Auditor-General's overview

Central government: Results of the 2013/14 audits.

This report sets out the results of my audit of the Financial Statements of the Government of New Zealand for the year ended 30 June 2014 (the Government's financial statements) and of carrying out the Controller function. Both are essential components of New Zealand's public financial management system.

I am pleased to report that I have issued an unmodified audit opinion on the Government's financial statements. The financial statements provide an aggregate and high-level record of the Government's financial performance and position. Put simply, they give an account of what the New Zealand Government earns, spends, owns, and owes.

My role is to provide assurance to Parliament that the way the Treasury has reported in the Government's financial statements fairly reflects the Government's financial performance and position. The Controller work complements that. As the Controller, I check that government departments do not spend more money than Parliament has approved and that they have spent money for its intended purposes.

These are not trivial matters. Establishing that the Government's books are trustworthy is fundamental to public accountability, as is the principle that the Government spends only what Parliament has approved.

The Government's financial statements do not exist in isolation. This report draws on the many individual audits of central government organisations. Many specific issues covered in individual audits are not significant enough to feature in this report.

Some of issues that I highlight in this report are of interest not only from a financial reporting perspective. They indicate the complexity of issues that concern a large number of New Zealanders – assessing the cost of the Canterbury rebuild is a prime example.

Rebuilding Canterbury

Since 2011, my reports on the audits of the Government's financial statements have identified significant uncertainties with the estimated costs of the Canterbury rebuild. My reports have given reassurance that the Treasury has reasonably estimated the total cost and potential liabilities. However, significant uncertainties still remain.

In other reports, we have discussed specific aspects of the Canterbury rebuild, including how effectively the repair of infrastructure and homes has been managed. I plan to maintain that focus. This year, my Office is carrying out work on the overall governance and management of publicly funded community projects that are part of the recovery work in Christchurch.

Solid Energy New Zealand Limited

The other significant matter arising from my audit of the Government's financial statements was the consideration of the effect of Solid Energy's financial performance. New Zealand's State-owned enterprises generate significant revenue and are responsible for managing major assets and infrastructure. It is important that their assets and liabilities are appropriately included in the Government's financial statements.

Accounting for assets

The accounting treatment for assets is another example of how financial reporting is relevant to the effective operation of the public sector. In Part 2, we discuss the revaluation of the state highway network and the accounting treatment of public private partnership assets. As the Government progresses public private partnerships in the transport and justice sectors, I expect financial reporting practice around assets to evolve. How we account for assets can affect decisions about investment and maintenance, which in turn influence the services our assets can deliver to New Zealanders over time.

Further improving our financial management system

This report gives New Zealanders, at a high level, assurance that our financial management system is robust, that reporting can be trusted, and that the Government complies with the parameters for spending set by Parliament.

These are important foundations that need to be in place if we want to make our financial management system even more effective. In my 2012 report, Reviewing financial management in central government, I discussed the importance of financial management for dealing with future challenges. These challenges include the possibility of more shocks, the ageing population, increasing diversity, inequality, and pressures on our natural resources.

It is vital that New Zealand's financial management is strategic, supports effective planning, and helps the public sector to maximise the value it gets from its income and assets.

I would still like to see a reduction in expenditure not authorised by Parliament. I accept that most of the unauthorised expenditure in 2013/14 was connected to uncertainties arising from the Canterbury rebuild. The amount of unauthorised expenditure in 2013/14 accounted for only 0.26% of the total funding approved through the 2013 Budget – but I consider that, with good processes and the right approach to planning, government departments can still do better.

There were few instances of unauthorised expenditure, and we could detect them and impress on departments the need to improve. These are signs of a public finance system that is in good health.

With strong foundations in place, the public sector should aspire to improve the value provided by good planning, management, and reporting on the implementation of the Government's priorities.

The proposed theme for my 2015/16 work programme, Investment and asset management, is how my Office can contribute, as we explore how the public sector plans for, funds, manages, and maintains infrastructure and other assets to optimise services for New Zealanders.

In the meantime, I am pleased to highlight the main matters arising from my annual audit of the Government's financial statements and from carrying out the Controller function.

Signature - LP

Lyn Provost
Controller and Auditor-General

3 December 2014

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