A new Office of the Auditor-General (OAG) report has called for stronger governance procedures and an overarching plan for managing Crown financial assets.
The OAG report published last week made three core recommendations based on in-depth research carried out by consultancy firm Fidato Advisory on 14 NZ government-owned entities.
According to the report, there was a wide disparity of governance, investment skills and operational abilities among the agencies covered by the review – which collectively represented about 65 per cent of all NZ government financial assets.
While the three largest Crown-owned investment funds – the NZ Super Fund, the Accident Compensation Commission (ACC) fund the Government Superannuation Fund – had “effective management and governance practices”, the report said a number of other, smaller agencies risked their investment portfolios straying from best practice.
“In these circumstances, governors could be supported by using independent expertise more or by public entities pooling financial assets for management purposes, as happens with the Local Government Funding Agency and the New Zealand Debt Management Office,” the OAG report says.
In particular, the study found 14 government investment groups overall clearly achieved good practice standards in 67 per cent of the eight attributes it measured, while barely meeting the minimum in 28 per cent and falling short of “achieving good practice” in 5 per cent of the categories.
The four local government entities – the New Plymouth, Auckland, Dunedin, and Otago Regional council – were the worst-performing on governance measures, the OAG report found.
As well as lifting governance standards, the OAG paper calls for more cohesion between the government investment agencies – despite some successes in cooperation.
“We also found examples of CFIs [Crown financial institutions] co-operating and sharing information well,” the report says. “For example, ACC, the Government Superannuation Fund, and the NZSF met regularly and have agreed to share responsible investment information and resources. ACC has developed a new investment database in collaboration with the NZSF.”
However, the OAG says the three CFIs could cooperate further, especially with their respective technology platforms.
“Although the CFIs are co-operating and sharing information, the issues identified in the Government’s 2013 ICT Strategy and Action Plan about the use of different technology platforms by entities might become more relevant (such as duplication and fragmentation, and a lack of co-ordinated investment creating cost inefficiencies),” the report says.
At a higher level, the NZ government and Treasury need to develop an over-arching risk management plan for all Crown financial assets, the OAG says.
“The financial assets and associated liabilities of central government should be considered together, with a clear understanding of the risks being taken, how they are being managed, and the opportunities and challenges they create,” the report says. “Wider matters such as how public assets and liabilities interact with, and influence, each other, the Government, the investment industry, and the economy also need careful thought at a whole-of-government level.”
As well as the three CFIs and four councils the OAG study covered the NZ Venture Investment Fund, two universities, Housing NZ, Public Trust, Te Tumu Paeroa, and the NZ Debt Management Office.
Fidato Advisory is headed by former Russell NZ chief, Ed Schuck.
The OAG’s three recommendations call for:
- public entities holding investment portfolios that support their core operational activities regularly assess how they can strengthen the skills and capabilities for governing their financial assets;
- public entities with significant financial assets regularly assess how well they are managing and governing their financial portfolios and reporting to stakeholders using the following questions:
– Are the objectives clear and consistent with the purpose -of holding the assets?
– Are the designs of the management and governance processes appropriate?
– Are responsibilities clearly assigned?
– Are delegations used appropriately?
– Are duties clearly separated?
– Are incentives well-aligned?
– Is there a clear and documented process?
– Is monitoring effective?
– Are communications clear and relevant to the needs of stakeholders?
- that the Treasury prepare a strategic perspective on and vision for holding financial assets in the public sector.