainly by the increased complexity of audits due to the adoption of International Financial Reporting Standards, and input cost increases largely arising from worldwide shortages of qualified auditing staff.
We anticipate greater pressure on our forecast financial operations, particularly as a result of the following influences:
- It is becoming increasingly difficult to retain our best and most experienced staff when holding remuneration ranges at 2008/09 levels. Our staff turnover in 2009/10 is at a historical low, to some extent in our view because of the tight overall economic climate. However, we are seeing initial signs that staff turnover will increase. Although competitive remuneration is only one element of staff retention, it is a very important element.
- In recent years, there has been an increase in the complexity of requests to the Office from taxpayers and ratepayers asking us to enquire into matters of concern to them. The Public Audit Act 2001 gives the Auditor-General discretion to carry out performance audits and inquiries to examine matters concerning a public entity's use of resources. We continue to explore ways to prioritise these requests to maintain appropriate levels of response to critical issues.
- Considerable upward pressure remains on audit fees as a result of increasing salaries and standard increases in operating costs (not only for the OAG and Audit New Zealand, but also for private audit service providers contracted by the Auditor-General to carry out audits on her behalf), changes to accounting standards, changes to auditing standards, and the increasing complexity of some public agencies (for example, local government agencies becoming issuers, with complex subsidiary arrangements). We note that changes to auditing and accounting standards are largely beyond our control and that any changes may further increase pressure on audit fees.
The upward pressure on audit fees is challenging, given the fiscal restraint that the public sector is currently operating under. - A small but significant number of the public entities audited by the Office are in arrears or have not paid their audit fees. Arrears are where audits for previous financial years have not been completed, often because the entity does not have the capability to prepare the financial accounts. Other entities have simply not paid for previous financial years' audits. The Office has an ongoing programme to address arrears and unpaid audit fees.
Business practices
We have an extensive quality assurance programme for all the products that feature in our statement of service performance. The programme informs improvements in our business and professional development.
In addition, the Office has an internal audit function that is contracted to an external firm. The annual internal audit programme is agreed with our independent Audit and Risk Committee. In 2010/11, internal audit will continue to focus on those key risks that could affect our reputation, independence, capability, and product integrity.
Based on our own assessments and on previous review findings, in 2010/11 we intend to work on improvements to our information security (including our disaster recovery capability) and our risk management processes.
Facilities and equipment
In 2008/09, we started a project to understand our medium-term to long-term property needs. The project identified the advantages of co-locating our OAG and Audit New Zealand Wellington staff. It is likely that our Audit New Zealand Wellington operation will need to vacate its premises in 2013. We plan to continue this work in 2010/11, and expect to complete a business case for consideration by Parliament in due course.
Information systems
We rely on information technology to complete our work. To ensure an effective, efficient, and customer-focused service, our audit staff working in the field use specialist auditing and remote access and communications tools. In the OAG, the audit status database system is used to manage the allocation, tracking, and reporting of the 4000 or so audits carried out annually by appointed auditors from about 60 chartered accounting firms. Corporate services staff are responsible for the core financial, time and cost, document and records management, publishing and communications, and human resources systems that underpin the Office's operation.
In 2010/11, we intend to:
- improve the reliability and connectivity of the systems used by our field staff;
- enhance the functionality of our financial management systems and audit tracking systems; and
- investigate options to improve our electronic document and records management systems.