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.

This report is focused on agencies in the Planning and Environment portfolio as at 30 June 2023.

Creation of the NSW Reconstruction Authority and abolition of Resilience NSW

The NSW Reconstruction Authority was established by section 7 of the NSW Reconstruction Authority Act 2022 No 80. On 16 December 2022, the 'Administrative Arrangements (Administrative Changes - Miscellaneous Order (no 10)) 2022' abolished the former Resilience NSW (previously included in the Stronger Communities portfolio of agencies) and its functions and persons employed were subsequently transferred to the:

• NSW Police Force
• Department of Premier and Cabinet
• Department of Communities and Justice
• NSW Reconstruction Authority Staff Agency.

On this same date the Administrative Order established the NSW Reconstruction Authority Staff Agency.

The NSW Reconstruction Authority is the lead disaster management agency for NSW. It is responsible for facilitating disaster prevention, preparedness, recovery, reconstruction, and adaptation to the effects of natural disasters in NSW. The NSW Reconstruction Authority is in the Planning and Environment portfolio.

Changes to the Planning and Environment portfolio of agencies

Administrative Orders including the Administrative Arrangements (Administrative Changes - Miscellaneous) Order (No 2) 2023 effective on 5 April 2023 resulted in a number of changes to the Planning and Environment portfolio of agencies in 2022–23:

Administrative Arrangements Orders after 30 June 2023

Under the Administrative Arrangements (Administrative Changes - Miscellaneous) Order (No 5) 2023, effective 1 July 2023, the following were transferred to the Department of Planning and Environment:

• All parts of the following public service agencies:
  • Greater Cities Commission Staff Agency, and
  • Western Parkland City Authority Staff Agency.
• The parts of the Department of Transport that enable the following to exercise functions:
  • Centennial Park and Moore Park Trust
  • Greater Sydney Parklands Trust
  • Luna Park Reserve Trust
  • Parramatta Park Trust
  • Place Management NSW
  • Royal Botanic Gardens and Domain Trust
  • Western Sydney Parklands Trust.
• This order also abolished the following public services staff agencies:
  • Greater Cities Commission Staff Agency, and
  • Western Parklands City Authority Staff Agency.

Creation of new agencies effective 1 January 2024

On 6 December 2023, Administrative Arrangements (Administrative Changes-Miscellaneous) Order (No 6) 2023, created the following changes, effective 1 January 2024.

Under the Order the Department of Planning and Environment (the department) becomes the

• Department of Planning, Housing and Infrastructure
• Department of Climate Change, Energy, the Environment and Water.

The order effects the above change by renaming the department to Department of Planning, Housing and Infrastructure and creating the Department of Climate Change, Energy, the Environment and Water.

The staff of the Department of Climate Change, Energy, the Environment and Water include:

• the Environment and Heritage Group and the Water Group from the former department
• Office of Energy and Climate change transferred from NSW Treasury.

The Environment line team in the Corporate Services Group are transferred from the former department to the Environment Protection Authority Staff Agency.

The Department of Planning, Housing and Infrastructure includes the remaining staff within the former department.

The order also transfers the following staff within the Department of Planning, Housing and Infrastructure to the Department of Communities and Justice, effective 1 February 2024:

• the part that enables the Aboriginal Housing Office to exercise its functions
• the part that enables the New South Wales Land and Housing Corporation to exercise its functions
• the Housing Services team of the Homes, Property and Development Group.

Note: The above agencies continue to remain in existence with the support of staff within the Department of Communities and Justice.

Audit opinions

Unqualified audit opinions were issued on completed agencies' financial statements

Unqualified audit opinions were issued on all the 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 financial statements audits of the following entities remain outstanding at the date of this report:

The department has not yet provided their assessment against the financial reporting exemption criteria in the Government Sector Finance Regulation 2018 for the estimated 579 Category 2 Statutory Land Managers (SLMs) or 119 Commons Trusts for 2022–23 and no Category 2 SLM or Commons Trust has submitted its 2022–23 financial statements for audit.

Refer to section 2.3 'Timeliness of financial reporting' for more details.

The Water Administration Ministerial Corporation’s (the corporation) 2020–21, 2021–22 and 2022–23 financial statements audits were completed

The 2020–21 and 2021–22 audits of the corporation were completed and unqualified audit opinions were issued on 2 June 2023. The corporation's 2022–23 financial statements audit was completed and an unqualified audit opinion was issued on 12 October 2023.

An unqualified audit opinion issued on one acquittal audit

The following acquittal audit was completed during 2022–23:

• Department of Planning and Environment – an audit was conducted to determine if the Statement of Payments, which comprises the Financial Assistance Grant payments made by the department, was prepared in accordance with section 15(b)(i) of the Commonwealth Local Government (Financial Assistance) Act 1995

The number of identified monetary misstatements decreased in 2022–23, however the gross value of misstatements increased

The number of monetary misstatements identified during the audits of portfolio agencies' financial statements decreased from 59 in 2021–22 to 51 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 decreased from 46 in 2021–22 to 36 with a gross value of $491.8 million in 2022–23 ($73 million in 2021–22). Reported uncorrected misstatements increased from 13 in 2021–22 to 15 with a gross value of $11.9 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 36 corrected monetary misstatements, ten had a gross value of greater than $5 million and related to the following:

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

Nine agencies self-assessed under the GSF regulation as exempt from reporting obligations 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 2023’.

Two Special Deposits Accounts were exempt from financial reporting in 2022–23

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.

On 29 November 2023, NSW Treasury issued Treasurer’s Direction TD 23-24 ‘SDA Account financial reports’ which specifies the mandatory requirements for preparation of financial reports for SDAs in accordance with section 7.8(2) of the GSF Act.

Under TD 23-24, SDA’s are exempt from the requirement to prepare financial reports if they are:

• consolidated into the financial report of another GSF agency
• disclosed as an administered item by a GSF agency (per AASB 1050 Administered Items)
• not controlled by the NSW Total State Sector
• within the threshold limits set within TD 23-24, which include assets, liabilities, income, expenses and contingent liabilities of the SDA are each less than $5 million and total cash or cash equivalents are less than $2.5 million.

Exempt SDA Accounts are not required to comply with the requirements of TD 23-24, however they must continue to comply with any reporting requirements specified in their establishing legislation.

The Crown Reserves Improvement Fund (CRIF), a SDA established under the Crown Land Management Act 2016 was exempt from financial reporting under TD 23-24 as they were administered (per AASB 1050 Administered Items) by the Department of Planning and Environment, and thus disclosed as an administered item, in the department’s financial statements. Historically, CRIF prepared special purpose financial statements until 2021–22.

The NSW Reconstruction Authority Fund (RAF), a SDA established under section 22 of the NSW Reconstruction Authority Act 2022 was exempt from financial reporting under TD 23-24 as they had nil balances and transactions and were within the threshold limits set within TD 23-24.

The above mentioned SDA’s were not required by their establishing legislation to prepare financial reports and have these audited by the Auditor-General.

Early close procedures

Mandatory Early close 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.

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:

• ensure reconciliations on key account balances and administered items are performed and reviewed monthly
• obtain timely confirmations of inter and intra agency transactions and balances
• ensure the outcomes of comprehensive revaluations and fair value assessments of property, plant and equipment are properly recorded in the fixed asset register and financial statements.

Year-end financial reporting

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

NSW Treasury extended the year-end submission deadline for agencies to provide the note to the financial statements that provides disclosures on appropriations to 11 August 2023. The submission date for the rest of the financial statements (that is, excluding the appropriations disclosures) remained as 1 August 2023. The extension was granted under clause 7A of TD21-02.

Treasurer's Direction TD21-03 'Submission of Annual GSF Financial Statements to the Auditor-General' requires reporting GSF agencies that are not listed in Appendix A of TD21-02 to submit their annual financial statements for audit within six weeks after the year end.

The following agencies obtained NSW Treasury's approval to extend submission of their 30 June 2023 financial statements:

Financial statements were submitted on time for all portfolio agencies except Category 2 Statutory Land Managers, Commons Trusts, Catholic Metropolitan Cemeteries Trust, and Corporation Sole 'Minister Administering the Heritage Act 1977'

Portfolio agencies, except Category 2 Statutory Land Managers (SLMs), Commons Trusts, Catholic Metropolitan Cemeteries Trust and Corporation Sole 'Minister Administering the Heritage Act 1977, met the revised or approved 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 audits of seven portfolio agencies 2022–23 financial statements are ongoing.

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

There are a large number of GSF agencies with reporting obligations that do not currently prepare financial statements and submit them for audit

Category 2 Statutory Land Manager (SLM) is a type of Crown Land Manager that is controlled by the State. It excludes other Crown Land Managers such as councils, metro cemeteries, the Catholic Metropolitan Cemeteries Trust and Crown Holiday Parks land manager. SLMs are entities appointed by the Minister to be responsible for the care, control and management of Crown reserves on behalf of the people of New South Wales.

In 2022, the department advised, that that there are 596 Category 2 SLMs (excluding the Wentworth Park Sporting Complex Land Manager, which currently prepares and submits financial statements for audit every year). During 2019–20, NSW Treasury established financial reporting exemption criteria for the SLMs. These criteria are outlined in Division 2, Part 3A of the Government Sector Finance Regulation 2018. An amendment was made to section 9E(1)(c) of the GSF Regulation during the year to exclude money paid out of the Crown Reserves Improvement Fund, when assessing if the SLMs' income for the year was less than the income threshold of $100,000. As detailed further below, the impact of this change is not known because an assessment against the reporting exemption criteria has not been performed in 2022–23.

The GSF Act requires Category 2 SLMs to prepare annual financial statements, unless they meet this reporting exemption criteria. Where they do not meet this criteria, Treasurer's Direction TD 21-03 requires SLMs to submit financial statements for audit within six weeks following the end of the annual reporting period.

Forty five Category 2 Statutory Land Managers were assessed as not being exempt from preparing financial statements in 2021–22, but have still not prepared financial statements for that reporting year

Last year, we reported that the department did not finalise the 2021–22 reporting exemption assessment for the 596 Category 2 SLMs by the statutory reporting deadline. After the statutory reporting deadline to submit 30 June 2022 financial statements had passed, the department assessed 551 Category 2 SLMs met the reporting exemption criteria, and would therefore not be required to prepare 2021–22 financial statements. To date, none of the 45 non-exempt Category 2 SLMs has submitted their 2021–22 financial statements for audit.

An assessment against the reporting exemption criteria for all 579 Category 2 SLMs for 2022–23 is yet to be provided by the department

The department advised there were 579 Category 2 SLMs as at 30 June 2023. The department has not yet provided their assessment against the reporting exemption criteria under the GSF Regulation for the 579 Category 2 SLMs by the statutory reporting deadline or the date of this report for 2022–23, meaning it is currently unclear how many Category 2 SLMs have not met their obligation to prepare financial statements under section 7.6 of the GSF Act for 2022–23.

Financial statements have been submitted for audit for:

• 8 SLMs for the 2019–20 year
• 12 SLMs financial statements for the 2020–21 year (submitted for audit in March 2022).

Audits have progressed for the eight SLMs for the 2019–20 year. However, at the date of this report, only one SLM audit has been completed. An unqualified Independent Auditor’s Report for 30 June 2020 for the Tarcutta Racecourse Recreation Reserve Land Manager was signed on 20 October 2023.

The department needs to do more to support the SLMs in meeting their statutory reporting obligations. The department is working with NSW Treasury to review and streamline the reporting framework provisions for SLMs and Common Trusts and develop a broader risk-based exemption framework to support any future amendments to the exemption regime in the GSF Regulation.

All 119 Commons Trusts have not been assessed against the reporting exemption criteria for 2022–23

Commons Trusts are responsible for the care, control and management of commons for which the trust is established. A common is a parcel of land that has been set aside by the Governor or the Minister for specific use in a certain locality, such as grazing, camping or bushwalking. The Commons Trusts are considered to be controlled entities of the Minister who administers the Commons Management Act 1989. Commons Trusts are not SLMs.

NSW Treasury established specific reporting exemption criteria for SLMs, but in previous years, no such criteria was established for the Commons Trusts. During 2022–23, Treasury updated the GSF Regulation to include a specific exemption criteria for Commons Trusts, in section 9EA of the GSF Regulation.

Currently there are 119 Commons Trusts in New South Wales. None of the Commons Trusts prepared and submitted financial statements for audit in 2021–22, nor have they performed an assessment against the new reporting exemption criteria for 2022–23. This means it is unclear how many Commons Trusts have not met their obligation to prepare financial statements for audit under section 7.6 of the GSF Act for 2022–23.

Given SLMs and Commons Trusts are controlled entities of the State, they should be recognised in the Total State Sector Accounts. However, the lack of compliance with reporting requirements presents a challenge to obtaining reliable financial data for these agencies for the purposes of consolidation to the Total State Sector Accounts.

Catholic Metropolitan Cemeteries Trust continues not to submit financial statements to the Audit Office

NSW Treasury has reconfirmed its position that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State for financial reporting purposes. This means CMCT is a GSF agency under the provisions of the GSF Act. Section 7.6 of the GSF Act places a statutory obligation on CMCT to prepare financial statements and submit them to the Auditor-General for audit.

Further, section 34 of the GSA Act requires the Auditor-General to furnish an audit report on these financial statements.

We recommended in the ‘State Finances 2022’ report that NSW Treasury and the department should ensure CMCT meets its statutory reporting obligations. CMCT continues to contest NSW Treasury’s determination and assert it is not a controlled entity of the NSW Government.

For the past two years, CMCT has not met its statutory obligations to prepare financial statements under the GSF Act. CMCT has not submitted its financial statements to the Auditor-General for audit despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. There continues to be extensive correspondence between the Audit Office of New South Wales, CMCT, NSW Treasury and the department regarding this matter.

In December 2021, the then Minister for Water, Property and Housing wrote to the Auditor-General requesting a financial and performance audit be performed pursuant to section 27B(3)(c) of the GSA Act. The audit was to cover the financial affairs of CMCT, including whether funds had been used for the proper purpose. The Audit Office of New South Wales has written to CMCT on a number of occasions to request the provision of documentation and access to management in order to conduct the performance audit. CMCT has not provided the Audit Office of

New South Wales access to its management, books and records for the purpose of the required performance audit.

On 20 June 2023, the Auditor-General released her ‘Special report into the financial affairs of CMCT’ (the Special Report) which stated our Office was unable to conduct a performance audit in order to conclude on the financial affairs of CMCT, in response to the request made under section 27B(3)(c) of the GSA Act. This report noted that being denied access to management, books and records for the purposes of conducting statutorily required financial and performance audits should not be normalised, nor considered appropriate. It significantly impairs transparency to the Parliament on the outcome of the requested activity.

CMCT did not meet its statutory obligations as a controlled entity to submit its financial statements for audit and provide access to its books and records in 2022. Therefore, the Audit Office was unable to obtain sufficient appropriate audit evidence about the carrying amount of assets and liabilities consolidated into the Total State Sector Accounts as at 30 June 2022 and of the amount of income and expenses for the year then ended. Accordingly, a modified audit opinion was issued on the NSW Government's 2021–22 consolidated financial statements. The CMCT continues not to meet its statutory obligations.

Further information will be included in our upcoming ‘Report on State Finances 2023’.

Accounting for temporary housing program

The NSW Government responded to the 2022 Northern Rivers and Central West flood events with a large-scale emergency and temporary housing response. This required the NSW Government to implement a temporary housing program as a medium-term solution for the large number of people displaced by the floods involving the rapid procurement and construction of 546 temporary dwellings across five local government areas at 11 temporary housing village sites.

The former Resilience NSW (RNSW) was the lead agency responsible for recovery and led the implementation of the temporary housing program under the oversight of the Chair, Housing Taskforce from July 2022. NSW Reconstruction Authority (previously Resilience NSW) administers funding associated with the establishment and management of these villages, under the Northern Rivers Temporary Homes Program. This program was forecast to cost a total of $438 million, although the initial budget was $350 million. The program expenditure included costs for production and installation of temporary homes, managing the temporary housing villages, administration of the temporary housing program, demobilisation and restoration of the village sites at the end of the program.

The funding cost is shared between the NSW government and the Commonwealth government on a 50:50 basis under the Disaster Recovery Funding Arrangements (DRFA).

NSW Reconstruction Authority (the Authority) is the principal agency of the program and has engaged several parties for the administration of the temporary homes program:

• Public Works Advisory (PWA) within the Department of Regional NSW was appointed by the former Resilience NSW to procure, undertake site works and construct the temporary homes (using third parties) under emergency procurement arrangements. Costs incurred by PWA are then reimbursed by the Authority. The arrangements were intended to be temporary and the temporary homes dismantled at the end of the program and the village sites returned to their original function.
• The Authority entered into agreements with non-government organisations to maintain and manage day-to-day activities of the sites.
• The Authority had also entered into land leases during 2022 with NSW local councils and other organisations to which they have obligations for make good on the sites.

NSW Reconstruction Authority administers the Northern rivers temporary Homes Program, which was part of the government’s response to the 2022 flood emergency. This program involved a number of agreements for the acquisition of temporary homes, service agreements with third parties to run and maintain the sites, and leases with land holders such as local councils where the sites were located.

The former Resilience NSW and NSW Reconstruction Authority had previously assessed that they did not control the temporary housing assets under relevant accounting standards. A re-assessment of the agreements was made subsequent to the submission of the Authority’s 2022–23 financial statements for audit, which determined that the Authority was the appropriate NSW Government agency to recognise these assets. The reassessment of these agreements also identified makegood liabilities that not previously been recognised by the Authority or the former Resilience NSW.

All of the costs relating to the temporary homes program had been expensed in both the former Resilience NSW's 2021–22 financial statements and in the Authority's financial statements for the period 16 December 2022 to 30 June 2023. However, the agreements entered into by the former Resilience NSW created both assets and liabilities that required recognition.

Following identification of the issue by audit, the Authority developed an accounting position paper recommending they recognise these the temporary homes and site works as non-current property, plant and equipment assets.

The Authority and the former Resilience NSW had also not recognised provisions for their obligations within the land leases to make good the sites in their 2022–23 financial statements.

The following adjustments were subsequently corrected in the financial statements of the Authority for the period 16 December 2022 to 30 June 2023:

• The net assets transferred to the Authority from the former Resilience NSW on 16 December 2022, following the administrative restructure, were understated by $166.7 million due to the non-recognition of temporary home assets including the associated make  good liabilities of $38.7 million.
• In continuing to expense all program expenditure, the Authority understated its property, plant and equipment assets by a further $63.7 million. The make good provision, which was estimated at $42.2 million at 30 June 2023, continued to remain unrecognised.

The total carrying amount of these assets (demountable buildings and leasehold improvements, within property plant and equipment in the Authority's financial statements) is $269.2 million as at 30 June 2023. Refer to section 3.1 for further details.

The Audit Office's performance audit on 'Flood housing response' will assess how effectively the NSW Government responded to the need for emergency accommodation and temporary housing following the early 2022 Northern Rivers and late 2022 Central West flood events. This report is expected to be tabled early in 2024.

Process and Technology Harmonisation (PaTH) program implementation

As reported in our ’Stronger Communities 2023 Auditor-General's Report’, the Department of Communities and Justice (DCJ) assumed responsibility to deliver the PaTH program. The program aims to standardise corporate and shared services functions.

DCJ planned to transition agencies to the new ERP in two distinct waves. Wave 1a, comprising 21 agencies from the Planning and Environment and Regional NSW portfolios, commenced on the new ERP on 3 April 2023. A further 12 agencies predominantly from the Stronger Communities portfolio are planned to commence on 26 June 2023 and 3 July 2023 as part of Wave 1b.

Agencies comprising Wave 2 will commence on the new ERP in financial years 2023–24 and 2024–25.

The department implemented the Process and Technology Harmonisation (PaTH) program in April 2023. The Audit Office assessed the effectiveness of controls over the implementation of PaTH including project controls, elements of new controls design, data migration, and how management had adequately resolved project issues and defects.

The audit identified that:

• key documents to evidence management activities undertaken such as data migrations plans and tests, data reconciliations, or approvals and sign-offs for key milestones, could not be located and provided within a reasonable timeframe from DCJ. A number of documents had not been updated to accurately reflect the currency of the documents nor record the outcomes of any decision making
• agreements between the shared services hubs (DCJ and the department) are not complete. There is no formal agreement in place defining the responsibilities and cost recovery model between the service hubs. Discussions have been progressing, but no memorandum of understanding has been finalised or agreed. It is important for shared service agreements to be finalised to provide clarity over cost recovery and responsibilities in terms of service delivery between the two shared service hubs.

‌Prior period retrospective adjustments

Two agencies processed prior period adjustments

The following material prior period adjustments were corrected in agencies' 30 June 2023 financial statements.

Paid Parental Leave Entitlements

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 (the 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 Planning and Environment portfolio had not evaluated the change to the paid parental scheme for financial statement implications prior to submitting their financial statements for audit. Given the accumulating nature of the entitlement, a collective liability of $4.4 million, of which the department accounted for $2.6 million or 59.7%, should have been recognised within the individual financial statements of agencies within the Planning and Environment portfolio.

Portfolio agencies did not record the liabilities within their financial statements. Agencies impacted by the change concluded that the effect of not correcting the misstatements was not material individually, or in aggregate to their financial statements as a whole.

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 Planning and Environment

The Department of Planning and Environment (the department) aims to make the lives of people in New South Wales better by developing well-connected communities, preserving the environment, supporting industries and contributing to a strong economy.

Landcom

Landcom is the NSW Government’s land and property development organisation. It is a State Owned Corporation that works with government and the private and not-for-profit sectors to address housing affordability issue by improving the supply, diversity and affordability of new housing in Sydney and New South Wales.

NSW Land and Housing Corporation

NSW Land and Housing Corporation (LAHC) addresses the need for social housing across New South Wales. Social housing is provided by the NSW Government for some of the most vulnerable people in our communities. LAHC builds and manages the largest social housing portfolio in Australia.

Property NSW

Property NSW is responsible for the management and delivery of large-scale or complex real estate projects, transactions, workplace strategy, design and delivery, and manages the State’s significant property portfolio.

Sydney Olympic Park Authority

Sydney Olympic Park Authority (SOPA) is responsible for the management and development of 640 hectares of land that comprise Sydney Olympic Park and maintaining this precinct as a lasting legacy for the people of New South Wales.

Sydney Water Corporation

Sydney Water Corporation (SWC) is a State Owned Corporation that supplies customers in Greater Sydney and Illawarra with safe drinking water. SWC is also a custodian of wastewater, recycled water and some stormwater services, ensuring the communities can enjoy healthy rivers and clean beaches.

Water NSW

Water NSW is a State Owned Corporation that supplies two-thirds of water used in New South Wales to regional towns, irrigators, SWC and local water utilities. Water NSW also owns and operates the largest surface and groundwater monitoring network in the southern hemisphere and builds, maintains and operates essential infrastructure.

The NSW Reconstruction Authority

The NSW Reconstruction Authority (the authority) is the lead disaster management agency for NSW. It is responsible for facilitating disaster prevention, preparedness, recovery, reconstruction, and adaptation to the effects of natural disasters in NSW.

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

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

In 2022–23, there were 140 findings raised across the portfolio (132 in 2021–22). Thirty per cent of all issues were repeat issues (34% in 2021–22).

The most common repeat issues related to information technology user access controls and monitoring, internal control deficiencies relating to accounting for assets and the revaluation 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.

The number of high-risk findings decreased

High-risk findings decreased from eight in 2021–22 to seven in 2022–23, including four repeat issues, two new findings, one repeat finding elevated from moderate risk in 2022–23. Three of the eight 2021–22 high-risk findings were resolved and one reclassified to moderate risk in 2022–23 as management has taken action to mitigate the risks. One audit remains in progress, which had a high-risk finding in 2021–22. As the audit is not concluded the audit results are not included in this report.

Three out of eight high-risk rated issues reported in 2021–22 have been addressed

Three high-risk findings reported in the management letters of one portfolio agency in 2021–22 have been actioned. One high-risk issue has been re-assessed as moderate in the current year, and four have been repeated.

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, however 39% were repeat issues

Seventy-six moderate risk findings were reported in 2022–23, representing a 16% decrease from 2021–22. Of these, 30 were repeat findings, and 46 were new issues.

Moderate risk findings mainly related to deficiencies in:

• information technology user access controls and monitoring, along with outdated IT policies and procedures
• payroll processing controls issues
• expenses and inventory transactions not recorded in correct financial years
• purchase orders created after receipt of invoices
• asset management including:
  • timely capitalisation of work in progress
  • weak process over maintaining an accurate and complete fixed assets register and associated FAR reconciliation issues
  • deficiencies in assets revaluation processes. 

The department is responsible for oversight of the management of Crown land in New South Wales, which it estimates to cover approximately 34 million hectares or 42% of the State. Crown land includes parks, reserves, roads and cemeteries. Parcels of Crown land are managed and controlled by numerous public and private sector organisations, including corporations, statutory bodies and local councils.

In 2022–23, the department engaged external valuers to perform a comprehensive revaluation of its Crown land assets. This resulted in a $4.7 billion increase to the value of the Crown land. The carrying value of Crown land, measured at fair value in accordance with Australian Accounting Standards and NSW Treasury financial reporting requirements at 30 June 2023 was $11 billion, representing 57.5% of the department’s total property, plant and equipment.

The department used a mass valuation technique based on market approach to estimate fair value of Crown land assets. The mass valuation included valuation of 4,317 benchmark properties assessed by independent contract valuers. The valuers’ assessment results have been interpolated across the remainder of the Crown land portfolio. Management also engaged an independent statistician to review the methodology and inputs into the valuation.

There continues to be significant deficiencies in Crown land records

The department maintains the Crown Land Information Database (CLID), which records various details about the Crown land in New South Wales managed and controlled by the department and Crown Land Managers (CLMs) and other agencies. CLID is also used to assist in preparation of the Department of Planning and Environment’s financial statements.

For many years, we reported deficiencies in the recording of Crown land assets in CLID. While the department implemented a number of initiatives to remediate the system over the past few years, the audit process continued to identify deficiencies in Crown land records. Examples include:

• incorrect entity shown as the manager of some Crown land
• incorrect status of Crown land
• incorrect records relating to Crown land, such as land size and use
• delays in updating changes to CLID
• unreconciled and long outstanding reconciling items between CLID and the general ledger of the Department of Planning and Environment.

The CLID is used by the department to oversee management of all Crown Land.

Incorrect data in CLID continues to be identified, which can result in misstatements in the financial statements of the department and other agencies.

Auditor-General’s Reports to Parliament since 2017 have recommended the department ensure the Crown land database is complete and accurate. This would enable the department and other CLMs to confirm:

• all Crown land that should be recognised in their financial statements
• that different organisations are not recognising the same parcel of Crown land. 

Long standing unresolved Crown land work orders and anomalies

We continued to observe a large number of outstanding Crown land work orders and anomalies in CLID compared to source data sets at 30 June 2023. Crown land work orders represent changes to the records in CLID and to the mark-up of Crown Land in the Digital Cadastral Database (DCDB). Many of these issues remained unresolved for more than five years. Not resolving the above issues would require significant effort from the department’s staff to perform manual workarounds to deal with system limitations. This may also increase the risk of errors.

The State Government has reconfirmed its view that rural firefighting equipment vested to councils under Section 119(2) of the Rural Fires Act 1997 is not controlled by the State. In reaching this conclusion, the State argued that on balance it would appear the councils control the rural firefighting equipment that has been vested to them.

Since 2017, the Audit Office of New South Wales has recommended that the Office of Local Government (OLG) and then the Department of Planning and Environment address the different practices across the local government sector in accounting for the vested rural firefighting equipment. The Audit Office has made recommendations in our ‘Local Government 2022’ and ‘Planning and Environment 2022’ Auditor-General’s reports (tabled in NSW Parliament on 13 June 2023 and 15 December 2022 respectively).

The department has attempted to respond to recommendations that it take a stronger regulatory stance, but without success

The Secretary of the Department of Planning and Environment’s response to the Auditor-General’s ‘Local Government 2022’ report, tabled in Parliament in June 2023, confirmed that the department will communicate to the sector the Government’s position and will take a stronger regulatory stance to require councils to include vested rural firefighting equipment in their future accounts.

Since the tabling of the ‘Local Government 2022’ and ‘Planning and Environment 2022’ Auditor-General’s reports the department has worked with NSW Treasury, the NSW Rural Fire Service (RFS), the Audit Office of NSW on the following:

• NSW Treasury shared its position paper and guidance with the local government sector
• RFS shared its asset listing and costings, and encouraged its brigades to provide councils with access to the assets (in both 2022 and 2023)
• the delivery of an information webinar, hosted by the department, to provide Treasury, the RFS and the Audit Office the opportunity to provide advice and guidance to the sector about reporting vested rural firefighting equipment assets
• the Office of Local Government wrote to all councils that had received a qualified independent audit opinion on their 2021–22 financial statements requesting these councils provide the OLG with the strategies implemented to address the qualified audit opinion and to address any significant audit risks raised and a copy of the Audit Office’s 2021–22 management letter and Council’s response.

The department should continue to address councils' non-compliance with legislative responsibilities, standards and guidelines

The department’s role includes assessing whether intervention is appropriate with respect to councils’ compliance with, and performance against legislative responsibilities, standards or guidelines. Given the State’s clear position, it would appear that any council not recognising vested rural firefighting equipment is non-compliant with the relevant Australian Accounting Standards.

Forty-three of 146 completed audits of councils received qualified audit opinions on their 2022 financial statements. Twenty six of 108 completed audits of councils received qualified audit opinions on their 2022–2023 financial statements and six councils had their qualifications for not recording vested rural firefighting equipment removed in 2022–2023, at the date of this report. The list of councils that received qualified audit opinions will be published in our ‘Local Government 2023 Report’.

This situation is unlikely to be resolved in the absence of regulatory intervention.

The Audit Office has made recommendations in our ‘Regulation and Monitoring of Local Government' performance audit report tabled in NSW Parliament on 25 May 2023. This included that OLG review and update frameworks and procedures for regulatory responses.

This audit assessed whether the OLG is effectively monitoring and regulating the sector under the Local Government Act 1993. The audit covered:

• the effectiveness of departmental arrangements for the OLG to undertake its regulatory functions
• whether the OLG has effective mechanisms to monitor and respond to risks and issues relating to council compliance and performance.