Continuous improvements needed for Government reporting

The Office of the Auditor General has just released its second report based upon its 2019 audit, called ‘Improving Financial Accountability and Transparency” and which looked at how Government manages its finances. While the first report on the audit, issued last year, focused on Government’s budgeting, this latest second report covers financial management and reporting. This latest report found that Government was still greatly lacking in many areas.

Underscoring the importance of accountability and transparency needed to be shown by Government when it came to its finances, the report outlined the huge numbers that Government was dealing with and the massive sums collected from the public purse. It said that in 2019, the entire public sector spent $979 million on delivering goods and services and maintaining the estate while generating total revenues of $1,136 million, with core government collecting $862 million, of which $796 million (92 per cent) was coercive revenues, and SAGCs generating a further $274 million from fees and charges.

“It is essential therefore that there is strong financial management and transparent reporting on the financial performance and position of the public sector and what it is delivering for these monies,” the report stated.

The OAG explained that this latest report provided a summary of financial performance at the entire public sector level and assessed performance against the six principles for responsible financial management for core government required by the Public Management and Finance Act.

“The Government has performed well against most of the principles of responsible financial management.” Ms Winspear said, “However, it is essential that the Government reports its actual performance against the principles in a clear, accurate and timely manner.”

More needs to be done

The report highlighted that the quality of financial reporting had improved considerably over the last decade, which has led to a significant reduction in the number of qualified audit opinions, however Government still needed to up its game.

“We have moved from a situation when many public entities received qualified audit opinions to this being a rare occurrence. However much to be done to improve the consolidated financial statements for the entire public sector to remove the adverse audit opinion,” Auditor General, Sue Winspear, said.

She acknowledged the work that the Ministry of Finance and Economic Development (MFED) had done in improving its financial leadership and starting a number of initiatives to strengthen financial management, but there were still many areas in which it needed to get up-to-speed with what was required. In particular, there continued to be a lack of accountability and transparency, as many financial statements and annual reports had not been tabled in Parliament.

Ms Winspear said this was “an essential part of the accountability process.”

To highlight where the MFED needed to follow through better, the report stated that while the Ministry had issued a number of new policies and guidance that would help strengthen financial management across government, they had yet to be fully implemented.

It outlined some shortcomings as follows:

“In 2017, MFED started to develop a Public Finance Manual and issued two of four parts in 2018. The remaining two parts were due to be issued in January 2019, but this has not yet happened. In 2017, MFED issued an internal control policy that outlines the responsibilities of public officers for creating and maintaining good control environments. The policy requires an annual Statement of Responsibility, but to date these have included only partial assurances,” it said.

Planning for the future difficult

One big worry for the OAG was the lack of transparency when it came to working out Government entities’ assets and liabilities. This, in turn, could lead to Government being unable to accurately plan for the future, essential when the size of the current public sector pension gap is taken into consideration.

“It is normal for the public sector to also have liabilities. Some of these are due in the short term, such as money owed to suppliers (for goods and services provided during the year but not yet paid for) and staff (for unused annual leave and compensatory time accrued at the year-end),” the report stated. “However, it will also have long-term liabilities, including borrowings and retirement benefits such as pension and ongoing healthcare benefits, which are generally more financially significant.”

The report said it was important that the Government and wider public sector measured and reported the full value of their total assets and liabilities, but the full value of long-term liabilities was not reported.

“This is essential information for decision makers and can support long-term financial planning and ensure that decisions made do not adversely affect financial sustainability in the longer term,” it said.

The OAG’s third report in this series will focus on long-term financial sustainability.