Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes occur when the government reorganises these structures and functions and those changes are usually given effect by Administrative Orders.

On 21 December 2021, the Administrative Arrangements (Second Perrottet Ministry–Transitional) Order 2021 created the Department of Enterprise, Investment and Trade. These changes had a significant administrative impact on the cluster agencies. The MoG change resulted in the transfer of $1.01 billion and $4.3 million net assets from Department of Premier and Cabinet (DPC) and Department of Customer Service (DCS) respectively to the newly created Department of Enterprise, Investment and Trade on 1 April 2022. The Department of Enterprise, Investment and Trade is the principal agency of the cluster.

The department is transitioning its governance arrangements

During 2021–22, the department set up a governance branch, which oversees a number of areas including ethics, audit and risk management. The department had financial delegation instruments in place and its own code of ethics and conduct, conflict of interest, and fraud and corruption policies.

The department advised they were in the process of establishing:

• an internal audit function
• risk management framework
• legislative compliance framework including a centralised legislative compliance register
• business continuity and disaster recovery plans.

In the absence of the above, the department continued to operate under the relevant pre-MoG entities' frameworks and policies during 2021–22. The department did not have an Audit and Risk Committee (ARC) arrangement in place until after 30 June 2022. Therefore, for 2021–22, cluster agencies that rely on a shared ARC arrangement continued to rely on the pre-MoG arrangements with its previous cluster lead agency for financial reporting purposes only. For the department, it did not have an ARC to endorse its financial statements prior to submission to NSW Treasury and the Audit Office of New South Wales on 22 August 2022. The ARC was established in September 2022 which allowed for the endorsement of the financial statements prior to signing by the secretary.

The department is heavily reliant on other agencies for systems and corporate services support

The department has been heavily reliant on other agencies for systems and corporate services support:

• DCS' systems and corporate services to record all financial transactions relating to the hospitality and racing group (previously known as liquor, gaming and racing group)
• Create NSW was transferred from DPC however it relies on the Department and Planning and Environment's (DPE) systems and corporate services to record its financial transactions
• Investment NSW to provide all other corporate services other than those noted above.

Due to the timing of the MoG changes, the department shared the same general ledger company codes and bank accounts with DCS for the hospitality and racing group for the period 1 April 2022 to 30 June 2022. This required significant manual workarounds to reconstruct the department's financial statements. The department also undertook extensive investigative work to reconcile the transaction listings to the financial statements. The additional manual intervention to extract, allocate and compile information from the DCS system may increase the risk of data corruption and errors. The department advised for the financial year 2022–23, the department will transition onto its own financial reporting system and will no longer rely on DCS' corporate services support.

In respect to Create NSW, the department will continue to receive corporate services support from DPE until February/March 2023 when it is expected to onboard Create NSW onto the department's financial reporting system.

The department did not have a Chief Financial Officer until 20 June 2022

The department was established in December 2021, and an interim Chief Financial Officer (CFO) was appointed on 20 June 2022.

In the absence of a CFO, the department engaged a professional service firm to assist with setting up the cluster finance function, initially for three months (February to May 2022) which was then extended until August 2022.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all completed cluster agencies' 30 June 2022 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.

Two audits are ongoing:

• Responsible Gambling Fund
• Jobs for NSW Fund.

In our 'Premier and Cabinet 2021' report, we reported that the 2020–21 Jobs for NSW Fund (Jobs Fund) audit was ongoing with draft financial statements provided on 25 October 2021. Following delays in finalising the 2020–21 financial report, and further issues identified during the audit, the 2020–21 audit was finalised on 16 December 2022.

Jobs for NSW Fund's 30 June 2021 Independent Auditor’s Report includes an 'Other Matter' and 'Emphasis of Matter' paragraph

While not modifying the audit opinion, we included:

• an 'Other Matter' paragraph to reflect the non-compliance with the Jobs for NSW Act 2015 and Government Sector Finance Act 2018. Refer to ‘audit observations’ below
• an 'Emphasis of Matter' paragraph to draw attention to Note 2 of the financial report which describes the basis of accounting. The financial report has been prepared for the purpose of fulfilling the Jobs Fund's financial reporting responsibilities requested by the Treasurer's delegate.

The Australian Institute of Asian Culture and Visual Arts Limited's Independent Auditor’s Report includes an 'Emphasis of Matter'

We included an ‘Emphasis of Matter’ paragraph in the Independent Auditor’s Report for the Australian Institute of Asian Culture and Visual Arts Limited's 30 June 2022 financial statements. This was to draw users' attention to management’s disclosures that the entity's financial statements for the year ended 30 June 2022 were prepared on a non-going concern basis following cessation of its operations and resolution by the directors in October 2021 to deregister the entity.

The number of identified monetary misstatements decreased in 2021–22

The number of monetary misstatements identified during the audits of cluster agencies' financial statements decreased from 46 in 2020–21 to 40 in 2021–22. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit.

Reported corrected misstatements decreased from 39 in 2020–21 to 31 with a gross value of $186.2 million in 2021–22. Reported uncorrected misstatements increased from seven to nine, from 2020–21 to 2021–22, with a gross value of $19.4 million in 2021–22.

The table below shows the number and quantum of monetary misstatements for the past two years.

Refer to Appendix one for details of corrected and uncorrected monetary misstatements by agency.

Of the 31 corrected monetary misstatements, seven had a gross value of greater than $5 million and related to the following:

Of the nine uncorrected monetary misstatements, one had a gross value of greater than $5 million:

Eight agencies were exempted from financial reporting in 2021–22

Part 3A Division 2 of the Government Sector Finance Regulation 2018 (GSF Regulation) prescribes certain kinds of GSF agencies not to be a reporting GSF agency. For 2021–22, the following cluster agencies have assessed and determined they met the reporting exemption criteria under the GSF Regulation, and therefore were not required to prepare annual financial statements:

In 2020–21, the above staff agencies were exempted from financial reporting under Part 3A Division 2 of the GSF Regulation.

Early close procedures

Early close mandatory procedures were submitted on time with one exception

NSW Treasury introduced early close procedures to improve the quality and timeliness of year-end financial statements. In April 2022, NSW Treasury reissued Treasurer’s Direction TD19-02 ‘Mandatory Early Close as at 31 March each year’ (TD19-02) and released Treasury Policy and Guidelines TPG22-11 ‘Agency Direction for the 2021–22 Mandatory Early Close’. These pronouncements require the GSF agencies listed in Appendix A of TD19-02 to perform the mandatory early close procedures and provide the outcomes to the audit team by 27 April 2022. The 17 mandatory procedures are listed in Appendix two.

There were 13 cluster agencies required by NSW Treasury to perform early close procedures. All but one cluster agency met the statutory deadline for submitting their 2021–22 early close financial statements and other mandatory procedures.

Australian Museum Trust submitted their 2021–22 early close financial statements and other mandatory procedures to NSW Treasury on time however its submission to the Audit Office of New South Wales was two days past the due date.

The table below summarises the 13 agencies’ completion of the 17 mandatory early close procedures noting that some procedures are not relevant to all agencies. The mandatory early close procedures and the details of the non-applicable procedures are listed in Appendix two.

Agencies need to improve their completion of early close procedures

Seven cluster agencies did not complete all mandatory early close procedures. Some procedures were not performed adequately to address the requirements of the Treasurer's Directions. 

The review of agencies' early close procedures found more work needs to be done to:

• address prior year Management Letter and Engagement Closing Report issues in a timely manner
• appropriately document or perform a significant judgements and assumptions assessment
• ensure the outcomes of comprehensive revaluation and fair value assessment of the property, plant and equipment are properly recorded in the fixed asset register and financial statements.

Year-end financial reporting

NSW Treasury required all agencies to submit their financial statements by 1 August 2022

In June 2022, NSW Treasury issued a suite of Treasurer's Directions and Treasury Policy and Guidelines for 2021–22 financial reporting requirements and timetables:

• Treasurer's Direction TD21-02 'Mandatory Annual Returns to Treasury' (TD21-02) and Treasury Policy and Guidelines TPG22-16 'Agency Direction for the 2021–22 Mandatory Annual Returns to Treasury' require agencies listed in the Appendix A of TD21-02 to submit their 2021–22 financial statements to both NSW Treasury and the Audit Office by 1 August 2022
• Treasury Policy and Guidelines TPG22-17 'Agency guidelines for the 2021–22 Mandatory Annual Returns to Treasury for NSW public sector agencies that are not included in TD21-02' requires NSW public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2021–22 financial statements to NSW Treasury by 1 August 2022
• Treasurer's Direction TD21-03 'Submission of Annual GSF Financial Statements to the Auditor-General' requires reporting GSF agencies that are not listed in Appendix A of TD21-02 to submit their annual financial statements for audit within six weeks after the year-end.

The following agency obtained NSW Treasury's approval to extend submission of their 30 June 2022 financial statements:

Financial statements were submitted on time for all cluster agencies

Cluster agencies met the reporting deadlines for submitting their 2021–22 year-end financial statements.

The table in Appendix three shows the timeliness of the year-end financial reporting for cluster agencies.

Prior period error corrected retrospectively

Jobs for NSW Fund did not record guarantee fee revenue in accordance with its accounting policy

In prior financial years, the Jobs Fund did not record guarantee fee revenue in accordance with the requirements of its accounting policy, which is based on accounting standards requirements.

In 2020–21 the Jobs Fund reassessed the guarantee fee revenue across its portfolio, and have restated prior periods to reflect the guarantee fee revenue and corresponding receivables impairment included in expected credit losses.

As the prior period error occurred before the earliest prior period presented (2019–20), the Jobs Fund have restated the opening balances of assets, liabilities and equity for the earliest prior period presented (1 July 2019). The amounts are as follows:

• as at 1 July 2019, increase trade receivables and the expected credit loss (ECL) provision by $136,000 and $141,000 respectively. The increase to the provision is greater than trade receivables (debtors) to reflect the impairment of guarantee fee revenue which was recognised by the Jobs Fund
• as at 30 June 2020, increase trade receivables (debtors) and the ECL provision by $180,000 and $105,000 respectively.

The Jobs Fund transferred from the Treasury into the then newly created agency, Investment NSW, from 29 March 2021 through Administrative Arrangements (Administrative Changes–Public Service Agencies) Order 2021. The Treasury had previously managed the Jobs Fund from 1 July 2019, after it had transferred from the Department of Industry through Administrative Arrangements (Administrative Changes–Public Service Agencies) Order 2019.

Intra-government property leases managed by Property NSW

The changes in office accommodation arrangement with Property NSW resulted in derecognition of right-of-use assets and lease liabilities

Property NSW (PNSW) is responsible for managing most of the state government agencies leased real estate property portfolio. During 2021–22, PNSW made some changes to its intra-government lease arrangements, including rewriting the standard Client Acceptance Letter (CAL) to include a 'Relocation and substitution right' clause. This clause allows PNSW to relocate agencies to other locations and remove their right to control the use of the identified accommodations. As a result, the new CALs no longer constitute a lease under AASB 16 'Leases'. The changes became effective from 30 June 2022.

Three cluster agencies accepted the changes to their office accommodation arrangements with PNSW. This has resulted in:

• the derecognition of $24.8 million of right-of-use (ROU) assets
• the derecognition of $26.7 million of lease liabilities
• $1.9 million of other gains.

Going forward, these agencies will recognise the office accommodation payments as expenses in the Statement of Comprehensive Income. Agencies will continue to recognise the fit-outs and makegood provisions.

There was one cluster agency that did not accept the changes to the office accommodation arrangement with PNSW as the agency determined it would be difficult to find a suitable, fit-for-purpose substitute due to the specialised nature of its accommodation.

Agencies have included appropriate disclosures in their year-end financial statements, detailing the accounting policies, significant judgments made and impact of the derecognition of the ROU assets and lease liabilities at 30 June 2022.

The table below details our specific audit coverage and response over key areas of financial statements risks that had the potential to impact the financial statements of significant cluster agencies.

Department of Enterprise, Investment and Trade

The new Department of Enterprise, Investment and Trade (the department) was established in December 2021 to drive the NSW Government’s commitment to economic transformation and thriving communities.

Art Gallery of New South Wales Trust

The Art Gallery of New South Wales Trust (the trust) is one of Australia’s flagship art museums and the state’s leading visual arts institution. The trust serves as a centre of excellence for the collection, preservation, documentation, interpretation and display of Australian and international art, and a forum of scholarship, art education and the exchange of ideas.

Investment NSW

Investment NSW is an agency created on 29 March 2021 by bringing together all of the NSW Government’s economic development and attraction activities into the one place, allowing the entity to leverage the State’s successful COVID-19 response to drive local and international investment and create jobs for New South Wales.

Sydney Opera House Trust

Sydney Opera House Trust operates as one of the State’s cultural institutions. It provides a broad range of cultural, tourism, community and commercial experiences to people from Sydney, New South Wales, Australia and around the world.

Venues NSW

Venues NSW is a statutory authority established under the Sporting Venues Authorities Amendment (Venues NSW) Act 2020. It owns, coordinates and promotes a portfolio of publicly owned sports and entertainment venues in New South Wales. It raises revenue through commercial activities such as hiring venues to sports and entertainment organisations, event ticketing, hospitality and catering sales and through advertising, leasing, membership naming rights and sponsorship arrangements.

Western Parkland City Authority

Western Parkland City Authority is the NSW Government agency responsible for delivering, coordinating and attracting investment to the Western Parkland City.

Control deficiencies were identified in the department's IT shared service providers

At 30 June 2022, the department used SAP DPE and GovConnect systems which are maintained by DPE and DCS respectively. Both systems had control deficiencies which were reported in the Audit Office's reports to Parliament as follows:

• the 'Planning and Environment 2022' report highlights high-risk findings in SAP DPE relating to:
  • user access to HR and payroll management
  • comprehensive SAP user access review
• the 'Customer Service 2022' report highlights high-risk findings, in particularly, a qualification over DCS' Information Technology General Controls (ITGC) internal control assurance report due to ineffective controls to ensure all access to systems, application and data is authorised and appropriate to the user's job responsibilities.

The number of findings reported to management has decreased, and 30% were repeat issues

Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.

In 2021–22, there were 103 findings raised across the cluster (108 in 2020–21). Thirty per cent of all issues were repeat issues (26% in 2020–21).

The most common repeat issues related to IT notably weaknesses in user access and privileged user activity, and outdated policies and procedures. There were also common repeat issues related to payroll process controls, accounting for property, plant and equipment notably fair value assessment and valuation, and collection assets.

A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.

In total, six high-risk findings were identified. Two high-risk finding was reported in 2021–22 whilst four high-risk findings were related to the audit of Jobs for NSW Fund's 30 June 2021 financial report.

The table below describes the 2021–22 common issues identified across the cluster by category and risk rating.