The annual report and the Crown Entities Act
Statutory requirement: Section 151(2) of the CEA:
The annual report must provide information that is necessary to enable an informed assessment to be made of the entity's operations and performance for that financial year, including an assessment against the intentions, measures, and standards set out in the statement of intent prepared at the beginning of the financial year.
An annual report is one of the most important means by which Crown entities discharge accountability to Members of Parliament. It enables Members of Parliament to review the performance of agencies and sectors and to hold them to account for the use of resources and powers, as well as their delivery of outputs and the contribution to outcomes. The annual report is a key resource for select committee financial reviews of the performance and current operations of each Crown entity. Select Committee interest lies in what has been done, and achieved with those resources and powers, and whether they have been used wisely, prudently, in the public interest, and in accordance with the law. While the annual report covers the operations of the Crown entity during the preceding financial year (usually 1 July to 30 June), Crown entities are encouraged to include comparative (trend) information from earlier years to give a fuller picture of long-term progress.
Crown entities and the annual report
Although the annual report can be viewed purely from a legal compliance perspective, this approach serves to obscure the extent to which the annual report is a mechanism to:
- enable effective governance and management of the Crown entity
- promote better understanding and debate on how to improve future performance, and
- assess the Crown entity's performance over time.
Link to the performance cycle
The annual report is an integral part of the performance framework. It is part of a continuous cycle that involves reviewing actual results against stated intentions, and then feeding back into the next cycle (for the two years after the year being reported on) of strategy setting, planning, implementation and review.
Because performance management and reporting is ultimately about improving results for New Zealanders, a good measure of progress is the extent to which a Crown entity can demonstrate it has delivered improved results in a manner that is consistent with expectations of Ministers and the public.
The CEA requires a Crown entity's annual report to disclose its progress against the measures and standards of its performance as set out in the corresponding statement of intent. The focus should be on providing a coherent account of what has been done and achieved in the year, and explaining any variances between planned and actual achievement. That said, Crown entities should not feel constrained to report against only the measures and standards included in the statement of intent, particularly if those measures and standards were incomplete or under development, definitions have been altered, or data is being analysed in a different manner to previously.
Crown entities are encouraged to consider the following principles when thinking about what performance information to present in their annual reports.
Critical aspects of performance
Other than the mandatory audited statements, Crown entities should focus most of their reporting on the critical aspects of their performance and assess these against their intentions in their statement of intent.
Performance measurement and reporting is not a cost-free exercise, and the reader should not be overwhelmed by a multitude of information without a clear sense of what the most important matters are. When deciding which aspects of performance should be given most attention in explaining achievements and progress, Crown entities may find it useful to consider the significance of performance achievements and variances to intended performance in the context of:
- value for money
- the significance of the economic, social, and environmental impact
- the importance to the overall success and future operational effectiveness of the Crown entity, and
- the financial magnitude of the output or intervention.
Attributes of performance indicators
Performance indicators presented in the annual report (or used for evaluative purposes in any forum) should be SMART (specific, measurable, appropriate, relevant and timely), while avoiding measures that are too detailed to be meaningful in the context of annual reporting. It may be helpful to include benchmarks of performance against similar organisations, both nationally and internationally.
For assistance in developing robust performance measurement, refer to Performance Measurement: Advice and examples on how to develop effective frameworks. The State Services Commission and Treasury, with the support of the Office of the Auditor-General, have developed the performance measurement guide to help and encourage state sector agencies to critically assess their progress to date and to map out a clear path forward.
The Auditor General published a report on performance reporting in June 2008, which may also be useful, particularly Appendix II.
Quality of non-financial performance information
Central agencies and the Auditor-General continue to express concerns about the quality of non-financial performance information provided in annual reports. Crown entities are encouraged to think about the overall performance story that the annual reports provide.
It is also helpful to understand what the Auditor-General looks for when forming an independent opinion on service reporting. The Auditor-General assesses performance information on whether the information complies with GAAP, and fairly reflects the Crown entity's service performance for the year. To do this the auditor forms a view about:
- whether the statement of intent provides an adequate framework for reporting service performance, and
- whether the statement of service performance complies with GAAP and fairly reflects the service performance of the Crown entity.
Among other things, this requires the auditor to both:
- draw a conclusion on the appropriateness of the content of the statement of service performance, and
- verify that content.
Structure of the annual report
The CEA specifies the kind of information that Crown entities must provide, but not the form in which it must be provided. The structure of the annual report is the responsibility of each Crown entity, as the document needs to reflect the nature and complexity of each entity's particular functions.
Crown entities should seek assistance in relation to the preparation of the annual report from their monitoring department(s). Monitoring departments will consult with central agencies, as necessary, before providing feedback.
- Although Members of Parliament represent the public in Parliament, interested members of the public may also read the Annual Report.
- Financial Statements and Statements of Service Performance