The Health portfolio aims to provide a world-class, sustainable health system that deliver high-quality care and treatment.

The Ministry of Health is the principal department which has 26 controlled entities. There are two independent agencies in the portfolio.

Commencement of the Greater Sydney Parklands Trust Act 2022

Effective 1 July 2022, the Greater Sydney Parklands Trust Act 2022 resulted in the transfer of Wistaria Gardens, including $9.4 million in land and buildings, from Western Sydney Local Health District (the district) to the Parramatta Park Trust.

This report is focused on agencies in the Health portfolio as at 30 June 2023. The Ministry of Health includes 26 controlled entities, including 15 local health districts. The entities comprising NSW Health and their financial data are at Appendix four.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all Health 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 Health entities below present 'adjusted budget information' in their financial statements:

• each of the 15 local health districts
• the two specialty networks
• the five Pillar agencies, which provide specialist services and support to frontline staff
• Health Administration Corporation.

These Health entities make disclosures in their financial statements that this budgetary information is not prepared on the same basis required within AASB 1055 ‘Budgetary Reporting’. Original budgeted information is not presented.

Our Independent Auditor's Report for each of the above entities includes an emphasis of matter paragraph, which does not modify the audit opinion, but draws attention to each of the portfolio agencies' disclosures about the basis of preparation of its budgetary information.

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 34 in 2021–22 to 62 in 2022–23. A monetary misstatement is an error in an amount recognised in the financial statements initially submitted for audit.

Reported corrected misstatements increased from nine in 2021–22 to 23 with a gross value of $481 million in 2022–23. Reported uncorrected misstatements increased from 25 in 2021–22 to 39 with a gross value of $184 million in 2022–23. The number of uncorrected misstatements increased because changes to the paid parental leave scheme were not recognised in individual NSW Health entities' financial statements. The Ministry of Health recognised the total liability at 30 June 2023 for the consolidated group. This is further explained in section 2.4 below.

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 23 corrected monetary misstatements, 15 had a gross value of greater than $5 million and related to the following:

Of the 39 uncorrected monetary misstatements, 15 had a gross value of greater than $5 million, which comprise the following:

Twenty-nine agencies were exempt 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. Twenty-nine portfolio agencies 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 reported in our Report on State Finances.

Early close procedures

Early close mandatory procedures were submitted on time

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.

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.

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

The following section describes the range of accounting issues that were considered and concluded on through the course of the 2022–23 financial statement audits. Some of these are new matters, whilst others were a re-assessment of previously reported matters to ensure that the accounting treatment remained applicable. Not all matters necessarily resulted in a monetary adjustment but where this has occurred, these have been disclosed below.

Recognition of a $117 million liability for Paid Parental Leave

On 27 September 2022 the former Department of Premier and Cabinet issued a determination that provided for a change to the paid parental leave scheme for all NSW Government employees with children born on or after 1 October 2022. This change expanded on previous parental leave entitlements and provided greater access to paid parental leave to eligible public sector employees, regardless of gender. These changes created a new legal obligation for agencies, which needed to be assessed and recorded within their financial statements.

Agencies within the Health portfolio had not evaluated the change to the paid parental scheme for any financial statement related impacts prior to financial statements being submitted for audit. Given the accumulating nature of the entitlement, the Ministry of Health recognised a $117 million liability for the consolidated entity's total estimated liability at 30 June 2023. Individual health entities elected not to record the liability in their financial statements. Agencies concluded that the effect of not correcting the misstatements was not material individually, or in aggregate to their financial statements.

National Health Reform Agreement (NHRA)

Revenue under the NHRA consists of Activity Based Funding, Public Health Funding and Block Funding. Activity Based Funding revenue is recognised when the hospital services are performed, while Public Health and Block funding are recognised when the funds are received as there are no specific performance obligations required to be met. NHRA revenue recognised in 2022–23 was $7.5 billion (2021–22: $7.1 billion).

The 2022 Auditor-General 's Report to Parliament recommended the Ministry continue to undertake detailed reviews of all Australian Government funding streams, to minimise the risk of future material misstatements in the financial statements.

The Ministry completed its reviews, which the audit team reviewed, and no significant misstatements were noted. The recommendation is now closed.

COVID-19 inventory impairment assessment

As at 30 June 2023, HealthShare NSW reported COVID-19 related inventory of $162.1 million (30 June 2022: $571.2 million), of which the value of Rapid Antigen Tests (RATs) was $113.8 million (30 June 2022: $313.7 million). There were price reductions totalling $61.3 million impacting inventory lines. HealthShare NSW also recognised net impairments of $88.8 million because it does not expect to use those inventories before they expire.

The 2022 Auditor-General 's Report to Parliament recommended management consider recent developments and ensure consumption patterns used in all impairment assessments are supported by relevant data and plans.

In 2022–23 HealthShare NSW revised the impairment model and ensured the assessment was supported by relevant data and plans. The Audit Office acknowledges the improvements made in response to our 2022 recommendation and the recommendation is now closed.

COVID-19 vaccination inventories

During the COVID-19 pandemic, the Commonwealth procured and distributed COVID-19 vaccines to all states and territories for nil consideration. Because the Commonwealth had entered into non-disclosure agreements with vaccine suppliers, management used alternate sources of information to estimate the fair value of its inventories for financial reporting purposes.

COVID-19 vaccine inventories reduced as mass vaccination clinics were progressively closed towards the end of the 2021–22 financial year and early into the 2022–23 financial year. COVID-19 vaccines are now primarily delivered through primary health providers (for example, GPs and Pharmacists). These networks are funded by the Commonwealth through the Medicare Benefits Scheme (MBS).

Hotel Quarantine (HQ)

The recoverability of outstanding hotel quarantine debts has previously been reported as a high-risk matter.

At 30 June 2022, the outstanding debtors' balance was reported at $58.1 million, with an expected credit loss provision of $38.2 million (65.7% of the debt owed). The majority of the provision related to overseas passengers for whom there was no readily available contact information, and domestic travellers who had not entered a payment plan with Revenue NSW.

The 2022 Auditor-General 's Report to Parliament recommended management develop a tailored assessment methodology to estimate likely recoverability, including a review of historic rates of collection, and work with Revenue NSW to understand the potential for successful recovery actions for domestic debtors.

Management has updated its expected credit loss provision for nearly all of the remaining debtors' balance. At 30 June 2023, the gross HQ debtors balance was $45.8 million. The provision was $43.8 million, representing 95.6% of the remaining uncollected gross HQ receivables balance.

No significant misstatements were identified and this recommendation is now closed.

Correction of permanent part time long service leave provision

In 2022–23, NSW Health identified an error regarding the recognition and calculation of long service leave provisions for employees with ten or more years of service who had periods of part time service within their first ten years of service.

Upon reaching ten years of service, employees are entitled to an accelerated rate of accrual. This had not been recognised correctly where there were periods of part time service within the first ten years of service. Each local health entity recognised this as a corrected prior period error in their respective sets of financial statements.

The overall impact of this issue was a retrospective adjustment of $16.5 million increasing the opening balance of the long service provision to the consolidated financial statements.

Comprehensive revaluation of the Graythwaite Rehabilitation Facility

The revaluation of the Graythwaite Rehabilitation Facility identified an error in the square meterage for the facility, which is a valuation input for financial reporting purposes.

The overall impact of this issue was a retrospective adjustment of $4.7 million increasing the opening balance of property, plant and equipment.

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.

The number of findings reported to management has increased with 30% of all issues reported being repeat matters

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 111 findings raised across the portfolio (67 in 2021–22). The increase in findings was largely due to deficiencies in controls over time records and user access reviews, and accounting for the new paid parental leave provision. Thirty per cent of all issues were repeat issues (48% in 2021–22). Of the 33 repeated issues reported this year, one issue was rated high risk and 16 issues were rated as moderate risk.

A delay in implementing audit recommendations increases the risk of error 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. Ineffective 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. For these reasons, it is important that management address repeat issues as soon as possible.

2022–23 audits identified one high-risk finding, which was raised in previous years and remains outstanding

A high risk repeat finding was reported at the Ministry of Health and was applicable to the consolidated entity.

Two high-risk findings reported in the management letters in 2021–22 were remediated and closed.

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

Internal control qualification on HealthShare NSW's controls

The 2022–23 Independent Auditor's Assurance Report on the design and operation of controls as documented by HealthShare NSW (HSNSW) was modified. HSNSW acts as a service provider to other entities within the health portfolio. The absence of an independent review of manual changes made to critical payroll data fields was identified at the Westmead Service Centre.

Except for this matter, in all material respects the controls documented by HSNSW operated effectively throughout the year.

A qualified audit opinion was issued for the compliance audit of the Ministry's Annual Prudential Compliance Statement

The Ministry operated seven Residential Aged Care Facilities (RACF) in New South Wales during 2022–23. The Ministry is required to comply with the Fees and Payments Principles 2014 (No. 2) (Fees and Payments Principles) when entering into agreements with, and managing payments of, aged care recipients. We reported 20 instances of non-compliance (2021–22: 20), 16 of which were material relating to five of the 20 prudential requirements at six of the seven RACFs in 2022–23. We observed:

• 14 instances where refunds of recipient bond and deposit balances within the required time frames under sections 65 to 69 of the Fees and Payments Principles did not occur.
• 2 instances where the correct levels of liquidity were incorrectly calculated and reported.
• 2 instances where interest was miscalculated resulting in underpayments being made on refunds of deposits.
• 1 written accommodation agreement did not outline the maximum accommodation amount payable before the individual entered the RACF.
• 1 written accommodation agreement was not executed with a care recipient within 28 days of the individual entering the RACF.