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.

On 1 July 2022, the 'Administrative Arrangements (Administrative Changes-Miscellaneous Order) 2022 (NSW) Part 2' transferred the persons employed in the Local Land Services Staff Agency who are principally involved in the administration of the Soil Conservation Act 1938 to the Department of Regional New South Wales (the Department). This order resulted in a transfer of employee liabilities of $2.6 million and assets of $42.2 million from Local Land Services to the Department.

On 5 April 2023, the 'Administrative Arrangements (Minns Ministry - Administration of Acts) Order 2023' transferred the administration of Border Fence Maintenance Act 1921 No 17 from the Minister for Agriculture to the Minister for Lands and Property. This marked the Border Fence Maintenance Board moving out to the Department of Planning and Environment portfolio.

On 1 July 2023, the 'Administrative Arrangements (Administrative Changes – Miscellaneous) Order (No.4) 2023' transferred staff employed in the Northern Rivers Reconstruction Corporation (NRRC) Division of the Department of Regional NSW to the NSW Reconstruction Authority Staff Agency in the Department of Planning and Environment.

On 31 October 2023, the 'Growth Centres (Development Corporations) Amendment (Dissolution of Northern Rivers Reconstruction Corporation) Order 2023' dissolved the NRRC. On the same day of the dissolution NRRC's assets and liabilities were transferred to the NSW Reconstruction Authority under the Growth Centres (Development Corporations) Savings and Transitional Amendment Regulation 2023.

Audit opinions

Unqualified audit opinions were issued on agencies' financial statements

Unqualified audit opinions were issued on all completed agencies' 30 June 2023 financial statements. Sufficient and appropriate audit evidence was obtained to conclude the financial statements were free of material misstatement.

Audits are ongoing for CB Alexander Foundation and the Coal Innovation NSW Fund.

The number of identified monetary misstatements increased in 2022–23

The number of monetary misstatements identified during the audits of portfolio agencies' financial statements increased from 28 in 2021–22 to 30 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 increased from 20 in 2021–22 to 26 with a gross value of $70.7 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 for the past two years by portfolio agency.

Of the 26 corrected monetary misstatements, eight had a gross value of greater than $5 million and related to the following:

Reported uncorrected misstatements decreased from eight in 2021–22 to four with a gross value of $3 million in 2022–23. Of the four identified uncorrected errors, one totalled $1 million relating to the Local Land Services. Underpinning this error was a failure by management to adequately follow up reconciling items between the general ledger and an underlying subsidiary system. We extended our audit procedures and concluded the control deficiency did not present a risk of material misstatement to LLS' financial statements and reported the issue to management.

Fourteen agencies were exempted from financial reporting 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.

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 two.

The portfolio agencies performed early close procedures as at 28 February 2023 due to Process and Technology Harmonisation (PaTH) program migration. Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures. The Local Land Services delayed their submission of certain early close mandatory procedures.

Local Land Services need to improve their completion of early close procedures

The Local Land Services did not complete all mandatory early close procedures:

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 agency 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

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 financial statements audits of CB Alexander Foundation and Coal Innovation NSW Fund remain outstanding.

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

Process and Technology Harmonisation (PaTH) program

On 1 November 2021, the Department of Communities and Justice assumed responsibility to deliver the PaTH program. The program aims to standardise corporate and shared services functions.

Agencies were onboarded onto the new ERP in two distinct tranches. Wave 1a, comprising 21 agencies from the Regional NSW and Planning and Environment portfolios, were onboarded on 3 April 2023.

Agencies continue to respond to natural disasters

In 2022–23, the NSW Government continues 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 producers, business operators and regional communities to help them recover from natural disaster events and become more resilient, self reliant and sustainable. Flood recovery grants and subsidies paid by RAA increased by $502.3 million from $200.5 million in 2021–22 to $702.8 million in 2022–23.
• The department provided flood clean up services ($43 million) and assisted the NSW government procure and construct temporary housing villages under the Northern Rivers Flood Recovery Temporary Housing Program.
• As part of the Resilient Homes Program's home buy back stream, the Northern Rivers Reconstruction Corporation (NRRC) settled 14 contracts ($1.3 million), exchanged 61 contracts ($7.8 million), and has accepted but not yet exchanged 95 offers ($49.8 million) with homeowners during 2022–23.

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. consider select aspects of the government’s response to the recent flooding events in New South Wales.

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 Regional NSW portfolio had not evaluated the change to the paid parental scheme for any financial statement related impacted prior to financial statements being submitted for audit. Given the accumulating nature of the entitlement, a collective liability of $1.9 million of which the Department accounted for $1.2 million or 63%, should have been reported in the individual financial statements of agency within the Regional NSW portfolio. Impacted agencies elected not to record them in the financial statements. Agencies concluded that the effect of not correcting the misstatements was not material individually, or in aggregate to their financial statements.

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 of 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.

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.

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.

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.

Northern Rivers Reconstruction Corporation

The Northern Rivers Reconstruction Corporation (NRRC) is a statutory body that manages the rebuilding of Northern Rivers communities by coordinating planning, rebuilding and construction work across multiple government agencies.

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.

Regional Growth 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.

The number of findings reported to management has decreased, and nine per cent 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 23 findings raised across the portfolio (36 in 2021–22). Nine per cent of all issues were repeat issues (22% in 2021–22). The repeat issues related to former staff having online access to bank account and the ongoing transactions with the customers holding long-outstanding balances.

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.

2022–23 audits identified one high-risk finding

A high risk finding was reported at the NSW Food Authority.

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

Nine moderate risk findings were reported in 2022–23, representing a 40% decrease from 2021–22. Of these one was a repeat issue.

Moderate risk findings mainly related to:

• lack of formal policies and procedures for key IT activities
• weakness in user access management
• use of purchase orders
• assessment and timing of revenue recognition
• assessment of parental leave provision
• general Ledger coding
• lack of updated board charter.