Tertiary Education Institutions: Changes to the requirements for performance reporting in annual reports

Source: Controller and Auditor General

14 February 2019

Tēna Koe

As public organisations, Tertiary Education Institutions (TEIs) are accountable to New Zealanders for their performance and the money they spend. Because of this, you are required to prepare a statement of service performance (SSP) for your annual report.

Recent changes to the Education Act 1989 require your SSPs for 2019 to comply with generally accepted accounting practice (GAAP). GAAP is a set of objective principles and requirements for improving the consistency and transparency of performance reporting.

In this letter we:

  • describe why you are required to prepare an SSP;
  • discuss the upcoming changes to SSP requirements for your annual report;
  • provide some guidance on performance reporting that we expect to see in your SSP; and
  • recommend next steps and where you can get further information and support.

Statement of service performance

A TEI that prepares an Investment Plan is required to include an SSP in its annual report.1

Your SSP should describe your strategic goals and objectives and provide an easily understood picture of your organisation’s performance during the year, showing the relationship between your core services, associated costs, and how you achieved your objectives. Your SSP should give a sense of your progress, noting where you have made improvements and where you need to make further improvements.

Your SSP should set out what you expected to achieve and your actual performance, measuring performance against the proposed outcomes and performance indicators, including those described in your Investment Plan.2

In previous years, the information in your SSP was reviewed as part of our annual audit work. However, because there was no requirement for SSPs to comply with GAAP, our audit opinion did not report on this part of the annual report. Instead, we made recommendations in our management letter to you, identifying any deficiencies.

Upcoming changes

The Education (Tertiary Education and Other Matters) Amendment Act 2018 introduced a new subsection (section 220(2C)) to the Education Act 1989. The new subsection requires your SSP to comply with GAAP. This will apply to SSPs for financial years beginning on or after 1 January 2019.3

For any financial year beginning on or after 1 January 2019, our audit opinion will report on whether your SSP complies with GAAP. If your SSP does not comply with GAAP, you risk receiving a modified audit opinion.

For an SSP to comply with GAAP, it must meet the requirements of the relevant financial accounting standard. Currently, the relevant accounting standard is PBE IPSAS 1 Presentation of financial statements (PBE IPSAS 1), particularly paragraphs 150.1 to 150.10.4

You need to ensure that your staff who prepare SSPs are familiar with the PBE IPSAS 1 reporting requirements for SSPs, including the requirement to describe and disclose the cost of each output (paragraph 150.4).5 Few TEIs currently disclose their output costs.

For reporting periods beginning on or after 1 January 2021, a new standard, PBE FRS 48 Service performance reporting, will apply. This will replace the paragraphs in PBE IPSAS 1.

When applying PBE FRS 48, you should consider how you will meet the requirement to link the service performance information and financial statements in order to convey a coherent picture about your TEI’s performance. If you have more than one output class and do not plan to do this through output cost disclosures, you should discuss with your auditor how you will meet this requirement.

Early adoption of PBE FRS 48 is permitted. If you are considering early adoption, discuss this with your auditor.

Performance measures we expect to see

We expect that your SSP will include a range of performance measures, covering strategic goals and objectives, as well as measures directly relating to your outputs.

Your performance measures in your SSP should identify both the quantity (how much was provided) and quality (how well it was provided) of your service delivery.

In general, performance measures in your SSP should include targets. Targets are the specific levels or results that you intend to achieve. You might align targets to:

  • an external benchmark or required tertiary sector standard;
  • a level that represents a meaningful improvement on past performance; or
  • an aspirational level, if you anticipate a significant change in the relevant service’s performance.

If a performance measure does not have a target or it has not been reported on, you should explain why in the SSP’s commentary. Your reporting should be transparent when results do not meet targets and explain any variance from what you expected.

Performance measures and associated commentary should be: understandable, relevant, reliable, comparable, and complete. Comparing performance with other TEIs in the sector would be good practice, but this is not a requirement.

Figure 1
Principles of performance reporting

Understandable The SSP, its measures, and associated commentary are presented in a clear and concise format in a way that engages its users. Measures and commentary are easy to read and use minimal jargon and technical terms. Users can readily identify and understand the key performance issues.
Relevant There is a clear link between the measure and its particular outcome, impact, or output. The measure and associated commentary provides meaningful information about the TEI’s performance and progress towards its outcomes, meets the information needs of its users, and is useful for decision-making.
Reliable The measure and its commentary are free of errors, omissions, and bias and fairly represents the TEI’s performance in a balanced way. The measure represents what it purports to, and informed users would reach the same, or similar, conclusions to those made in the associated commentary.
Comparable A measure should include some comparison to required standards, forecasted or target values, previous year/s, and/or other TEIs. The commentary can then identify whether suitable targets were set, if there has been a decline or improvement in performance, and the TEI’s performance relative to standards and other TEIs in the sector.
Complete The performance information should cover the significant activities and all important aspects (including identifying the important dimensions of performance), and give them suitable emphasis, to present fairly, in all material respects, their significance to the TEI’s performance.

Your SSP must include the Educational Performance Indicators that you report to the Tertiary Education Commission (TEC). The TEC website provides further details.6

You should also include performance measures for your wider strategic goals and objectives that go beyond the Educational Performance Indicators, which focus on student achievement. A more complete picture of a TEI’s performance might also include, but is not limited to, measures of:

  • research products for research-active TEIs (such as post-graduate research, external research income, publications, research recognitions);
  • users’ views (often through student and/or graduate satisfaction measures);
  • post-study/employment status (often through graduate destination surveys and the TEC post-study information products7), recognising that there can be a lag in this data being available;
  • employers’ views (typically through employer satisfaction measures);
  • contributions to broader economic, social, and cultural outcomes (including community engagement, community support, and knowledge-sharing activities); and
  • results of independent external evaluations and reviews (such as those done by the New Zealand Qualifications Authority and the Academic Quality Agency for New Zealand Universities).

Recommended next steps

Changes in performance reporting requirements can take time to settle in and need the commitment of senior management. We recommend that you consider asking your Chief Executive, Vice-Chancellor, or Te Taiurungi to report on the TEI’s state of readiness for the SSP in your annual report to comply with GAAP.

Our auditors will review your SSP’s compliance with GAAP in your 2018 annual report on a “dry-run” basis to help identify any improvements you need to make. We encourage you to start your own improvement plan now, so you are better placed to meet the new requirements in 2019.

Further information and support

The Auditor General’s Auditing Standard AG-4 The audit of performance reports8 provides insight into what our auditors are looking for in a public organisation’s performance reporting.

If you require further information or have any questions, please speak to your appointed auditor in the first instance.

Yours sincerely

Patricia Johnson
Sector Manager, Parliamentary Group


1: See section 220(2A)(f) of the Education Act 1989.

2: See section 159P of the Education Act 1989 sets out statutory requirements for investment plans.

3: Clause 11E of Part 5A of Schedule 1 of the Education Act 1989.

4: For the accounting standards, see www.xrb.govt.nz.

5: Where a TEI has only one output (teaching/learning), a breakdown of costs does not necessarily need to be provided. This might apply to some wānanga and institutes of technology and polytechnics. There might, however, be value in reporting costs in a different way, such as by faculty. In our view, all universities have more than one output (teaching/learning and research as a minimum).

6: See www.tec.govt.nz.

7: See Tertiary Education Commission (2018) Infosheet: Post-Study Outcomes apps at www.tec.govt.nz.

8: See The Auditor-General’s Auditing Standards at www.oag.govt.nz


Inquiry into procurement of work by Westland District Council at Franz Josef

Source: Controller and Auditor General

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

This report concerns a decision of the Westland District Council (the Council) to carry out work at Franz Josef to protect the town’s wastewater treatment plant from flooding. The work was carried out on an urgent basis and resulted in the construction of a new 700-metres-long stopbank on the bank of the Waiho River.

In this report, we acknowledge the serious nature of the flood risk the Council was dealing with, and the motivation of the elected members who were driving the decision to act in the community’s best interests.

However, we have serious concerns about what was done in this case.

Our concern is not that the Council decided it needed to do something to address the flood risk. Our concern is about the way the Council went about making that decision, the apparent confusion or disagreement among the elected members about what had been agreed, and about the way the decision was subsequently carried out.

We also have serious concerns about the extent to which some of the elected members lost sight of the fact that their role is to govern, not manage, and that their drive to get things done needed to be balanced by an understanding of the importance of doing things right.

This report identifies numerous examples of poor decision-making and poor procurement practice. They include the lack of any proper risk analysis or consideration of alternative options, the failure to seek expert advice on either the immediacy of the flood risk or whether building a stopbank was the right response, an inadequate planning and procurement process for a project of this type and scope, an apparent disregard for legislated decision-making requirements, and a failure to consult those affected by the work until the work was already under way.

Underlying all these concerns is a fundamental question about whether the construction of a stopbank was authorised in the first place. Council records show an agreement to carry out maintenance on an existing flood embankment, not to construct a new stopbank.

What Westland District Council did

Faced with what some of the elected members believed to be an imminent flood risk, the Council decided to carry out urgent maintenance work on a floodbank to protect the town’s wastewater treatment plant from flooding. At the same time, it decided to carry out work to address ongoing non-compliance with the plant’s discharge consent. This work involved spending an estimated $1.3 million of public money.

As it turned out, rather than carrying out maintenance work on the floodbank, the Council effectively built a new stopbank. The proposed work to address compliance issues with the wastewater treatment plant was not carried out at all, although we understand it was completed later.

What was wrong with what Westland District Council did

The decision that urgent work was needed was based on an assessment by two of the elected members that the wastewater treatment plant was in imminent danger of flooding. That assessment was effectively endorsed by the Council as a whole without confirmation from anyone with relevant expertise and without any expert review of the Council’s proposed response.

Potential contractors were identified and approached by one of the elected members using his business and personal connections, rather than by Council staff following a procurement process suitable for a project of this size and significance to the community.

Work then began on constructing the stopbank without any plans being drawn up, without any engineering input, without consulting with affected parties, and without considering the effect constructing a stopbank might have on the flood risk posed by other parts of the river.

Not only did the Council not seek advice from any external experts, it did not properly involve its own staff until work was already under way.

The first stage of the work was carried out without any clear contracting arrangements in place, and without any certainty about who was responsible for managing the work on the ground or for matters such as health and safety, compliance with the Resource Management Act 1991, or quality control.

The lack of proper contracting arrangements for the first stage of the work means it is uncertain what recourse the Council will have, if any, if the stopbank fails due to a design or construction flaw.

When some of the elected members tried to raise concerns about the scope of the work, aspects of the Council’s decision-making process (such as the lack of involvement of Council staff), and disquiet in the community about perceived conflicts of interest, these concerns were effectively dismissed or minimised.

All of this is unacceptable.

What Westland District Council should have done

The decision to take steps to prevent the town’s wastewater treatment plant from flooding was a decision the Council was entitled to make. However, before making that decision:

  • The Council should have got advice, from either its own staff or appropriately qualified external advisers, about whether its concerns about an imminent flood risk were valid.
  • Assuming the concerns were valid, the Council should have got advice from suitably qualified advisers on whether a stopbank was an appropriate and cost-effective solution. This was particularly important because a decision had not yet been made about whether the wastewater treatment plant would remain at its current site in the long term.
  • The Council should have considered, or sought advice on, its decision-making obligations under the Local Government Act 2002 – in particular, the requirement to assess the significance of the decision, to weigh up the costs and benefits of other options, and to consider the views of those likely to be affected by, or interested in, the decision.
  • The Council should have considered, or sought advice on, whether it needed consent for the work, or any part of it, under the Resource Management Act and the extent to which the proposed work could legitimately be classed as emergency works under that Act.
  • All of the elected members needed to have a clear understanding of the rationale for the decision and the scope of the work that was being contemplated.

For councils, these sorts of decision-making requirements are not just a matter of common sense. They involve both legal and good practice requirements. As with any public organisation, a council is exercising public powers. It is the essence of the rule of law that public powers must be exercised in accordance with the law.

In the case of councils, being able to demonstrate that decisions are made lawfully and for the benefit of the community is all the more important because a council is collecting and spending the community’s money, and because the only opportunity the community has to influence who makes decisions on its behalf is at local government elections every three years.

The discipline imposed by the decision-making requirements of the Local Government Act is therefore essential in holding councils to account. These requirements are, in effect, the building blocks for democratic and responsible decision-making in local government. Bypassing them where they are perceived to be unnecessary or inconvenient is not an option.

Why we do not accept Westland District Council’s justification

The justification we have been given for much of what happened is that the work was urgent and elected members had to step in because Council staff were not available.

We do not fully accept either of these arguments. In particular, we are concerned at the extent to which the sense of urgency appears to have clouded good judgement.

There is no doubt that the wastewater treatment plant was at risk of flooding. It had flooded the year before, with serious consequences for the town. But the Council had no expert basis for assuming that history was about to repeat itself or that, if it was, a stopbank was the most appropriate or cost-effective solution to the problem.

Even if we accept that the concerns about an imminent flood risk were valid, it does not justify the approach the Council took. Building a new stopbank – if that is, in fact, what the Council agreed to do – is not a “quick fix”. It requires careful planning, engineering expertise, a clear understanding of resource consent requirements, and consideration of the effect that building a new stopbank would have on an already volatile river. All of these crucial steps were missing.

Why the end does not justify the means

The question of whether the construction of a stopbank was properly authorised and whether it was the right thing to do, is no longer of any practical relevance. The stopbank has been built and, although several of the elected members voiced their concerns at the time, the Council, in effect, endorsed the decision to build it.

We acknowledge the genuine motivation of all of the elected members we spoke to, to try to address their concerns about the flood risk to the wastewater treatment plant in what they believed to be an efficient and cost-effective manner.

The point has also been repeatedly made to us that, so far at least, the stopbank has achieved its intended purpose of protecting the wastewater treatment plant from flooding.

However, none of this makes what the Council did right. The end does not justify the means.

A council that is contemplating spending $1.3 million of public money to construct a reasonably significant piece of infrastructure needs to be able to show that the decision to spend the community’s money was based on something more than an assessment of risk by two of the elected members, and that all those who had a right to be involved were properly involved in the decision-making process.

It is the essence of good governance that a governing body can demonstrate to its stakeholders that a decision has been well made and their money has been well spent.

In this case, unfortunately, the Council can do neither.

Nāku noa, nā,

John Ryan
Controller and Auditor-General

1 March 2019