Annual Review briefing to the Transport & Industrial Relations Committee WorkSafe New Zealand 1 2015/16 Financial Year 9 February 2017
2 2 Assistance to the Committee The Transport & Industrial Relations Committee is conducting an annual review of the performance in the 2015/16 financial year and the current operations of WorkSafe New Zealand (WorkSafe) in accordance with Standing Order 345. The Controller and Auditor-General provides Parliament with assurance on the performance and accountability of public entities. The Office of the Auditor-General typically assists select committees with their annual reviews by providing further details on the results of the annual audit in Part A of our written briefings, and by suggesting lines of enquiry and questions relevant to the particular public entity under review in Part B of our written briefings. Our annual audits provide a high, but not absolute, level of assurance about whether a public entity s financial statements comply with generally accepted accounting practice (GAAP) in New Zealand and fairly reflect its financial position and its financial and service performance for the period audited. Due to the volume of transactions, audit work is planned and performed to obtain evidence on a sample basis. Auditors use professional judgement to assess the evidence and ensure there is reasonable assurance that there are no material misstatements in the financial statements (that is, differences or omissions that would affect someone s overall understanding of the financial statements). We report, in our audit opinion, only material differences or omissions that we find. To identify lines of enquiry for Part B of this briefing, we: analyse the results of the annual audit and the accountability documents; refer to any relevant performance audit or inquiry work; and use our specific knowledge of the entity gained during the audit process and by ongoing contact with the entity. Where necessary, we checked factual information with the department or other entities to ensure that our advice to the committee is accurate. We did not give the entities any of the contemplated or actual advice that is in this briefing. Contact for further explanation If any member of the Committee would like further explanation or elaboration of any aspect of this briefing document, please do not hesitate to contact Colleen Pilgrim, Sector Manager, Parliamentary Group on 04-917-1500 or e-mail Colleen.Pilgrim@oag.govt.nz at the Office of the Auditor-General.
Summary of key issues 3 Part A: Results of the 2015/16 audit We issued a standard audit report, which means that we were satisfied that the information that we audited fairly reflected WorkSafe s activities for the year and its financial position at the end of the year. We assessed and graded WorkSafe s management control environment, its financial information systems and controls, and its performance information and associated systems and controls as good. In carrying out our audit we identified the following matters that we wish to bring to your attention: - ICT business capabilities programme Work has continued on WorkSafe s ICT business capabilities programme, primarily the Awhina project for the new case management system. Several issues have been raised as a result of the first release, and WorkSafe has experienced difficulties with the vendor as part of the resolution of these matters. - Performance reporting WorkSafe has continued to apply significant effort to develop its performance framework to align with the strategic goals of the organisation. Improvements have also been made to year end reporting. This has resulted in an improvement in the grade for performance information systems and controls from needs improvement to good. Part B: Advice to the Committee The key points we cover for the Committee, and suggest questions on, are: Consolidation of corporate structures. In December 2015 a targeted independent review by Doug Martin found that WorkSafe needed to move to a steady state by the end of 2016, as reflected in a consolidation of its corporate structures and identification of any scope for reducing overheads. A Health and Safety Funding Review, led by MBIE, has been carried out to examine both the effectiveness and efficiency of WorkSafe s functions, including corporate services. The funding review is in the process of being completed. The Committee may wish to ask about: - progress on the consolidation and reduction of overheads; and - changes that are anticipated as a result of the funding review. Business capability - Inspectorate. WorkSafe NZ s target is to have 200 health and safety inspector positions by mid-2016, excluding specialist High Hazards Inspectors. In its most recent quarterly report, the current number was 185. The Committee may wish to ask about WorkSafe s current intentions for the size of its health and safety inspectorate. - Investment in analytical capability. The independent review in late 2015 found that there has been considerable recent investment in WorkSafe s analytical capability. The Committee may wish to ask about WorkSafe s investment in its analytical capability, and how the benefits of the investment are being assessed.
4 4 - Business capabilities programme. WorkSafe has an ICT business capabilities programme in progress. We commented on issues that had been experienced in the programme (see Part A summary, above). The Committee may wish to ask about progress on the new case management system and other aspects of its ICT business capabilities programme, any difficulties being experienced, and how WorkSafe is managing them. WorkSafe s engagement - Educative role. The independent reviewer noted in late 2015 that below senior management levels, there was some poor and ineffective engagement and inconsistent approaches, although these are diminishing over time. The Committee may wish to examine what progress WorkSafe has made in developing its educative role and in increasing the effectiveness of its staff s communication with industry. - WorkSafe s engagement with Māori. WorkSafe says that, among other things, it is considering how it can focus on those groups that have high rates of injury. For example, it has developed a Maori strategy (Maruiti 2025) to inform how it works effectively with Maori on health and safety issues. The Committee may wish to ask what work WorkSafe has done to determine the cause of the high rates of injury for Māori (whether, for instance, it is as a result of Māori working disproportionately in high risk areas/occupations), how the effectiveness of its communication with Māori is being measured, what progress has been made with implementing its Māori strategy, and how this is reflected in improved health and safety at work for Māori. Harm reduction. Though fatalities were trending down at the time of the independent review in late 2015, injuries were not. This remains the case, except for forestry work-related injury resulting in more than a week away from work. Developing the Reducing Harm in New Zealand Workplaces Action Plan (usually known as the Harm Reduction Action Plan) jointly with ACC (July 2016) was a key response to the review. The Committee may wish to ask about progress on implementing the plan and about the quality of the data and reporting underpinning its implementation. It may also wish to ask what is being done to reverse the increase in the trend for work-related injury resulting in more than a week away from work.
Overview of WorkSafe New Zealand 5 WorkSafe is a Crown Agent with an independent Board appointed by the Minister for Workplace Relations and Safety. It began operation in December 2013 and carries out the health and safety and energy safety functions previously carried out by the Ministry of Business, Innovation and Employment (MBIE). The Chair is Professor Gregor Coster and the Chief Executive is Nicole Rosie, who joined WorkSafe in December 2016. Professor Coster is also a member of the Accident Compensation Corporation (ACC) board. Ross Wilson, Deputy Chair of WorkSafe, has had previous experience as Chair of ACC. MBIE is WorkSafe s monitoring agency. WorkSafe reports independently to the Minister for Workplace Relations and Safety on its performance. WorkSafe is the primary workplace health and safety regulator in New Zealand, and works closely with ACC, the Police, Maritime New Zealand, the Civil Aviation Authority, and the NZ Transport Agency. ACC also administers rules and levies, which influence the health and safety practices of both workplaces and workers. WorkSafe has statutory enforcement obligations under the Hazardous Substances and New Organisms (HSNO) Act 1996 for health and environmental controls in workplaces. In addition, the Environmental Protection Authority (EPA), which administers the HSNO Act, has delegated to WorkSafe specific functions for managing hazardous substances in workplaces. These delegated functions are additional to WorkSafe s workplace enforcement obligations. The Government has set a target of reducing workplace death and serious injury rates by 10% by 2016, and 25% by 2020, and WorkSafe leads the effort to achieve these targets, which it shares with ACC and MBIE. WorkSafe s performance framework is on page 33 of the Statement of Intent 2016-2020. In the year ending 30 June 2016, WorkSafe had total income of $91.100 million (2014/15: $91.250 million) against a budget of $87.335 million. There was a deficit of $2.217 million (2014/15: $6.069 million surplus). Personnel costs amounted to $58.089 million (2014/15: $52.208 million), and $6.288 million (2014/15: $7.001 million) of this was for contractors. Performance data and relevant official statistics are set out on pages 59-66 and 67-70 of the Annual Report. As at 30 June 2016, WorkSafe had a total of 485.9 full time equivalent permanent and fixed-term staff according to its response to the Committee s Question 61 on page 30. The headcount of staff reported by WorkSafe was 550 as at 30 June 2016. 1 The difference between the two figures may be due to non-permanent staff. Staff are located in multiple locations throughout New Zealand. 1 WorkSafe, Annual Report 2015-2016, page 8.
6 6 Part A: Results of the 2015/16 audit 1 Audit opinion 1.1 We issued a standard audit report, which means that we were satisfied that the information that we audited fairly reflected WorkSafe s activities for the year and its financial position at the end of the year. 2 Significant matters noted during the audit ICT business capabilities programme 2.1 Work has continued on WorkSafe s ICT business capabilities programme, primarily involving the Awhina project. Several issues have been raised as a result of the first release, and WorkSafe has experienced difficulties with the vendor as part of the resolution of these matters. 2.2 As part of our work we reviewed the QA reports provided to WorkSafe from external reviews of the programme to confirm its appropriateness. Overall, the external review was comprehensive, and we believe that it covers the key components of a programme review. 2.3 We recommended that WorkSafe consider the matters identified to improve its controls over the project. We also recommended that WorkSafe continue to progress matters raised by the QA reviews to ensure it can meet the deadlines set by management. Performance reporting 2.4 WorkSafe has continued to apply significant effort to develop its performance framework to align with the strategic goals of the organisation. Improvements have also been made to year end reporting. This has resulted in an improvement in ESCO grade to good from needs improvement. 2.5 We have noted some improvements made to systems during the year for precursor events measures and work-related injury rates, industry by industry. However, some recommendations raised in the prior year still remain. 2.6 Our recommendations for improvement are detailed in section 3. 3 Environment, systems and controls for measuring financial and service performance 3.1 Our conclusions on WorkSafe s management control environment, systems, and controls for measuring financial and service performance, for the year ended 30 June 2016, are set out in the table below.
3.2 We made our conclusions in the context of our work in forming an opinion on the financial and service performance statements. The purpose of commenting on the underlying environment, systems, and controls is to highlight areas for improvement we identified during our audit. The grades assigned for 2015/16 are based on the accountability documents relating to that year. They are not an assessment of overall management performance or of WorkSafe s effectiveness in achieving its financial and service performance objectives. (See the explanation of the grading scale and underlying scope at the end of this letter.) 7 Management control environment 2015/16 Good We have recommended that some improvements be made. 2014/15 Good Deficiencies we identified in 2014/15 have been resolved fully or largely Comment Our recommendations at the conclusion of the 2016 audit are: ICT capabilities programme Overall, the external review performed was comprehensive and covered the key components of a programme review. We recommended that WorkSafe consider and address matters identified to improve its controls over the project. Motor vehicle policy WorkSafe has continued to progress the development of the new policy during the financial year. We continue to recommend that WorkSafe progress the draft policy with urgency, to formalise updated procedures for the management of its motor vehicle fleet. Financial information systems and controls 2015/16 Good We have recommended that some improvements be made. 2014/15 Good Deficiencies we identified in 2014/15 have been resolved in part Comment Our recommendations at the conclusion of the 2016 audit are: Payroll controls We have not been able to rely upon payroll controls provided by the shared services provider for our work on insufficient controls over the payroll masterfile changes (these are changes of a sensitive nature, for example bank account numbers). Recommendations for improvement will be followed up by the auditor of the shared service provider. Holidays Act Initial work has been completed to identify WorkSafe s potential liability based on a sample of employees, and a conservative estimate of $88,000 has been identified. WorkSafe has obtained advice that has confirmed it is liable for any issues for its employees previously employed at MBIE and the Department of Labour, to a maximum of six years. We recommended that WorkSafe continue its work to identify the full extent of the liability and ensure that any new system implemented is compliant with the Holidays Act.
8 8 Performance information and associated systems and controls 2015/16 Good We have recommended that some improvements be made. 2014/15 Needs improvement Deficiencies we identified in 2014/15 have been resolved in part Comment The following comments are based on our audit of the 2015/16 financial and service performance information in the annual report, including the Statement of Service Performance (SSP), and their supporting systems and controls: Our recommendations at the conclusion of the 2016 audit are: Performance reporting systems Some systems for reporting on WorkSafe s performance measures need to be further strengthened to ensure performance information is reliable. We continue to recommend that WorkSafe establish quality assurance processes to ensure all non-financial performance information used in internal and external reporting is reliable for reporting purposes. WorkSafe has continued development of its new ICT system, Awhina. Implementation of this system is expected to address some of the matters raised. Performance framework WorkSafe has continued to apply significant effort to develop its performance framework to align with the strategic goals of the organisation. Improvements have also been made to year end reporting. However, areas for improvement still remain. These include: - improving linkages between various aspects of the performance reporting; - updating and refining targets for performance measures on an ongoing basis; and - considering ways in which meaningful information can be reliably and efficiently collected for the various measures of stakeholder perception. 4 Legislative compliance 4.1 We reviewed the systems and procedures that WorkSafe uses to identify and comply with legislative requirements. Our work focused on areas that could pose a risk to the statements on which we express an opinion the financial statements and the performance statements. 4.2 No issues arose that we need to draw to your attention.
Part B: Advice to the Committee 9 5 Consolidation of corporate structures 5.1 In December 2015 a targeted independent review by Doug Martin found that WorkSafe had been an organisation in transition for the two years since its inception and that it must move to a steady state by the end of 2016, as reflected in a consolidation of its corporate structures and identification of any scope for reducing overheads. 2 5.2 A Health and Safety Funding Review, led by MBIE, has been carried out to examine the effectiveness and efficiency of WorkSafe s functions, including corporate services. 3 The funding review was due for completion in November 2016. We understand that it is in the process of being completed. WorkSafe sees it as an opportunity to ensure we have the right mix of resource in the right areas to deliver on Government and WorkSafe objectives. 4 5.3 The Committee may wish to ask: The Committee notes the late 2015 findings of the independent review of WorkSafe New Zealand as regards consolidating its corporate structures and reducing overheads by the end of 2016. The Committee also notes that a funding review has been recently carried out to examine the effectiveness and efficiency of WorkSafe s functions. What progress has WorkSafe made on the consolidation of corporate structures and reduction of overheads since the targeted independent review? What changes does WorkSafe expect as a result of the Health and Safety Funding Review? 6 Business capability Inspectorate capacity 6.1 In its briefing to the incoming minister in 2014, WorkSafe said that its target was to have 200 health and safety inspector positions by mid-2016, excluding specialist High Hazards Inspectors. 5 6.2 In its most recently published quarterly report (Quarter 1: 1 July to 30 September 2016), the current number was 185. 6 2 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 13. 3 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 6. 4 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 6. 5 WorkSafe New Zealand: Briefing to the Incoming Minister for Workplace Relations and Safety, 7 October 2014, page 13. 6 Worksafe NZ-56577512, 23 November 2016 Draft 2016-17 Quarterly Report WorkSafe New Zealand: Quarter 1, page 2.
10 6.3 The Committee may wish to ask: The Committee notes that in 2014, WorkSafe was aiming to have 200 health and safety inspector positions by mid-2016. What is the current number of health and safety inspector positions, how many of these are filled, and what are WorkSafe s current intentions for the size of its health and safety inspectorate? Investment in analytical capability 6.4 The independent review in late 2015 found that there had been considerable recent investment in WorkSafe s analytical capability, including causative and cross-industry analysis. 7 6.5 The reviewer reported that this is crucial if WorkSafe is to continue to grow as a credible, evidence-based and trusted regulator. 8 6.6 The Committee may wish to ask: The Committee notes the statement by the independent reviewer in late 2015, about the necessity for WorkSafe s investment in its analytical capability. What investment has WorkSafe made in its analytical capability? How are the benefits of the investment being assessed? Business capabilities programme 6.7 WorkSafe has an ICT business capabilities programme in progress. 6.8 We commented in Part A that work has continued on WorkSafe s ICT business capabilities programme, primarily the Awhina project for the new case management system. We noted that several issues have been raised as a result of the first release, and WorkSafe has experienced difficulties with the vendor as part of the resolution of these matters. 6.9 The Committee may wish to ask: The Committee understands that WorkSafe is engaged in an ICT business capabilities programme, which includes a new case management system. What progress has been made on WorkSafe s new case management system and other aspects of its ICT business capabilities programme? What challenges have been experienced, how is WorkSafe managing them, and how will they affect the timeliness and cost of the ICT business capabilities programme? 7 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 14. 8 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 14.
7 WorkSafe s engagement 11 Educative role 7.1 The independent review in late 2015 noted that below senior management levels, there was some poor and ineffective engagement and inconsistent approaches, although these are diminishing over time. 9 7.2 The reviewer recommended, among other things, that WorkSafe take the opportunities afforded by the new HSW Act to give emphasis to its educational role, particularly over the transition period. 10 7.3 The Committee may wish to ask: The Committee notes WorkSafe s intention to take the opportunities afforded by the new HSW Act to give emphasis to its educational role. What progress has WorkSafe made in developing its educative role and increasing the effectiveness of its staff s communication with industry? What attitudes and behaviours is WorkSafe aiming to develop in work places, and how is this being assessed? WorkSafe s engagement with Māori 7.4 WorkSafe says that, among other things, it is considering how we can focus on particular demographics which have high rates of injury (for example developing a Māori strategy to inform how we work effectively with Māori on health and safety issues). 11 7.5 A strategy to meet long-term Māori health and safety needs (Maruiti 2025) has been developed. 7.6 The Committee may wish to ask: The Committee notes WorkSafe s intention to work effectively with Māori on health and safety issues. What work has WorkSafe done to determine the causes of the high rates of injury for Māori? To what extent is it, for instance, as a result of Māori working disproportionately in high risk areas/occupations? How is the effectiveness of WorkSafe s communication with Māori being measured? What progress has been made with implementing WorkSafe s Māori strategy, and how is this reflected in data showing improved health and safety at work for Māori? 9 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 14. 10 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 15. 11 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 4.
12 8 Harm reduction 8.1 Though fatality rates were trending down at the time of the independent review in late 2015, injuries were not. The review suggested that to assist in meeting its injury reduction targets, WorkSafe needed to ensure it is strategically and proactively interacting with organisations in a systematic way outside its targeted industries. 12 8.2 Developing the joint Reducing Harm in New Zealand Workplaces Action Plan (usually known as the Harm Reduction Action Plan) with ACC (July 2016) 13 was a key response to the review. 8.3 WorkSafe reports a reduction from 2012 in the forestry sector in rate per 100,000 FTEs of workrelated injury resulting in more than a week away from work, and increases in the other three target areas: agriculture, construction and manufacturing. There has been an aggregate increase in work-related injury since 2011. 14 8.4 WorkSafe reports that the fatal and potentially fatal injury rates are falling. 15 8.5 The Committee may wish to ask: The Committee notes the concern of the independent review a year ago that though fatalities were trending down at the time, injuries were not. What progress has there been on implementing the Harm Reduction Action Plan with ACC, and ensuring the integrity of the data and reporting underpinning it? What are WorkSafe and its partners doing to reverse the increase in the trend for rate of work-related injury resulting in more than a week away from work, particularly in the high-risk sectors? 12 Ministry of Business, Innovation and Employment, Targeted Independent Review of Worksafe New Zealand, page 14. 13 ACC, WorkSafe New Zealand (July 2016), Safer, Healthier, Together: Reducing Harm in New Zealand Workplaces: An Action Plan 2016-2019. 14 WorkSafe, Annual Report 2015-2016, pages 28-29, 65 and 69. 15 WorkSafe, Annual Report 2015-2016, pages 67 and 68.
APPENDIX Explanation of the approach, scope and grades used 13 1. The reporting under Part 3 of this letter, Environment, systems, and controls for measuring financial performance, (ESCO) is a by-product of the underlying audit work carried out to form an opinion on the financial and service performance statements. Its scope is limited to those aspects of the management control environment, information systems, and controls that the auditor has given attention to during the course of the audit. The approach taken covers the following three aspects. Aspects A. Management control environment B. Financial information systems and controls This is the foundation of the control environment and may include consideration of the following: clarity of strategic planning/the way the entity manages and reports performance; communication and enforcement of integrity and ethical values; commitment to competence; participation by those charged with governance for example, the involvement and influence of Audit Committee and Board (or equivalent); management philosophy and operating style; organisational structure; assignment of authority and responsibility; human resources policies and practices; risk assessment and risk management; key entity-level control policies and procedures; information systems and communication (including information technology planning and decision-making); monitoring; and legislative compliance arrangements. These are the systems and controls (including applicationlevel computer controls) over financial performance and financial reporting, and include the following: appropriateness of information provided and reported; presentation of financial information; reliability of systems; control activity (including process-level policies and procedures); and monitoring.
14 C. Performance information and associated systems and controls This concerns the quality of the main measures of outcomes or impacts and performance measures selected for reporting against, as well as the systems and controls (including application-level computer controls) over performance reporting, and includes the following: appropriateness of information provided and reported; review of the associated forecast information and Information Supporting the Estimates; the audit of the current reporting period statement of service performance and main measures of outcomes/impacts in the annual report; reliability of systems; control activity (including process-level policies and procedures); and monitoring. Comments and grades are based on conclusions drawn from the statement of service performance and annual report for the current reporting period. Further comment on improvements in progress may be included in a subsequent section on significant matters of audit interest. 2. Recommendations for improvement are generally limited to those findings that the auditor considers are the more notable weaknesses in the design or operation of the management control environment, information systems, or controls. The recommended improvements determine the grade assigned. A single, serious deficiency drawing a recommendation for improvement may, of itself, determine the grade. Similarly, the most serious deficiency among several will draw a stronger recommendation and affect the grade accordingly. 3. Deficiencies in the management control environment, information systems, or controls are the gaps between what auditors observe and what auditors consider, in their professional judgement, constitutes best practice. Auditors professional judgement is informed by many factors, including national and international standards, knowledge of best practice, and standards and expectations for the public sector in New Zealand. 4. To help ensure the relevance to all entities of the auditor s recommendations and grading, the auditor s recommendations are made with reference to what is considered best practice, given the size, nature, and complexity of the entity. Thus, notions of best practice will vary among entities because what is considered necessary, sufficient, or beneficial for some entities may not be so for others. There is, therefore, not a one size fits all standard across the public sector. Rather, recommendations for improvement are based on the auditor s assessment of how far short the entity is from a standard that is appropriate for the entity s size, nature, and complexity of its business. 5. Further, notions of best practice may vary over time in response to change for example, changes in the operating environment, changes to standards, and changes in general expectations. Therefore, grades assigned to entities may fluctuate from year to year depending on how entities respond to changes in the environment and in best-practice expectations. Grades may also be affected from year to year because of changes in emphases, in line with the auditor s risk-based approach to testing systems and controls. 6. Improvements are recommended only when it is considered, in the auditor s judgement, that the benefits of the improvements would justify the costs. 7. Recommendations for improvement are based on the auditor s conclusions about the state of the entity s management control environment, information systems, and controls as at the end of the financial year.
8. The following table explains what each grade means: Grade Explanation of grade 15 Very good Good Needs improvement Poor We have made no recommendations for improvement. We have recommended that some improvements be made. We have recommended that major improvements be made at the earliest reasonable opportunity. We have recommended that fundamental improvements be made urgently.