D Preparing the Statement of Intent Guidance and Requirements for Crown Entities November 2010 ew Zealand Treasury
Strategy Development Identify/confirm government, sector and entity outcomes and expectations Identify priorities and areas for change Reporting and Review Report performance and financial outcomes Assess effectiveness and efficiency of interventions Planning Identify options, implications and resource requirements Allocate resources Develop implementation plan Implementation, Monitoring and Management Deliver outputs (goods & services) Manage resources and capability Crown Copyright reserved ISBN 978-0-478-35067-8 (HTML) ISBN 978-0-478-35068-5 (PDF) This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence, visit http://creativecommons.org/licenses/by/3.0/nz/. Please note that no departmental or governmental emblem, logo or Coat of Arms may be used in any way which infringes any provision of the Flags, Emblems, and Names Protection Act 1981. Attribution to the Crown should be in written form and not by reproduction of any such emblem, logo or Coat of Arms. Internet The URL for this document on the Treasury s website at November 2010 is http://www.treasury.govt.nz/publications/guidance/strategy/soi-ces Persistent URL http://purl.oclc.org/nzt/g-soice SSC website at: http://www.ssc.govt.nz/crown-entities
Contents What s new?... 3 About this guidance... 4 Who should read this guidance... 4 Questions and feedback... 5 Further information... 5 Overview... 7 The Statement of Intent and the Crown Entities Act... 7 Crown Entities and the Statement of Intent... 7 Structure of the Statement of Intent... 8 Assistance... 8 1 Process and production of the Statement of Intent... 9 1.1 Roles and responsibilities... 9 1.2 Timetable for presentation to the House... 12 1.3 Link to other planning... 13 1.4 Structure... 13 1.5 Style of the SOI... 13 1.6 Tabling and publication... 14 1.7 Amending a published Statement of Intent... 15 1.8 Audit and the Office of the Auditor-General... 16 1.9 Choosing which areas of the SOI to improve... 17 2 The content of the Statement of Intent... 18 2.1 A medium-term set of information... 18 2.2 An annual set of information... 19 2.3 Separating and linking the medium-term and annual information... 19 2.4 Organisational coverage of the Statement of Intent... 19 2.5 The period covered... 20 3 Medium-term information... 21 3.1 Measures as the basis of future reporting... 21 3.2 The operating environment... 21 3.3 What the entity does... 22 3.4 Impacts, outcomes and objectives... 22 3.5 Entities operating intentions... 23 3.6 Managing organisational health... 23 3.7 Issues requiring consultation and reporting to the Responsible Minister... 25 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 1
3.8 Processes in relation to acquisitions... 26 3.9 Other matters... 26 4 Annual information... 27 4.1 Forecast financial statements... 27 4.2 Forecast service performance... 29 4.3 Other measures and standards... 31 4.4 Confidentiality of information... 31 4.5 Aligning SOI information with other Budget documents... 31 4.6 Output agreement information... 32 Frequently asked questions... 34 Checklist... 35 Medium-term information... 35 Annual information... 36 Glossary... 37 2 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
What s new? This document replaces Guidance and Requirements for Crown Entities: Preparing the Statement of Intent published in November 2009. The main changes to the guidance this year are: Clarifying that Crown entities continue to be able to include output information that has been previously included in output agreements in the Statement of Intent and do not need a separate output agreement subject to the Responsible Minister s agreement (Section 4.6). The guidance has been restructured to so that users can easily find the information they require. For example all process and production related information is grouped together (Section 1). The inclusion of a new section on the role of the auditor, central agencies and monitoring departments (Section 1.1.4). The guidance has been updated to reflect the new Cabinet Office Circular CO (10)2 on Capital Asset Management (Section 3.6.1). The guidance includes advice on how to approach improving the Statement of Intent (Section 1.9). Clarify the requirement for measures to be meaningful especially in relation to forecast service performance information (Section 4.2). The Crown Entity Compliance Cost Review Group made some recommendations in March 2010. The recommendations of the Review Group implemented in this guidance as outlined above include: Meaningful performance measures (Section 4.2). Ability for Statement of Intent to include output agreement information (Section 4.6). Clarification of roles as a start to addressing mixed messages to Crown entities (Section 1.1.4). Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 3
About this guidance This guidance provides advice to boards, chief executives and staff of statutory Crown entities (Crown Agents, Autonomous Crown Entities, and Independent Crown Entities) on preparing their Statements of Intent (SOI). 1 It sets out what is required of Crown entities in terms of content and process for SOIs in accordance with the Crown Entities Act 2004 (CEA), and provides discussion and explanation of the main provisions and any associated expectations. The Statement of Intent is an important part of telling the entity s performance story and provides the background for the annual report. Expectations and requirements for Crown Research Institutes, Crown entity companies, schools and tertiary education institutions are different and not covered here. Agencies not covered by this guidance Crown Research Institutes Crown Companies School Board of Trustees Tertiary Education Institutions Who provides advice and outlines requirements for the SOI Ministry of Research, Science and Technology until the Ministry of Science and Innovation takes over responsibility Crown Ownership Monitoring Unit in Treasury Ministry of Education Tertiary Education Commission It is not anticipated that this guidance will change every year, but this is a period of change as Treasury implement the Minister of Finance s decisions to focus the Statement of Intent more on key performance matters enabling a reduction in compliance costs for Crown entities. We plan to review and update this guidance in 2011 for the 2012 Statements of Intent. Crown entities will be advised when amendments are made. The guidance has been developed by the Treasury in consultation with the State Services Commission and Department of the Prime Minister and Cabinet as part of an integrated set of advice to support Responsible Ministers, their departments and Crown entities. Treasury has also consulted with the Office of the Auditor General and representatives from monitoring departments and Crown entities. Who should read this guidance Crown entity boards and senior leaders of Crown entities should read the overview to understand the purpose and overall content requirements of the SOI. Those working on the documents are advised to read all of the material to ensure they understand the requirements and the expected standards of reporting. 1 Throughout this guidance references to Crown entity should be read as applying to statutory Crown entities ; and references to the Board of a Crown entity should be read as also applying to the member of a corporation sole. 4 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
Questions and feedback Answers to frequently asked questions (FAQs) can be found on the PSI. 2 General enquiries not addressed in this guidance and the associated FAQs can be directed to performanceinfo@treasury.govt.nz. Any agency specific queries should be raised with your entity s monitoring department. Any suggestions on how we could improve this guidance can be sent to guidance@treasury.govt.nz. Further information This guidance is available electronically from the Treasury website at: http://www.treasury.govt.nz/publications/guidance/strategy/soi-c or on Treasury s website via the permanent URL: http://purl.oclc.org/nzt/g-soice. It is also on the SSC website at: http://www.ssc.govt.nz/crown-entities. This document is part of a suite of guidance. Other documents that should be considered when preparing the SOI are: Crown Entities Act 2004, which details the legislative requirements is available from: http://www.legislation.govt.nz/default.aspx. The relevant sections are referenced within this guidance. Guidance for Crown Entities: Planning and Managing for Results (2005) which has an emphasis on the planning phase of the management cycle and is available from: http://www.ssc.govt.nz/crown-entities, under performance and accountability. Performance Measurement Advice and examples on how to develop effective frameworks (2008), which provides advice on how to develop frameworks that support good performance reporting http://www.ssc.govt.nz/performance-measurement. Statements of Intent: Examples of reporting practice (2009), which provides examples of better practice in selected from 2008 SOIs http://www.oag.govt.nz/2009/statements-ofintent/ Capability Toolkit, which outlines good practice in capability management and provides indicators of high performance and early warning signs. It is organised under seven dimensions: leadership, people, culture, relationships, information and communications technologies and internal management systems, assets, and structures. http://www.ssc.govt.nz/capability-toolkit. Auditor-General s AG-4 (revised): The audit of service performance reports (2009) detailing the objective of the auditor in relation to the audit of service performance reports: http://www.oag.govt.nz/2008/auditing-standards/ag-4-revised. The application dates are staggered so contact your auditor to find out when this applies to your Crown entity. 2 https://psi.govt.nz/iai/default.aspx Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 5
NZ IAS 1 Presentation of Financial Statements and Technical Practice Aid 9 Service Performance Reporting (revised 2007) is available on the NZICA website, www.nzica.com. The website has information on how to purchase this accounting standards and Technical Practice Aid. Presentation of papers to the House (2010), on the Parliamentary website. This details the requirements for tabling the SOI as a paper available at: http://www.parliament.nz/en- NZ/PB/Presented/Papers/e/1/c/00HOOOCPBPresentedPapersPapers1-Presentation-ofpapers-to-the-House.htm. 6 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
Overview The Statement of Intent and the Crown Entities Act The purpose of a Statement of Intent (SOI) as set out in legislation (section 138 of the Crown Entities Act (CEA)) is to promote the transparent accountability of a Crown entity by: enabling the Crown to participate in the process of setting, at a minimum, the Crown entity s medium-term intentions and undertakings; setting out for the House of Representatives those intentions and undertakings; and providing a base against which the Crown entity s actual performance can be assessed. The SOI is the vehicle through which accountability information is provided to Parliament and Ministers 3. It enables, in particular, Responsible Ministers and 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 contribution to outcomes. However, the CEA also very usefully requires the SOI to provide a high-level description and explanation of an entity s operating intentions and performance expectations over the medium term. This information provides the base against which the entity will later report in its Annual Report. Crown Entities and the Statement of Intent While the SOI can be viewed from a purely CEA perspective, this approach serves to obscure the extent to which the SOI and the processes involved in developing it is a mechanism to enable effective governance and management of the entity. From the governance and management perspective the SOI serves three principal purposes. First it facilitates the strategic management of the entity in both planning and measurement senses. The SOI includes the entity s key outcomes that contribute to government objectives in its sector where appropriate, how it intends to deliver the outputs that will effect those outcomes and what it will do with its internal structures and processes to improve the efficiency and effectiveness of the services it delivers within the context of its outcomes and outputs. It encapsulates the results of the entity s strategic planning process a process focussed on the future and the organisation s place in it. 4 3 4 The Members of Parliament represent the public in Parliament. The general public is not a direct audience although interested members of the public may read the SOI. In this context while the SOI will normally have a focus on the next three years, entity s should generally look out to a three to five year horizon and, where it is useful to do so, capture this in their SOI. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 7
As well as setting out the entity s future direction the SOI needs to allow progress towards the future destination to be monitored and measured. It is important that not only is progress measured, but that systems and processes are in place to measure the effects and impacts of that progress. This measurement serves three particularly important purposes: it enables the entity to take ownership of the journey it demonstrates to Responsible Ministers and Parliament the progress that is being made in sustaining and lifting the quality of the entity s performance it provides for the opportunity for best practice to be identified and shared across the public sector. Second, by identifying the actions, (short, medium and longer term), that will be taken, and the resources that will be used and by whom to give effect to the strategic direction in the SOI, it enables accountability to Parliament and also of Crown entity management to the Board and of the Board to the Responsible Minister(s). Third, since it will address challenges and risks in the future environment, the SOI will provide an assurance to key stakeholders that issues of planning are addressed. Structure of the Statement of Intent The Crown Entities Act specifies the kind of information that Crown entities must provide, but not the form in which it must be provided. 5 The structure of the SOI is for each entity to decide, as the SOI needs to reflect the nature and complexity of each entity s particular functions. Assistance Crown entities should seek assistance in relation to outcome-focused planning and the preparation of the SOI from their monitoring departments. Monitoring departments will consult with central agencies when providing feedback. 5 Note there is scope in the Act for the Responsible Minister to specify the form in which information in the SOI is disclosed [Section 145(b)]. 8 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
1 Process and production of the Statement of Intent 1.1 Roles and responsibilities Statutory requirement Section 139 of the CEA: (1) At or before the start of each financial year, a Crown entity must prepare a statement of intent for the Crown entity for that financial year and at least the 2 following years. (2) However, in the case of a Crown entity group,- (a) the parent Crown entity must prepare a statement of intent for the Crown entity group (b) no other member of the Crown entity group needs to prepare a statement of intent (3) This section applies unless the Crown entity is exempted from its requirements by this or another Act. There is an obligation on Crown entities to prepare an SOI unless exempted. 1.1.1 Responsibility of the Crown entity board Under section 146 of the CEA, the obligation to prepare an SOI is on the Crown entity, which in practice means the Board. This is reflected in the Board s collective duties, owed to the Responsible Minister. 1.1.2 The board s collective duties and the SOI Statutory requirement Section 49 of the CEA: The Board of a statutory entity must ensure that the entity acts in a manner consistent with its objectives, functions, current statement of intent, and output agreement (if any) under Part 4. (emphasis added) And Section 141(3) of the CEA: A Statement of Intent must be in writing, be dated, and be signed on behalf of the board by two members of the entity or, in the case of a corporation sole, by the sole member. Boards are expected to be involved in the strategy setting process and they should ensure that their meeting timetable, or procedures to agree strategy and sign off the SOI, fit with the timetable for engagement with their Responsible Minister and the framework for the tabling of an entity s SOI in the House of Representatives. The expectation that Boards are involved in the SOI process is reflected by the requirement that the SOI must be signed and dated by members of the board. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 9
1.1.3 Engagement on the Statement of Intent with the Responsible Minister (and the monitoring department) The balance between the obligations of the Crown entity and the rights of the Responsible Minister is carefully drawn in the CEA. In particular: the entity must consider the Responsible Minister s comments on a draft SOI, but does not have to change the SOI once it is finalised following consultation, unless directed to do so by the Responsible Minister (section 146); a Responsible Minister can direct on some of the content of an SOI [(section 147(1)]. The areas on which s/he can direct are the nature and scope of the entity s functions and intended operations, the impacts, outcomes and/or objectives the entity seeks to achieve, how the entity intends to perform its functions, the measures and standards by which its performance will be judged, the matters on which the entity will consult/notify the Minister, the kind and frequency of reporting, processes in relation to acquisition, and its statement of financial performance ; the Responsible Minister must consult a Crown entity before directing it, and any, such direction must be tabled in the House of Representatives and published in the New Zealand gazette [section 147(2)(b)]; and if the entity has been directed to give effect to or have regard to government policy directions, it must say how the objectives set out in the SOI might relate to any outcomes or objectives referred to in the direction [section 141(1)(c)]. The entity and the Minister may agree on additional information being included in the SOI [section 145]. The Responsible Minister cannot give directions in relation to a statutorily independent function, nor direct a Crown entity to bring about a certain result in respect of a particular person [section 147(2)(b), section 113]. More generally, the CEA recognises levels of independence in the way that it categorises Crown entities [section 7] and the CEA does not provide a power for Ministers to direct Independent Crown entities on Government policy [section 105]. The CEA s reporting requirements are intended to leverage off effective working relationships between Crown entities, and their Responsible Minister(s) 6. The companion Guidance for Crown entities: Planning and Managing for Results 7 advises early, and ongoing strategic engagement between the Responsible Minister, the monitoring department, and the entity. It is expected that there will be substantive engagement between Crown entities, Responsible Minister(s) and the monitoring department before the draft SOI is sent to the Responsible Minister for comment. In particular, Crown entities may want to consider giving their Minister specific opportunities to: confirm or change the medium-term strategic outcomes for the entity, and determine the priority areas for attention in pursuit of those outcomes set or agree appropriate performance expectations for at least the priority areas of the entity s activity. 6 7 The monitoring department also has on-going working relationships with the Crown entity and the Responsible Minister(s). This can be found at http://www.ssc.govt.nz/planning-for-results-crownentities. 10 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
Engagement between the Responsible Minister and the Crown entity around the entity s strategic direction and targets may result in the Minister proposing a Budget initiative for new funding. This may mean a period of uncertainty while decisions on the initiatives are made, and could require the possibility of Crown entities preparing alternative versions of the draft SOI until Budget decisions are confirmed. The entity s timeline for preparing the SOI, including the timing and frequency of Board meetings for final decisions will need to accommodate this. Subject to Cabinet agreeing, Budget decisions affecting Crown entities will be communicated at the discretion of Responsible Ministers. In practice, much of the process of consultation with the Responsible Minister will be delegated to the monitoring department acting, in effect, as an agent of the Minister. The process will be easier if: the Responsible Minister(s), Crown entity and monitoring department have engaged early during the planning process and the entity and the monitoring department continue to engage at key times, involving the Minister as necessary the monitoring department has a well developed understanding of the entity s operating environment, operating intentions, organisational capability, any sector wide or joint arrangements for delivering outcomes and the entity s thinking about its impacts, outcomes and/or objectives and activities. Entities should discuss with monitoring departments what assistance can be provided by the monitoring department and others (Treasury and SSC) to the Crown entity to develop the SoI. It is important that the Crown entity and their monitoring department(s) agree on dates for review and contributions. When the monitoring department and Crown entity are contributing to the same sector strategy, these dates should take into account the timeline for the monitoring department s own SOI. The involvement of the monitoring department does not negate the statutory requirement to provide the Responsible Minister with draft and final copies of the SOI. For information on the presentation of Statements of Intent to the House and the publication timetable refer to Sections 1.2 and 1.6 below. 1.1.4 Role of the auditor, central agencies and monitoring department Treasury s role is to advise on the legislative requirements as set out in Part 4 of the Crown Entities Act. The State Services Commission s role is to advise on the legislative requirements as set out in Parts 1-3 of the Crown Entities Act. The Auditor audits against the legislative requirements as set out in the Crown Entities Act e.g. financial statements meet the requirements of generally accepted accounting practice. For more details on the auditor role see section 1.8 below. The monitoring department provides advice to the Responsible Minister, as required, on key aspects of a Crown entity s performance. In addition, the monitoring department can provide advice to Crown entities on their SOI. If the monitoring department has agreed that it will, the monitoring department will also liaise with Treasury, the State Services Commission and the Office of the Auditor-General when providing advice to Crown Entities on SOI requirements. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 11
1.2 Timetable for presentation to the House Statutory Crown entities are expected to prepare their SOIs in time for them to be presented to the House of Representatives on the day after Budget (usually mid-may). This aligns Crown entities with the departmental timeline, and encourages greater cross-sector planning and collaboration. It also provides Select Committees with more information when they consider the Estimates. If adherence to this timetable is not practicable, an entity may table later but must still comply with the statutory requirements. However, it is expected that entities will adjust their processes to meet the earlier timetable. Crown entities that wish to defer tabling to the CEA requirement, must inform their Minister two weeks in advance of the Budget Day timeframe. In the past few years, Budget day has been in mid to late May. 1.2.1 Expected timetable Action Expectations Setting by letter or through discussion On-going discussion between Crown entity, Minister and monitoring department Early draft to monitoring department Crown entity provide a draft SOI to its Responsible Minister Responsible Minister provides comments on the draft Entity must consider comments on the draft, and provide the final SOI to its responsible Minister The Responsible Minister tables the SOI in the House The Crown entity publishes the final SOI Date (no later than) Seven months before Budget eg, October November to February March at the latest 31 days before Budget 15 days before Budget Day The day before Budget Day Day after Budget Day As soon as possible after tabling but no later than 10 working days after tabling 1.2.2 Minimum timetable under the Crown Entities Act Action Crown entity provide a draft SOI to its responsible Minister [section 146(2)(a)] Responsible Minister provides comments on the draft [section 146(2)(b)] Crown entity must consider comments on the draft, and provide the final SOI to its Responsible Minister [section 146(2)(c)] The Responsible Minister tables the final SOI to the House [section 149(1)] The Crown entity publishes the final SOI [section 149(3)] Date (no later than) 30 days before the start of the financial year 14 days before the start of the financial year On or before the start of the financial year 5 days after the final SOI has been received if the house is in session or as soon as possible after the next session of Parliament (see section 1.6) As soon as possible after tabling but no later than 10 working days after the final SOI is received by the Minister Details for the process of presentation to the House can be found on the Parliamentary website. 12 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
1.3 Link to other planning Crown entities will be undertaking strategic planning for their own business purposes. They will also be examining their own budgets and the way they produce outputs. All of this internal review work that occurs within Crown entities is input into the development of an SOI for reporting to an external audience. 1.4 Structure The CEA specifies the kind of information that Crown entities must provide, but not the form in which it must be provided. 8 The structure of the SOI is the responsibility of each entity to decide, as the SOI needs to reflect the nature and complexity of each entity s particular functions and business. Crown entities can have a short SOI so long as the document meets the legislative requirement. 1.5 Style of the SOI The SOI should be set out in a way that the information is clear and accessible to Parliament and Ministers. Statements of Intent should be plain in style (akin to current Budget documentation), concise, relevant, accessible and focussed on meeting the needs of Ministers and Members of Parliament, (as representatives of the public). More detailed or additional information to meet the needs of a broader range of stakeholders could be provided through wider use of other, more tailored mechanisms rather than the SOI (e.g. website). SOIs should only use a limited range of colours (two-tone is preferred), and should only include pictures where these add meaning to or aid understanding of the medium-term intentions being set out in the SOI. Graphs, tables and charts are encouraged. For further information relating to the style requirements please refer to the Office of the Clerk (the House of Representatives secretariat) circular Presentation of papers to the House 9. 8 9 Note there is scope in the Act for the Responsible Minister to specify the form in which information in the SOI is disclosed [Section 145(b)]. See Further information in About this Guidance above for the link to this circular. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 13
1.6 Tabling and publication Statutory requirement Section 149 of the CEA: (1) A responsible Minister for a Crown entity must present a copy of the final statement of intent, and any amendment to it, to the House of Representatives no later than 5 working days after the final statement of intent or amendment (as the case may be) is received by the Minister or, if Parliament is not in session, as possible after the commencement of the next session of Parliament. (2) A responsible Minister who presents a final statement of intent that covers a limited period in accordance with section 141(40 must also present with it an explanation of why it was not possible to produce a statement of intent for the period of 3 financial years. (3) A Crown entity must publish its statement of intent as soon as practicable after it has been presented to the House of Representatives, but in any case not later than 10 working days after the statement of intent is received by the Minister, in a manner consistent with any instructions given under section 174. The Crown entity should liaise with the Responsible Minister s office to assist in organising the tabling of the final SOI. The House can be in session even if it is not sitting. For all practicable purposes, the House is in session unless it has been dissolved for a general election. If the House is in session (even if it isn t sitting), SOIs are not published until after the SOI has been presented to the House. Crown entities should check with the Minister s Office or monitoring department before they publish their SOI. A Crown entity must publish its SOI as soon as practicable after its presentation to the House, and in any case no later than 10 working days after the Minister has received it. There is no scope for delay. As a minimum, the entity should publish the SOI on its website 10. Previous SOIs should also be available to the public and other entities (e.g., on the internet via hyperlinks). The preceding year s SOI provides the comparative context for the Annual Report. Previous SOIs also allow readers to identify changes in direction, operating environment and indicators. If a Crown entity is being disestablished or significantly restructured, it may, with the Ministers agreement [section 141(4)], provide a SOI that covers a period of less than 3 years. If this is the case, then the Responsible Minister must also present an explanation of why the period covered is less than the legal requirement. 10 There is provision in the Act for the Minister of Finance [Section 174(1)] to prescribe minimum requirements for the publication of information, but to date none have been prescribed. 14 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
1.7 Amending a published Statement of Intent Statutory requirement Section 148 of the CEA: (1) A Crown entity may amend its statement of intent. (2) A Crown entity must amend its statement of intent if (a) the information contained in the statement of intent is false or misleading in a material particular; or (b) the intentions and undertaking in the statement of intent are significantly altered or affected by (i) a direction given to the Crown entity by a Minister or by a whole of Government direction; or (ii) any change in law (iii) any other change in the entity s operating environment. (3) The Crown entity must make the amendment required under subsection (2) as soon as practicable after the entity becomes aware of the facts that give rise to the obligation to amend under this section. (4) A Crown entity must amend its statement of intent in accordance with the following process: (a) the Crown entity must provide a draft amendment to its responsible Minister; and (b) the responsible Minister must provide to the entity any comments that he or she may have no later than 12 days after receiving the draft; and (c) the entity must consider the comments (if any) and must provide the final amendment to its responsible Minister as soon as practicable; and (d) the final amendment to the statement of intent is in force from the date on which the final amendment is provided to the responsible Minister. The SOI must be current and accurate because the collective duties of the Board include a duty to ensure that the entity acts consistently with its SOI (section 49). The SOI should therefore be updated if it is inaccurate or significantly changed. If the amendment is made late in the first financial year to which the SOI applies, the entity could decide to use the requirement for amendment as an opportunity for the early preparation of the SOI for the next period. The processes for consultation with the Responsible Minister over the tabling of the amendment and/or the amended SOI (as appropriate) in the House of Representatives follow Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 15
those applying to the original SOI, and are set out in section 148 and section 149 of the CEA (see the blue boxes above). Any changes will also need to be acknowledged and explained in the related Annual Report. This may involve inserting additional text or providing additional disclosures in the financial statements and the statement of service performance, supplemented with text explaining changes to the agreed intended performance in the SOI. If this approach is adopted, Members of Parliament will be able to track the forecast performance included in the SOI to the audited actual performance stated in the Annual Report. 1.8 Audit and the Office of the Auditor-General 1.8.1 Parts of the Statement of Intent that relate to auditable material Section 156 of the CEA requires a Crown entity s annual financial statements and statement of service performance to be audited by the Auditor-General (as well as any other information that the Auditor-General has agreed or is required to audit). These statements, which form part of the Annual Report, include the comparative information contained in the SOI prepared in accordance with section 142(1) that relates to the reporting period, ie, the forecast financial statements and statement of forecast service performance. Central agencies and the Auditor-General continue to express concerns about the quality of non-financial performance information. The Auditor-General grades performance information on whether it complies with generally accepted accounting practice and fairly reflects the Crown entity s service performance for the year. To do this the auditor reviews the forecast SOI performance information: to assess the extent to which the SOI provides a reasonable framework for subsequent annual reporting; and for consistency with the internal performance management arrangements. Once the draft SOI is reasonably well-developed, it is good practice for an entity to ask its auditor to review the draft SOI. Auditors take a particular interest in the forecast measures and standards for the forthcoming year, as they need to assess whether they are appropriate (ie, relevant, complete and understandable) and whether the reported information based on the measures and standards are capable of being audited at the end of the reporting period. 1.8.2 OAG Advice to Select Committees Select Committees conduct annual financial reviews of all Crown entities listed in Schedule 1 of the Crown Entities Act 2004. The OAG provides a briefing to the Select Committees to assist with their review, and may comment on any aspect of the entity s SOI and Annual Report in providing this briefing. Select Committees may send written questions to the entity for answer and may request an entity appear before the Select Committee. 16 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
1.9 Choosing which areas of the SOI to improve Crown entities should focus on the areas where there have been substantial change in Ministerial priorities, strategies or organisational capability requirements and seek to reflect those in the SOI. For example, there may have been changes in Government policy or changes to Ministerial priorities that need to be reflected in the SOI. Also, Ministerial engagement will indicate if the SOI needs changes to reflect Ministerial expectations. Crown entities should also reflect on their own strategic planning and what this indicates for areas in the SOI that need updating. For further advice on areas that need improvements to meet legislative requirements, Crown entities may also want to talk to their appointed auditor and the monitoring department. Where there has been no change in the underlying information then the presentation does not need to be updated unless there is a clear gain from the work involved in updating the SOI. In addition, there are gains from having continuity in outcome frameworks and measures over time. However, if Government outcomes change then the outcomes framework will have to change. Entities should try to avoid changing the main measures included each year for outcomes that are unchanged. Consistent measures support the telling of a performance story over time and the impact the entity is having. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 17
2 The content of the Statement of Intent The SOI is the entity s strategic document, and is a public document which is tabled in Parliament. There must always be a current SOI; and it must be updated and amended as required to ensure its currency. The Crown Entities Act 2004 (the Act) provides a clear underpinning for the preparation and presentation of an SOI for every statutory Crown entity (section 139). A Crown entity s SOI must: be consistent with any formal directions from Ministers where appropriate be consistent with Government policy where appropriate contain any particular information agreed with the Responsible Minister. The SOI must capture the thinking behind the Crown entity s strategic planning, and should outline the key elements of the plans themselves. It describes the main impacts, outcomes, and/or objectives which the entity is focused on, the goods and services (outputs) to be supplied, plans for managing key aspects of capability and financial performance. It tells the story of how the entity has determined the impacts, outcomes and/or objectives identified, its analysis of the environment in which it operates and is likely to operate, and a succinct explanation of the rationale where tradeoffs on outputs from a range of possible alternatives have been made. Describing recent events and achievements will help the Parliamentary reader understand the thinking about the results sought and the operating environment for the entity. To assist Parliament and other readers, Crown entities may wish to refer to supporting information from audits, evaluative activity, research or reviews to demonstrate the basis of confidence the entity has in the information presented and as necessary to alert readers to any uncertainty or other limitations in the information. Hyperlinks to online documents are encouraged where appropriate. More generally any detailed material that supports summarised material in the SOI can be referred to, as long as it is publically available e.g. legislation, Cabinet papers that have been released or policy frameworks on a department s and/or entity s website. The content requirements are divided into two broad sets of information: Medium term information Annual information 2.1 A medium-term set of information The medium-term information looks at a minimum of three financial years into the future longer if it suits an entity s planning requirements - and provides a succinct, strategicallyoriented description and explanation along with measures of what the Crown entity is trying to achieve in that period, how it intends to achieve this and measure the progress made, the challenges it will face and the implications for its capability. More detail about the information required under section 141 of the CEA is provided below in see Section 3. 18 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
2.2 An annual set of information The annual set of information for the first financial year of the SOI period provides more detailed performance information including forecast financial statements, a statement of forecast service performance, and other necessary measures or standards. More detail about the information required under section 142 of the CEA is provided below in Section 4. 2.3 Separating and linking the medium-term and annual information Crown entities may keep these two components separate so that the medium-term focus and coherence of the SOI is maintained and not dominated by the more detailed financial and non-financial information required for the first year of the period covered by the SOI. By having this separation, the SOI will clearly distinguish the information that will be audited at the end of the year. Clear linkages are needed between the two components, to assure Parliament that the entity s annual and medium-term plans are properly aligned, and that progress is being made in year one towards meeting the medium-term objectives in the SOI. In preparing SOIs, Crown entities should review their medium term intentions and align their annual performance intentions. Entities should pay particular attention to the performance information (for example: quality, quantity, timeliness, and cost). This information enables an entity to demonstrate the quality and impact of output performance, value for money, and improved performance over time. 2.4 Organisational coverage of the Statement of Intent The SOI is focussed on explaining the Crown entity s operating intentions and performance expectations. It encompasses the whole of the entity s business, including interests in other entities. The entity s business covers Crown funded activities and also third-party funded activities 11. 2.4.1 Subsidiaries Where a Crown entity has a controlling interest 12 in a subsidiary, the parent entity includes reporting on the subsidiary in its own SOI, and the subsidiary is not required to prepare a separate SOI or a separate annual report. A parent and its subsidiaries are defined as a Crown entity group. The Crown entity group includes Crown entity subsidiaries (as defined in section 7(1)(c) of the CEA) and any other entity that is a subsidiary for the purpose of any applicable financial reporting standard. For example, if a Crown entity has established a charitable trust which is controlled by the parent, the trust will be part of the Crown entity group for the purposes of the SOI. 11 12 See Section 4.2.1 for information on exemptions from reporting on statement of service performance information. As defined in s5-8 of the Companies Act 1993. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 19
2.4.2 Multi-parent subsidiaries Where several Crown entities jointly have a controlling interest in a company, but none of the parent Crown entities has a controlling interest in its own right, the multi-parent subsidiary is required to produce its own SOI. If the Minister of Finance is satisfied that it would be unduly onerous for a multi-parent subsidiary to produce an SOI or Annual Report, section 157 of the CEA allows him/her to exempt such a multi-parent subsidiary from the requirement to do so 13. This might arise, for example, if several Crown entities jointly owned a company that provided them laundry services, or a company that did not actually trade. The Minister of Finance may set conditions as part of any such exemption, for example that one or more of the parent Crown entities includes information in its own SOI about the subsidiary. Where a Crown entity jointly controlling a company believes that it may qualify for an exemption, it should contact its monitoring department in the first instance. 2.5 The period covered Statutory requirement Section 139(1) of the CEA:... for that financial year and at least the 2 following years. The SOI must cover a minimum of three financial years the forthcoming financial year plus the following two years. Some Crown entities will have longer planning horizons and should consider reflecting that in their SOI. Where an entity is to be disestablished or significantly restructured within the three year planning horizon, it may not be possible to sensibly plan beyond that restructuring date. In this situation, the Responsible Minister can agree to an entity providing an SOI for less than three financial years. In this situation the Responsible Minister must present an explanation to Parliament [section 149(2) of the CEA]. The Crown Entity Compliance Cost Review Group 14 recommended to the Minister of Finance in March 2010 that there be a true three year SOI for Crown entities. The Minister of Finance has asked Treasury to undertake further work to develop this idea. Treasury has work underway on how an SOI can last for three years without amendment when the current legislation requires that SOIs are tabled annually. Until Ministerial decisions are taken on that work, the current requirements remain Crown entities should produce an SOI annually and update annually those areas that need updating. 13 14 But not from the requirement to produce audited financial statements. The Report is available on the PSI website: https://psi.govt.nz/iai/default.aspx. This is not a public website. 20 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities
3 Medium-term information In accordance with section 141 of the Act, the SOI must set out a range of medium term information for the full period for which the SOI relates. 3.1 Measures as the basis of future reporting Statutory requirement Section 141(1)(f) of the CEA: the main financial and non-financial measures and standards by which the future performance of the Crown entity may be judged A Crown entity must report on how it intends to measure important aspects of its performance, and the measures for the full period of the SOI, and the standard of performance against those measures within a stated timeframe. These measures and standards should cover the impacts, outcomes or objectives 15 sought by the entity, the goods and services (the outputs) that the entity will deliver, the capability to deliver as well as any associated financial measures. These measures should tell the high level performance story, which provides the background for the annual information. Good measures and standards reveal the value for money of the entity s activities and provide the basis for Parliament and other users of the SOI to appreciate the efficiency and effectiveness of the entity s operations. The Performance Measurement: Advice and examples on how to develop effective frameworks guide can assist Crown entities to develop robust performance measurement and reporting frameworks 16. See also the Auditor General s comments http://www.oag.govt.nz/2008/performance-reporting/appendix2.htm. 3.2 The operating environment Statutory requirement Section 141(1)(a) of the CEA: key background information about the Crown entity and its operating environment This sets the scene for the story that the SOI tells, and describes important and relevant features of the operational and wider environment within which it operates. Information 15 16 Impacts and outcomes are defined in the Public Finance Act 1989 (PFA). Objectives are not defined in the PFA or the CEA. Objectives apply where no impacts or outcomes are readily identifiable. As this situation is not likely to be common and is most likely to arise with output expense appropriations for administrative and support services internal to the Crown (intra-government activities) and with some other appropriation types, particularly capital expenditure, so generally the frameworks are expected to feature impacts and outcomes, and the main measures of these. Performance Measurement: Advice and examples on how to develop effective frameworks http://www.ssc.govt.nz/performance-measurement. Preparing the Statement of Intent: Guidance and Requirements for Crown Entities 21
about trends in key indicators may be included. If there are significant risks that have to be managed by the entity, these should also be mentioned. Overall, the background information provides the context which helps the reader to understand the Crown entity s intentions, and in particular why and how the impacts, outcome and/or objectives that the entity is planning for have been selected. For example, if there are sector outcomes, and what other departments or Crown entities are contributing to them. 3.3 What the entity does Statutory requirement Section 141(1)(b) of the CEA: the nature and scope of the entity s functions and intended operations This section gives the reader a clear sense of the role and functions of the entity, the scope of its operations, and any limits or constraints established or agreed. Crown entities must operate within the scope of the functions and powers conferred on them by Parliament through legislation. This means they may face some constraints in terms of tradeoffs to the mix of interventions that they make. Nevertheless, many Crown entities have considerable discretion in what interventions they give priority to and how they go about their business. Some have the ability to undertake additional functions, typically if directed to do so by their Minister. It is not always necessary to quote the statutory framework that mandates the entity. Hyperlinks to online documents are encouraged where appropriate. 3.4 Impacts, outcomes and objectives Statutory requirement Section 141(1)(c): the specific impacts, outcome, or objectives that the entity seeks to achieve or contribute to and, if the entity is directed to give effect to or have regard to government policy directions, how the objectives referred to in the direction will be achieved The CEA seeks information on impacts, outcomes or objectives in specific terms. Very general, high-level and all-inclusive statements are not sufficient to meet this legislative requirement. A good SOI should be clear about the nature of the impacts, outcomes, and/or objectives over which the Crown entity has most direct influence. It will also specify how success can be judged within the chosen planning period (including a sense of relative priorities)17. Where the strategic plan reflected in the SOI reflects the entity s intention to contribute to impacts, outcomes and /or objectives across a sector, the agencies involved will need to 17 Outcomes and impacts are defined in the Public Finance Act 1989 and these definitions along with a definition of objectives are included in the Glossary. Further discussion of the concepts of impacts, outcomes and objectives is found in Guidance for Crown Entities: Planning and Managing for Results on http://www.ssc.govt.nz/planning-for-results-crownentities. 22 Preparing the Statement of Intent: Guidance and Requirements for Crown Entities