PM: Commonwealth Auditors-General Conference
Monday 31 January 2005
Rt Hon Helen Clark Prime Minister
Address to Commonwealth Auditors-General Conference
Banquet Hall, Parliament Wellington
Monday 31 January 2005
Thank you for inviting me to address this conference today. It is a pleasure to have you all here in New Zealand for the 19th Commonwealth Auditors-General Conference, and on behalf of the New Zealand Government I extend my warmest welcome.
Raising Public Sector Auditing to the Next Level, the topic of this conference, is an important part of helping to ensure continual improvement in public sector performance overall. It is a recognition that we cannot sit on our laurels and rely on previous gains, but must keep the momentum going. Auditors-General have an important role in this process.
I have been asked to speak to you about what governments expect from Auditors-General. Auditors-General play an important constitutional role in our systems of accountable government. An Auditor-General acts as Parliament’s financial guardian or watchdog, providing a credible assurance as to whether the government’s, and individual public entities’, books are faithfully kept.
They may also report on whether public funds have been applied effectively and efficiently in a manner consistent with policy. In some countries such as ours, Auditors-General also have a role in responding to inquiries from concerned citizens and others.
The vigilance of Auditors-General is not only of importance to Parliament, but also to the way government is perceived by the public and by international organisations and markets.
It is, therefore, crucial that Auditors-General have sufficient independence to carry out their role effectively. They need the freedom to decide what to examine, and how and when, without improper influence being applied.
My government, through the Public Audit Act 2001, has reinforced the independence of New Zealand’s Auditor-General. Prior to that time, the legislation governing the Auditor-General’s office was widely regarded as unclear, and as out of step with modern public sector practices.
An inquiry into the Audit Office by our parliamentary Finance and Expenditure Select Committee led to a number of recommendations for action being made in 1998. The Select Committee recommended that the then-Audit Office be placed on an independent statutory basis, so that it could be seen to be discharging its functions and duties free from influence from either the executive, individual MPs, or select committees.
At that time, the Audit Office was a department of state. The Select Committee report concluded that its status should be that of an Officer of Parliament, severing its administrative connection with any particular Minister and with the public service. And rather than the appointment of the Auditor-General being made on the recommendation of the executive, the Select Committee concluded that the recommendation should be made by the House of Representatives.
The Public Audit Act 2001 took up these recommendations. It severed any constitutional connection between the Audit Office and the executive, providing the statutory independence necessary for the Auditor-General’s work.
The legislation: explicitly stated that the Auditor-General must act independently in the exercise and performance of his or her duties; provided for the Auditor-General and Deputy to be appointed by the Governor-General on the recommendation of Parliament, not the executive; made the Remuneration Authority – which is an independent body which sets the salaries of judges, MPs, and Ministers – responsible for setting the remuneration of the Auditor-General and Deputy; and in line with making the Auditor-General and Deputy Officers of Parliament, not a government body, resourcing of the Office is now the responsibility of Parliament, not of the executive.
While a number of these measures were designed to ensure that the Auditor-General remained at a sufficient distance from the executive, an emphasis is also placed on acting free from any other influences. For example, the Auditor-General has a statutory duty not to act on behalf of commercial interests or lobby groups. Parliament, and the public of New Zealand, can therefore be assured that it is their interests which are being protected, not those of a specific sector or minority group.
Governments should be results-based. We need to know whether the resources being applied to government policies are achieving the aims and goals we set.
Rigorous analysis and evaluation about what works enables us to make better decisions about where we should target our investments. That helps those working at the frontline in policy and delivery to make changes to practices which are based on good evidence. It also enables new programmes and interventions to be designed which will lead to the best possible outcomes.
Auditors-General have a role in providing these assurances. How they do so can have markedly different impacts on the organisations implementing and delivering the policies. When areas for improvement are identified, it is important that this is communicated in a manner which encourages positive change, not defensive behaviour.
I’m not talking here about the extreme cases of fraud or other such activity. No government stands for these occurrences. What I want to focus on is the performance of public organisations – making sure value for money is being delivered in line with the policies being pursued.
Governments expect Auditors-General to examine performance in a fair and balanced manner. This means engaging with the organisation and understanding their tasks and roles without making pre-judgements. In turn, the organisations being audited need the opportunity to comment on findings and recommendations, as natural justice needs to be respected.
This does not mean that Auditors-General should word their findings so that government, Parliament, and the public have little idea of what the true situation is. Things need to be told as they are.
But the way this is done does need to take account of the difficult job a number of these organisations are undertaking. Auditors-General can take a constructive approach which assists government agencies to improve their processes continually. Over-officious auditing can lead to those being audited demonstrating overly risk averse behaviour, tunnel vision, and an over-emphasis on process as opposed to results.
Nor do we want Auditors-General to act as ambulances at the bottom of the cliff. Potential problems need to be identified early and fixed before failure occurs.
Governments need recommendations which are practical and tightly focused on the issue at hand. Governments do not want to have to decipher a cryptic code of what needs to change or improve.
Governments also expect Auditors-General to take into account the significance of issues within the broader scheme and scale of government activity. A lot of time and resource can be spent chasing issues which are not widespread, but which are highlighted in one specific area and therefore can create the impression that they are common. It is important that the Auditor-General’s judgement on these matters is accurate enough to avoid creating unnecessary panic. There are problems in too much auditing as well as in too little.
The expectations I have outlined so far require the right capability and they do require Audit Offices to be highly competent. Auditors need to be alert, perceptive, and discerning when conducting their audit work, whilst displaying high levels of professionalism and a solid grasp of new techniques and approaches.
Maintaining the needed level of competence and capability is be no easy task. There have been a number of well-known instances in the private audits sector internationally where the level of competence has been shown to be inadequate. I am thankful that there have not been similar cases in the public audit function in New Zealand.
If you as Commonwealth Auditors-General are to be successful in Raising Public Sector Auditing to the Next Level, you will need to examine how you and your offices can continually improve your capability. With changes in reporting systems and approaches occurring in some countries, and with technology adding complexity on an ongoing basis, it is essential that Auditors-General keep up with change in order to maintain the required credibility.
In New Zealand, there is a constructive relationship between the executive and the Auditor-General. In recent years, issues of genuine public concern have arisen which government ministers have considered needed to be addressed, and where the concern could only be met by an independent examination from someone the public trusts, like an Auditor-General.
Ministers are able to invite the Auditor-General to inquire into issues, recognising that whether to inquire - and of course the findings of the inquiries - are a matter solely for the Auditor-General. The relationship is strong enough to allow this dialogue, and the professionalism of the Auditor-General means his independence is not questioned.
The Auditor-General also works closely with central government agencies on technical accountability and financial reporting issues – providing valuable input at the development stage. This is a key contribution Auditors-General can make to improving accountability – after all you have the unique opportunity to examine which mechanisms work and which don’t across the whole public sector.
I am aware that in some jurisdictions Auditors-General have responsibilities only for central government. In New Zealand, the Auditor-General is responsible for auditing all public sector activity of which local government is an important part.
Parliament and governments are interested in the high-level or strategic issues concerning the local government sector, while local communities are interested in the performance of their own local council. It is important that Auditors-General respond to both expectations – once again using the knowledge and experience gained from your overview position of seeing what goes on across public sector bodies.
Successive Auditors-General in New Zealand have annually reported to Parliament on their work in the local government sector, providing an opportunity for Parliament and the government to consider the big issues in this area.
To conclude, I would like to emphasise again the importance of the role which you as Auditors-General perform. Constitutionally it is vital that this role is done well. If it isn’t, the whole system of accountable government is weaker.
Public sector auditing is a difficult task, requiring the highest standards of professionalism and integrity. The current challenges you face, and those which will inevitably appear in the future, make it important that you and your offices are able to adapt, while maintaining a clear focus on your role.
I see this conference as one of the mechanisms to ensure that this occurs. For, taking public sector auditing to the next level should not be viewed narrowly as a purely technical accounting issue. It is about helping to improve the performance of the public sector as a whole.
I wish you all the best for the conference, and hope that it is professionally stimulating and challenging.