Machinery of Government (MoG) changes

The Premier and Cabinet cluster was impacted by three Machinery of Government (MoG) changes during 2020–21. MoG refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises structures and functions of the public service and they are given effect by Administrative Orders.

These changes were implemented through the following Administrative Changes Orders:

• Administrative Arrangements (Administrative Changes - Miscellaneous) Order 2020, issued and effective 1 July 2020. This order transferred the Aboriginal Cultural Heritage Regulation Branch from Department of Planning Industry and Environment (DPIE) to the Department of Premier Cabinet (DPC).
• Administrative Arrangements (Administrative Changes- Transfer of Staff to Western City and Aerotropolis Authority Staff Agency) Order 2020, issued 14 October 2020 and effective 16 October 2020. This order transferred:
  • persons employed in the Western Sydney City Deal Delivery Office of the Greater Sydney Commission Staff Agency to the Western City and Aerotropolis Authority Staff Agency. The City Deal Delivery Office Western City Liveability Program was also transferred
  • persons employed in the Western Sydney Investment Attraction Office of the NSW Treasury to the Western City and Aerotropolis Authority Staff Agency.
• Administrative Arrangements (Administrative Changes – Miscellaneous) Order 2021, issued 26 March 2021 and effective 29 March 2021. This order established Investment NSW, transferring functions and activities from the Department of Education, NSW Treasury, DPC and the Department of Planning, Industry and Environment to Investment NSW. The persons employed in the Destination NSW Staff Agency were transferred to Investment NSW, abolishing the staff agency. Persons employed in the Treasury Precincts team were transferred to the Greater Sydney Commission Staff Agency. Additionally, the following agencies were transferred from the Treasury cluster to Premier and Cabinet cluster:
  • Western Parkland City Authority (previously Western City and Aerotropolis Authority) and its staff agency
  • Jobs for NSW Fund.

Our performance audit report 'Machinery of Government changes' is expected to consider issues associated with MoG changes, including whether they achieved their effectiveness and efficiency goals and improved public sector administration. The report is scheduled to be published this month.

Changes to enabling legislation

On the 11 December 2020, Schedule 1 of Statue Law (Miscellaneous Provisions) Act 2020 altered the name of Western City and Aerotropolis Authority and its staff agency to Western Parkland City Authority. It did not affect the Authority's structure or financial reporting requirements.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all completed cluster agencies' 30 June 2021 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.

Audits are ongoing for:

• Corporation Sole 'Minister Administering the Heritage Act 1977'
• Jobs for NSW Fund.

The number of identified monetary misstatements decreased in 2020–21

The number of monetary misstatements identified during the audit of the financial statements for the cluster decreased from 49 in 2019–20 to 38 in 2020–21. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit.

Reported corrected misstatements decreased from 36 in 2019–20 to 28 in 2020–21. Reported uncorrected misstatements decreased from 13 in 2019–20 to 10 in 2020–21.

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 28 corrected misstatements, one had a gross value of greater than $5.0 million and related to a prior period error. The Library Council of New South Wales corrected a prior period error of $325 million. In 2017, the council split its collection assets into six asset classes, but not the related asset revaluation reserves. To correct this error, some revaluation decrements previously recognised in asset revaluation reserves were reclassified to accumulated funds.

New financial reporting provisions became effective from 1 July 2021

The financial reporting provisions in Division 7.2 of the Government Sector Finance Act 2018 (GSF Act) commenced on 1 July 2021. Agencies prepared their annual GSF financial statements for the 2020–21 financial year under Division 7.2 of the GSF Act.

Thirteen agencies were exempted from financial reporting in 2020–21

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 2020–21, the following cluster agencies have assessed and determined they met the reporting exemption criteria under the GSF Regulation, and therefore were not required to prepare annual financial statements:

In 2019–20, the above staff agencies were also exempt from financial reporting under Schedule 2 of the Public Finance and Audit Regulation 2015.

Early close procedures

Early close mandatory procedures were submitted on time for all cluster agencies

NSW Treasury prescribes certain mandatory early close procedures to improve the quality and timeliness of agency year-end financial statements. In March 2021, NSW Treasury reissued Treasurer’s Direction TD19-02 ‘Mandatory Early Close as at 31 March each year’ (TD19-02) and released TPP21-01 ‘Agency Direction for the 2020–21 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 26 April 2021.

The table below summarises the agencies' completion of the 16 mandatory early close procedures, noting that some procedures are not relevant to all agencies. The 16 procedures are listed at Appendix two.

Agencies can improve their completion of early close procedures

The following agencies did not perform all required procedures. 

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

• appropriately document or perform a significant judgements and assumptions assessment
• perform and or document their assessment fair value assessment of property, plant and equipment
• finalise right-of-use assets/liabilities or perform an impairment assessment of right of use assets
• appropriately assess the impact of implementing new accounting standards.

Year-end financial reporting

NSW Treasury extended financial reporting deadlines

Due to the COVID-19 pandemic, NSW Treasury extended the year-end financial reporting deadline for agencies listed in Appendix A of Treasury Direction TD21-02 'Mandatory Annual Returns to Treasury' (TD21-02) to 2 August 2021.

During May and June 2021, NSW Treasury issued a suite of Treasurer's Directions, Treasury Circular and policy papers for 2020–21 financial reporting requirements and timetables:

• Treasurer's Direction TD21-02 and Treasury Policy Paper TPP21-04 'Agency Direction for the 2020–21 Mandatory Annual Returns to Treasury' require agencies listed in the Appendix A of TD21-02 to submit their 2020–21 financial statements to both NSW Treasury and the Audit Office by 26 July 2021.
• Treasury Circular TC21-04 '2020–21 Mandatory Annual Returns to Treasury for non-GSF agencies' requires NSW public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2020–21 financial statements to NSW Treasury by 26 July 2021.
• 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 within six weeks after the year end.

The following agencies obtained NSW Treasury's approval to further delay submission of their 30 June 2021 financial statements: 

Financial statements were submitted on time for all cluster agencies

Cluster agencies met the revised or approved reporting deadlines for submitting their 2020–21 financial statements.

On 1 July 2021, the Public Finance and Audit Act 1983 (PF&A Act) was renamed the Government Sector Audit Act 1983 (GSA Act). Whilst the PF&A Act required the Auditor-General to audit agencies' financial statements within ten weeks of their receipt, the GSA Act does not specify the statutory deadline for issuing the audit reports.

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

Financial sustainability

Two agencies received letters of financial support

The COVID-19 pandemic and its consequential impacts has affected the way in which some of the cluster agencies operate. The New South Wales Electoral Commission (the Commission) and Sydney Opera House Trust obtained letters of financial support from their relevant Minister and/ or NSW Treasury.

The Commission was impacted by the postponement of the local government elections to 4 December 2021. This deferral impacted the Commission's operations due to increased planned expenditure to support a COVID-safe election. The Sydney Opera House Trust's ability to generate revenue was impacted due to the closure of the Concert Hall, partly due to COVID-19 and planned renovations.

While not requiring a letter of financial support, Greater Sydney Commission continued to report negative equity of $2.7 million in 2020–21 ($1.6 million in 2019–20). The negative equity is primarily due to timing differences, as accrued expenditure in 2016–17 was not funded by grant revenue from DPC. Future financial support of $25.5 million is provided to Greater Sydney Commission in the 2021–22 NSW Budget Papers.

Prior period errors corrected retrospectively

The Library Council of New South Wales and Infrastructure NSW corrected prior period errors

The Library Council of New South Wales (the Council) and Infrastructure NSW reported the retrospective correction of prior period errors.

In 2017, the Council split its collection assets into six asset classes, but not the related asset revaluation reserves. Until 2020–21, revaluation adjustments were made against the total collection asset reserve balance. When the reserves were split into classes, it was identified that two of the asset class reserves did not have sufficient surplus to offset the revaluation decrements posted since 2017. This resulted in a $325 million prior period error.

Infrastructure NSW omitted the value of land under roads of $15.0 million from their 2019–20 financial statements. This was self-identified and corrected in 2020–21 before financial statements were submitted for audit.

Both agencies corrected the misstatements retrospectively in accordance with AASB 108 'Accounting Policies, Changes in Accounting Estimates and Errors'.

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 cluster agencies.

Department of Premier and Cabinet

The Department of Premier and Cabinet (DPC) leads the NSW public sector to deliver on the NSW Government's commitments and priorities. DPC supports the NSW Premier and Ministers by coordinating the initiatives of Ministers and their agencies, managing the passage of government legislation, supporting the delivery of major projects and planning significant state events.

Investment NSW

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

Infrastructure NSW

Infrastructure New South Wales (INSW) provides independent advice to help the government identify, prioritise project delivery, and place management of critical public infrastructure across NSW.

Art Gallery of New South Wales Trust

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

Sydney Opera House Trust

Sydney Opera House operates as one of the State’s cultural institutions within the Arts portfolio. It provides a broad range of cultural, tourism, community and commercial experiences to people from Sydney, NSW Australia and around the world.

Resilience NSW

Resilience NSW leads government disaster and emergency efforts from prevention to recovery by ensuring communities devastated by drought, bushfires, floods and COVID-19 get the help they need to rebuild and recover.

Thirty-two per cent of all issues were repeat issues

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

In 2020–21, there were 75 findings raised across the cluster (75 in 2019–20). Thirty-two per cent of all issues were repeat issues (29 per cent in 2019–20).

The most common repeat issues related to weaknesses in governance and oversight, excessive annual leave and information technology.

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

The number of moderate risk findings increased from prior year

Forty-seven moderate risk findings were reported in 2020–21, representing a 42 per cent increase from 2019–20. Of these, 16 were repeat findings, and 31 were new issues.

Moderate risk findings related to:

• incomplete risk registers
• inadequate reporting of information technology risks to senior management
• lack of formalised information technology policies and procedures
• lack of privileged user activity reviews
• lack of service level agreements
• purchase orders being approved after receiving invoices
• system delegations not reflecting the limits outlined in the instrument of delegation resulting in personnel approving expenditure outside of their limit
• lack of a robust fair value assessment for assets
• fully amortised and or depreciated assets still in use
• lack of periodic review of master files
• no encryption over payment files.

Matters of non-compliance Jobs for NSW Fund (Jobs Fund)

The Jobs Fund did not fully comply with the Government Sector Finance Act 2018 and Jobs for NSW Act 2015

The Jobs for NSW Fund (Jobs Fund) was established as a Special Deposits Account under the Jobs for NSW Act 2015 (the Act). The Jobs Fund, was previously administered by NSW Treasury during 2019–20. On 29 March 2021, the Administrative Arrangements (Administrative Changes – Miscellaneous) Order 2021, transferred the Jobs Fund to the Premier and Cabinet cluster.

The 2019–20 audit process was delayed due to the quality and timeliness of the financial reporting process. An unmodified audit opinion was issued on 18 August 2021. The following matters of non-compliance were noted during the 2019–20 audit process:

• section 5(2) of the Act requires the board to consist of seven members, the board consisted of only two members
• 5 payments from the Jobs Fund were authorised by an officer without the appropriate delegation from the Minister.

The 2020–21 Jobs Fund audit is ongoing, with draft financial statements provided on the 25 October 2021.

Machinery of Government changes - audit observations

Investment NSW arrangements not supported by service level agreements

The Premier and Cabinet cluster was subject to Machinery of Government (MoG) changes during 2020–21. These changes had an administrative impact on the cluster agencies. The changes resulted in transfer of activities and functions in and out of the cluster and the creation of a new entity (Investment NSW).

A number of activities and functions were transferred on 29 March 2021 from NSW Treasury, Department of Premier and Cabinet (DPC), Department of Planning, Industry and Environment (DPIE) and Department of Education to Investment NSW. On 29 March 2021, the Secretary of DPC confirmed in writing that DPC, DPIE and Treasury would initially provide corporate services to their former staff when they transferred into Investment NSW (and other impacted entities), and that an agreement would be developed by 30 June 2021 to formalise the arrangements. There were no formal service level agreements to 30 June 2021, which increased the risk of unclear responsibilities and accountabilities for deliverables. 

As at the date of this report, a Memorandum of Understanding is in place from 1 July 2021 with DPC which in time will be the only agency that continues to provide services to Investment NSW. We understand the other transferor entities continue to provide services to Investment NSW subsequent to 30 June 2021.

Purchase and recognition of land

Aerotropolis Core Project - Western Parkland City Authority

On 6 September 2021 (after the 30 June 2021 balance date), Western Parkland City Authority (the Authority) purchased 114.9 hectares of land located at Bringelly from the Commonwealth Department of Infrastructure, Transport, Regional Development and Communications for $293 million. A portion of the land may require remediation from contamination.

The Authority plans to perform a comprehensive revaluation of this parcel of land during the 2021–22 financial year. In addition, the Authority plans to determine and quantify the cost of any remediation of contaminated land. These matters will be an area of audit focus in 2021–22.