Video transcript: Audit New Zealand: Supporting improvement in the public service

Transcript for a video of a presentation given by Stephen Walker at the 2019 Audit New Zealand information updates.

Title: Audit New Zealand: Supporting improvement in the public service

Stephen Walker (Executive Director, Audit New Zealand)

Thank you, Chantelle, and lovely to be here down in Christchurch with you all today. My greetings earlier emphasise the importance of people, places, and connections. And one of the benefits to holding our events around the country is that we’re able to really maximise on all three of those things. We can get people together from across different entities in the public sector, across different roles that they play in their organisations, and bring them together around the theme of today around the importance of trust and confidence, and how we all can play our role in improving that trust and confidence that New Zealanders can have in its public sector.

Over 2,000 years ago, a very wise man, Confucius, was asked by one of his disciplines, Zigong, “What’s really important for governments to be effective, to be successful in terms of how they govern the people?” And it was Confucius who said, “Well, what’s really important is there are three things that governments need. The first is weapons, the second is food, and the third is trust. If you can’t have all three of those things, the first thing you should give up is weapons, the second thing you should give us is food. But trust you should hold on to right till the very end, because, without trust, we cannot stand.” Clearly a very wise man, who I’m sure would have made a strong politician in today’s environment as well.

In our context, the public’s trust in the public sector is closely related to levels of confidence that the public can have in the public sector. Its trust and confidence is gained, maintained or enhanced through a range of things – most importantly, the way the public interacts with its public sector. Whether as a citizen receiving services from various public entities, as partners with public entities in delivering services, or ultimately as citizens determining the direction of their particular government. Trust and confidence is an ultimately end gain, but it’s also vital to ensuring strong systems of public accountability, good-quality decision-making, all of which are foundations for strong democracies.

So when it comes to understanding trust, or in fact whether it’s trustworthiness, what’s important for us to focus on? There’s an Irish philosopher, Onora O’Neill, who has given several TED talks, so I’d encourage you to have a look. But she focuses on this concept of trustworthiness. And, in relation to trustworthiness, it really having three main attributes that, if you get right, it should enhance the level of trustworthiness of you, of your organisation, of the system. The three things are around competence, reliability, and honesty. Competence is around those attributes of expertise, performance, efficiency and effectiveness, general capability. Reliability is about the elements of exactness, consistency, compliance, predictability, and dependability. Honesty is seen more in a range of ethical quality that we hold dear: loyalty, openness, fairness, reasonableness, general good behaviour, and good conduct.

And it’s that last one that I want to spend a few moments on, and particularly from the perspective of public sector employees – and I’ll come back to why that is in a moment. But first to frame the conversation a bit with a few statistics – damned statistics and all. These are statistics from the Institute of Business Ethics based out of the UK, and these are from its most recent 2018 survey results across New Zealand, Australia, and the UK. Broadly similar results were achieved across each of those three countries. First one – I guess the good news of this: 84% – the vast majority – of public sector employees, believe their organisations act with honesty. The good news.

Perhaps the start of the not-so-good news: just over a third of employees believe that petty fiddling within their organisations is inevitable. A proportion – 13% – believe actually, petty fiddling’s okay, as long as the end result is achieved, whatever that end result might be. A quarter have seen or experienced misconduct in the work environment – and you can see a few examples of what misconduct might mean. And lastly, and perhaps most worrying, is just over one-in-10, so 12%, feel or have felt pressured at some point to compromise their own ethical standards.

So I suppose a question I’d like you to ponder as we go through today – and you can all do this, not just public sector employees – have you at any point in time felt that your ethical standards have been challenged or compromised in any way? If those statistics are to be believed – and I’ve no reason to doubt them – it was a sound survey, strong methodology – it would suggest that, even in New Zealand, we’ve got some work to do. While New Zealand, and the public sector particularly, continues to be rated strongly in the Transparency International Corruption Perceptions Index, New Zealand sits at second, just behind Denmark. We’re very mindful that this is about perceptions, and we know that perceptions can shift and change quite rapidly given certain events.

Having said that, it’s really pleasing to see an increasing number of public entities who are focused on, within their organisations, the ethics programmes foundations that they want to establish to ensure that their people are focused on ethics when making decisions and being mindful of the impact that they have on the public. The reward for strong ethical leadership is really big across our organisations and for all New Zealanders. It can lead to positive organisational performance, attracting and retaining the best talent, cultivating strong teamwork and productivity, giving your people meaning, as well as it’s just the right thing to do.

I did focus on public sector employees quite deliberately, not just because they are absolutely vital to ensuring strong public entities, but because they end up being one of the key interfaces with, in our case, New Zealanders in the delivery and the experience of public services. I want to finish this piece with a quote from a recent OECD report which talked about the importance of public trust, and particularly what occurs when you don’t have it. “Trust is essential for social cohesion and wellbeing, as it affects governments’ ability to govern and enables them to act without having to resort to coercion. A decline in trust can lead to lower rates of compliance with rules and regulations. Citizens and businesses can also become more risk averse, delaying investment, innovation and employment decisions, all of which are essential to regain competitiveness and jumpstart growth.”

So I’ll leave you with a second question, again, to ponder through the day, and that is whether you and your organisations are focused enough on the importance of ethical leadership to support trust and confidence in your organisation. I just want to move now to our role at Audit New Zealand as auditors of many, if not all of you, in the room. We recognise we have a role in supporting improvements in trust and confidence, and we do that principally through the way we engage with public entities across all parts of the public sector, and support it in a range of different ways through the types of engagement and interaction that we have.

I’ve shared this in past years at events: it’s an engagement. And, for us, it’s one where I believe it holds absolute purpose and meaning. Because each phase builds on the next, and it does become that strong virtuous cycle. If we start with strong and better engagement, we absolutely believe – and see it every day – leads to better information flow between us and public entities. Those things lead to better-quality audits and, in turn, lead to better reporting, not just by us as auditor to you about your organisation, but equally by you to your constituents. So I just want to highlight across each of those phases some of the things that we’ve been focused on and that you can expect to see, if not already.

So in relation to better engagement, we’re very mindful that a lot of this is about how we drive a focus on clear expectations and understanding around roles and responsibilities, both by yourselves but also by us. And we’re very focused at the moment on helping lift the clarity of what it is our role as your auditors is and what we’re trying to do and achieve through the way we audit. We are looking to use a new tool, which at the moment we’re in the phase of implementation, which we believe will help the flow of information between us. It’s referred to here as a client portal. It really will enable us to be clear about expectations with each other, those that are mutually agreed, and then support it with a good flow of information in an efficient manner.

In terms of better information, we recognise one of our key roles, and one of the most highly asked questions, is, “Who does this well? Can you tell us what good looks like?” And so we’re very mindful of needing to share some of the good examples that we see. And, most recently, our focus has gone on how we organise information that we already have, whether that’s currently residing on the Audit New Zealand website or the Office of the Auditor-General website. And so, if you’ve not been to either of the websites recently, I encourage you to go there and have a look, and you’ll find it hopefully a lot easier to identify some of that good practice.

One of the new resources at Audit New Zealand that we’ve only released in the last few months has been a refreshed client substantiation file. You might ask, “What is this?” And it’s a tool, really, to help us and you better understand what information we need as part of our audit, why it's important, but then, going beyond that, providing some tools, some guidance, some checklists to help support you in pulling that information together. We launched it earlier this year, and I know it’s been a top seller in our world. We had over 3,000 views of this part of our website through February, and we’ve been talking about it at each of our client events around the country. For those that are involved in the preparation of information for audit, there’s a session this afternoon that’s just for you around this client substantiation file and how you might engage and use that resource, so I encourage you to attend.

In relation to better quality audits, there’s a lot of conversation around the world at the moment around audit quality and what it means. And one of the key things to support quality engagement and interaction is people having a better understanding of what audit is about, why information is required, and then creating an environment through the audit to achieve that better quality. We believe one of the ways of achieving that better quality is through us looking at the way we operate our audit cycle. And so, for a selection of entities, we will be increasingly talking to you about smoothing the flow and the pressures associated with our audit cycle, particularly around some of those challenges, more judgement-related areas like valuations, impairment, and other subjective assessments, and getting you to think about those things earlier than you might have done in the past, so that we can avoid some of those real pressure points on you and on us close to the statutory deadlines.


And, lastly, around better reporting. A lot of what we do as part of our audit is to help inform the way we can most effectively and efficiently audit you. But we recognise that there’s a lot of real value and insight in that information, particularly through our risk assessment work and, increasingly, the use of data analytics through our audits. And so we need to focus on how we report those insights to you. And, while they might not highlight new audit recommendations for improvement, it will provide you greater insight in what’s going on in your organisation. So those are some of the areas that we’re putting more emphasis on. We will continue to provide a range of central resources, such as our model financial statements and running client events like this around the country as well.

I want to finish, really, with where I started, because it will frame a lot of the conversation today around trust and confidence, and why this relatively intangible terms are so important for the way we operate in the public sector. We have to be able to give New Zealanders trust and confidence in what our organisations are doing individually, as well as collectively across the system.

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