Report highlights
What the report is about
Result of the Regional NSW cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Regional NSW cluster agencies. Two audits are ongoing.
What the key issues were
The Department of Regional NSW (the department) and Local Land Services (LLS) accepted changes to their office leasing arrangements managed by Property NSW.
These changes resulted in the collective derecognition of $100.6 million of rights-of-use-assets and $110.4 million of lease liabilities.
In 2021–22, the cluster agencies continued to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales.
The Northern Rivers Reconstruction Corporation was established in May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods.
The number of matters reported to management decreased from 36 in 2020–21 to 14 in 2021–22.
Five moderate risk issues were identified and 14% of reported issues were repeat issues.
One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.
Fast facts
1. Introduction
This report provides Parliament and other users of the Regional NSW cluster financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
1.1 Snapshot of the cluster
1.2 Changes to the cluster
Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes occur when the government reorganises these structures and functions and those changes are usually given effect by Administrative Orders.
During 2021–22, the cluster was impacted by the following MoG changes:
- Under the 'Growth Centres (Development Corporations) Amendments (Northern Rivers Reconstruction Corporation) Order 2022', the Northern Rivers Reconstruction Corporation (NRRC) was created on 13 May 2022.
- Under the 'Administrative Arrangements (Administrative Changes – Miscellaneous) Order 2022' effective from 17 February 2022, the persons employed in the Local Land Services Staff Agency who were principally involved in the administration of the Soil Conservation Act 1938 were transferred to the department of Regional NSW on 1 July 2022.
2. Financial reporting
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW cluster (the cluster) for 2022.
Section highlights
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2.1 Cluster financial information 2022
| Agency | Total Assets $m |
Total Liabilities $m |
Total income* $m |
Total expenses** $m |
| Principal department | ||||
| Department of Regional NSW | 1,144.3 | 559.1 | 1,637.0 | 1,617.5 |
| Other cluster agencies listed in Appendix A of Treasury Direction TD21-02 | ||||
| Forestry Corporation of New South Wales | 2,147.2 | 712.9 | 402.1 | 475.2 |
| Local Land Services | 1,164.2 | 70.8 | 294.7 | 281.7 |
| New South Wales Rural Assistance Authority | 690.2 | 674.4 | 280.1 | 265.2 |
| NSW Food Authority | 26.5 | 4.4 | 19.1 | 17.7 |
| Regional Growth NSW Development Corporation | 121.3 | 26.9 | 73.7 | 11.1 |
2.2 Quality of financial reporting
Audit opinions
Unqualified audit opinions were issued on agencies' financial statements
Unqualified audit opinions were issued on all completed cluster agencies' 30 June 2022 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.
Audits are ongoing for:
- Agricultural Scientific Collections Trust
- CB Alexander Foundation.
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 21 in 2020–21 to 16 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 14 in 2020–21 to 12 with a gross value of $23 million in 2021–22. There are four reported uncorrected misstatements (seven in 2020–21) with a gross value of $0.8 million in 2021–22.
The table below shows the number and quantum of monetary misstatements for the past two years.
| Year ended 30 June | 2022 | 2021 | ||||
| Corrected misstatements |
Uncorrected misstatements |
Corrected misstatements |
Uncorrected misstatements |
|||
| Less than $50,000 | 2 | 1 | 7 | 6 | ||
| $50,000 to $249,999 | 5 | 2 | 2 | -- | ||
| $250,000 to $999,999 | 1 | 1 | 4 | -- | ||
| $1 million to $4,999,999 | 2 | -- | -- | 1 | ||
| $5 million and greater | 2 | -- | 1 | -- | ||
| Total number of misstatements | 12 | 4 | 14 | 7 | ||
Refer to Appendix one for details of corrected and uncorrected monetary misstatements by agency.
Of the 12 corrected monetary misstatements, two had a gross value of greater than $5 million and related to the following:
| Agency | Description of corrected misstatements >$5 million |
| Department of Regional NSW | There were incorrect reconciling items in the department’s cash at bank reconciliations. These resulted in overstatement of $8.1 million in other liabilities and understatement of $8.1 million in payables accounts with nil impact on the cash balance. |
Fifteen 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:
| Exempted agencies | GSF Regulation reference | Basis for reporting exemption |
| Special purpose staff agencies | ||
| Local Land Services Staff Agency (LLSSA) | Part 3A, Division 2, Section 9F of the GSF Regulation | GSF Regulation prescribes that a GSF agency that comprises solely of persons who are employed to enable another particular GSF agency to exercise its function not to be reporting GSF agency. Staff agency satisfies this requirement and therefore is exempted from preparing financial statements in 2021–22. This exemption is standing in nature and continue from the previous year. |
| Small agencies | ||
| Fisheries Administration Ministerial Corporation
Local Boards:
Northern Rivers Reconstruction Corporation Soil Conservation Commission |
Part 3A, Division 2, Section 9D of the GSF Regulation | GSF Regulation prescribes a GSF agency meeting all the following requirements not to be a reporting GSF agency:
Management has assessed these agencies against the criteria and concluded that they have met all requirements. Therefore they were not required to prepare financial statements in 2021–22. |
2.3 Timeliness of financial reporting
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 two.
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 two.
| Agency |
Completed |
Not completed |
Not applicable |
| Principal department | |||
| Department of Regional NSW | 14 | -- | 3 |
| Other cluster agencies | |||
| Agricultural Scientific Collections Trust | 7 | -- | 10 |
| Forestry Corporations of NSW* | -- | -- | -- |
| Local Land Services | 15 | -- | 2 |
| New South Wales Rural Assistance Authority | 9 | -- | 8 |
| NSW Food Authority | 9 | -- | 8 |
| Regional Growth NSW Development Corporation | 10 | -- | 7 |
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 two cluster agencies financial statements are ongoing.
The table in Appendix three shows the timeliness of the year-end financial reporting for cluster agencies.
2.4 Key accounting issues
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 premises and removes the agency's right to occupy the identified accommodation on an ongoing basis. 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 and Local Land Services accepted the changes to their office accommodation arrangements with PNSW. This has resulted in:
- the derecognition of $100.6 million of right-of-use assets (ROU assets)
- the derecognition of $110.4 million of lease liabilities
- $9.8 million of other gains.
Going forward, these agencies will recognise the office accommodation payments as expenses in the Statement of Comprehensive Income. Agreements between the agencies and PNSW mean agencies will continue to recognise leasehold improvement (or fit-out) assets and liabilities for the makegood of premises.
Response to natural disasters
Cluster agencies continue to response to natural disasters
In 2021–22, the NSW Government continue to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales. There were significant financial implications in the following agencies:
- The New South Wales Rural Assistance Authority (RAA) provided financial assistance programs to communities and individuals to assist them recover from natural disaster events and other difficult financial situations. Grants and subsidies paid by RAA increased by $112.4 million from $126.9 million in 2020–21 to $239.3 million in 2021–22. This year RAA paid $208.4 million ($118.1 million in 2020–21) in grants for flood, bushfire and drought relief. These grants were funded from the Commonwealth and NSW Governments.
- RAA also paid $9.6 million in new loans to customers under the disaster relief program compared to $22.6 million in 2020–21. Approved loans for bushfire programs came to an end during 2021–22.
- The department's natural disaster recovery expense decreased by $30.3 million from $151.8 million in 2020–21 to $121.5 million in 2021–22. The decrease was mainly due to a $142.8 million decrease in bushfire recovery expenditures and a $112.5 million increase in flood waste clean-up works during the year.
- The department paid $37.5 million in grants for the mice plague response across regional NSW and $73.8 million in bushfire refund grants to Local governments and non-government organisations.
The Northern Rivers Reconstruction Corporation was established from 13 May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods. In 2021–22 Northern Rivers Reconstruction Corporation had nil expenditure and was exempted from preparing financial statements for period between 13 May 2022 and 30 June 2022.
The Audit Office's performance audit on 'Bushfire recovery grants' will assess how effectively the Department of Regional NSW and Resilience NSW administered rounds one and two of the Bushfire Local Economic Recovery program.
The Audit Office's 2022–23 planned audit on 'Flood recovery' will consider select aspects of the government’s response to the recent flooding events in New South Wales. The exact areas considered in this audit will take into account the findings of the NSW Independent Flood Inquiry and the Parliamentary Inquiry into the Response to Major Flooding across New South Wales in 2022.
A performance audit on 'Natural disaster preparedness and response' is planned for 2023–24. This audit may consider how effectively Transport for NSW applies funding to prepare for, respond to and recover from natural disaster events.
Forestry regulation
Forestry Corporation Contingent liability
Forestry Corporation of NSW (Forestry Corporation) in 2021–22 disclosed a contingent liability for notices received from NSW Environment Protection Authority (NSW EPA) for various alleged breaches under environment regulations. Forestry Corporation has determined that it is not possible to estimate the potential effect of the notices at this stage.
The NSW EPA is responsible for regulating Forestry Corporation’s compliance with Integrated Forestry Operations Approvals (IFOAs). IFOAs set out rules to protect species and ecosystems where timber harvesting is occurring and ensure forests are managed in an ecologically sustainable way.
The Audit Office's planned 2022–23 performance audit on 'Native Forestry Regulation' will assess how effectively Forestry Corporation of NSW manages its public native forestry activities to ensure compliance, and how effectively EPA regulates these activities.
2.5 Key financial statement risks
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 Regional NSW
The department of Regional NSW (department) is the central NSW government agency with responsibility for delivering outcome for regional economies and communities, strengthening primary industries, managing the use of New South Wales regional land, and overseeing the State's mineral and mining resources.
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Key financial statement risk | Audit response |
| Property, plant and equipment - $588.7 million |
The department's property, plant and equipment consists of agricultural and livestock research, laboratory and general administration land, building and specialised assets such as artificial reefs and agricultural institutes infrastructure assets, which are measured at fair value based on market and current replacement costs. Our audit risk rating for property, plant and equipment is higher because these assets are financially significant to the financial statements of the department, and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. |
Our audit procedures included:
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Grants and subsidies expenditures - |
The department's grants and subsidies expenses consist of payments made to cluster agencies for their normal business operations, payments made to various state and local government agencies and regional communities under Stronger Country and regional Communities Development Programs and Natural Disaster Recovery Packages. Our audit risk rating for grants and subsidies expenditures is higher because these expenses represent and significant proportion of the department's total expenditure. The grant management office processed a high volume of grant applications and acquittals which incorporate judgements in reviewing and approving the grants and subsidies. |
Our audit procedures included evaluating the design and implementation of key controls over grants and subsidies expenditure processes and systems. In addition, our procedures including testing a sample of grants and subsidies expenses to underlying supporting evidence and approval by the appropriate delegated authorities. |
Forestry Corporation of NSW
The Forestry Corporation of New South Wales (Forestry Corporation) is a NSW state-owned corporation responsible for managing native forests and plantations for environmental sustainability and renewable timber production. This involves replanting and regeneration operations, planning and managing harvest operations and marketing and delivering timber products.
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Key financial statement risk | Audit response |
| Biological assets - $623.8 million |
The Forestry Corporation's biological assets primarily consist of plantation timbers, which were measured at fair value less cost to sell as required by 'AASB 141 Agriculture and AASB 13 Fair Value Measurement'. Our audit risk rating for the biological assets is higher because these assets are financially significant to the financial statements of the Forestry Corporation, and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. |
Our audit procedures included:
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Property, plant and equipment |
The Forestry Corporation's property, plant and equipment consists of Our audit risk rating for property, plant and equipment is higher because these assets are financially significant to the financial statements of the Forestry Corporation, and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. |
Our audit procedures included:
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Defined benefits superannuation liabilities - |
The Forestry Corporation's defined benefit net superannuation liability balance was provided to the Corporation by the Administrator of the SAS Trustee (State Super), based on an independent actuarial assessment. Our audit risk rating for the defined benefit superannuation liabilities is higher because these liabilities are financially significant to the financial statements of the Forestry Corporation and the underlying valuation model is complex due to the high degree of judgements and estimates when determining its fair value. The value of these liabilities is also sensitive to minor changes in the valuation inputs. |
Our audit procedures included:
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Local Land Services
The Local Land Services (LLS) is a regional-focused NSW government agency responsible for delivering customer service to farmers, landholders and the wider community.
|
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Key financial statement risk | Audit response |
| Property, plant and equipment - $1,046.6 million |
The LLS's property plant and equipment consists of freehold land and buildings, crown land, Travelling Stock Reserve (TSR) land, stock watering place land and improvements on TSR land. These asset classes are measured at fair value based on either mass valuation technique, market and current replacement costs. Our audit risk rating for property, plant and equipment is higher because these assets are financially significant to the financial statements of the LLS and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. |
Our audit procedures included:
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New South Wales Rural Assistance Authority
The New South Wales Rural Assistance Authority (RAA) is a statutory body and is responsible to provide financial assistance programs including loans, grants, rebates and subsidies on behalf of both the NSW and Australian Governments.
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Key financial statement risk | Audit response |
| Loans to customers - $626.9 million |
RAA's loans to customers are largely under the following programs:
Our audit risk rating for the loans to customers is higher because these loan receivables are financially significant to RAA's statement of financial position. Significant key assumptions and judgement is involved in estimating the expected credit loss provision on the loan balances. |
Our audit procedures included understanding and reviewing loan agreements to assess the reasonableness of the accounting treatment. In addition, our procedures included testing sample of loans to ensure the approval of the loans were in place and agreed to underlying supporting documents; and reviewing the reasonableness of the significant judgements and estimates applied on the expected credit loss provision calculation. |
|
Grants and subsidies to customers - $239.3 million |
RAA's significant grants and subsidies expenses mainly consisted of payments made in response to natural disasters such as bushfires, storms, floods and drought. Our audit risk rating for grants and subsidies expenses is higher because these expenses represent a significant proportion of the RAA's total expenditures. The RAA continued to process a high volume of grant applications which incorporate judgements in reviewing and approving the grants and subsidies payments. |
Our audit procedures included evaluating design and implementation of controls over grant and subsidies program process. In addition, we tested a sample of grants and subsidies and agreed to underlying supporting evidence. |
NSW Food Authority
The NSW Food Authority (Food Authority) is a NSW government entity and is responsible for ensuring that food safety standards are implemented in an integrated and consistent way at all points int the food supply chain.
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Key financial statement risk | Audit response |
| Property, plant and equipment - $9 million |
The Food Authority's property plant and equipment consists of land and an office building which are measured at fair value based on market and current replacement costs. Our audit risk rating for property, plant and equipment is higher because these assets are financially significant to the financial statements of the Food Authority, and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. |
Our audit procedures included:
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Regional Growth NSW Development Corporation
The Regional Growth NSW Development Corporation (RGDC) is a NSW government entity and is responsible to drive economic growth in regional NSW through Special Activation Precincts.
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Key financial statement risk | Audit response |
| Property, plant and equipment - $93.2 million |
The RGDC's property plant and equipment consists of land and assets under construction acquired to deliver Special Activation Precinct programs mainly in Parkes and Wagga Wagga precincts. Land assets are measured at fair value based on market evidence. Assets under construction are held at cost. Our audit risk rating for property, plant and equipment is higher because these assets are financially significant to the financial statements of the RGDC, and are subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer upon revaluation. RGDC continues to significantly expand its operations and large capital works create increased financial reporting risks. |
Our audit procedures included:
We tested a sample of assets capitalised and agreed to underlying supporting evidence. |
3. Audit observations
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Regional NSW cluster.
Section highlights
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3.1 Information technology (IT) shared services
Control deficiencies were identified in the department's IT shared service provider
The department currently uses SAP MYHQ (SAP) application system which is maintained by the Department of Planning and Environment (DPE). High risk findings have been identified at DPE relating to:
- user access to HR and payroll management
- comprehensive SAP user access review
- third party service provider management process.
DPE and the department signed a service partnership agreement effective from 1 July 2021. The agreement requires DPE to provide SAP system management services which includes facilitating appropriate user access, monitoring vendors and managing incidents and service requests, to ensure the SAP system is operating as designed. The agreement also documents the department’s obligations in supporting the provision of these services by DPE.
3.2 Findings reported to management
The number of findings reported to management has decreased, but 14% 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 14 findings raised across the cluster (36 in 2020–21). Fourteen per cent of all issues were repeat issues (50% in 2020–21). One repeat issue related to the Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock. The other repeat issue related to the lack of purchase orders raised for payments above $5,000 at Belgenny Farm Agriculture Heritage Centre Trust.
The table below describes the common issues identified across the cluster by category and risk rating.
| Risk rating | Issue | |
| Internal control deficiencies or improvements | ||
| Moderate1: 1 new | The financial audits identified internal control deficiencies across key business processes relevant to financial reporting. Of note were deficiencies identified in:
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| Low2: 2 new, 1 repeat | ||
| Financial reporting | ||
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Moderate1: 3 new, 1 repeat |
The financial audits identified:
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Low2: 5 new |
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| Governance and oversight | ||
| Low2: 1 new | The financial audits identified deficiencies for agencies to improve governance and oversight processes:
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2 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Note: Management letter findings are based either on final management letters issued to agencies, or draft letters where findings have been agreed with management.
Recommendation (repeat issue)Cluster agencies should prioritise and action recommendations to address internal control weaknesses and deficiencies. |
