Government departments' HR costs up to twice as much as best practice

The BASS report says savings of between $58.9m and $88.7m are potentially achievable.

Government agencies spent $161.5 million on their human resources departments in 2012/13 but could halve that cost if they were performing to best practice international standards, according to the government's latest Administrative and Support Services Benchmark (BASS) report, issued by the Treasury.

Based on international benchmarks of prevailing HR costs per employee, the BASS report says savings of between $58.9 million and $88.7 million are potentially achievable.

The report also finds that the public sector is under-performing in keeping staff for more than a year, with the numbers of employees having to be replaced within a year of initial hire jumping in 2012/13, apparently driven by high turnover in large government agencies.

The international benchmark for retaining staff hired for more than 12 months is 92%, the report says, but the rate achieved in the 27 New Zealand government agencies surveyed was 71%. That was a 9.1%age point fall from an 80.1% retention rate the year before. For large agencies, the number of employees kept for more than a year after hiring fell to 65.4%, compared with 81.9% in the previous year.

The report's authors warn the figures may have been distorted by the creation of the Ministry of Business on July 1, 2012, which brought together staff from labour, immigration, and economic development agencies into a super-ministry.

The largest area of spending covered by the report is information and communications technology, which rose 14.9% over 2012/13 for total spending of $1.1 billion, or two-thirds of all spending on administrative and support services measured in the BASS, which was introduced in 2010 to help measure the efficiency of government operations.

"The trend of increasing ICT expenditure can be positive if it drives service improvements and takes non-ICT costs out of agencies," the report says. "However, agencies must be clearer about the business value of ICT investments and provide a better evidence base for benefits realisation after new technology is implemented."

ICT service levels, including time taken to fix problems and system availability, compared favourably with international benchmarks but evidence was lacking on the strategic capacity of the government's ICT workforce.

The report also found that just 5% of public sector employees involved in procuring goods and services had any formal procurement qualifications. Of the 27 agencies covered, 17 had no qualified procurement staff, "including three agencies with annual third party expenditure of $900 million to $1.8 billion."

It also found that well under half of all contracts worth more than $100,000 a year were subject to a business case or to annual re-evaluation, "which is well below the level of adherence to good practice pursued by Procurement Functional Leadership," the report says. One unidentified medium-sized agency had "a large number of contracts without plans or business cases."

In a foreword to the report, Finance Minister Bill English said the BASS "confirms that while government agencies are making good progress in a number of areas, there is room for further improvement in other areas."

"ICT remains a challenge," he said.

The report notes that, while the largest agencies tend to score best for efficiency, that is partly because smaller agencies bear fixed costs while having fewer service users. They also represent less than 4% of the total spending under scrutiny, so the largest savings are still found in the larger agencies.

For example, the report identified $47 million of available savings by reducing the variable results across agencies in the HR and finance functions alone.

However, 80% of those savings could be achieved "by moving the four large and medium agencies not performing at illustrative targets to those targets."