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 arrangements orders.

The Administrative Arrangements (Administrative Changes—Miscellaneous) Order (No 10) 2022, effective 16 December 2022, transferred staff employed in the Strategic Emergency Management Policy and Coordination Branch of Resilience NSW to the Department of Premier and Cabinet. This order resulted in a transfer of employee liabilities of $553,000 from the Strategic Emergency Management Policy and Coordination Branch of Resilience NSW to Department of Premier and Cabinet.

The Administrative Arrangements (Minns Ministry—Administration of Acts) Order 2023, effective 5 April 2023, transferred the administration of the Natural Resources Commission Act 2003 from the Minister for Planning and Homes to the Premier. The Natural Resources Commission is a statutory body which is responsible to the Premier.

The Administrative Arrangements (Administrative Changes—Miscellaneous) Order (No 3) 2023, effective 3 May 2023, allocated the administration of the Independent Pricing and Regulatory Tribunal Act 1992 from the Minister for Customer Service and Digital Government to the Premier. The Independent Pricing and Regulatory Tribunal Staff Agency is listed in the Government's Governance Arrangements Chart as a separate agency reporting to the Premier, reflecting the responsibility of Independent Pricing and Regulatory Tribunal to the Premier in accordance with clause 3 of Schedule 1 to the Administrative Arrangements (Public Service agencies and Ministers) Order 2023.

The Administrative Arrangements (Administrative Changes—Miscellaneous) Order (No 4) 2023. effective 1 July 2023, changed the name of the Department of Premier and Cabinet to the Premier's Department and transferred parts of Department of Premier and Cabinet to The Cabinet Office.

The following functions were transferred from the Department of Premier and Cabinet to The Cabinet Office under the Administrative Arrangements (Administrative Changes – Miscellaneous) Order (No 4) 2023, effective 1 July 2023:

• Office of General Counsel
• Policy Group, other than the following parts:
  • WestInvest
  • Emergency Management branch
  • Women NSW
  • Flood Inquiry Project Management Office.
• the Shaping Futures branch of the Community Engagement Group.
• The Administrative Arrangements (Administrative Changes—Miscellaneous) Order (No 4) 2023 effective 1 July 2023, made the following changes in relation to Public Service executive agencies related to Departments (agencies listed in Part 2 of Schedule 1 to the GSE Act):
• The Natural Resources Commission Staff Agency became a related agency to the Premier’s Department (previously related to Department of Premier and Cabinet)
• The Parliamentary Counsel’s Office became a related agency to The Cabinet Office (previously related to Department of Premier and Cabinet).

The order will result in an estimated transfer out of $123,000 in assets and $3.6 million out in liabilities to the Cabinet Office.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all 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 number of identified monetary misstatements decreased in 2022–23

The number of monetary misstatements identified during the audits of portfolio agencies' financial statements decreased from 15 in 2021–22 to 12 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 six in 2021–22 to three in 2022–23 with a gross value of $381,000. Reported uncorrected misstatements remained at nine in 2022–23 with a gross value of $2.45 million.

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 portfolio agency.

Four 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. The GSF Regulation, which is administered by NSW Treasury, sought to exempt certain agencies from the requirement to prepare financial statements under section 7.6 of the Government Sector Finance Act 2018 (GSF Act).

Small agencies were exempted from financial reporting under clause 9D if they met all of the following requirements:

• the assets, liabilities, income, expenses, commitments and contingent liabilities of the agency are each less than $5 million
• the total cash or cash equivalents held by the agency is less than $2.5 million
• at least 95% of the agency’s income is derived from money paid out of the Consolidated Fund or money provided by other GSF agencies
• the agency does not administer legislation for a Minister by or under which members of the public are regulated.

Special purpose staff agencies were exempted from financial reporting under clause 9F of the GSF Regulation where the agency was comprised solely of persons who were employed to enable another particular GSF agency to exercise its functions.

Other exemption categories include crown land managers (clause 9E), common trusts (clause 9EA) and retained State interests (clause 9G).

For 2022–23, the following agencies did not prepare annual financial statements.

Matters around the effectiveness of the exemptions framework will be included in our Report on State Finances.

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 Premier and Cabinet portfolio had not evaluated the change to the paid parental scheme for any financial-statement related impacts prior to financial statements being submitted for audit. Given the accumulating nature of the entitlement, a collective liability of $1.1 million, of which the department accounted for $683,000 or 68%, should have been reported in the individual financial statements of agency within the Premier and Cabinet portfolio.

Apart from Public Service Commission, the remaining impacted agencies concluded that the effect of not correcting the misstatements were not material individually, nor in aggregate to their financial statements as a whole.

Early close procedures

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

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 one.

Portfolio agencies met the statutory deadline for submitting their 2022–23 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.

Agencies need to improve their completion of early close procedures

The following portfolio 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 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.

Financial statements were submitted on time for all portfolio agencies

Portfolio agencies met the reporting deadlines for submitting their 2022–23 year-end financial statements.

The Government Sector Audit Act 1983 does not specify the statutory deadline for issuing the audit reports. At the date of this report, the audits of all portfolio agencies financial statements have been completed.

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

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 Premier and Cabinet

Department of Premier and Cabinet supports the portfolio’s strategic direction, coordination and delivery role across government for the people of 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 NSW. 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 NSW community and public sector about corruption and its effects.

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

Ombudsman's Office, led by the NSW Ombudsman, is an independent and impartial integrity agency which watches over most NSW 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.

Independent Pricing and Regulatory Tribunal

The Independent Pricing and Regulatory Tribunal (IPART) strives to make the people of NSW better off through decisions and advice independently of government. The Tribunal is the independent pricing regulator for water, public transport, local government, as well as the licence administrator of water, electricity and gas and the scheme administrator and regulator for the Energy Savings Scheme.

The 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. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.

In 2022–23, there were 20 findings raised across the portfolio (ten in 2021–22). Thirty per cent were repeat issues (40% in 2021–22). 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 portfolio by category and risk rating:

The number of moderate risk findings increased from prior year

Eight moderate risk findings were reported in 2022–23, up from four in 2021–22. Of these, two were repeat findings, and six were new issues.

Moderate risk findings mainly related to:

• password and security configuration
• deficiencies in processes for valuation of assets
• lack of conflict of interest declaration
• management of excessive annual leave.