Machinery of government changes

The Premier and Cabinet cluster was subject to Machinery of Government (MoG) changes during 2021–22. The Administrative Arrangements (Second Perrottet Ministry - Transitional) Order 2021, Administrative Arrangements (Second Perrottet Ministry - Allocation of Acts and Agencies) Order 2021 and Administrative Arrangements (Administrative Changes - Miscellaneous) Order 2022 (the Administrative Orders) became effective from 1 April 2022.

The Administrative Orders resulted in the transfer of net assets of $1 billion from the Department of Premier and Cabinet (the department). The Administrative Orders also established Destination NSW Staff Agency and State Archives and Records Authority of NSW Staff Agency.

The Administrative Orders resulted in the following equity transfers from the department:

• net assets of $1 billion to the Department of Enterprise, Investment and Trade (DEIT) for Create NSW. This includes persons employed in Create NSW and Create Infrastructure to DEIT
• net assets of $8.9 million for Heritage NSW to the Department of Planning and Environment
• persons employed in the Historic Houses Trust, and associated employee provisions and offsetting personnel services receivables of $2.4 million, to the State Archives and Records Authority of New South Wales Staff Agency
• persons employed to enable the State Archives and Records Authority of New South Wales to exercise its functions, and associated employee provisions and offsetting personnel services receivables of $1.7 million, to the State Archives and Records Authority of New South Wales Staff Agency.

The Administrative Orders resulted in the following staff transfers into the department:

• persons employed in Women NSW, and associated employee liabilities of $0.1 million, from the Department of Communities and Justice (DCJ)
• persons employed in Office of Community Safety & Cohesion, and associated employee liabilities of $0.4 million, from DCJ.

The Administrative Orders also resulted in a transfer of several agencies out of the Premier and Cabinet cluster (the cluster). The following table provides a list of agencies which were transferred out of the cluster and details of their new department they were transferred into from 1 April 2022.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all cluster agencies' 30 June 2022 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.

The number of identified monetary misstatements decreased in 2021–22

The number of monetary misstatements identified during the audits of cluster agencies' financial statements decreased from 17 in 2020–21 to 15 in 2021–22. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit.

Reported corrected misstatements decreased from 10 in 2020–21 to six with a gross value of $56.6 million in 2021–22. Reported uncorrected misstatements increased from seven in 2020–21 to nine with a gross value of $2 million in 2021–22. The 2020–21 misstatements exclude the misstatements for agencies transferred out of the cluster due to the Administrative Orders.

The table below shows the number and quantum of monetary misstatements for the past two years.

The table below shows the number of corrected and uncorrected monetary misstatements for the past two years by cluster agency. 

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

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

Four agencies were exempted from financial reporting in 2021–22

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 2021–22, 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 2020–21, the above cluster agencies were also exempted from financial reporting in accordance with Part 3A Division 2 of the GSF Regulation.

Early close procedures

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

NSW Treasury introduced early close procedures to improve the quality and timeliness of year-end financial statements. In April 2022, NSW Treasury reissued Treasurer’s Direction TD19-02 ‘Mandatory Early Close as at 31 March each year’ (TD19-02) and released Treasury Policy and Guidelines TPG22-11 ‘Agency Direction for the 2021–22 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 2022. The 17 mandatory procedures are listed in Appendix one.

Cluster agencies met the statutory deadline for submitting their 2021–22 early close financial statements and other mandatory procedures.

The table below summarises the agencies’ completion of the 17 mandatory early close procedures noting that some procedures are not relevant to all agencies. The mandatory early close procedures and the details of the non-applicable procedures are listed in Appendix one.

Agencies need to improve their completion of early close procedures

The following agency did not complete all mandatory early close procedures: 

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

• complete all revaluation of property, plant and equipment in a timely manner
• close off matters raised in prior year management letter and engagement closing reports.

Year-end financial reporting

NSW Treasury required all agencies to submit their financial statements by 1 August 2022

In June 2022, NSW Treasury issued a suite of Treasurer's Directions and Treasury Policy and Guidelines for 2021–22 financial reporting requirements and timetables:

• Treasurer's Direction TD21-02 ' Mandatory Annual Returns to Treasury' (TD21-02) and Treasury Policy and Guidelines TPG22-16 'Agency Direction for the 2021–22 Mandatory Annual Returns to Treasury' require agencies listed in the Appendix A of TD21-02 to submit their 2021–22 financial statements to both NSW Treasury and the Audit Office by 1 August 2022.
• Treasury Policy and Guidelines TPG22-17 'Agency guidelines for the 2021–22 Mandatory Annual Returns to Treasury for NSW public sector agencies that are not included in TD21-02' requires NSW public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2021–22 financial statements to NSW Treasury by 1 August 2022.
• Treasurer's Direction TD21-03 'Submission of Annual GSF Financial Statements to the Auditor-General' requires reporting GSF agencies that are not listed in Appendix A of TD21-02 to submit their annual financial statements for audit within six weeks after the year end. 

Financial statements were submitted on time for all cluster agencies

Cluster agencies met the reporting deadlines for submitting their 2021–22 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 all cluster agencies financial statements have been completed.

The table below shows the timeliness of the year-end financial reporting for cluster agencies. 

Intra-government property leases managed by Property NSW

The changes in office accommodation arrangement with Property NSW resulted in derecognition of right-of-use assets and lease liabilities

Property NSW (PNSW) is responsible for managing most of the state government agencies leased real estate property portfolio. During 2021–22, PNSW made some changes to its intra-government lease arrangements, including rewriting the standard client acceptance letter (CAL) to include a 'Relocation and substitution right' clause. This clause allows PNSW to relocate agencies to other locations and remove their right to control the use of the identified accommodations. As a result, the new CALs no longer constitute a lease under AASB 16 'Leases'. The changes became effective from 30 June 2022.

The Department of Premier and Cabinet, Public Service Commission and Parliamentary Counsel's Office accepted the changes to their office accommodation arrangements with PNSW. This has resulted in:

• the derecognition of $167.3 million of right-of-use assets (ROU assets)
• the derecognition of $225.1 million of lease liabilities
• $47.8 million of other gains/losses.

Going forward, these agencies will recognise the office accommodation payments as expenses in the Statement of Comprehensive Income. Agencies will continue to recognise the fit-outs and make good provisions.

Agencies have included appropriate disclosures in their year-end financial statements, detailing the accounting policies, significant judgments made and impact of the derecognition of the ROU assets and lease liabilities at 30 June 2022.

The following agencies did not exercise the option to accept the changes to their office accommodation arrangements with PNSW:

• New South Wales Electoral Commission
• Ombudsman's Office
• Independent Commission Against Corruption
• Law Enforcement Conduct Commission.

These agencies will continue to record ROU assets and lease liabilities arising from the original CAL as the existing arrangements still constitute a lease under AASB 16 'Leases'.

Machinery of government practices

Confirmations were not obtained in writing with receiving agencies for material equity transfers

The Administrative Orders were effective from 1 April 2022 and resulted in the following equity transfers out of the department:

• Net assets of $1 billion transferred out to the Department of Enterprise, Investment and Trade for Create NSW.
• Net assets of $8.9 million transferred out to the Department of Planning and Environment for Heritage NSW.
• Employee provisions and offsetting personnel services receivables of $1.7 million to the State Archives and Records Authority for State Archives and Records Authority personnel services.
• Employee provisions and offsetting personnel services receivables of $2.4 million to the State Archives and Records Authority for Historic Houses Trust personnel services.

Whilst confirmations were obtained for those entities transferring to the department, inter-entity confirmations were not agreed in writing with receiving agencies before the financial statements were submitted for audit. This increased the risk of disagreements and delays to reporting timeframes between agencies on the closing balances of assets and liabilities transferred.

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 cluster agencies.

Department of Premier and Cabinet

Department of Premier and Cabinet supports the cluster’s strategic direction, coordination and delivery role across government for the people of New South Wales.

Parliamentary Counsel's Office

The Parliamentary Counsel's Office (PCO) is responsible for drafting and providing access to most of the legislation for New South Wales. It drafts all bills for Acts required for introduction into Parliament. It also drafts a wide range of statutory instruments, including regulations, rules, proclamations, orders and environmental planning instruments (EPIs). It also manages the NSW legislation website, which provides public access to legislation.

Public Service Commission

The Public Service Commission (PSC) is a public service agency that exists to support the Commissioner in the execution of their statutory functions. The Public Service Commissioner is an independent statutory office holder appointed by the Governor under the Government Sector Employment Act 2013 (NSW).

Independent Commission Against Corruption

The Independent Commission Against Corruption (ICAC) was established by the NSW Government in 1988 in response to growing community concern about the integrity of public administration in New South Wales. ICAC's principal functions are to investigate and expose corrupt conduct in the NSW public sector, actively prevent corruption through advice and assistance and to educate the New South Wales community and public sector about corruption and its effects.

Law Enforcement Conduct Commission

The Law Enforcement Conduct Commission (LECC) detects, oversights, investigates and exposes misconduct and maladministration within the NSW Police Force and the NSW Crime Commission. LECC provides independent oversight and review of investigations by the NSW Police Force of misconduct matters concerning the conduct of its members and the NSW Crime Commission concerning its officers. It uses its investigative powers to identify and deal with cases of misconduct and maladministration in these agencies.

New South Wales Electoral Commission

The New South Wales Electoral Commission (Electoral Commission) is legislated to conduct, regulate, and report on general elections and by-elections for the Parliament of New South Wales. They also provide electoral services to local governments.

Ombudsman's Office

The Ombudsman's Office, led by the NSW Ombudsman, is an independent and impartial integrity agency which watches over most New South Wales public sector agencies and some community service providers. They help to ensure these organisations and their staff do their jobs properly and meet their responsibilities to the community.

The number of findings reported to management has decreased, and 40% 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 2021–22, there were ten findings raised across the cluster (75 in 2020–21). Forty per cent of all issues were repeat issues (24% in 2020–21). The decrease in findings is largely due to the Administrative Orders, which transferred 33 agencies out of the cluster to other departments during 2021–22. Of the 75 findings in 2020–21, 59 findings related to agencies that were transferred out by the Administrative Orders.

The most common repeat issues related to weaknesses in controls over financial reporting.

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 decreased from prior year

Four moderate risk findings were reported in 2021–22, representing a 91% decrease from 2020–21. Of these, three were repeat findings. As previously discussed, the decrease in findings is largely due to the Administrative Orders, which transferred 33 agencies out of the cluster to other departments during 2021–22.

Moderate risk findings mainly related to:

• password and security configuration
• lack of updated procurement policies and procedures
• obtaining formal confirmations for equity transfers.