Video transcript: A high-performing and accountable public sector
Title: A high-performing and accountable public sector, Stephen Walker, Executive Director, Audit New Zealand
Stephen Walker
I want to introduce today’s session with a focus on the theme that we’ve got for the update around a high-performing and accountable public sector. There’s two aspects that I want to touch on this morning which I believe are fundamental to us being able to support in both our roles, support that theme. The first is around the important nature of that entity—auditor relationship and I’ll certainly declare some self-interest in that. The second is about the importance of our own individual ethical responsibilities to build and maintain public trust, which in turn connects with performance and accountability.
We have a shared objective to achieving a high-performing and accountable public sector, yet we have quite distinct roles to achieve it. We’re all in our way striving for the public sector to support and deliver to all New Zealanders, to Parliament, a public sector that they can trust and have confidence in. It’s our shared objective around performance and accountability that I believe helps us achieve that. Our respective roles are guided by a range of expectations that are on each of us. How well we deliver those expectations – naturally how well we report. But one of the fundamentals is how well we interact with the key parties that we need to interact with. It’s as part of that interaction our relationship as entity to auditor that I want to focus on.
As part of the Auditor-General’s recent auditor satisfaction survey, many of you or your organisations were asked what value do you seek from your annual audit, and, separately, do you value or did you value your most recent audit? Both of those help us understand, one, what’s important to you and, secondly, whether in fact we’re delivering on that. As you can see from the graphic, close to three-quarters of clients of public entity surveyed valued their most recent audit. Now I note though that is different from “has it met the expectations of the Auditor-General or Parliament or in fact New Zealanders?” But your perspective as public entities is certainly important.
I’d acknowledge that we are striving for higher than 75% of public entities placing value in their audit but it’s certainly a good base to be working from. So what is it that you are looking for in terms of value? What are the things that you place value on?
One of the questions for the first time this year through the survey was this question of value. It’s an important question because it’s all about the eye of the beholder. What we’ve done with those insights that you’ve provided us is group them under some areas which help us determine what is it that we need to be doing differently as an audit provider for the Auditor-General? As you can see, there’s broadly four areas that the remarks from Crown entities – and that’s including district health boards – that have grouped their comments on value in.
Firstly, and it was overwhelmingly if you like the number one was around help us to understand the effectiveness of our systems and controls, and identify gaps and areas where we can improve. Secondly, and only just below the other but certainly recognising the importance of assurances that independent assurance over your financial and non-financial reporting. Most notably it came through for Crown entities and how you connect with your respective boards, the governance audit committees within your organisations. Thirdly, around that affirmation of “is what we’re doing good practice or good enough?” If it’s not, can you identify or share with us what good practice looks like? Lastly, around what I’ve called there compliance with statutory and other requirements.
How is it that those align with what we’re seeking to deliver as part of our audit? I’ve started at the top there with actually what our primary objective is in terms of delivering our audit. That’s around that independent assurance around the accuracy and fair representation of your financial and non-financial reporting. It is our main objective and we achieve the key deliverable as part of that as delivering that audit opinion which is published with your annual reports. I recognise it’s an ongoing challenge for the audit profession and yourselves to communicate with people just what that means – what that opinion means. Primarily, our audience is an external audience so for the readers of your annual report, but I would note that there’s clearly value for internal audiences, whether that’s your governance or senior management. Secondly, around that effectiveness of controls and systems. It is fundamental to our audit approach. I would say though that there’s an opportunity for us to better explain and report to you about what value you can take from the work we do. We primarily look at this to help us determine what’s the best way of auditing you? If you’ve got strong systems of controls, we can place a level of reliance on that and that influences the testing that we do. If you don’t have those strong systems, we have to take different approaches, but actually that’s vital information for you to know and try and correct.
Around the compliance with statutory and other requirements – we do look at this, although I have to say our main focus is around have you met your accountability and reporting obligations, whether those are stipulated by legislation, regulation, or standards. It’s less about this being a legal compliance check – which it isn’t – and I note that that’s something that organisations have their own responsibility for.
The last area around good practice and sharing of good practice – this is a continual work on for us. We see lots of organisations and we do see good practice across those organisations. The challenge for auditors is we’re inherently sceptical. As a result of that, we tend to focus on the things that aren’t quite right and offer you suggestions for the ways you can improve them. At times we see something good and think, “that looks good – let’s move on.” So we need to be better at identifying what we see that’s good and how we can share those insights.
I’d acknowledge in terms of providing value to you – public entities – we don’t always get this right and it can be for a range of reasons. But we’re certainly prepared to have the conversation with each of you about what value means for you and how we can work to support you getting that value. I’ll share with you a few observations about the things you can be doing in a moment.
As part of that same survey, you identified a few areas where you would like us either to continue doing these things or to improve where possible. Broadly, into these five areas, the themes are around communication. It could be the frequency, nature, the level, knowledge capability, continuity of our audit teams, level of understanding about our role, level of understanding about your business, and then lastly around timing and delivery of audit.
I just want to share with you a couple of areas that we have been working on and will continue to be putting focus on. Engagement and reporting – we are making a lot of change to the way we look to engage, particularly with governors and senior management and the way we are reporting, as simple as changing certain, if you like, approaches to the way we structure our reports to you. So we’ll be very keen over the coming year for feedback in that area.
In relation to development and building that knowledge and skills – we put a lot of emphasis on professional development of our staff. That does include that sector and technical knowledge as well as softer skills, but we recognise one of the things we need to get better at is the way we demonstrate that through our communication and engagement. We’ve been investing in the capacity of our auditors around the country and we believe that will help also improve the understanding, the knowledge, the communication that we have and can demonstrate through our audit teams. I would note though, we are and run quite a large graduate programme and we believe that’s vital for the public sector more broadly, particularly given many of our staff end up in public entities around the country. But what it does mean for you, I can almost guarantee you, every year you will have more junior audit staff on your teams. What we need to make sure is they’re as best supported as possible when they come on your audits.
Lastly, around timing and delivery – this is an issue for all of us. In the wisdom of having three-quarters of the public sector all with the same balance date of 30 June, naturally it creates some pressures at different times in the year. So over the next few years we will be increasingly seeking to move more of our audit work before balance date to try and, one, alleviate some of those pressure points later in the year, but also to provide you more timely insights. We believe that will benefit all of us.
Some of the areas we would like public entities to focus on and not surprisingly you’ll see a fair bit of correlation with some of the earlier areas as well. I would say many public entities do aspects of these really well. The first is around good and early engagement. It’s not rocket science in a way. We put a lot of focus on planning at the front end and getting that engagement right early. If that happens well and we get that early and positive engagement, it sets the audit up and the annual reporting cycle for success. Closely followed by that good preparation and quality delivery. Being fully prepared in terms of your own annual reporting as well as for the audit process makes a fundamental difference to the quality of the overall audit process. Making sure that the material that’s provided to us has been sufficiently quality reviewed. It does flow through into the next point around being open to improving. For us, there is a clear difference between organisations that embrace opportunities to improve and those that don’t. There’s no doubt in my mind that those that engage with us openly – seek our input on changes that they’re making are willing to consider changes both in terms of systems or reporting get more value out of the audit process. Open lines of communication and free access to the right people. It sounds obvious but it’s an important thing that doesn’t always occur.
The last one which is an area that we’re placing a lot more focus on is around our joint and shared responsibility – health and safety responsibilities. One of our main health and safety risks as an organisation is actually when our audit teams come onto your premises. In a sense, we can’t control the environment that they’re coming to work in and we have a shared responsibility around that. I would emphasise most public entities do this quite well, but there are a few who don’t. We’ve certainly placed greater emphasis on this in the last couple of years. My expectation of auditors is they will raise concerns if they have them.
I thought I’d finish this piece by talking about do the auditors actually get audited and to give you a level of confidence about who checks us and what we’re doing. Short answer is, yes, we do get audited. Not only is the Auditor-General – and, as part of the Auditor-General, Audit New Zealand – get audited annually by our own auditors, but we periodically have regulators come in and audit our audit practice, review our audit practice to see whether what we’re doing is appropriate. In the last year, we’ve had both the Financial Markets Authority and the New Zealand Institute of Chartered Accountants practice review teams come in and review the way we run our audits. Overall, pretty positive results from our perspective. The areas that they’ve identified for us to improve on or build into our training programmes have actually been really useful, really helpful for improving the way we deliver our audits. Some of that’s been around audit methodology and approach; some of it’s been around focus areas for our training programmes, increasing the level of professional scepticism that we demonstrate but also the way we document the work that we do.
We’ve certainly embraced these reviews. In face we invited them in. Well sorry, Greg invited them in – not me. But it was certainly a positive experience overall and we embrace them because we were looking for opportunities to do things better and improve. I believe we got just that out of it.
I want to move now to public trust. The notion of public trust underpins the ability of our public sector to perform and be accountable. It exists at all levels: system, sector, entity level, and with you and I, at an individual level. There’s a couple of images on this slide depict public trust is under pressure. You can just about every day open the newspaper and see another incidence of where the public and the notion of trust is being questioned. I’ve got a couple of images on this slide. The top left one’s around the Edelman trust barometer. This is from the 2018 trust barometer. A couple of quotes in there I want to read to you. “Trust is not self-evident – we must make it so.” I think what they’re reinforcing there is you can’t just assume it’s going to happen by what you do. It goes on to say, “In a digital environment where social media dominates our time and attention – it can sometimes be hard to tell what is true and what is not. For sure, there is black and white, but there’s also a lot of grey.” According to the 2018 barometer, nearly two-thirds of people say they get their news through technology platforms. These often self-referential echo chambers have created an environment where there is no bedrock – beliefs have come to equal truth.
The second image on the bottom right there is one that we can all take a lot of pride in. This is around the Transparency International Corruption Perception Index where New Zealand, in the 2017 results, is now rated number one by itself. Suzanne Sniveley, the Chair of Transparency International New Zealand, was quoted as saying, “Transparency International’s top CPI score for New Zealand reflects the integrity of our public servants and the strength of our public institutions.” She goes on to say, “But compliance, however, remains our biggest challenge.” Last year, I talked about the importance of system-level integrity to our system. Today, I want to focus more at the individual integrity of public servants and all of us in this room.
Our individual integrity or ethical framework leads to behaviours we demonstrate each day. Collectively that becomes an organisation’s ethical culture or at a system level what we call the public sector ethos. I believe we all have an ethical leadership responsibility to – as public sector professionals or accountancy or legal professionals or other professionals – to make sure that we uphold if you like that ethical leadership. At its most basic, to me, ethical leadership is about doing the right things all the time and in every situation. It’s important that it’s both visible and invisible. It’s fundamental to how we each operate and it’s something that, in a sense, you can’t take off like an ethical hat. You can’t apply it to some decisions and not to others. I certainly would expect all my staff to demonstrate ethical leadership and we have a set of organisational values and essential behaviours that reinforce what we stand for and what’s expected in terms of those behaviours.
So a question for each of you to consider is how do you demonstrate your visible and invisible ethical leadership? What guides our ethical leadership and ethical behaviours? Is it something that we’re all just expected to know or are we guided by other things around us? I suppose my view is it’s a combination of a range of things. Individually, our ethical views are influenced by a range of factors and experiences and a lot of those experiences may well have led us to where we are today in the public service. Individually, our ethical views are also shaped though by a range of expectations that are either entity specific, sector specific, or at times profession specific. Most of those organisations or professional bodies will have things like codes of ethics, codes of conduct, values, behaviours, and no doubt policies to reinforce those. For me, as Executive Director of Audit New Zealand and Vice-President of Chartered Accountants Australia and New Zealand, I’ve got no shortage of ethical requirements. Within Audit New Zealand, that will include a code of conduct for employees at the Auditor-General, the Auditor-General’s own code of conduct for assurance providers as well as Audit New Zealand’s values and essential behaviours that I talked about.
At a profession level that includes a code of ethics for all Chartered Accounting Australia and New Zealand members and a code of conduct that I comply with as an officer of that organisation. Fortunately for me there’s a lot of crossover between those expectations. But what’s important is I understand what’s expected – it aligns with who I am and what I demonstrate, and that I have that responsibility to act and demonstrate against those.
So I now have two questions for you – and you can take out your mobile phones if you’ve been brave enough to go on that link for ParticiPoll. I want to hear from you about what your views are on this. So the first question – relatively simple question. Of course you’ve got to be honest with these two questions given the topic. “Does your organisation provide a clear set of ethical expectations?” If you’ve gone to that link you should have in front of you four options: A, B, C, or D. I’ll let you decide which of those A, B, C, or D is appropriate for you and you can go ahead and click that now. I was in part expecting that little number at the bottom right of the screen to go beyond zero. I’m going to pause it there and we’ll see in a moment whether it has worked. If you’ve answered, thank you. It has demonstrated – sorry, the screen I’m looking at hasn’t refreshed – overwhelmingly positive in a way. There is a clarity of expectations across our organisations that those ethical requirements are in place.
The second question which I think is possibly the more telling one is, “If you’ve got those clear ethical expectations, how familiar are you with those ethical expectations?” Again, if you can go ahead and answer that now. OK, I’ll call that point with those results. Thank you for that. What that identifies is there is a degree of familiarity. What that references though to me is and I hope you all do this leaving the session today is that you become even more familiar with what those expectations are and then we all have that ethical responsibility to make sure we’re not only familiar but we’re acting and demonstrating that. I’m going to finish there and today you will hear more about the importance of ethics and integrity through various sessions. I look forward to the conversations and interactions through the day. I know on the programme there is something in there for everyone and I look forward to engaging with you through the day. Thank you very much.
Title: For more information and to download presentations, visit: www.auditnz.govt.nz