Unqualified audit opinions were issued for most of the completed 30 June 2025 general purpose financial statements audits of all state agencies. This meant sufficient audit evidence was obtained to conclude financial statements were free of material misstatement and were prepared in accordance with the Australian Accounting Standards and the Government Sector Finance Act 2018.

A qualified audit opinion was again issued on the Wentworth Park Sporting Complex Land Manager’s financial statements for 30 June 2025

The audit opinion was modified because there was insufficient evidence to support the recognition of a $6.5 million non-interest bearing loan from Greyhound Racing NSW. The audit opinions on the financial statements of this agency were also qualified for this matter in 2022–23 and 2023–24.

A disclaimer of audit opinion was issued relating to the FANMAC Master Trust financial statements for 30 June 2023 (the audits for 2024 and 2025 are still outstanding)

A disclaimer of opinion was issued for the FANMAC Master Trust’s 30 June 2023 financial statements as management determined it was unable to provide sufficient and appropriate evidence to support the completeness of reported legacy loans and advances to the historic NSW HomeFund program. The absence of this documentation limited the ability to obtain audit evidence over material balances and related disclosures including loans and advances, interest income, and interest concessions and subsidies.

A disclaimer of audit opinion is issued when an auditor is unable to obtain sufficient appropriate audit evidence to form an opinion on the financial report. It means the auditor cannot express an opinion (positive, qualified or adverse) because of significant limitations or uncertainties that are pervasive to the financial report.

Uncorrected misstatements amounted to $397 million for the year ended 30 June 2025

For the 2024–25 audits $397 million (2023–24: $232 million) of uncorrected misstatements (on a gross basis) were found. The number of uncorrected misstatements for 2024–2025 was 57 (2023–24: 88).

The Department of Education, Infrastructure NSW and Treasury portfolio companies ERIC Alpha Holdings Pty Ltd and ERIC Epsilon Holdings Pty Ltd collectively had five material prior period errors greater than $20 million that required comparative figures of their financial statements to be restated. In 2023–24, there were eight prior period errors exceeding $20 million.

Performing hard close procedures improved the timeliness of financial report finalisation

On average, agencies participating in the hard close pilot project signed their financial statements 12 days earlier than in the prior year.

A hard close process comprises year-end close procedures typically performed at an agreed preliminary month-end date. For an effective hard close, agency staff must treat the hard close process with the same rigour and focus they would treat a full year-end process.

This report considers the key findings from year-end financial audits of the 40 largest NSW Government agencies. Financial audits focus on the key internal controls that support the preparation of financial statements.

Deficiencies were found in the completeness and accuracy of asset data

The audits found discrepancies between agency fixed asset registers and source data records. Issues with the integrity, accuracy and reliability of asset data can affect financial or operational decision-making.

Deficiencies continue to be observed in the completeness and accuracy of Crown Land records.

Weaknesses in payroll controls led to staff overpayments

One agency continued paying 481 employees after their employment had ceased. The agency is reviewing these to confirm the payments were appropriate. In one instance, an employee was overpaid more than $295,000 from 2021 to 2024 despite having ceased employment in 2021. These overpayments were mainly caused by delays in the notification of terminations. The agency is taking reasonable steps to recover these funds.

Ineffective oversight in the acquittal of grant programs

In one agency, deficiencies were identified in the timely and accurate financial acquittal processes in administering grant programs. Ineffective oversight over funds allocated to third parties elevates the risk of mismanagement or may lead to a failure in achieving the stated policy objectives or outcomes of the grant program.

It is important for agencies that manage grant programs to implement a robust process for reviewing grant acquittal reports. This will help to identify and resolve any discrepancies promptly and to ensure financial assistance is provided in accordance with grant program guidelines.

There are gaps in key governance controls

Our audits found gaps in key governance controls, including missing conflict-of-interest declarations, outdated policies and procedures, and incomplete fraud risk assessments. Inadequate fraud risk assessments can lead to fraud or corrupt activity going unnoticed or unchallenged. Further, a failure to disclose and manage conflicts of interest poses a significant fraud and integrity risk to agencies.

This report also includes findings on the NSW Government’s management of its contingent workforce, software assets and transition to climate reporting. The Audit Office focuses on these three key areas because:

• contingent workforce management is vital to ensuring that the use of contractors is the most efficient and effective option available to respond to an agency’s needs
• prudent management and accurate reporting of software expenditure is critical as these assets form a core part of the infrastructure of state agencies, significantly improving the efficiency and effectiveness of public services delivery
• the new TPG24-33 Reporting Framework for First Year Climate Disclosures requires state agencies to report on climate-related financial risks and actions. This reform is designed to make the NSW Government’s climate change exposure more transparent, strengthen accountability for managing climate risks and opportunities, and help achieve the State’s net zero emissions target by 2050.

Contingent workforce management

Contingent labour has become an integral part of government operations, with all agencies assessed reporting active use of contingent workers. The roles performed by contingent workers are not generic, they are highly strategic and specialised and their critical nature is evident in contingent workers’ involvement in major projects, digital transformation initiatives and infrastructure delivery.

Deficiencies were found in contingent workforce management

Our assessment identified deficiencies in the management of contingent workers such as data accessibility and report design inadequacies, along with extended contingent workforce tenure and excessive hours reported. Deficiencies were also found in the oversight of the re-engagement of a worker on a long-term project.

Contingent workers are being engaged for extended periods of time

Despite policies requiring justification and market re-evaluation for extensions, long-term contingent worker engagements are widespread. All agencies analysed engaged contingent workers for more than six months. In some cases, contracts have lasted many years. Across the analysed agencies, 227 contingent workers had been in the role more than five years. One agency reported a worker engaged for 15 years, and two agencies had workers engaged for over nine years.

Some contingent workers are paid salaries equivalent to, or in excess of, Band 4 senior executive level. While justification for these salaries may be reasonable due to specialist skills, detailed assessment and market evaluation should be performed.

Software assets

Software assets form a significant part of the NSW Government’s asset portfolio, with a reported value of $5.0 billion as at 30 June 2025.

Review of software project costs (work-in-progress) requires improvement

In 2024–25, one agency identified $438 million of property, plant and equipment incorrectly classified as software assets work-in-progress and $85 million in recorded software assets that should have been recognised as expenditure in previous financial years.

Deficiencies were found in the capitalisation of software

In 2024–25, four of the seven agencies reviewed reported software-related adjustments. Adjustments primarily stemmed from the correction of capitalisation of cloud computing costs and the write-off of discontinued IT projects. The total value of these adjustments reported across the sector was $95 million.

Governance and oversight of software development projects is inconsistent

Three of seven agencies did not report the status of software projects to their audit committees or governance bodies. Two agencies undertook software development initiatives without a dedicated project management framework.

The Single Digital Patient Record (SDPR) project business case was inaccurate

In May 2024, the Single Digital Patient Record Implementation Authority (SDPRIA) was established as a division of the Health Administration Corporation to oversee the delivery and implementation of this project. The project business case did not adequately consider all project costs, failing to include the costs of integrating the SDPR with legacy systems. The estimate for implementation-related expenses for in-scope health entities was not supported by robust documentation due to limited cost information available at the time.

Climate disclosure reporting

The State has implemented first-year climate-related financial disclosure reporting

In 2024–25, a total of 27 state agencies were required to prepare climate-related financial disclosures (climate disclosures) in accordance with NSW Treasury’s TPG24-33 Reporting Framework for First Year Climate Disclosures (TPG24-33). This year agencies were required to publish their unaudited climate disclosures in or alongside their annual reports. The Audit Office has been requested by the NSW Treasurer to provide assurance on all of these agencies’ 2025–26 climate disclosures.

Pilot audits were conducted in 2024–25 to support agencies’ transition to climate reporting

To support the transition to climate reporting, agencies could nominate to have their 2024–25 disclosures voluntarily assured by the Audit Office. Four public sector agencies were identified as assurance ready and, following a request from the NSW Treasurer, were engaged to participate in the pilot assurance program. Unmodified limited assurance reports were issued for the 30 June 2025 climate disclosures of three pilot agencies. At the time of this report, one climate assurance engagement remains outstanding.

The pilot assurance program identified insights to help agencies enhance next year’s climate disclosures and be ready for assurance

Agencies can apply the following key improvements to enhance next year’s disclosures:

• completing a gap analysis against TPG24-33 requirements to ensure all disclosure requirements are being addressed
• developing and implementing a climate disclosure preparation plan
• defining reporting boundary and materiality to guide climate disclosure preparation
• ensuring climate risks and opportunity assessments are completed and documented
• ensuring climate risks and opportunities are embedded into the agencies’ enterprise-wide risk management process
• developing an emissions inventory covering all material emissions sources within an agencies’ operational boundary, including plans for closing any gaps over time
• developing emissions reporting processes supported by informed emissions accounting policies
• developing plans to address reported gaps in governance, climate risk identification and emissions reporting to ensure disclosure requirements are enhanced in future reporting periods.

The use of different systems and processes by agencies to calculate emissions may lead to reporting inconsistencies across the sector

Agencies are using different systems and processes to calculate emissions, which could affect the consistency and reliability of reported emissions across the sector. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) has developed the Net Zero Accelerator (NZA), a tool that supports emissions calculations for both whole-of-government and agency-specific contracts, but this system is not being utilised by all agencies. The use of common tools like the NZA would ensure an efficient approach is adopted when calculating emissions and avoid some duplication in effort across agencies.

Further guidance by NSW Treasury will help improve consistency in climate disclosures across agencies

Climate reporting approaches and outputs for 2024–25 varied across agencies as they prepared their first set of disclosures under NSW Treasury’s TPG24-33 framework. Although each agency may face different climate risks and opportunities, using proforma templates for common disclosures would help achieve consistency in reporting. Sharing state-wide climate risks, opportunities and emissions data with agencies will support uniformity in disclosures, making it easier to then aggregate and produce state-level climate reporting.

By 30 June 2026, state agencies should:

1. adopt all relevant requirements of the Contingent Workforce Management Guidelines recommended by the Premier’s Department including:
   1. ensuring there is clear and current evidence of a shortage of candidates with the required capabilities in the labour market, and there is a short or longer term need to engage external labour
   2. reporting contingent labour data to the hiring agency’s executive or leadership team on a regular and ongoing basis
2. review the accounting treatment for all material software asset balances and software-as-a-service contractual arrangements for compliance with Australian Accounting Standards
3. adopt all relevant project management requirements of the Digital Assurance Framework issued by the Department of Customer Service.

By 30 June 2026, NSW Treasury should:

4. provide additional guidance to agencies when drafting their climate reports including proformas and/or best practice guidance
5. consider the use of a centralised emissions reporting system to streamline the aggregation of agency emissions for whole-of-government reporting purposes
6. centralise emission calculations for shared service functions to reduce duplication in reporting of similar emissions sources.

Audit opinions

Unqualified audit opinions were issued for all 30 June 2025 general purpose financial statement audits – with one exception. This means sufficient audit evidence was obtained to conclude financial statements were free of material misstatement and were prepared in accordance with Australian Accounting Standards and the Government Sector Finance Act 2018.

A qualified audit opinion was again issued on the Wentworth Park Sporting Complex Land Manager’s financial statements for 30 June 2025

A qualified opinion was again issued on the Wentworth Park Sporting Complex Land Manager’s (Land Manager) financial statements because of insufficient evidence to support the recognition of a $6.5 million non-interest bearing liability owing to Greyhound Racing NSW (GRNSW). The audit opinions on the financial statements of this agency were also qualified on this basis in 2022–23 and 2023–24.

The Land Manager continues to recognise the loan as a liability in the financial statements despite the Administrator certifying that the Land Manager does not have sufficient and appropriate evidence to support the recognition of the loan. This contradiction is misleading to users of the financial statements.

A qualified opinion is issued when the auditor believes the financial report is free from material misstatement except for a specific issue that is not considered pervasive across the entire financial report.

A disclaimer of audit opinion was issued relating to the FANMAC Master Trust’s financial statements for 30 June 2023 (the audits for 2024 and 2025 are still outstanding)

A disclaimer of opinion was issued for the FANMAC Master Trust’s 30 June 2023 financial statements as management determined it was unable to provide sufficient and appropriate evidence to support the completeness of reported legacy loans and advances to the historic NSW Home Fund program. The absence of this documentation limited the ability to obtain audit evidence over material balances and related disclosures including loans and advances, interest income, and interest concessions and subsidies.

A disclaimed opinion is issued when an auditor has been unable to obtain sufficient appropriate audit evidence to form an opinion on the financial report. Unlike a qualified opinion, a disclaimer means the auditor cannot express an opinion because of significant limitations or uncertainties that are pervasive across the financial report.

An ‘emphasis of matter’ was included in nine unqualified audit opinions

An ‘emphasis of matter’ (EoM) paragraph is included in an independent auditor’s report when it is necessary to draw users’ attention to a matter presented or disclosed in the financial statements. Importantly, an EoM paragraph does not modify the audit opinion.

An emphasis of matter paragraph on financial statements was included in nine unqualified independent auditors’ reports. These are detailed below.

Source: Audit Office of NSW 30 June 2025 Independent Auditor’s Reports.

Common errors were evident across agency financial statements

The table below highlights common errors in 2024–25 financial reports.

Source: Audit Office Engagement closing reports from 30 June 2025 audits.

Five prior period errors, each retrospectively corrected, had values exceeding $20 million

A prior period error is a misstatement made by an agency in previous financial years, identified by the auditor or agency in the current financial year. These errors are corrected retrospectively by restating the opening balances in the financial statements. The existence of prior period errors corrected retrospectively can be indicative of deficiencies in an agency’s financial reporting processes and internal controls.

Five retrospectively corrected prior period errors had values exceeding $20 million, compared with eight in the 2023–24 financial reports. These errors were as follows.

Source: Agency financial statements for the year ending 30 June 2025.

Uncorrected misstatements amounted to $397 million for the year ended 30 June 2025

An uncorrected error is an error identified by the auditor or agency in the financial statements that has not been corrected by the agency. These errors are reported to agency management but have not been corrected because the agency does not consider them material, either individually or in aggregate. While the financial statements would be more accurate if the errors had been corrected, the errors are not sufficiently material to cause the Audit Office to modify its opinion of the agencies’ financial statements.

The table below shows the number and value of uncorrected errors.

Source: Engagement closing reports from 30 June 2025 audits.

In 2024–25, the gross impact of uncorrected errors on all balances totalled $397 million, an increase of $164 million from the previous year. This rise was primarily driven by a $121 million uncorrected error in the financial statements of the Department of Communities and Justice.

The Department continued to recognise land that was legally transferred through a gazette of a ‘transfer of property order’ to Property and Development NSW (PDNSW) in November 2024. While PDNSW issued a letter to the Department Secretary that gave the department temporary access to the property until 30 June 2025, in the view of the Audit Office, legal and accounting control over the property was transferred to PDNSW when the gazette was authorised. PDNSW recognised the land in its financial statements in November 2024 at the date of transfer.

Versions of financial statements

Some agencies are submitting too many different versions of financial statements and supporting workpapers for audit

Agencies presenting multiple versions of the financial statements for audit typically means governance over the financial reporting process is inadequate. Multiple attempts to produce accurate, auditable financial statements delay the timeliness of financial reporting to users, diminish public accountability and result in higher audit costs.

The table below shows the number of versions of financial statements submitted to audit for review.

Source: Audit Office of NSW.

Agencies with better-quality financial reporting typically have a draft and final set of financial statements, with few or no amendments between those versions. Most agencies submitted draft and final versions of the financial statements for audit. However, 76 agencies submitted three or more versions of the financial statements throughout the audit process.

Performing all early financial or hard close reporting procedures, such as completing valuations by 31 March, will enable more complete draft financial statements and minimise the number of adjustments.

It is accepted that timely year-end financial reporting is an indicator of sound financial management processes. Accordingly, measures aimed at earlier financial reporting should continue to be a priority for NSW Treasury and all state agencies.

Early close procedures and the hard close pilot

NSW Treasury introduced early close procedures to improve the quality and timeliness of year-end financial statements. In March 2025, NSW Treasury issued TPG25-01: Agency Direction for the 2024–25 Mandatory Early Close. The policy and guidelines replaced TPG24-03: Agency Direction for the 2023–24 Mandatory Early Close. These pronouncements required the government sector finance (GSF) agencies listed in Appendix I of TPG25-01 to perform the mandatory early close procedures and provide the outcomes to the audit team by 28 April 2025. TPG25-01 also contains requirements for agencies participating in the 2025 hard close pilot.

Eleven agencies participated in a hard close pilot to improve the timeliness of financial statements preparation and audit processes

In conjunction with the early close procedures, NSW Treasury ran a hard close pilot to test whether hard close reporting can improve the timeliness of agency financial reporting for the sector.

A hard close process comprises year-end close procedures typically performed at an agreed preliminary month-end date. For an effective hard close, agency staff must treat the hard close process with the same rigour and focus they would treat a full year-end process. In summary:

• agencies prepare a complete set of financial statements at an earlier period, such as 31 March, 30 April or 31 May, and confirm that effective controls over key agency balances are in place
• auditors plan and perform audit procedures at an earlier period, with roll forward audit procedures for the intervening period to 30 June
• agencies and the Audit Office agree on the scope and timing of work and identify areas of work to be either left until year-end or revisited at year-end.

Eleven agencies participated in the hard close pilot and were required to prepare a full set of financial statements at a date earlier than 30 June 2025. Most agencies selected a hard close reporting date of 30 April or 31 May, however one agency selected 31 March as its hard close date.

Performing hard close procedures improved the timeliness of financial report finalisation

On average agencies participating in the hard close pilot signed their financial statements 12 days earlier than in the prior year. The following benefits from the completed hard close procedures were identified by these agencies:

• errors and issues were identified early at hard close, giving management time to restate or correct them before the final year-end submission
• there was increased efficiency at year end with audit testing brought forward, allowing adjustments to be made prior to submitting financial statements. Some year-end audit procedures were completed at hard close, reducing the workload and time pressure at year end.

Year-end reporting

Five agencies have not yet submitted financial statements for audit as required by the Government Sector Finance Act 2018

The Government Sector Finance Act 2018 requires reporting GSF agencies to prepare financial statements and submit them to the Auditor-General.

The following agencies have not yet submitted financial statements for audit as these agencies have been granted extensions by NSW Treasury:

• Bathurst Showground Land Manager
• FANMAC Master Trust
• FANMAC Pooled Super Trust
• Home Purchase Assistance Fund
• NSW Rent Buy Pty Limited.

The Bathurst Showground Land Manager received an extension to submit their financial statements by 31 March 2026. The remaining agencies received extensions to submit their financial statements to 19 December 2025.

Two agencies did not submit their financial statements to the Audit Office by the required date

The Treasurer’s Direction TD25-02: Financial Reporting Requirements requires state agencies named in TPG25-08: Agency Direction for the 2024–25 Mandatory Annual Returns to NSW Treasury to prepare and submit their financial statements for audit by 30 July 2025. All other agencies were required to prepare and submit their financial statements for audit within six weeks after 30 June 2025. The GSF Act requires annual reporting information, including the audited financial statements, to be tabled in Parliament by the end of November.

The following agencies did not submit financial statements on time:

• CB Alexander Foundation
• Corporation Sole ‘Minister Administering the Heritage Act 1977’.

Audits in progress are listed in Appendix 1 of this report.

Agencies did not properly assess the amendments to AASB 13 ‘Fair Value Measurement’

Amendments to AASB 13 ‘Fair Value Measurement’, effective from 2024–25, introduced guidance for not-for-profit public sector entities when measuring the fair value of non-financial assets that are not held primarily to generate cash inflows. The amendments clarify:

• when alternative uses for assets must be considered
• what constitutes a ‘financially feasible’ use
• how to apply the cost approach, including the use of unobservable inputs and the treatment of disruption and site preparation costs.

While some agencies have undertaken assessments of the impact of these amendments, others have yet to adequately evaluate whether their existing application of AASB 13 aligns with the revised requirements. Agencies that have not completed this assessment were typically those that did not conduct a comprehensive revaluation during the 2024–25 financial year.

Agencies are not disclosing the expected future impacts of AASB 18 implementation

AASB 18 ‘Presentation and Disclosure in Financial Statements’ will introduce new requirements aimed at improving how entities communicate financial performance, particularly in the Statement of Comprehensive Income. For not-for-profit public sector entities, the standard applies to annual reporting periods beginning on or after 1 January 2028. These new requirements include:

• the introduction of newly defined subtotals in the Statement of Comprehensive Income
• new disclosures about management-defined performance measures
• the removal of existing options for classifying dividends and interest received and interest paid in the Statement of Cash Flows.

Disclosures made by state agencies in their financial statements evaluating the future impact of AASB 18 were limited, impacting the user’s understandability of how the new standard would affect future financial reporting periods.

Three high-risk findings were identified across the 40 largest agencies

High-risk findings identified include:

• an agency had employees who were directors of an entity that transacted with the agency but did not complete COI declarations
• an agency that had deficiencies in the accuracy and completeness of land records
• health entities that had entered into non-standard arrangements with staff specialists and visiting medical officers (VMOs) without the required delegation. Non-standard arrangements are any arrangements that provide benefits to staff specialists or VMOs beyond what is provided in the award or determination.

The following key findings were identified across the following areas:

• asset management and integrity of data
• payroll controls
• grant administration
• governance matters
• contract management.

Asset management and integrity of data

Deficiencies were found in the completeness and accuracy of asset data

NSW Government agencies manage a large number of non-financial assets that are proportionately significant in the financial statements of state sector agencies. The size, geographical disbursement and diversity of assets managed by these agencies increase the complexity of maintaining a complete and accurate fixed asset register for financial reporting and asset management purposes.

The Audit Office identified:

• incomplete and/or inaccurate asset data source records and fixed asset registers
• fixed asset registers not reconciled with asset management systems, resulting in unexplained differences to source data records and unexplained reconciling items
• inaccurate asset details in fixed asset registers and/or discrepancies with other information records
• legacy system integration issues with the general ledger affecting asset processes
• incomplete stocktake of plant and equipment and delayed disposal of missing assets.

Errors or omissions in asset source data records may impact financial reporting, asset management and planning. Issues with integrity of asset data impact decision-making that relies on the accuracy of financial reporting and asset management data.

Integrity of data in asset systems and registers, on which the preparation of financial statements relies, should be strengthened to support reliability of asset data sources, as demonstrated in the case study below.

Agencies need to strengthen timely reviews of assets under construction and improve capitalisation processes

Assets under construction were not always reviewed on a timely basis, resulting in delays in capitalisation of completed assets and inappropriate classification between capital and expense.

Weaknesses in timely review of assets under construction and capitalisation practices can lead to incorrect capitalised project costs and a failure to identify in a timely manner any non-moving or discontinued project. Delays in capitalisation of assets and incorrect treatment of operating expenses as capital expenditure may also impact the accuracy of asset balances and depreciation expenses.

Payroll controls

Weaknesses in payroll controls led to staff overpayments

Employee-related expenditure is the largest cost of the NSW government. Effective payroll controls and processes are essential in ensuring that transactions are processed accurately, completely and promptly.

The findings highlight gaps in the payroll control environment. These gaps included:

• inappropriate access to amend employee masterfile data
• ineffective controls over removing terminated employees from payroll systems
• unauthorised or former employees acting as signatories on bank accounts.

Weak controls over access to employee master data and the offboarding of terminated employees from payroll systems and as signatories on bank accounts can elevate the risk of salary overpayments, fraud and misappropriation of cash.

Delayed notifications of employee cessations, leave and errors in processing can lead to substantial financial losses, as demonstrated in the following case study.

There is inadequate monitoring of employee entitlements, including overtime

Managing employee entitlements can be complex, given the range and nature of industrial agreements, laws and regulations and policies that are applicable to agencies.

The Audit Office found weaknesses in:

• the oversight of employee leave balances, including excessive annual leave
• reporting and management of excessive overtime
• the controls over the retention of employee leave records
• data integrity, resulting in inconsistencies between payroll master files and leave liability reports and between payslips and payroll reports.

Inadequate oversight of employee leave balances, including excessive annual leave may result in health and safety implications, accrued employee liabilities being settled at higher rates as a result of salary increases and increased fraud risks, where staff who perform key control functions do not take leave.

Weak reporting and management of excessive overtime can heighten the risk of ineffective resource allocation and create budget risks, as demonstrated in the following case study.

A root cause analysis should be performed on employee-related costs that significantly exceed forecasted expenditure to ensure policies and procedures can be put in place to ensure they remain within acceptable limits and operate within budget boundaries.

Grant administration

Deficiencies were found in the acquittal of grant programs

The Audit Office identified deficiencies in the financial acquittal process over administration of grant programs as demonstrated by the case study below.

Agencies responsible for administering grant programs should provide acquittal reports supported by timely, accurate and complete data from the recipients/providers. The program guidelines should specify acquittal report deadlines and outline consequences for late submission, such as suspension of future funding. This will help maintain compliance with legislative and program-specific guidelines.

It is important for agencies to implement a robust process for reviewing acquittal reports, so any discrepancies are identified and resolved promptly. Agencies should understand and assess the financial implications of the acquittal data by ensuring the timely submission of accurate and complete financial records.

The Audit Office’s Audit Work Program 2025–2028 will continue to focus on grants administration and will assess the effectiveness of selected agencies in ensuring that awarded grants are being used by recipients for their intended purpose and stated benefits are being realised.

Governance matters

Gaps were identified in key governance controls, including monitoring conflict-of interest declarations

Good governance promotes public confidence in the integrity and effectiveness of agencies’ systems and operations. Effective governance controls and processes help mitigate the risk of errors or fraud through the safeguarding of public resources, ensuring financial and other information is reliable, and that laws and regulations are being complied with.

Governance matters identified in audits included:

• incomplete fraud risk assessments
• gaps in COI procedures including:
  • some employees of one agency had not submitted a COI declaration regarding their relationship with the entities that transacted with the agency
  • decentralised COI registers
  • a secondary employment register did not exist, and secondary employment was not being monitored
• agencies having either outdated policies and procedures beyond scheduled review dates or missing policies and procedures
• incomplete key management personnel declarations
• outdated compliance frameworks, including centralised legislative compliance registers.

Inadequate fraud risk assessments can lead to fraud or corrupt activity going unnoticed or unchallenged. Effective fraud control processes help protect agencies from events that can cause serious reputational damage and/or financial loss.

A failure to disclose and manage COIs and secondary employment poses a significant fraud and integrity risk to agencies. Consequences can include reputational damage, financial loss due to biased decision-making, and legal and ethical breaches. Establishing a centralised COI register that can be readily accessed during procurement and supplier engagement is regarded as best practice.

Annual ‘key management personnel’ declarations are required to confirm related party transactions in accordance with AASB 124 ‘Related Party Disclosures’ and NSW Treasury policy guidance.

The lack of an up-to-date legislative compliance register may increase the risk of non-compliance with applicable legislative obligations.

Contract management

Deficiencies were found in the reporting and management of contracts and related controls

The Audit Office found controls and processes over contract management could be strengthened, particularly over the:

• management oversight of contracts and assessments of financial implications
• completeness and accuracy of contract registers, elevating the risk of non-compliance with legislation including the Government Information (Public Access) Act 2009
• timeliness in which some required contracts are uploaded onto the buy.nsw website.

Ineffectively designed controls relating to contract management can expose an agency to financial loss, error, waste or fraud, as demonstrated in the case study below.

The Contingent Workforce Prequalification scheme (SCM0007) is a mandated whole-of-government arrangement for the sourcing and payroll of the contingent workforce. Data from NSW Procurement and the Department of Customer Service on buy.nsw shows aggregate contingent workforce spend under the scheme as follows. The aggregate contingent labour workforce spend has reduced 40% since 2023.

Source: Contingent Workforce Scheme | info.buy.nsw.

Contingent labour is now a structural feature of government operations. Of the 15 agencies analysed, every agency reported active use of contingent labour. Three of these agencies spent over $150 million on contingent workers for the 2025 financial year.

Contingent roles are not generic; they are strategic and technical. Of the total number of contingent workers, 48% were engaged in technology, digital and cyber services and 20% were engaged in infrastructure, environmental and asset management services. These roles are often critical to major projects, digital transformation and infrastructure delivery.

The distribution of contingent labour by function for the agencies assessed was as follows.

Some agencies lack oversight of contingent labour, however some maintained robust systems

Deficiencies in the oversight of contingent labour were found. The PSC guidelines recommend agencies regularly report on contingent labour to senior executives including costs tenure and supplier performance. In addition, strategic priorities should be assessed to determine the capabilities the agency will need, compare to the existing workforce, and identify any gaps.

At one agency there were deficiencies in the oversight of a contract for a worker on a long-term project, who was previously employed by the agency.

Some agencies do have robust systems for contingent workforce management and have sophisticated dashboards that allow managers to track agency hire costs against budgets in real time. Others generate multiple reports for executives, detailing spending, headcounts and timesheets.

Lessons for the sector

Agencies should assess their current practices against the Contingent Workforce Management Guidelines issued by the PSC.

Key recommendations included within the guidelines are as follows.

The sector wrote down the value of software asset balances resulting from incorrect capitalisation of expenses and project cancellations

The total value of these adjustments reported across the sector was $95 million. These adjustments included:

• corrections to software balances for cloud computing costs that, upon review, did not meet the criteria for capitalisation
• write-off of IT projects that had been discontinued or were no longer progressing and were assessed as unlikely to deliver future economic benefits.

During the 2024–25 financial year, four of the seven agencies included in this chapter reported that they expensed or wrote-off amounts related to software projects and IT expenditure.

Agencies are not consistently performing annual impairment testing or confirming the continued use of software assets

Agencies are required to assess at each reporting date whether there is any indication that an asset, including software, may be impaired. Software assets that are no longer in use or no longer provide economic benefit must be derecognised to avoid overstating asset balances.

Six of seven sampled agencies reported conducting annual impairment testing. However, one agency indicated it does not perform formal impairment assessments for software assets, relying instead on the assumption that digital investments remain fit for purpose unless advised otherwise.

The following case study highlights how software asset values can be overstated when software applications no longer in use are retained on the balance sheet.

Agencies are reviewing the ageing of their software work-in-progress (WiP) balances, but the timing and frequency of these reviews vary

Reviewing the ageing of intangible software WiP balances is a key control activity that helps agencies identify idle or abandoned IT projects and supports timely capitalisation or impairment decisions.

All seven sampled agencies conduct ageing reviews of their software WiP balances. However, the frequency differs as follows:

• three agencies perform reviews on a monthly basis
• two agencies review ageing annually as part of their impairment assessment
• one agency conducts reviews twice a year
• one agency has not reviewed ageing since 2024.

The following case study highlights the types of errors that can arise when software WiP balances are not reviewed in a timely manner.

Agencies should establish a consistent and timely review process for ageing software WiP balances, preferably monthly, to promptly identify stalled projects, support accurate capitalisation or impairment decisions, and strengthen financial controls.

Six of the seven sampled agencies have long outstanding work-in-progress balances

Six of the seven agencies have software WiP balances of three years or older. Periodic reviews of the software WiP ledgers are required to assess the viability of each project and determine whether continued capitalisation remains appropriate. Projects that are inactive, abandoned or unlikely to deliver future economic benefits should be impaired or derecognised in accordance with relevant accounting standards and asset management policies.

For agencies undertaking software projects, project assurance requirements are governed primarily by the NSW Gateway Policy and the Digital Assurance Framework (DAF). These frameworks aim to ensure that ICT and digital projects are delivered effectively, securely and in alignment with government objectives.

The DAF is a risk-based, independent assurance model administered by the Department of Customer Service, applying to projects valued at $5 million or more, or those deemed high risk or strategically significant. It mandates a series of Gateway Reviews at key decision points (Gates 0–6) throughout the project lifecycle, assessing readiness, risk and alignment with strategic outcomes. Projects are classified into tiers based on cost and complexity, which determine the level of assurance required. Agencies must prepare a Project Assurance Plan, undergo Health Checks and Deep Dive Reviews, and report regularly via the ICT Assurance Portal.

Governance and oversight of software development projects is not consistently applied across the sampled agencies

The figure below illustrates the extent to which agencies have established governance structures and oversight mechanisms for software development and project management.

The SDPR is one of the NSW Government’s largest technology initiatives, aiming to provide a secure, holistic and integrated view of a patient’s care across the NSW health system. It is designed to enable clinicians to access a patient’s medical information in real time from a single source.

The business case was initially developed in 2021.

In May 2024, the Single Digital Patient Record Implementation Authority was established as a division of the Health Administration Corporation to oversee delivery and implementation of this project.

The business case did not capture all relevant project costs, and the estimated operational costs were not supported by sufficient or reliable evidence

The business case did not consider the estimated cost of integrating the SDPR system with legacy systems that will remain in use. This integration process is crucial for the successful implementation of the SDPR system and early indicators suggest that these integration costs will be significant. Unsupported or unapproved cost estimates increases the risk of budget overruns and misinformed decisions.

The operational costs include an estimate to cover implementation-related expenses for the local health districts and in-scope health entities. This estimate was not supported by robust documentation due to limited cost information available at the time. Project costs may be understated by not assessing and identifying all implementation costs during project planning.

A performance audit planned for 2026–27 will assess the efficiency and effectiveness of the procurement, governance and project management of the SDPR project.

Pilot readiness assessment results

NSW Treasury called for expressions of interest from state agencies to identify those that would like to participate in having their 2024–25 climate disclosures assured in a pilot program. Expressions of interest were received from 11 agencies willing to be part of the pilot assurance process. Rather than commencing assurance from the onset, readiness assessments were undertaken to determine those agencies that were prepared for disclosures and assurance, and which could support a positive assurance outcome.

Six pilot agencies were assessed as being ready for climate assurance

The Audit Office identified six pilot agencies that were sufficiently progressed with climate disclosure preparation and were suitably positioned for climate assurance. These agencies had:

• identified relevant governance arrangements in place to support oversight over climate risks and opportunities
• undertaken a climate risk and opportunities assessment relevant to its reporting boundary
• developed processes to identify, capture, calculate and report on emissions-related metrics data
• considered timeframes, responsibilities and dependencies for drafting disclosures
• a higher level of climate reporting maturity as some had previously prepared climate disclosures under previous reporting frameworks (such as the ‘Task Force on Climate-related Financial Disclosures’).

All volunteering agencies have subsequently prepared climate disclosures for the 2024–25 financial year.

Two agencies assessed as being ready for assurance withdrew from the pilot to focus on the preparation of first year climate disclosures. A fourth pilot assurance engagement is currently being finalised.

Audit Office pilot readiness assessments identified improvement opportunities across agencies

The pilot program identified areas where agencies can strengthen their readiness for climate-related financial disclosures reporting, particularly in risk identification, data collection and analysis, and disclosure preparation practices. These findings underscore the importance of commencing planning and risk assessment activities early to ensure agencies are fully equipped to meet climate reporting requirements. The findings were communicated to all participating pilot agencies, which will help them enhance next year’s climate reporting process.

The following table outlines the key areas of improvements that can be applied by all agencies to enhance readiness for climate disclosure reporting.

Pilot assurance results

Unmodified limited assurance opinions were issued for three pilot engagements

Unmodified limited assurance opinions were issued for the 2024–25 climate disclosures of three pilot agencies. This meant that sufficient and appropriate audit evidence was obtained to conclude that nothing had come to the attention of the Audit Office that suggested that the in-scope climate disclosures were not prepared and fairly presented in accordance with TPG24-33.

The table below outlines the TPG24-33 disclosures within the scope of the limited assurance engagements for 2024–25.

Appendix 4 of this report specifies in detail the applicable disclosure requirements of TPG24-33 that the Audit Office assured as part of 2024–25 pilot assurance engagements.

Pilot assurance learnings

Audit Office pilot assurance engagements identified opportunities to strengthen reporting on climate governance, risk identification and emissions

Pilot agencies that progressed to assurance demonstrated varying levels of reporting maturity, reflecting differences in prior experience with climate reporting under previous frameworks. Overall, these agencies were able to demonstrate compliance with TPG 24-33 and produce climate disclosures ready for assurance. This effort deserves acknowledgement considering it was the first year in which climate disclosures were prepared and made available for assurance. Areas for improvement recommended to the pilot agencies are summarised in the table below for sector-wide consideration.

Pilot agencies completed formal climate risks and opportunities identification assessments to support disclosures

While improvement opportunities were reported, most pilot agencies progressing to assurance undertook detailed climate risk assessments to support their identification and disclosure of climate risks and opportunities in 2024–25.

Documenting a climate risk assessment is a foundational step needed to support the disclosure of climate-related risks and opportunities. Without this, agencies risk overlooking material exposures to climate-related physical and transitional events, which can lead to misinformed strategic decisions and unanticipated gaps in climate-related financial disclosures.

The following case study summarises the structured approach applied by one pilot agency to identify climate risks and opportunities for disclosure and risk management purposes.

Pilot agencies developed processes and procedures to calculate climate emissions

Agencies must ensure that systems and processes are implemented to enable accurate calculation of emissions within their operational boundaries. This is essential for supporting climate reporting and broader sustainability objectives. In the absence of robust systems, agencies risk inaccurately calculating emissions data, which can compromise the credibility of climate disclosures and reporting against metrics and targets. The following case study illustrates how one pilot agency successfully implemented emissions estimation techniques and reporting processes.

Not all agencies are using NZA to calculate emissions for disclosure purposes

The Net Zero Accelerator (NZA) tool is a centralised digital platform developed by the Department of Climate Change, Energy, the Environment and Water (DCCEEW). It is designed to help government agencies monitor, calculate, and report their emissions and sustainability performance. The NZA draws whole-of-government contracts consumption data from CASPER, a government data platform, and converts this into emissions measured in tonnes of CO₂ equivalent (tCO₂e).

The tool was created to support agencies in preparing emissions data in line with the Greenhouse Gas Emissions Accounting and Reporting Guidance, enabling compliance with NZGO reporting obligations and adherence to TPG 24-33 requirements. Currently the use of this system is not mandatory for agencies preparing climate disclosures.

Despite being available through DCCEEW, some agencies rely on alternative systems or spreadsheets to track and calculate emissions. This inconsistent uptake, particularly among agencies outside the General Government Sector, may reduce the comparability and completeness of reported data and may pose a challenge when aggregating climate data for whole-of-government emissions reporting.

NSW Treasury should consider whether sector wide adoption of the NZA is appropriate to help ensure consistency in reported emissions figures and better support the collection of state-wide emissions data.

Further guidance by NSW Treasury can help improve the comparability of climate disclosures across agencies

A key step in meeting the information needs of users is the ability to disclose climate risks and opportunities and emissions data at an aggregate whole of government level. More comparable information within disclosures, and consistency of emissions reporting approach will more readily support this.

Inconsistency in climate reporting across agencies may impact the ability to effectively aggregate data when preparing state level climate disclosures

Although NSW Treasury, with support from DCCEEW, provides prescriptive guidance to assist agencies in developing disclosures through a bottom-up approach, there is evidence of variations in how agencies report governance, climate risks and opportunities, and emissions. These inconsistencies may increase the risk of gaps, duplications and errors in any future NSW Government consolidated climate disclosures.

To address this, NSW Treasury should implement measures to promote consistent climate disclosure reporting practices across the sector, including:

• providing additional guidance to agencies when drafting their climate reports including proformas and/or best practice guidance
• completing and communicating a state-wide assessment of climate risks and opportunities to support consistent reporting of climate risk across agencies
• centralising emissions calculations for shared service functions to reduce duplication in reporting of similar emissions sources
• considering the use of a centralised emissions reporting system, such as NZA, to streamline the aggregation of agency emissions for whole-of-government reporting purposes.