Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions that are given effect by administrative orders.

Administrative Orders and amendments to state legislation resulted in a number of changes to the Enterprise, Investment and Trade portfolio in 2022–23:

This report is focused on agencies in the Enterprise, Investment and Trade portfolio as at 30 June 2023.

Audit opinions

Unqualified audit opinions were issued on all completed agencies’ financial statements

Unqualified audit opinions were issued on all completed portfolio agencies’ 30 June 2023 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.

The Jobs for NSW Fund (Jobs Fund) audit for year ended 30 June 2023 is ongoing.

In our Enterprise, Investment and Trade 2022 report, we reported that Jobs Fund audit for the year ended 30 June 2022 was ongoing. The audit has since been completed and the independent auditor’s report was signed on 10 October 2023.

Jobs for NSW Fund’s 30 June 2022 Independent Auditor’s Report includes an ‘Other Matter’ and an ‘Emphasis of Matter’ paragraph

Similar to 2020–21, while not modifying the audit opinion, we included:

• an ‘other matter’ paragraph to reflect the non-compliance with the Jobs for NSW Act 2015
• 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 number of identified monetary misstatements increased in 2022–23

The number of monetary misstatements identified during the audits of portfolio agencies’ financial statements increased from 25 in 2021–22 to 28 in 2022–23. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit. In our view, misstatements should be corrected. They are reported to management for this purpose. Management has determined not to correct some errors because they are not material, either individually or in aggregate. These are reported in this report as ‘uncorrected misstatements’.

Reported corrected misstatements remained consistent at 19 in 2021–22 and 2022–23 with a gross value of $150.6 million in 2022–23 ($86.4 million in 2021–22). Reported uncorrected misstatements increased from six in 2021–22 to nine with a gross value of $3 million in 2022–23.

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

Of the nine uncorrected monetary misstatements, none had a gross value of greater than $5 million.

Eleven agencies were exempted from financial reporting in 2022–23

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 2022–23, the following portfolio 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:

Matters around the effectiveness of the exemptions framework will be included in our Report on State Finances.

Financial statements were not prepared for the Responsible Gambling Fund for the year ended 30 June 2023 (Special Deposits Account)

The new financial reporting provisions in section 7.8 of the GSF Act commenced on 1 July 2023 effective for the 2022–23 financial year. These provisions require responsible managers of Special Deposits Accounts (SDA) to prepare financial reports for each SDA account in accordance with the Treasurer’s Directions and give those reports to the Auditor-General to audit unless they are exempted from reporting under a Treasurer’s Direction.

For these reasons, the Responsible Gambling Fund, an SDA established under the Casino Control Act 1992, is required to prepare financial statements for the year ended 30 June 2023 unless NSW Treasury releases a Treasurer’s Direction under section 7.8 of the GSF Act that will exempt the Fund from financial reporting requirements.

Historically, the Responsible Gambling Fund have prepared financial statements until 2022–23. For 2022–23, the Fund is disclosed as an administered item within the Department of Enterprise, Investment and Trade’s 2022–23 financial statements.

Early close procedures

NSW Treasury introduced early close procedures to improve the quality and timeliness of year-end financial statements. In February 2023, NSW Treasury reissued Treasurer’s Direction TD19-02 ‘Mandatory Early Close as at 31 March each year’ (TD19-02) and reissued Treasury Policy and Guidelines TPG22-11 ‘Agency Direction for the 2022–23 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 2023. The 17 mandatory procedures are listed in Appendix two.

Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.

Agencies need to improve their completion of early close procedures

The following portfolio agencies did not complete all mandatory early close procedures:

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

• complete comprehensive revaluation and fair value assessment of property, plant and equipment in a timely manner
• appropriately document and perform an assessment over the key significant judgements and assumptions.

Year-end financial reporting

NSW Treasury required all agencies to submit their financial statements by 1 August 2023

In June 2023, NSW Treasury issued a suite of Treasurer’s Directions and Treasury Policy and Guidelines for 2022–23 financial reporting requirements and timetables:

• Treasurer’s Direction TD21-02 ‘Mandatory Annual Returns to Treasury’ (TD21-02) and Treasury Policy and Guidelines TPG23-13 ‘Agency Direction for the 2022–23 Mandatory Annual Returns to Treasury’ require agencies listed in the Appendix A of TD21-02 to submit their 2022–23 financial statements to both NSW Treasury and the Audit Office by 1 August 2023.
• Treasury Policy and Guidelines TPG23-14 ‘Agency guidelines for the 2022–23 Mandatory Annual Returns to Treasury for New South Wales public sector agencies that are not included in TD21-02’ requires New South Wales public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2022–23 financial statements to NSW Treasury by 1 August 2023.

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.

Financial statements were submitted on time for all portfolio agencies

Portfolio agencies met the reporting deadlines for submitting their 2022–23 year-end financial statements.

The Government Sector Audit Act 1983 does not specify the statutory deadline for issuing the audit reports. At the date of this report, the Jobs for NSW Fund audit for year ended 30 June 2023 is ongoing.

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

Asset accounting for completed capital projects

Significant capital projects were completed and opened to the public during 2022–23

During 2022–23, there were a number of significant capital projects within the portfolio where construction was completed and the site was opened to the public. They were:

Sydney Modern by the Art Gallery of New South Wales Trust

The Sydney Modern project was completed and commenced operations on 3 December 2022. The total cost of the project was $344 million. Of this total cost, $244 million was funded by the State Government whilst $100 million was funded through sponsorships from private donors. At 30 June 2023, the Art Gallery of New South Wales Trust have received $99.2 million of its sponsorships towards the Sydney Modern project. The remaining $800,000 was received by 30 September 2023.

For financial reporting purposes, the Art Gallery of New South Wales Trust engaged an external valuer to undertake a comprehensive valuation of the Sydney Modern building to ensure that the carrying amount of the asset is at fair value. Due to the specialised nature, the building was valued with reference to its current replacement cost.

The Art Gallery of New South Wales Trust recorded a revaluation increment of $17.2 million at 30 June 2023 to reflect the changes to fair value of the building.

Walsh Bay Arts Precinct by the Department of Enterprise, Investment and Trade

The Walsh Bay Arts Precinct (WBAP) was completed and officially opened to the public in 2022. Situated at Dawes Point, Sydney, WBAP comprises of Pier 2/3 and Wharf 4/5.

During 2022–23, the department engaged an external valuer to undertake a comprehensive revaluation of the WBAP. Due to their nature, the fair value of these specialised assets is determined with reference to their current replacement cost. The value of land, which is not a specialised asset, is determined using market prices and adjusted for any restrictions that apply to that land. The department recognised:

• $2.5 million revaluation increment to Wharf 4/5 and Pier 2/3 land
• $2.8 million revaluation increment to Wharf 4/5 and Pier 2/3 buildings.

Our audit identified a number of errors which were corrected by management. These are reported in section 2.2 of the report.

Opera House Concert Hall Renewal by the Sydney Opera House Trust

The Opera House Concert Hall renewal works commenced in February 2020 which resulted in the closure of the hall until its reopening in July 2022. At 30 June 2023, the spend to date on the renewal was $183.8 million.

In 2022–23, the Sydney Opera House Trust engaged an external valuer and comprehensively revalued its building and building services assets which includes the concert hall. As a result, a total revaluation increment of $224 million was recorded at 30 June 2023 to reflect the changes to fair value. This brings the fair value of its building and building services assets to $2.9 billion. Due to the specialised nature, these assets were revalued with reference to their reproduction cost.

The reproduction cost approach is a valuation technique that aims to reflect the estimated cost required to reproduce a replica of an asset to the extent possible, using the same specifications, materials and construction techniques as the asset being valued. Reproduction costs is appropriate in this circumstance as the utility offered by the Opera House can only be provided by a replica rather than a modern equivalent. This is in accordance with Australian Accounting Standards and NSW Treasury financial reporting requirements.

Jobs Plus Program

The department overstated grants relating to the Jobs Plus Program

The department overstated grants relating to the Jobs Plus Program by $48.5 million as the criteria to recognise the grant as an expense was not met at 30 June 2023. Exceptions included:

• A number of businesses that entered into agreements with the department have not lodged claims for reimbursement by 30 June 2023 for milestones due by 30 June 2023.
• For businesses who lodged their claim for reimbursement, there were significant delays in the department’s assessment process with some claims remaining unpaid up to ten months after the department received the claim.
• The department does not have a robust assessment or monitoring process in place at 30 June 2023 to understand whether the businesses had incurred costs which would qualify for reimbursement.

The department corrected the error in the 30 June 2023 financial statements.

This matter has been included as a high-risk finding in the management letter as there is a risk that:

• the accounting for the program may continue to be materially misstated in the financial statements if the department does not develop and implement a robust assessment and monitoring process to support the provision that it recognises
• the program may not achieve its intended outcomes if payments and assessment decisions are delayed. Timely assessment of grant applications is crucial to ensure that the department is administering the program effectively and efficiently.

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 portfolio agencies.

Department of Enterprise, Investment and Trade

The 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.

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.

The number of findings reported to management has decreased, and 46% 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 2022–23, there were 44 findings raised across the portfolio (65 in 2021–22). Forty-six per cent of all issues were repeat issues (34% in 2021–22).

The most common repeat issues related to accounting for property, plant and equipment and agencies having policies either past its scheduled review date or the lack of policies for certain key business processes.

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.

2022–23 audits identified two high-risk findings

High-risk findings were reported at the following portfolio agencies.

The table below describes the common issues identified across the portfolio by category and risk rating.

The number of moderate risk findings decreased from prior year

Twenty moderate risk findings were reported in 2022–23, representing a 39% decrease from 2021–22. Of these, ten were repeat findings, and ten were new issues.

Moderate risk findings mainly related to:

• quality and timeliness of the financial reporting process
• property, plant and equipment such as errors in asset register information, accounting for works-in-progress and valuation of collection assets
• variances and inconsistencies in reconciliations of key account balances and inter-entity confirmations.