Machinery of government changes

Report highlights

What the report is about

The term ‘machinery of government’ refers to the way government functions and responsibilities are organised.

The decision to make machinery of government changes is made by the Premier. Changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day.

Larger machinery of government changes typically occur after an election or a change of Premier.

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet (DPC) and NSW Treasury in overseeing machinery of government changes.

What we found

The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of benefits has not been monitored. The costs of the changes were not tracked or reported.

DPC and NSW Treasury provided principles to guide implementation but did not require departments to collect or report information about the benefits or costs of the changes.

The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled.

Major implementation challenges included negotiation about the allocation of corporate support staff and the integration of complex corporate and ICT systems.

What we recommended

DPC and NSW Treasury should:

  • consolidate existing guidance on machinery of government changes into a single document that is available to all departments and agencies
  • provide guidance for departments and agencies to use when negotiating corporate services staff transfers as a part of machinery of government changes, including a standard rate for calculating corporate services requirements
  • progress work to develop and implement common processes and systems for corporate services in order to support more efficient movement of staff between departments and agencies.

Fast facts

  • $23.7m is the estimated minimum direct cost of the 2019 DPIE changes to date, noting additional ICT costs will be incurred
  • $4.0m is the estimated minimum direct cost of the 2020 DRNSW changes, with an estimated $2.7 million ongoing annual cost
  • 40+ NSW Government entities affected by the 2019 machinery of government changes

Executive summary

The term ‘machinery of government’ refers to the way government functions and responsibilities are allocated and structured across government departments and agencies. A machinery of government change is the reorganisation of these structures. This can involve establishing, merging or abolishing departments and agencies and transferring functions and responsibilities from one department or agency to another.

The decision to make machinery of government changes is made by the Premier. These changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day. Machinery of government changes are formally set out in Administrative Arrangements Orders, which are prepared by the Department of Premier and Cabinet, as instructed by the Premier, and issued as legislative instruments under the Constitution Act 1902.

The heads of agencies subject to machinery of government changes are responsible for implementing them. For more complex changes, central agencies are also involved in providing guidance and monitoring progress.

The NSW Government announced major machinery of government changes after the 2019 state government election. These changes took place between April and June 2019 and involved abolishing five departments (Industry; Planning and Environment; Family and Community Services; Justice; and Finance, Services and Innovation) and creating three new departments (Planning, Industry and Environment; Communities and Justice; and Customer Service). This also resulted in changes to the 'clusters' associated with departments. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status. Most other departments that were not abolished had some functions added or removed as a part of these machinery of government changes. For example, the functions relating to regional policy and service delivery in the Department of Premier and Cabinet were moved to the new Department of Planning, Industry and Environment.

Our Report on State Finances 2019, tabled in October 2019, outlined these changes and identified several issues that can arise from machinery of government changes if risks are not identified early and properly managed. These include: challenges measuring the costs and benefits of machinery of government changes; disruption to services due to unclear roles and responsibilities; and disruption to control environments due to staff, system and process changes.

In April 2020, the Department of Regional NSW was created in a separate machinery of government change. This involved moving functions and agencies related to regional policy and service delivery from the Department of Planning, Industry and Environment into a standalone department.

This audit assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet and NSW Treasury in overseeing machinery of government changes. The audit investigated whether:

  • DPIE and DRNSW have integrated new responsibilities and functions in an effective and timely manner
  • DPIE and DRNSW can demonstrate the costs of the machinery of government changes
  • The machinery of government changes have achieved or are achieving intended outcomes and benefits.
Conclusion

It is unclear whether the benefits of the machinery of government changes that created the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) outweigh the costs. The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of directly attributable benefits has not been monitored. The costs of the changes were not tracked or reported. The benefits and costs of the machinery of government changes were not tracked because the Department of Premier and Cabinet (DPC) and NSW Treasury did not require departments to collect or report this information. The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled. This was achieved despite short timelines and no additional budget allocation for the implementation of the changes.

The rationale for establishing DPIE was not documented at the time of the 2019 machinery of government changes and the anticipated benefits of the change were not defined by the government or the department. For DRNSW, the government’s stated purpose was to provide better representation and support for regional areas, but no prior analysis was conducted to quantify any problems or set targets for improvement. Both departments reported some anecdotal benefits linked to the machinery of government changes. However, improvements in these areas are difficult to attribute because neither department set specific measures or targets to align with these intended benefits. Since the machinery of government changes were completed, limited data has been gathered to allow comparisons of performance before and after the changes.

DPC and NSW Treasury advised that they did not define the purpose and benefits of the machinery of government changes, or request affected departments to do so, because these were decisions of the government and the role of the public service was to implement the decisions.

We have attempted to quantify some of the costs of the DPIE and DRNSW changes based on the information the audited agencies could provide. This information does not capture the full costs of the changes because some costs, such as the impact of disruption on staff, are very difficult to quantify, and the costs of ICT separation and integration work may continue for several more years. Noting these limitations, we estimate the initial costs of these machinery of government changes are at least $23.7 million for DPIE and $4.0 million for DRNSW. For DPIE, this is predominantly made up of ICT costs and redundancy payments made around the time of the machinery of government change. For DRNSW it includes ICT costs and an increase in senior executive costs for a standalone department, which we estimate is an ongoing cost of at least $1.9 million per year.

For the DPIE machinery of government change, there were risks associated with placing functions and agencies that represent potentially competing policy interests within the same 'cluster', such as environment protection and industry. We did not see evidence of plans to manage these issues being considered by DPIE as a part of the machinery of government change process.

The efficiency of machinery of government changes could be improved in several ways. This includes providing additional standardised guidance on the allocation of corporate functions and resources when agencies are being merged or separated, and consolidating guidance on defining, measuring and monitoring the benefits and costs of machinery of government changes.

1. Key findings

The rationale for establishing DPIE was not documented and the anticipated benefits were not defined

The specific reasons for the DPIE machinery of government change were not articulated or documented by the former Premier, Ministers or central agencies at the time the change was announced. Nor were any specific desired benefits of the change set out at this time. DPC advised that the 2019 machinery of government changes were included on Secretaries Board meeting agendas, but the minutes did not record the details of these discussions or any agreed actions.

DPIE subsequently developed policy priorities and desired outcomes for the department, which included improving the integration and coordination of planning, environment and industry functions in the NSW Government. This also included the goal of reducing conflicts between competing policy areas such as industry and environmental protection. However, DPIE cannot demonstrate whether any improvements in these areas are directly attributable to the machinery of government change. Since completing the machinery of government change, DPIE has not conducted a structured evaluation of the changes.

The process of establishing a new department involves significant cost, risks and disruption, so it is important to be able to show that the changes made are linked to tangible benefits. DPC and NSW Treasury do not require departments to track or report on the achievement of the benefits of machinery of government changes. DPC and NSW Treasury advised that they did not define the rationale or anticipated benefits of machinery of government changes because the changes are made at the request of the Premier and the reasoning behind the changes is a matter for the Premier, not the departments implementing them. DPC and NSW Treasury also stated that the purpose of some machinery of government changes may include policy or political benefits for the government, which agencies could not articulate or monitor.

We acknowledge that the reasons for making machinery of government changes, and the desired benefits of the changes, are decided by the Premier. However, the public service’s role includes ensuring that there is accountability for the use of public funds. In the case of machinery of government changes, this should include tracking and reporting on the benefits and costs of these activities to enable appropriate transparency and accountability.

The direct cost of the DPIE machinery of government change is likely to be at least $23.7 million

The machinery of government change creating DPIE was large and complex. It involved costs in areas including ICT changes, redundancies, consultant fees and corporate staff time. DPIE records indicate that it spent $7.7 million on ICT changes required because of the machinery of government change. This included the cost of transferring staff from Google to Microsoft systems, and fees for setting up new DPIE email addresses for staff. DPIE reported $15.5 million in redundancy payments that were made around the time of the machinery of government change. Our estimate of the cost of the DPIE machinery of government change does not account for any savings arising from these redundancies. While NSW Treasury coordinated some reporting relating to executive staff reductions, the potential longer-term savings arising from the DPIE changes were not tracked or recorded. We note that the number of senior executives at DPIE subsequently increased by 35 full-time equivalent staff in the year after the machinery of government change.

Other estimated costs included reported corporate staff time of almost $300,000 and paid consultant fees of around $170,000 for organisational design work. DPIE did not track any additional costs relating to property or branding and communication work associated with the machinery of government change.

There were a range of other additional indirect costs associated with the DPIE machinery of government change, including potential loss of productivity associated with ICT changes, reduction in staff morale, and diversion of staff from other tasks. However, the costs of these are difficult to quantify and DPC and NSW Treasury did not require departments to record or report on these.

Placing regulation, policy and delivery functions within the DPIE 'cluster' created some risks that were not clearly acknowledged or addressed during the machinery of government change

DPIE is a large and complex department that includes many associated agencies and entities that have independent or 'arms-length' regulatory and advisory roles. There were potential risks to governance and decision-making associated with placing regulatory and delivery agencies within the DPIE 'cluster'. Internalising potential conflicts between these agencies within a single department creates a risk that stated government commitments or priorities may override the statutory objectives of regulatory bodies or independent agencies. We did not see evidence of plans to manage these issues being considered by DPIE as a part of the machinery of government change process.

Some functions and resources associated with waste policy and programs were moved from the Environment Protection Authority (EPA) to a division within DPIE as a part of the machinery of government change in July 2019. The EPA is an independent statutory authority that has specified statutory functions and responsibilities relating to environmental protection and waste management, and reports to a Board. After the staff transfer was completed, the Board raised concerns that this would reduce the EPA's ability to fulfil its statutory functions and the Board's ability to provide oversight of these functions. The functions and resources, which included 68 staff, were transferred back to the EPA in July 2020, requiring additional work to undo the previous transfers.

The broad purpose of establishing DRNSW was set out, but there was no clear articulation of the specific problems that creating DRNSW would address

The stated goal of the creation of DRNSW was to improve coordination and support for communities, businesses and farmers in regional areas and to improve the representation of regional issues in government. This was specifically linked to a recent series of events including drought, bushfires, floods, and the COVID-19 pandemic, which had impacted some regional areas disproportionately. However, there was no quantification of any gaps in the representation or coordination of regional issues before or after the DRNSW machinery of government change was made. Nor were any targets set for making improvements in these areas. This means there was no clear definition of the problem that the creation of DRNSW was intended to address.

The absence of baseline information on the NSW Government's performance in these areas makes it difficult to attribute any changes in performance to the establishment of DRNSW. The department has developed a range of outcome measures as a part of its outcome budgeting reporting, but this is constrained by the fact that DRNSW does not have data on past performance in most areas and lacks current data in some. DRNSW has not conducted a post-project review to assess progress in achieving the benefits of the machinery of government changes.

The direct cost of the DRNSW machinery of government change is likely to be at least $4.0 million, with over half of this in ongoing annual labour expenses

The machinery of government change creating DRNSW was less complex, and therefore probably less costly, than the DPIE changes. However, there were a range of costs in areas including ICT changes, project management fees, corporate staff time, and additional senior executive salaries. The cost of establishing ICT systems for the new department was $1.2 million. This covered the separation of staff from DPIE systems and the establishment of new profiles for DRNW staff. DRNSW recorded $320,000 in consultancy fees directly associated with its machinery of government change. The creation of DRNSW as a standalone department necessitated an increase in senior executive staff, including a Secretary and several additional senior executives. We estimate the ongoing cost of senior executive staff required for DRNSW to operate as a separate department to be at least $1.9 million per year ongoing.

DRNSW reported that there were no additional accommodation costs relating to the machinery of government change because its physical offices remained the same. DRNSW did not track any costs associated with branding or communication associated with the changes. There were some indirect costs associated with the DRNSW machinery of government change. Our financial audit report for 2020 noted that due to the timing of the machinery of government changes, which involved DRNSW commencing as a new department in April 2020, significant manual work was required to reconstruct the department's financial statements for end of year reporting. This involved extracting and compiling information from the DPIE systems, which increased the risk of data corruption and errors. If DRNSW had formally commenced as a department on 1 July 2020, this additional work would not have been required.

Both departments used a structured approach to governance to guide the machinery of government changes

DPIE established internal governance arrangements to oversee the implementation of the machinery of government change. This included a steering committee and sub-committees for detailed work on key areas such as finance, ICT, and people. Activities identified as 'key milestones' related to establishing corporate functions. The scope of work for the DRNSW machinery of government change steering committee specifically excluded work related to non-corporate functions. The purpose of this was ensuring the corporate functions of departments such as finance, people, and core ICT systems were ready on 'day one' when they were due to commence operations.

For the DPIE machinery of government change, the transition period was around three months, which was a relatively short period given the scale and complexity of the changes required. For the establishment of DRNSW, the new department became operational on the day it was publicly announced. The focus on establishing core corporate functions quickly meant relatively little time was given to consider what specific benefits might be achieved and how these would be measured.

There are opportunities to improve the efficiency of future machinery of government changes

The assessment of the effectiveness of the machinery of government changes that created DPIE and DRNSW highlighted several broader issues that are applicable across government. If these are addressed at a whole-of-government level, they have the potential to improve the efficiency and effectiveness of future machinery of government changes. NSW Treasury and DPC had an oversight role for the 2019 machinery of government changes that affected numerous departments including DPIE. A governance structure and overarching principles were established to manage issues at a sector-wide level. This oversight had a strong focus on ensuring timelines for establishing the new departments were met. It included requirements for reporting on some aspects of the implementation of the changes, such as tracking reductions in senior executive staff.

Staff from DPIE and DRNSW noted that there are aspects of machinery of government changes that commonly require significant time to resolve. For example, machinery of government changes usually involve negotiation about the allocation of corporate support staff to agencies that are receiving new functions. Some guidance on this was provided by DPC and NSW Treasury, but DPIE and DRNSW staff noted that significant time was spent resolving these matters. There is also potential to improve the efficiency of machinery of government changes by standardising corporate services systems, especially in departments and agencies that are frequently subject to machinery of government changes.

Several machinery of government guides and principles were circulated across the NSW Government while the machinery of government changes were being implemented. There is potential for duplication or inconsistency in the guidance currently available and it is possible that it may be applied inconsistently by different departments when implementing machinery of government changes.

2. Recommendations

Consistent with the role of the public sector in ensuring accountability for the use of public funds, by November 2022, the Department of Premier and Cabinet and NSW Treasury should:

1. consolidate existing guidance on machinery of government changes into a single document that is available to all departments and agencies. This should support transparency and accountability for the costs and benefits of machinery of government changes by including:

• a requirement that departments subject to a machinery of government change must publish information about the estimated costs and benefits of the change in its next annual report
• guidance on how to measure and report estimated costs and benefits of machinery of government changes
• principles and lessons learned from previous machinery of government changes.

2. provide guidance for departments and agencies to use when negotiating corporate services staff transfers as a part of machinery of government changes, including a standard rate for calculating corporate services requirements

3. progress work to develop and implement common processes and systems for corporate services in order to support more efficient movement of staff between departments and agencies.

1. Introduction

1.1 Machinery of government changes

The term ‘machinery of government’ refers to the way government functions and responsibilities are allocated and structured across government departments and agencies. A machinery of government change is the reorganisation of these structures. This can involve establishing, merging or abolishing departments and agencies and transferring functions and responsibilities from one department or agency to another.

In New South Wales, the formal power to make machinery of government changes rests with the Governor under the Constitution Act 1902. In practice, the Governor makes these changes on the advice of the Premier. These changes may be made to support the policy and/or political objectives of the government of the day. Machinery of government changes are formally set out in Administrative Arrangements Orders, which are prepared by the Department of Premier and Cabinet under direction from the Premier and issued as legislative instruments under the Constitution Act 1902.

The heads of departments and agencies subject to machinery of government changes are responsible for implementing them. This includes the initial establishment of a new department and ongoing work to integrate systems and people. There are no formal requirements for measuring or reporting on the benefits and costs of machinery of government changes.

For more complex machinery of government changes, central agencies are also involved in providing guidance and monitoring the progress of machinery of government changes. This occurred for the machinery of government changes that were made after the 2019 State Government Election, discussed in section 1.2 below, when NSW Treasury set up governance arrangements to oversee the changes. The Department of Premier and Cabinet and the Public Service Commission were also involved in this.

In the decade between 2009–10 and 2019–20, there were 56 administrative arrangement orders relating to machinery of government changes. Ten orders affected more than one department. The remainder either affected single departments or agencies or made amendments to existing administrative arrangements orders. Of the changes affecting more than one department, five took place soon after NSW Government elections and a further four occurred after a change of Premier. One occurred as an administrative rearrangement beyond the impact of an election or leadership change. Exhibit 1 below shows the major machinery of government changes from 2009 to 2020.

Exhibit 1: Machinery of government changes affecting multiple departments in New South Wales 2009 to 2020
Date Machinery of government change Trigger
July 2009 Public Sector Employment and Management (Departmental Amalgamations) Order 2009 New Premier (September 2008)
April 2011 Public Sector Employment and Management (Departments) Order 2011 New Government elected (March 2011)
June 2011 Public Sector Employment and Management (Departments and Ministers) Amendment Order New Government elected (March 2011) and clarifying amendments
January 2014 Administrative Arrangements Order 2014 Commencement of the Government Sector Employment Act (2013)
April 2014 Administrative Arrangements (Administrative Changes-Ministers and Public Service Agencies) Order 2014 New Premier (April 2014)
June 2014 Administrative Arrangements (Administrative Changes-Miscellaneous Agencies) Order 2014 New Premier (April 2014) and clarifying amendments
April 2015 Administrative Arrangements (Administrative Changes-Public Service Agencies) Order 2015 Government re-elected (March 2015)
March 2017 Administrative Arrangements (Administrative Changes-Public Service Agencies) Order 2017 New Premier (January 2017)
April 2019 Administrative Arrangements (Administrative Changes-Public Service Agencies) Order 2019 Government re-elected (March 2019)
April 2020 Administrative Arrangements (Administrative Changes—Regional NSW and Independent Planning Commission) Order 2020 Administrative re-arrangement and clarifying amendments

Source: Audit Office analysis of Administrative Arrangements Orders, 2021.

Other comparable jurisdictions have made machinery of government changes with similar frequency in recent years. For example, audits of machinery of government changes in other jurisdictions reported the Victorian Government made around 40 administrative orders relating to machinery of government changes between 2009–10 and 2019–20 and the Australian Government made 60 from 2009–10 to 2014–15. Most of the larger changes in these jurisdictions also followed elections or leadership changes.

Previous studies of machinery of government changes have indicated they can be costly but have also noted the difficulty of fully understanding the costs. Estimates of machinery of government changes made in other comparable jurisdictions differ widely. The UK National Audit Office in 2010 estimated the direct cost of a significant machinery of government change to be roughly £15.0 million (equivalent to $24.6 million at the time) in the first year. A Victorian Parliamentary inquiry into machinery of government changes in 2016 found that each change cost up to $2.4 million. By comparison, the ANAO found that in 2013, each machinery of government change cost the federal government $14.5 million on average, with costs significantly higher for more complex changes.

Costs that are typically associated with machinery of government changes include:

  • Staff costs (including redundancies, short-term staff appointments, recruitment costs, salary increases, training, consultation with staff, transfer of leave entitlements, staff project costs).
  • Accommodation costs (including lease exit payments/restoration costs, exit fees for service provider contracts, costs of physical movement of employees, furniture, resources, and equipment).
  • Information technology and Records Management (including capital IT additions, IT consultancy costs, and costs from ending or starting contracts).
  • Branding and communication (including signage and other branding, website development, stakeholder communication, public awareness/advertising).
  • Corporate functions (including costs of establishing human resources and finance functions).

Our Report on State Finances 2019, tabled in October 2019, identified several risks that can arise from machinery of government changes. These include: challenges measuring the costs and benefits of machinery of government changes; disruption to services due to unclear roles and responsibilities; and disruption to control environments due to staff, system and process changes.

1.2 Machinery of government changes assessed in this audit

On 2 April 2019, the NSW Government announced major machinery of government changes that involved abolishing five departments (Industry; Planning and Environment; Family and Community Services; Justice; and Finance, Services and Innovation) and creating three new departments (Planning, Industry and Environment; Communities and Justice; and Customer Service). Most other departments that were not abolished had some functions added or removed as a part of these machinery of government changes. Exhibit 2 below summarises these changes.

In 2019, 5 departments abolished, 3 departments were created and over 40 entities were either transferred or abolished
Exhibit 2: Summary of the April 2019 machinery of government changes
Source: NSW Treasury internal documents, June 2019 (unpublished).

The Department of Planning, Industry and Environment (DPIE) was established on 1 July 2019, as administrative changes orders were issued on 2 April 2019. DPIE combined most of the functions and the former Department of Planning and Environment and former Department of Industry, as well as some functions relating to property and regional NSW from other departments. The machinery of government change also involved the movement of some government agencies and entities into what the NSW Government describes as the Planning, Industry and Environment 'cluster'. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status.

A cross-sector machinery of government steering committee was established by DPC and NSW Treasury to oversee agency implementation of the 2019 machinery of changes. The committee commenced work before the 2019 state government election in anticipation of potential changes. The Committee was chaired by the Secretary of DPC and attended by the Secretary of NSW Treasury, the Public Service Commissioner, and the Secretary of Customer Service. DPC and NSW Treasury advised that this governance body was created to ensure the changes were completed quickly, with the goal of reducing the period that agencies would be disrupted by the changes. The steering committee's areas of focus included:

  • ensuring continuity of services to the community
  • change management, staff engagement and people management
  • realising cost savings opportunities
  • issue escalation and risk management.

The committee reported to the Secretaries Board and was supported by a project management team and working groups were formed to focus on the specific areas of people, finance, ICT, accommodation, legal and communications. The areas of focus indicate that the purpose of these whole-of-government structures was to help ensure the new departments were ready to operate by the scheduled commencement date of 1 July 2019, which was three months after the changes were announced. NSW Treasury and DPC did not have a specific role in the machinery of government changes that created DRNSW because the creation of DRNSW was a smaller and more discrete change.

The Department of Regional NSW (DRNSW) was established on 2 April 2020. It was created from DPIE staff who had been employed in the Regions, Industry, Agriculture and Resources Group. Several agencies related to regional NSW also moved from the Planning, Industry and Environment 'cluster' into the new Regional NSW 'cluster', which the NSW Government created to administer agencies and entities related to DRNSW. The legislative instruments used to make these changes are summarised in Exhibit 3 below. 

Between April 2019 and August 2020, 6 administrative arrangement orders were issued, 2 were major and 4 were amendments.
Exhibit 3: Legislative instruments used in the DPIE and DRNSW machinery of government changes, April 2019 - August 2020
Source: Audit Office analysis of Administrative Arrangements Orders and internal DPIE documents.

1.3 About the audit

This audit assessed the machinery of government changes that created DPIE in 2019 and the subsequent machinery of government change creating DRNSW in 2020. It also considered the role of the Department of Premier and Cabinet and NSW Treasury in overseeing machinery of government changes. The audit objective was to assess how effectively the Department of Planning, Industry and Environment and the Department of Regional NSW managed the 2019 and 2020 machinery of government changes.

The audit investigated whether:

  • DPIE and DRNSW have integrated new responsibilities and functions in an effective and timely manner.
  • DPIE and DRNSW can demonstrate the costs of the machinery of government changes.
  • The machinery of government changes have achieved or are achieving intended outcomes and benefits.

2. Department of Planning, Industry and Environment

2.1 Overview of DPIE

The Department of Planning, Industry and Environment (DPIE) was formed by combining most of the functions of the former Department of Planning and Environment (DPE) and the former Department of Industry (DOI). This occurred shortly after the 2019 NSW Government election. In addition to receiving most of the functions of the former DPE and DOI, some functions from the former Department of Finance, Services and Innovation and Department of Family and Community Services (both abolished as a result of the 2019 machinery of government changes) and the Department of Premier and Cabinet (DPC) were moved to DPIE. The machinery of government change also involved the movement of some government agencies and entities into what the NSW Government describes as the Planning, Industry and Environment 'cluster'. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status. Exhibit 4 below summarises the main changes.

The Department of Planning Industry and Environment (DPIE) was a merger of former Departments of Industry and Planning & Environment and entities from the Departments of Premier and Cabinet, Family and Community Services and Finance, Services and Innovation.
Exhibit 4: Summary of functions, agencies and entities forming the Department of Planning, Industry and Environment, at 1 July 2019
Source: Audit Office presentation of internal DPIE information, 2021.

DPIE and its associated agencies and entities form a complex and diverse group, with budgeted recurrent expenditure of $6.1 billion and capital expenditure of $1.0 billion for 2021–22, with over 9,200 full time equivalent staff. DPIE has many entities with diverse roles, governance arrangements, and reporting lines, as shown in Exhibit 5 below. 

The Department of Planning Industry and Environment (DPIE) includes over 40 statutory bodies and statutory officers, more than 6 state-owned corporations, 21 trusts and boards, 5 staff agencies and 3 tribunals.
Exhibit 5: Summary of entity types in the Department of Planning, Industry and Environment
Source: Audit Office presentation of internal DPIE information, 2021.

Machinery of government changes have been common in the government departments and agencies responsible for planning, environment and industry functions in recent years. Each of these areas has went through four changes between 2003 and the creation of DPIE in 2019, as shown in Exhibit 6 below.

In 2003 Planning and Environment were separate departments but merged in 2014. Industry joined in 2019 after a decade where it had been in departments with Investment (2009), Trade (2011) and Regional Development (2015) until it became standalone in 2017.
Exhibit 6: Machinery of government changes in departments responsible for planning, environment and industry: 2003 to 2019
Source: Audit Office analysis of Administrative Arrangements Orders, 2021.

2.2 Benefits and cost of the change

The specific reasons for establishing DPIE were not documented at the time of the machinery of government change and anticipated benefits were not defined

The machinery of government change that created DPIE was one of several major changes announced in April 2019. There was no specific statement from the former Premier or Ministers about the purpose of the DPIE machinery of government change. The former Premier stated the overall rationale for the suite of machinery of government changes made in April 2019 was 'to deliver better services, better infrastructure, in a more timely manner to the people of NSW'. DPC advised that the 2019 machinery of government changes were included on Secretaries Board meeting agendas, but the minutes did not record the details of these discussions or agreed actions. Comments from the Secretary of the Department of Premier and Cabinet (DPC) at a public presentation indicate that creating DPIE was intended to help address the 'great challenges of our time, around climate, around drought, around environment and around development'. A cross-government steering committee chaired by the Secretary of DPC was established to help prepare for the anticipated machinery of government changes, as described in Chapter one. However, this committee did not document any specific reasons for establishing DPIE or the benefits anticipated from this change.

Subsequent communication from the former Premier to Ministers with portfolio responsibilities in DPIE set out the policy priorities and outcomes desired for the new department. These included:

  • increasing green space in urban areas
  • streamlining the planning system
  • reviewing regulatory functions with a view to consolidation
  • developing coordinated approaches in policy areas including water, energy, climate change and sustainability
  • progressing land management reforms.

The priorities set out by the former Premier were reflected in DPIE's ‘outcome and business plan’, which is required under the NSW Government’s Outcome Budgeting policy. This included indicators to measure progress toward achieving the state outcomes and election commitments that were assigned to DPIE. However, DPIE did not articulate how the machinery of government change itself would help to achieve these desired outcomes and benefits. This means that while DPIE has some measures of outcomes achieved since the machinery of government change, it cannot demonstrate that these are attributable to the changes.

DPIE staff we interviewed described the overall goal of the machinery of government change as bringing together the 'brown and green' or 'natural and built' policy and delivery areas. The purpose of this was to reach shared positions within DPIE and bring agreed proposals to Cabinet for discussion and approval. DPIE's internal reporting states that 37 Cabinet submissions were made in the six months to June 2020, all of which had been agreed at its Ministers' Committee for DPIE. However, there is no information cited to indicate whether this was an improvement compared to arrangements prior to the machinery of government change. Other indicators of the success of the machinery of government change that DPIE has cited include:

  • the integration of many disparate agencies into a single department with an increasingly cohesive culture and shared values and identity, and
  • the establishment of several agencies to support the goal of better place-based planning, including Placemaking NSW and Greater Sydney Parklands.

These examples are indicators that DPIE was established as a new department, but they do not demonstrate that specific benefits or outcomes have been achieved as a result. The process of establishing a new department involves cost and disruption, as discussed in the following section, so it is important to be able to clearly show that the changes made are linked to tangible benefits. Since completing the machinery of government change, DPIE has not conducted a structured evaluation of the process, which is suggested in NSW Government guidance on machinery of government changes.

Estimated costs directly attributable the machinery of government change were at least $23.7 million

The machinery of government change creating DPIE was large and complex and involved costs in areas including ICT changes, consultant fees and corporate staff time. A summary of estimated costs associated with the establishment of DPIE is in Exhibit 7 below.

Exhibit 7: Estimated cost of the Department of Planning, Industry and Environment machinery of government change
Category Amount ($m) Notes
Redundancies# 15.5 Redundancy payments for 83 FTE staff, made in the period shortly after the machinery of government change
ICT 7.7 Consolidation of six ERP platforms,
Merger and decommissioning of collaborative working and office application platforms,
Email address changes,
Integration of 20 intranets
Associated professional services fees
Personnel directly working on the machinery of government change 0.3 Business services staff (payroll, finance) from previous Department of Industry for configuration, communications, data migration work
Organisational design consultancy 0.2 Organisational design analysis and recommendations on structure and reporting lines in the new department
TOTAL 23.7  

# Potential longer-term savings arising from redundancies are not included in this estimated, for reasons described in the report text below.
Note: Figures in this table are rounded to one decimal place.
Source: Audit Office analysis of data provided by DPIE.

DPIE provided information indicating it spent around $7.7 million on ICT changes required because of the machinery of government change. This included the cost of transferring staff from the Google Docs to Microsoft 365 collaboration platforms and professional services fees for setting up the new DPIE email addresses for staff. When DPIE was established, the ICT environment included:

  • Staff working across two collaboration systems (Office 365 and Google Docs).
  • 6 separate enterprise resource planning (ERP) systems to manage corporate functions such as finance, HR and payroll. As noted in our previous Financial Audit reports, this increases the risk of inaccuracies in the department's data.
  • 20 separate intranets.

DPIE has reported $15.5 million in redundancy costs around the time of the machinery of government change. This covered the cost of redundancy payments to 83 full-time equivalent staff, most of which were senior executives. The reduction in senior executive staff may have led to longer-term savings on employee expenses, but these potential savings were not tracked by DPIE, DPC or NSW Treasury, so are not included in our estimate of the financial impact of the machinery of government change. We note that the number of senior executives subsequently increased by 35 full-time equivalent staff between 2019–20 and 2020–21, after the machinery of government change was completed.

We note that there was a pre-existing NSW Government policy of reducing senior executive numbers and the former Department of Industry and Department of Planning and Environment had pre-existing budget savings targets that would have required a reduction in staff numbers. However, the number of redundancies is attributable to the machinery of government change because it exceeded the requirements of these policies and took place in the period close to the announcement of the change. 

DPIE recorded the time that some business services staff spent on tasks including communications, data migration and configuration. DPIE estimated the cost of this to be around $288,000. However, this only recorded time spent by staff in the former Department of Industry, so it is unlikely to capture the full cost of this work related to the machinery of government change. DPIE engaged a consultant to support the organisation design at a cost of around $170,000. DPIE did not report any additional costs relating to property or branding and communication associated with the machinery of government change.

There were a range of additional indirect costs associated with the DPIE machinery of government change that were not tracked

There are a range of indirect costs that are not recorded but are likely to have an impact on the operations of departments undergoing machinery of government changes. For example, the time of those involved in steering committees and working groups set up to implement machinery of government changes has not been recorded because this work was absorbed within existing budgets. Departments are not required to keep these records and there is limited central guidance for departments on tracking expenditure associated with machinery of government changes.

Some staff reported inefficiencies in transferring ICT systems, which resulted in staff having to maintain multiple email addresses to access multiple systems that are maintained by other departments. These issues are compounded in parts of government that are subject to frequent machinery of government changes if previous work required to integrate systems is not completed before further changes are made. There are many entities within DPIE that have been subject to five or more machinery of government changes since 2003, including Crown Lands and the National Parks and Wildlife Service (six changes) and the Environment Protection Agency (five changes).

Some DPIE staff we interviewed suggested machinery of government changes lead to decreases in staff productivity, at least in the short-term because of negative impacts on staff morale. This could occur because of concerns about job security, lack of clarity about role changes, or 'change fatigue' in areas that have been through frequent changes in recent years. These anecdotal examples were commonly cited by staff who have experience in multiple machinery of government changes, but the impact is difficult to quantify.

Audits on this topic in several comparable jurisdictions have reported similar comments from staff who have been involved in machinery of government changes. Research on machinery of government changes in the Commonwealth Government has also found that cultural differences in departments that are merged can be disruptive, especially when implemented within a short timeframe. However, the annual People Matter Survey, which provides data in areas including NSW public sector staff engagement, does not indicate a drop in staff morale in the period after the machinery of government change. DPIE did not collect any data, such as pulse surveys, that assessed this issue specifically.

The whole-of-government steering committee chaired by DPC did not require departments subject to machinery of government changes to report on costs incurred or benefits achieved and did not provide guidance to departments in these areas. However, the committee had listed 'realising cost saving opportunities' as a principle for the sector-wide April 2019 machinery of government changes. NSW Treasury coordinated some reporting on reductions to senior executive staff numbers, but potential savings arising from the DPIE changes were not recorded.

The gaps in information about how much machinery of government changes cost and what benefits are achieved reduce transparency to Parliament and the public and limit the ability of agencies to share lessons about what works. The government sector core values include 'providing transparency to enable public scrutiny', and 'focusing on the efficient, effective and prudent use of resources'. In the case of machinery of government changes, this should include attempting to track and report on the costs and benefits of the changes. We note that this needs to be balanced against the need to avoid increasing the administrative burden on departments subject to machinery of government changes.

Placing regulation, policy and delivery functions within the DPIE 'cluster' created some risks that were not clearly acknowledged or addressed during the machinery of government change

DPIE is a large and complex department that includes many associated agencies and entities that have independent or 'arms-length' regulatory and advisory roles, as described in Exhibit 3 above. There were potential risks to governance and decision-making associated with placing regulatory, policy and delivery agencies within the same 'cluster'. For example, the creation of DPIE involved placing the Environment Protection Authority (EPA) and Forestry Corporation of NSW in the same department. As the environmental regulator for the state, the EPA has investigated and prosecuted the Forestry Corporation. Internalising these potential conflicts within a single department creates a risk that stated government commitments or priorities may override regulatory or independence objectives. Forestry Corporation was subsequently moved to Regional NSW as a part of the 2020 machinery of government change discussed in chapter three of this report.

We did not see evidence of plans to manage these issues being considered by DPIE as a part of the machinery of government change process. DPIE has a memorandum of understanding with the Independent Planning Commission but does not have any equivalent arrangements for other entities associated with the department that have an independent role. An example of challenges arising from managing the mix of policy and regulatory functions within DPIE is provided in Exhibit 8 below.

Exhibit 8: Transfers of staff between the EPA and DPIE

As a part of the 2019 machinery of government changes that created DPIE, some functions and resources associated with waste policy and programs were moved from the EPA to a division within DPIE. This was linked to DPIE's stated priority of reforming regulatory functions, which included separating policy and program delivery functions from regulatory roles. Our audit did not see any evidence of an assessment of risks to independence that may arise from this approach.

The EPA is an independent statutory body that has specified statutory functions and responsibilities relating to environmental protection and waste management, and reports to a Board. These functions and responsibilities were not altered by the machinery of government change. After the staff transfer was completed, the Board raised concerns that this would reduce the EPA's ability to fulfil is statutory functions and the Board's ability to provide oversight of these functions.

The functions and resources, which included 68 staff, were transferred back to the EPA in July 2020, with the agreement of the DPIE Secretary and the CEO of the EPA. This process required additional work to undo transfers previously made across a range of areas, including:

  • additional consultation with affected staff who had been transferred out of the EPA around 12 months earlier
  • the development of a change management plan
  • transfer of grant agreements and contracts that had been previously transferred to DPIE from the EPA
  • staff and operating budget transfers.
Source: Audit Office analysis of DPIE documents (unpublished).

DPIE established governance and project management structures, but the documentation of risk management and lessons learned had some gaps

DPIE established internal governance arrangements to oversee the implementation of the machinery of government change. This included a Machinery of Government Steering Committee to provide guidance and approval for areas including the program of work, scope and timelines. The governance framework also included working groups responsible for detailed work in key areas such as finance, human resources, and governance.

The focus of the initial stage of the machinery of government change was on establishing corporate functions with some work about organisation design for the new department being undertaken separately by the DPIE Leadership Team. The original plan focused on milestones that were deemed critical for the department to be operational by the nominated start date, including finance and ICT systems. This plan extended to October 2019 for matters that were not critical for DPIE to be operational on 1 July. Most of the steps set out in the better practice guidance that DPIE used were followed. However, DPIE did not complete a post-implementation or project closure report, which would have allowed the recording of lessons learned.

Project management documentation indicates that there were delays in several areas including escalations from sub-groups. Meeting minutes did not record strategies for rectifying these delays although verbal updates were made to the DPIE leadership team. There was a combined risk, decision and issue register but this was not completed consistently, with little information about how the assessment of risks were made. For example, the machinery of government coordination group reported as a 'risk for noting only' to the DPIE Leadership team that there were 'OEH staff concerns (that could) impact morale and confidence'. The strategy for mitigating this risk was 'to ensure ongoing communication of changes and commencement of change strategies throughout the machinery of government changes'. There was no measurement of the impact of the communication or change strategies.

There are currently several different machinery of government guides and principles in circulation across the NSW Government. DPIE staff we interviewed advised that they used a better practice guide that had been developed by the former Department of Planning and Environment as a part of previous machinery of government changes. The steering committee overseeing the 2019 machinery of government changes developed a separate set of principles that were intended to guide the approach to the changes. The whole-of-government machinery of government project management team produced a report that included lessons and recommendations for future machinery of government changes. It is possible that other sources of guidance are in circulation in other departments that have undergone machinery of government changes in recent years. This means there is potential for duplication or inconsistency in the guidance currently available.

Staff from DPIE and DRNSW suggested the efficiency of machinery of government changes could be improved if the ‘repeatable’ aspects could be standardised. For example, having an agreed rate to calculate the cost of corporate services would mean that agencies involved in machinery of government changes wouldn’t have to negotiate this when implementing every machinery of government change. Some guidance on this was provided by DPC and NSW Treasury as a part of the 2019 machinery of government changes, but DPIE and DRNSW staff noted that significant time was spent resolving these matters.

There is also potential to improve the efficiency of machinery of government changes by standardising corporate services systems, especially in departments and agencies that are frequently subject to machinery of government changes. The NSW Government has commenced work on a project to consider the need for a single Enterprise Resource Planning system covering corporate services systems for multiple departments and agencies (excluding Health, Transport and Education). The scope of this audit did not include examining this project, but we understand it is currently in the initial planning phase. 

3. Department of Regional NSW

3.1 Overview of DRNSW

The Department of Regional NSW (DRNSW) commenced operating on 2 April 2020. DRNSW and the agencies comprising the Regional NSW 'cluster' are responsible for primary industries, local land services, mining and exploration, and regional NSW, as summarised in Exhibit 9 below. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status.

DRNSW and its associated agencies have around 4,500 staff across NSW with 76 per cent of staff working in regional areas. Its main offices are in Orange, Sydney, Queanbeyan, Armidale, Orange, Coffs Harbour and Dubbo. At the time of its establishment, DRNSW supported the former Deputy Premier in his capacity as Minister for Regional NSW, Industry and Trade and two other Ministers with portfolio responsibilities relating to regional NSW. Prior to the creation of DRNSW, these functions were located within the Department of Planning, Industry and Environment, in the Regions, Industry, Agriculture and Resources Group.

Regional NSW includes the previous entity known as Regions, Industry, Agriculture and Resources (RIAR) as well as Local Land Services, Forestry Corporation, NSW Food Authority and the Rural Assistance Authority.
Exhibit 9: The Department of Regional NSW and its associated entities
Source: Audit Office presentation of DRNSW internal information 2020.

The establishment of DRNSW involved removing functions from one part of a department to create a new department. This distinguishes it from many other machinery of government changes, including the DPIE change, that involve the abolition and merger of multiple departments and agencies. As a result, the process for the DRNSW change involved separating rather than combining functions and there were no requirements from government that the machinery of government change would result in specific efficiency savings. There was also a NSW Government policy that there would be no reduction in the number of NSW Government staff employed in regional areas.

3.2 Benefits and cost of the machinery of government change

The broad purpose of establishing DRNSW was set out consistently, but there was no clear articulation of the specific problems that creating DRNSW would address

The former Deputy Premier announced the establishment of DRNSW on 2 April 2020. The government's media release stated that the intended benefits of the new department were 'to better coordinate support for communities, business and farmers in in the bush that have endured drought, bushfire and flood and now face the impact of the COVID-19 pandemic'. It further stated that DRNSW would 'be a voice in government for people in the bush…(that) will allow a more streamlined response to regional issues.'

DRNSW executive staff we interviewed articulated the purpose of the new department consistently with these statements from the government. Particular areas of focus noted were increasing the representation of regional issues at key decision-making bodies such as Cabinet and the Secretaries Board and providing greater focus on the challenges unique to regional communities. These areas of focus have been reflected in DRNSW's internal planning and public documents.

Some DRNSW staff we interviewed suggested that placing regional functions within DPIE as a part of the 2019 machinery of government changes had made it harder to bring attention to regional issues due to the size of DPIE. DRNSW staff stated they believe the department is providing better representation for the regions because there is now a minister on Cabinet committees and a Secretary at the Secretaries Board. DRNSW staff we spoke with stated they believe the intended benefits were achieved immediately with the creation of the agency.

However, there was no quantification of gaps in the representation or coordination of regional issues before or after the DRNSW machinery of government change was made. Nor were any targets set for making improvements in these areas. This means there was no clear definition of the problem that the creation of DRNSW was intended to address.

The absence of baseline information on the NSW Government's performance in these areas makes it difficult to attribute any changes in performance to the establishment of DRNSW. The department has developed a range of outcome measures as a part of its outcome budgeting reporting, but this is constrained by the fact that DRNSW does not have data on past performance in most areas and lacks current data in some. DRNSW has not conducted a structured evaluation of the machinery of government change, which is suggested in NSW Government guidance on machinery of government changes.

Costs directly attributable to the machinery of government change were at least $4.0 million, with at least $1.9 million of this in ongoing senior executive salaries

The machinery of government change creating DRNSW was less complex than the DPIE changes, but there were a range of costs in areas including ICT changes, project management fees, corporate staff time, and additional senior executive salaries. A summary of estimated costs associated with the establishment of DPIE is in Exhibit 10 below.

Exhibit 10: Costs attributable to the Department of Regional NSW machinery of government change
Category Amount ($m) Notes
ICT 1.2 Migration from DPIE platforms
Creation of new user profiles
Personnel directly working on the machinery of government change 0.6 Costs of DPIE staff across payroll, finance, business services
Consultancy fees 0.3 Analysis of new corporate services arrangements
Project management services to support the machinery of government change
Increase in senior executive staff 1.9 Senior executive roles or Band increases required due to the establishment of a stand-alone Department.
This figure does not include 23 non-executive positions that were created to support new functions such as the Office of the Secretary and Corporate services.
TOTAL 4.0  

Note: Figures in this table are rounded to one decimal place.
Source: Audit Office analysis of data provided by DRNSW and DPIE (unaudited).

The cost of establishing ICT systems for the new department was $1.2 million. This covered the separation of staff from DPIE systems and the establishment of new profiles for DRNSW staff. DRNSW reports it spent around $320,000 on consultant fees for project management services and analysis to support decisions about new corporate services arrangements. There is no formal requirement for agencies to record the cost of staff time spent on machinery of government changes. However, DPIE recorded the time spent by some corporate services staff on the establishment of DRNSW and estimated these costs as approximately $630,000.

The DRNSW machinery of government change has resulted in an increase in senior executive staff. The creation of the new department necessitated a Deputy Secretary position being converted to a Secretary and there were another 11 senior executive positions created for DRNSW compared to the previous structure when regional functions were within DPIE. We estimate that the annual cost of these additional positions is at least $1.9 million per year in salaries. DRNSW also created additional positions in the Office of the Secretary, with an increase of 23 full-time equivalent non-executive staff. We have not included this cost in this estimate because of a lack of reliable data.

DRNSW reported that there were no additional accommodation costs because of the machinery of government as there were no changes to its offices. DRNSW did not track any costs associated with branding or communication associated with the changes.

There were some additional indirect costs associated with the DRNSW machinery of government change that were not tracked

There were some indirect costs associated with the DRNSW machinery of government change. Our financial audit report for 2020 noted that due to the timing of the machinery of government changes, which involved DRNSW commencing as a new department in April 2020, significant manual work was required to reconstruct the department's financial statements for end of year reporting. This involved extracting and compiling information from the DPIE systems, which increased the risk of data corruption and errors. If DRNSW had formally commenced as a department on 1 July 2020, this additional work would not have been required.

DRNSW staff interviewed reported that the machinery of government change did not have any negative impact on service delivery and did not decrease staff engagement or morale. There was no clear decrease in indicators of staff engagement in the People Matter survey data and there were improvements in staff ratings on questions relating to communication and change management. However, making direct comparisons is difficult because the constituent parts of DRNSW were involved in multiple machinery of government changes in recent years.

The core requirements of the machinery of government change were completed on time

DRNSW met most of its deadlines for establishing the new department. DRNSW signed the final service partnership agreement (SPA) with DPIE to provide corporate services on 24 September 2020, almost three months after the target date. However, an interim SPA was in place during this period and DPIE continued providing services to DRNSW until the final agreement was completed.

DRNSW established governance arrangements to oversee implementation of the machinery of government change. The design of DRNSW’s governance arrangements largely followed good practice principles. DRNSW established clear lines of responsibility and the governance bodies regularly met and reported on progress. The governance arrangements included a steering committee to oversee the machinery of government change, a project management office, and working groups focusing on specific areas such as finance and ICT.

Staff who were remaining at DPIE also played significant roles in setting up DRNSW during the transition period. DPIE corporate services staff established a group led by the Deputy Secretary for Corporate Services to oversee DPIE's work to support the machinery of government change.

The governance bodies did not have a role in planning how benefits from the machinery of government change would be monitored or reported on. DRNSW prepared a transition plan focusing on the first 90 days after the announcement of the machinery of government change. Its aim was to ensure a smooth migration of people and services into the new DRNSW structure with minimal impact on customers and teams. The focus of the transition plan was on corporate services. It explicitly excluded any changes to DRNSW's operations outside of Corporate Services.

Appendices

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – Performance auditing

 

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Parliamentary reference - Report number #359 - released (17 December 2021).