Monitoring performance against target is a vital part of the New Zealand accountability system. In contrast to some other countries where ex post assessments take the form of programme evaluations and the annual reports discuss the entity's work in broad terms, in New Zealand the paramount question is whether the department has delivered the agreed services at the specified costs.
Monitoring does not wait until the year is over. Every purchase agreement has a monitoring and reporting provision that sets out the dates by which the chief executive will report to the Minister on progress in producing the specified outputs. Typically, these are quarterly reports which identify and explain variances between agreed and actual performance and, where appropriate, propose corrective action or modifications to the agreement.
The monitoring arrangement exerts enormous influence on the behaviour of chief executives and their departments. As the year progresses, chief executives pay attention to the terms of the purchase agreement and organise the department's work to maximise achievement of the performance targets. Many managers keep checklists that show the status of each item in the agreement. Typical entries are "completed," "in progress," and "to be started." By year's end, most chief executives can report that they have accomplished almost all of the agreed tasks.
This checklist mentality is welcomed by those who see it as evidence that managers are indeed accountable for what they do. The purchase agreement (and the Estimates and DFRs on which it is based) is not simply a wish list that mangers disregard whenever it is expedient for them to do so. More important, Ministers are effective purchasers of the goods and services they want. Without denying these gains in accountability, I wonder whether management-by-checklist unduly narrows managerial perspective and responsibility. Some managers seem to take the view that if it is not on the list, it is not their responsibility. Of course, chief executives should comply with the agreement and produce the specified outputs. But the most valuable asset that chief executives bring to their relationship with Ministers is not compliance but judgment and leadership. I am concerned that checklist managing is yet another reinforcement of purchase at the expense of ownership.
The annual report and audit complete the annual accountability cycle. Section 35 of the Public Finance Act requires a series of financial and service performance statements that mirror the statements now included in the DFRs. As mentioned earlier, this arrangement greatly facilitates the comparison of planned and actual performance.
The annual reports examined for this study were for the 1993/94 financial year or earlier; hence they do not reflect any changes that may have resulted from the introduction of the DFRs or other changes in the accountability system. The typical annual report consists of a narrative discussion of the department's operations during the year and the required financial and service performance statements. Only the statements are audited. Understandably, the descriptive material seeks to portray the department in a favourable light, but one wishes that some of the problems and choices faced by during the year would also be aired.
Financial reporting is one of the major success stories in New Zealand public management. The financial statements are of high reliability, few are qualified, and they enable the government to prepare audited Crown Financial Statements. New Zealand's financial reporting is designed to meet external requirements, though they also make departments responsible for managing their balance sheets, cash flows, financial operations, and accounts. My concerns in this area pertain to matters raised in the previous chapter. Cost and managerial accounting have lagged behind progress in financial reporting, with the result that one cannot always be certain that the costs have been fairly allocated among output classes. Auditors might probe more closely how it is that departments manage to spend just about every dollar appropriated to the various output classes. Hitting the financial bull's-eye should be harder in output budgeting than when resources are accounted for by inputs. Yet managers seem to do it with great regularity. What might warrant investigation are not so much the accuracy of the financial statements but the cost allocation practices that underlie these statements and (more importantly) the incentives departments have in managing their finances.