Stronger Communities 2019

Media release

A report has been released on the NSW Stronger Communities cluster.

From 1 July 2019, the functions of the former Department of Justice, the former Department of Family and Community Services and many of the cluster agencies moved to the new Stronger Communities cluster. The Department of Communities and Justice is the principal agency in the new Stronger Communities cluster.

The report focuses on key observations and findings from the most recent financial audits of agencies in the Stronger Communities cluster.

Unqualified audit opinions were issued on the financial statements for all agencies in the cluster.  

There were 157 audit findings on internal controls. Two of these were high risk and 59 were repeat findings from previous financial audits. ‘Cluster agencies should prioritise actions to address internal control weaknesses promptly with particular focus given to issues that are assessed as high risk’, the Auditor-General said.

The report notes that the NSW Government’s new workers' compensation legislation, which gave eligible firefighters presumptive rights to workers' compensation, cost emergency services agencies $180 million in 2018–19, mostly in increased premiums.

Download the PDF version of report

Executive summary

This report analyses the results of our audits of financial statements of the agencies comprising the Stronger Communities cluster for the year ended 30 June 2019. The table below summarises our key observations.

1. Machinery of Government changes

Cluster changes

The Machinery of Government (MoG) changes announced following the NSW State election in March 2019 significantly impacted the Stronger Communities cluster. The MoG changes abolished the former Department of Justice, the former Department of Family and Community Services, and the former Justice and Family and Community Services clusters.

From 1 July 2019, the functions of the former departments and many of the cluster agencies moved to the new Stronger Communities cluster. The Department of Communities and Justice is the principal agency in the new cluster.

The Department of Communities and Justice is in the process of implementing changes In April 2019, an Enterprise Program Management Office was established within the Department of Communities and Justice to support the cluster to implement the MoG changes.

2. Financial reporting

Financial reporting Unqualified audit opinions were issued for all agencies' 30 June 2019 financial statements.
Timeliness of financial reporting

Twenty-six of the 27 cluster agencies' financial statements were submitted for audit on time. The audits of the financial statements for cluster agencies were completed and audit opinions issued by the statutory dates, with the exception of the Sydney Cricket and Sports Ground Trust (the Trust). The Trust's audit opinion was issued two days after the statutory deadline.

Cluster agencies substantially completed the mandatory early close procedures set by NSW Treasury. However, 19 agencies did not complete one or more mandatory requirements.

Information system limitations at Department of Justice

In November 2018, the Department of Justice implemented a new Victims Support Services system called VS Connect. Significant data quality issues arising from the VS Connect system implementation impacted the Department's ability to reliably estimate its Victims Support Scheme claims liabilities at 30 June 2019.

Recommendation: The Department of Communities and Justice should:

  • resolve the data quality issues in the new VS Connect system before 30 June 2020
  • capture and apply lessons learned from recent project implementations, including LifeLink, Justice SAP and VS Connect, in any relevant future implementations.
Derecognition of investment in City West Housing In 2017–18, the State had an equity investment of $680 million in a community housing provider, City West Housing Pty Limited (CWH). During 2018–19, CWH amended its constitution to ensure alignment with its charitable status. The unintended impact of this change was that on windup the net assets would not be distributed to the State. Consequently, the State wrote off its $680 million investment in CWH in 2018–19.
Preparedness for new accounting standards

Cluster agencies are progressing with their implementation of the new accounting standards. However, our audits found some cluster agencies needed to do more work on their impact assessments and preparedness to implement the new accounting standards, to minimise the risk of errors in their 2019–20 financial statements.

Recommendation: Cluster agencies should finalise their plans to implement the new accounting standards as soon as possible.

NSW Police Force Death and Disability Scheme

The cost of the NSW Police Force Blue Ribbon Insurance Scheme increased and remains above the statutory target of 4.6 per cent of total NSW Police Officers' remuneration. NSW Police attribute the increase to higher employee costs and a 7.4 per cent increase in the Death and Disability Scheme insurance premium.

NSW Police data shows the cost of the scheme was 5.6 per cent of total NSW Police Officers' remuneration for the year ended 30 June 2019 (5.3 per cent in 2017–18).

Fire and Rescue NSW Death and Disability Scheme The Fire and Rescue NSW Death and Disability Scheme liability increased by 52 per cent from $187 million at 30 June 2018 to $284 million at 30 June 2019. The increase in the liability is mainly due to lower interest rates, which are used to discount the liabilities, changes in workers compensation legislation and an additional year of claims being incurred.
Managing annual leave

The number of full time equivalent employees with excess annual leave has decreased but remains high. At the Department of Justice, NSW Police and Fire and Rescue NSW, 31 per cent of employees' annual leave balance exceeded the State's target of 30 days.

Recommendation (repeat issue): Cluster agencies with annual leave balances exceeding the State's target should further review their approach to managing leave balances. Strategies agencies should consider implementing include:

  • regularly (e.g. each month) projecting annual leave balances to the end of the financial year
  • for employees with projected balances above the target, developing and agreeing leave plans to reduce their balances over an acceptable timeframe
  • focusing on employees who have taken little or no leave in the last 12 months.
NSW Police Force workplace injuries NSW Police reported an average lost time of 90.5 hours per full time equivalent police officer due to workplace injury in 2018–19, an increase of 56.3 per cent over the last four years.

 

3. Audit observations

Internal control deficiencies

Our 2018–19 audits identified 157 internal control weaknesses. Of these, two were high risk and 67 moderate risk. Over one-third of the issues reported were repeat findings from prior years.

Recommendation (repeat issue): Cluster agencies should action recommendations to address internal control weaknesses promptly. Particular focus should be given to addressing high risk and repeat issues.

Managing growth in the NSW prison population

Department of Justice data shows the number of adult inmates in the NSW prison system continues to rise. It reached a maximum of 13,798 during the year.

Operational capacity was 14,626 beds on 31 August 2019, with an operational vacancy rate of 5.7 per cent, which is more than the recommended 5.0 per cent buffer. This is the first time the vacancy rate has exceeded the target over the last five years.

Prison system capacity is being expanded through the NSW Government's $3.8 billion Prison Bed Capacity Program.

Rectification of identified control issues The Department of Justice continues to address internal control issues arising from its 2016–17 implementation of Justice SAP. The Department's 2018–19 financial audit repeated several findings from previous audits, including:
  • roles and responsibilities not being assigned properly in Justice SAP
  • privileged user access not being effectively managed in Justice SAP
  • ineffective processes for recording, reconciling and settling inter-agency transactions and balances
  • concerns over the accuracy of long service leave balances.

Delay in rectifying internal control issues increases the risk of fraud and error in the financial statements.

The Department provides financial, human resources and IT services to other agencies within the cluster. The internal control environment at these agencies is similarly impacted by the Department's unresolved Justice SAP issues.

Implementation of the ChildStory information system The Department of Family and Community Services implemented its ChildStory information system in 2017–18. A post implementation review of the project found the system is yet to achieve its intended benefits.
New workers compensation legislation for firefighters In September 2018, the NSW Government introduced new workers' compensation legislation. The legislation gives eligible firefighters presumptive rights to workers' compensation when diagnosed with one of 12 prescribed cancers. The new legislation cost emergency services agencies $180 million in 2018–19, mainly through additional workers' compensation premiums.

 

1. Introduction

This report provides parliament and other users of the financial statements of agencies in the Stronger Communities cluster with the results of our audits, our observations, analyses, conclusions and recommendations in the following areas:

  • financial reporting
  • audit observations.

This cluster was significantly impacted by the Machinery of Government (MoG) changes on 1 July 2019. This report focuses on the agencies that from 1 July 2019, comprised the Stronger Communities cluster. The MoG changes moved some agencies from the clusters to which they belonged in 2018–19 to the Stronger Communities cluster. Conversely, the MoG also moved some agencies formerly in the Family and Community Services cluster and Justice cluster elsewhere. Please refer to the section on Machinery of Government changes for more details.

The Department of Communities and Justice is the principal agency of the cluster. The newly created department combines functions of the former Department of Justice and the Department of Family and Community Services.

1.1 Snapshot of the cluster

snapshot of the financial results from stronger communities cluster. For accessible version, email communications@audit.nsw.gov.au
Stronger Communities Cluster

1.2 Service delivery in the cluster

Agencies in the Stronger Communities cluster provide services across a wide variety of areas. This section outlines certain service delivery outcomes for 2018–19. It provides important contextual information about the cluster's operations, but the data on activity levels and performance is provided by cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this section relating to performance is unaudited.

Department of Justice

The Department of Justice delivered a wide range of legal, law enforcement and emergency services with a focus on protecting the rights of the people of New South Wales and ensuring a safe and just New South Wales.

A snapshot of the Department's activities in 2018–19 is shown below:

Snapshot of the departments activities in 2018-19. For accessible version, email communications@audit.nsw.gov.au
Source: NSW Budget Papers 2018–19.

The backlog of cases in the NSW District Court has declined but ageing remains unchanged

The Department of Justice reported there were 1,596 pending case trials in the District Court at 30 June 2019, a reduction of 21.4 per cent from the 2,031 cases at 30 June 2018. But the age of cases remains unchanged. Department data shows 451 of the pending trials are older than 12 months (451 at 30 June 2018), of which 105 trials are older than 24 months (105 trials at 30 June 2018).

graph showing district courts pending caseload. For accessible version email communications@audit.nsw.gov.au
District Courts pending caseload
Note: Pending cases represent the difference between registered trials and finalised trial cases each year.
Source: Department of Justice (unaudited).

Twenty-eight per cent, 451 of the 1,596 cases pending in the NSW District Court at 30 June 2019, are older than 12 months. This is more than double the national benchmark1 and six percentage points higher than last year.

The Department attributes the decrease in pending cases in 2018–19 to case finalisations outpacing new case registrations by 435 matters. Special call overs resulted in more than 180 additional finalisations. Call overs target region specific backlogs by reviewing pending trial matters and resolving them by alternate means.

According to the Productivity Commission's Report on Government Services 2019, the net recurrent expenditure per finalisation, criminal and civil, in NSW District/County courts was $5,563 in 2017–18 ($5,206 in 2016–17).

Since 2015–16, the NSW Government has allocated funding of more than $125 million to address the District Court backlog. This includes funding in 2018–19 of:

  • $29.5 million to deliver the Early Appropriate Guilty Pleas (EAGP) reform, to deliver swifter and more certain justice, and to reduce court delays and stress for victims
  • $27.1 million to provide additional resources including additional sitting weeks to the judicial calendar and more call overs for regional centres and Sydney
  • $10.0 million to the Legal Aid Commission to fund the costs of private practitioners who conduct EAGP work on behalf of representing defendants who are receiving legal aid.

In October 2018, the Attorney-General also announced a package of almost $150 million over four years to deliver swifter justice, reduce pressure on the judiciary, provide greater District Court presence to regional areas and to address the higher workload resulting from the Royal Commission into Institutional Child Sexual Abuse. This is in addition to the criminal justice reform package of $93.0 million over four years announced by the Attorney-General in April 2018.

The Audit Office is conducting a performance audit on how effectively the Department is supporting an efficient District Criminal Court system. The audit will focus on the Department’s collection and reporting of performance data, the Department’s provision of technology to courthouses and the plans, governance and monitoring of the EAGP reform. The report is expected to be tabled in parliament on 18 December 2019.

The number of adult inmates in New South Wales declined over the 12 months to 30 June 2019

The NSW Bureau of Crime Statistics and Research (BOCSAR) reports between 30 June 2018 and 30 June 2019:

  • the inmate population declined from 13,630 to 13,403 (1.7 per cent)
  • the female inmate population fell from 1,067 to 946 (11.3 per cent)
  • the number of sentenced inmates declined from 9,128 to 8,837 (3.2 per cent)
  • the number of inmates on remand grew by 1.4 per cent, from 4,502 to 4,566.

Department of Justice data shows the number of adult inmates in New South Wales reached a maximum of 13,798 during 2018–19 (13,772 in 2017–18).

Inmates awaiting trial in the District Court cost an estimated $75.2 million in 2018–19

The Department of Justice reports that 1,035 inmates (1,216 inmates at 30 June 2018) were on remand awaiting trial in the District Court at 30 June 2019. Long remand periods are costly and contribute to prison overcrowding. The cost to the State of prisoners on remand is estimated at $205,965 per day, or $75.2 million in 2018–192 ($84.8 million in 2017–18).

The net operating cost per adult inmate increased by 8.6 per cent in 2018–19

The Department of Justice reports the annual net operating cost per adult inmate increased by $5,696 or 8.6 per cent to $72,117 ($66,421 in 2017–18). This equates to an annual net operating cost of $973 million in 2018–19 ($888 million in 2017–18).

Annual recurrent cost per adult prisoner and average inmate numbers
Year ended 30 June 2019 2018 2017 2016 2015
Annual cost per adult prisoner, all prisons ($) 72,117 66,421 63,115 60,973 66,698
Daily average adult inmate number, all prisons^ 13,495 13,373 12,931 12,305 11,011

^ The measurement basis for this indicator changed in 2015–16 (the exclusion of prisoner health costs) which means results for 2015–16 onwards are not directly comparable to previous years.
Source: Department of Justice (unaudited).

The annual cost of a young person in custody has increased by 12.8 per cent since 2017

Department of Justice data shows that while the number of young people in custody reduced, the average annual cost of holding them in custody increased for the second consecutive year, from $335,840 in 2016–17 to $378,818 in 2018–19, an increase of 12.8 per cent.

Young people in custody
Year ended 30 June 2019 2018 2017 2016 2015
Average annual cost per young person in custody ($) 378,818 338,403 335,840 348,401 355,444
Average daily number of young people in custody 265 286 273 292 286

Note: The average annual cost per young person in custody includes net operating expenses and capital costs.
Source: Department of Justice (unaudited).

The Department attributes the reduction in custodial numbers to falling youth crime rates and continued efforts to divert all but the most serious young offenders away from custody. Consequently, Youth Justice Centres manage New South Wales's most complex and high-risk young people. At times, this necessitates increasing the ratio of staff to young people and/or use more purpose-built infrastructure, limiting the ability to achieve cost savings.

Department of Family and Community Services

The Department of Family and Community Services worked with people with a disability, vulnerable and disadvantaged children, young people and families.

The Department was funded to spend $6.5 billion in 2018–19 across four key areas of focus:

  • supporting people with a disability to live independently
  • sustained and ongoing support for vulnerable individuals, children and families
  • targeted support and services to protect vulnerable people from harm
  • prevention and early intervention for families to enable them to live independently.

A snapshot of the Department's activities in 2018–19 is shown below:

snapshot of departments activities in 2018-19. For accessible version email communications@audit.nsw.gov.au
Source: NSW Budget Papers 2018–19.

The Department responded to the increasing numbers of children reported at risk of significant harm

The Department of Family and Community Services was the agency within the NSW Government with the statutory responsibility for protecting children and young people from risk of significant harm.

A child or young person is at risk of significant harm if circumstances causing concern for the safety, welfare or well-being of the child or young person are present to a significant extent.

The Department aimed to provide more children at risk of significant harm with a face-to-face child protection response from a caseworker. The Department’s unaudited data shows 105,772 children were reported at risk of significant harm in 2018–19, which is an increase of over 13,000 children from the previous year. At the same time, caseworkers saw 30,949 children and young people in 2018–19, an additional 4,753 children seen compared to 2017–18.

The chart below shows the number of children and young people reported to be at risk of significant harm over the past five years.

Graph showing children and young people at risk of significant harm. For accessible version email communications@audit.nsw.gov.au
Children and young people at risk of significant harm
Source: Department of Family and Community Services (unaudited). 

1 National benchmarks indicate that no more than ten per cent of pending cases should be more than 12 months old.

2 The NSW Productivity Commission's net recurrent expenditure for secure inmates is $199 per person per day.

2. Machinery of Government changes

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 given effect by Administrative Orders.

The MoG changes announced following the NSW State election on 23 March 2019 significantly impacted the Stronger Communities cluster through Administrative Changes Orders issued on 2 April 2019 and 1 May 2019. These orders took effect on 1 July 2019.

Section highlights

The 2019 MoG changes significantly impacted the former Justice and Family and Community Services (FACS) departments and clusters.

  • The Stronger Communities cluster combines most of the functions and agencies of the former Justice and FACS clusters from 1 July 2019.
  • The Department of Communities and Justice is now the principal agency in the new cluster.
  • The MoG changes bring new responsibilities, risks and challenges to the cluster.
  • A temporary office has been established by the Department of Communities and Justice to support the cluster in the planning, delivery and reporting associated with implementing the changes.

2.1 Cluster changes

The MoG changes abolished the former Department of Justice, the former Department of Family and Community Services, and the former Justice and Family and Community Services clusters. From 1 July 2019, functions of the former departments and many of the cluster agencies moved to the new Stronger Communities cluster (the cluster) in accordance with the Administrative Orders.

The Department of Communities and Justice (the Department) is the principal agency in the new cluster.

Infographic showing Machinery of Government changes specific to the Stronger Communities cluster
Machinery of Government changes

The Stronger Communities cluster employs more than 50,000 full time equivalent (FTE) staff at 30 June 2019, as illustrated below.

Infographic showing employment in the Stronger Communities cluster
Source: Prepared using information provided by cluster agencies (unaudited).

2.2 Agency preparation and implementation of changes

The former departments of Justice and Family and Community Services commenced preparing for the MoG changes to transition to the newly formed Department of Communities and Justice in the last quarter of the 2018–19 financial year in readiness for the 1 July 2019 transition date.

An Enterprise Program Management Office was established to support the transition

The Stronger Communities Enterprise Program Management Office (EPMO) was established in April 2019. The EPMO is a temporary office within the Department of Communities and Justice to support the Stronger Communities cluster with the planning, delivery and reporting associated with the MoG changes.

The EPMO reports to the Deputy Secretary of Corporate Services and the Executive Director of Governance and Assurance and works with the Deputy Secretaries, Executive Directors and Corporate Service Business Partners across the Department of Communities and Justice.

The key challenges the Department identified include:

  • meeting the NSW Government's defined savings targets
  • policy harmonisation, including updating delegation instruments to reflect new organisation structures and delegation limits
  • the challenging budget environment on business and system integration projects
  • appropriate engagement with staff in a period of significant change and uncertainty
  • managing complex asset and liability transfers between agencies, including data migration and contracts
  • governance arrangements that are appropriate for the new structures
  • tight timeframes to implement the changes while maintaining business as usual
  • additional demands on organisation leadership while still delivering on key priorities and services to the community.

The key risks the Department identified include:

  • disruption to internal control environments due to staffing, process and system changes
  • loss of corporate knowledge with key staff changes
  • failure to build a cohesive culture compromising ability to achieve priorities and social reform
  • impacts to service delivery due to unclear roles and responsibilities
  • poorly defined services performed on behalf of other agencies during the transition.

The risk of material misstatements in cluster agencies' financial statements increases if the risks and challenges of the MoG changes are not effectively managed and mitigated.

Post 30 June 2020, the Audit Office plans to conduct a performance audit on whether the 2019 MoG changes achieved their goals effectively and efficiently and improved public sector administration.

3. 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 relating to the financial reporting of agencies in the Stronger Communities cluster for 2019.

Section highlights
  • Unqualified audit opinions were issued for all agencies' 30 June 2019 financial statements. However, further actions can be taken by some cluster agencies to enhance the quality of their financial reporting.
  • In November 2018, the Department of Justice implemented a new Victims Support Services system called VS Connect. Significant data quality issues arising from the VS Connect system implementation impacted the Department's ability to reliably estimate its Victims Support Scheme claims liabilities at 30 June 2019.
    We recommend the Department of Communities and Justice resolves the data quality issues in the new VS Connect System before 30 June 2020 and capture and apply lessons learned from recent project implementations, including LifeLink, Justice SAP and VS Connect, in any relevant future implementations.
  • Our audits found some cluster agencies needed to do more work on their impact assessments and preparedness to implement the new accounting standards, to minimise the risk of errors in their 2019–20 financial statements.
  • Cluster agencies with annual leave balances exceeding the State's target should further review their approach to managing leave balances.

    3.1 Quality of financial reporting

    Audit opinions

    Unqualified audit opinions were issued for all agencies' financial statements

    Unqualified audit opinions were issued for all agencies' 30 June 2019 financial statements. Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement.

    3.2 Timeliness of financial reporting

    Most financial statements for cluster agencies were submitted by the statutory deadlines

    Twenty-six of the 27 cluster agencies' financial statements were submitted for audit on time. The NSW Institute of Sport submitted their financial statements eight days late. The statutory deadline was 12 August 2019.

    Except for the Sydney Cricket and Sports Ground Trust (the Trust), the audits of the financial statements for cluster agencies were completed and audit opinions issued by the statutory dates. The Trust, which has a 28 February year-end, submitted financial statements to the Audit Office on 8 April 2019, which was three days before the statutory date. The Trust provided certified financial statements to the Audit Office on 19 June 2019 and the audit opinion was issued on the same day. The statutory deadline for issue of the Trust's audit opinion was 17 June 2019, which was ten weeks from the submission date.

    The Department of Justice obtained NSW Treasury’s approval to delay submission of its 30 June 2019 financial statements from 22 July 2019 to 9 August 2019. The extension was granted because the Department’s accounting treatment for a lease extension signed in August 2018, was still being discussed and resolved between the Department and NSW Treasury. The Department formally submitted its financial statements to the Audit Office on 9 August 2019.

    The delay could have been avoided had the accounting treatment been resolved earlier. To help improve the timeliness of financial statements submission, the Department's legal and operational staff should engage with the finance team when commercial transactions are being considered and before contracts are finalised. This will help ensure position papers can be prepared and NSW Treasury and the Department's Audit and Risk Committee can be consulted in a timely manner.

    Cluster agencies substantially completed early close procedures, but improvement is required

    Nineteen cluster agencies did not complete one or more mandatory requirements, including:

    • identifying and documenting significant accounting issues or transactions
    • assessing the impact of new and updated accounting standards
    • resolving prior year Management Letter and Engagement Closing Report issues
    • assessing the impacts of the Government Sector Finance Act 2018 (GSF Act).

    Early close procedures allow financial reporting issues and risks to be addressed early in the audit process. This in turn can help to improve the quality and timeliness of financial reporting.

    The table in Appendix one shows the timeliness of financial reporting for cluster agencies.

    3.3 Key accounting issues

    Correction of previously reported values

    The Department of Justice corrected its lease liability by $46.3 million

    On 1 July 1995, the Department of Justice entered into a 25-year lease arrangement with an option to extend for a further 15 years. The Department accounted for the arrangement as a finance lease by recognising a building asset and a corresponding finance lease liability for the period of 25 years. The Department depreciated the leased asset based on a useful life of 40 years. The Department subsequently exercised the option to extend the lease for the additional 15 years in August 2018.

    The Department determined that it was reasonably certain it would exercise the lease option at inception, and accordingly should have recognised a liability to reflect the full 40-year lease period when the lease was originally brought to account. To correct the prior year error and properly reflect the extended lease period, the Department increased the lease liability and decreased retained earnings by $46.3 million at 1 July 2017.

    Restatement of the Office of the NSW Rural Fire Service's workers' compensation liability

    The Office of the NSW Rural Fire Service (the Service) restated its financial statements to recognise a liability to the NSW Self Insurance Corporation for contributions to the Bush Fire Fighters Compensation Fund (the Fund). The restatement resulted in the Service’s reported liabilities increasing by $16.9 million at 1 July 2017, and by $17.7 million at 30 June 2018.

    Insurance coverage for volunteer fire fighters is provided by the Fund, which is administered by the NSW Self Insurance Corporation. Under the Workers Compensation (Bush Fire, Emergency and Rescue Services) Act 1987, the payment of benefits to volunteer fire fighters will be met from contributions into the Fund from the Rural Fire Fighting Fund, after their review and approval by the State Insurance Regulatory Authority. As the Service is the custodian of the Rural Fire Fighting Fund, payments from this fund are payments from the Service.

    Victims Support Services system implementation

    Significant issues were identified following implementation of the VS Connect system
     

    Recommendation

    The Department of Communities and Justice should:

    • resolve the data quality issues in the new VS Connect System before 30 June 2020
    • capture and apply lessons learned from recent project implementations, including LifeLink, Justice SAP and VS Connect, in any relevant future implementations.

    In November 2018, the Department of Justice implemented a new Victims Support Services system, which included the migration of data from the legacy CARES system to the new VS Connect system. There were significant data quality issues arising from the VS Connect implementation, which the Department is in the process of addressing.

    Poor data quality impacted the estimate of Victims Support Scheme claims liabilities at 30 June 2019

    An independent actuary helps the Department of Justice estimate its liability for lodged but unresolved Victims Support Scheme (VSS) claims, and its incurred but not yet reported (IBNR) claims. The actuary's valuation at 30 June 2019 was impacted by the data quality issues referred to above. The issues included:

    • missing claim payments made prior to November 2018
    • payment transactions with no payment date and amount
    • cancelled payment transactions with no amount populated.

    The Department did not resolve the data quality issues before 30 June 2019. Consequently, the independent actuary adopted a revised valuation methodology compared to previous years.

    The Department should resolve the data quality issues before 30 June 2020, so a reliable estimate can be made before next year's financial statements are prepared. The longer the Department takes to resolve the issues, the more challenging it will become for the actuary to perform future valuations. If the issues are not resolved, the impact to the Department of Communities and Justice’s 30 June 2020 financial statements could be material.

    At 30 June 2019, the Department reported a total liability for lodged but unresolved VSS claims of $135 million and a contingent liability for IBNR claims within a reasonably plausible range of $300 million to $525 million.

    The Department reports it spent $3.5 million implementing the VS Connect system, which was $499,000 or 16.6 per cent higher than originally budgeted. A further $662,000 was spent in 2018–19 addressing implementation issues and more is expected to be spent in 2019–20. However, the Department is yet to quantify the costs it expects to incur in the future.

    An external review of VS Connect identified key implementation issues

    The Department engaged an external firm to perform a post implementation review of the project. In addition to the data quality issues referred to above, the review found:

    • current processes in the system do not match business processes
    • the system does not meet business expectations
    • business users find the system difficult to use, mostly due to the lack of training and support
    • the requirements used to build the system were not validated directly with the business.

    Some of these issues were similar to those identified in the post implementation reviews of the Department’s LifeLink system in 2015 and Justice SAP in 2017. Details can be found in the 2015 Auditor-General's Report to Parliament, Part One Law and Order and the 2017 Auditor-General's Report to Parliament on Justice.

    Other financial reporting matters

    Derecognition of investment in City West Housing

    In 2017–18, the State had an equity investment of $680 million in a community housing provider, City West Housing Pty Limited (CWH). During 2018–19, CWH amended its constitution to ensure alignment with its charitable status. The unintended impact of this change was that on windup the net assets would not be distributed to the State. The accounting implications to the State’s investment were not considered by NSW Treasury at the time of approving the amended constitution. Consequently, the State wrote off its $680 million investment in CWH in 2018–19.

    It is important that accounting impacts of such changes are discussed and agreed upon early. At the time of approving the decision to change the constitution, all accounting implications should be made available and understood. Such information is relevant when approving decisions.

    Change in accounting for disability services at the Department of Family and Community Services

    The Department of Family and Community Services' revenue decreased from $6.7 billion in 2017–18 to $3.9 billion in 2018–19. Similarly, expenses fell from $6.5 billion to $4.0 billion over the same period. The decrease in revenue and expenses is attributable to cash contributions of $2.7 billion received by the Department from the Crown Entity and paid by the Department to the National Disability Insurance Agency (NDIA) under the National Disability Insurance Scheme (NDIS) being recorded as administered items in the financial statements for the year ended 30 June 2019.

    Transactions and balances relating to administered activities are not recognised as the Department’s income, expenses, assets and liabilities. They are disclosed in the financial statements as administered items and transfer payments.

    The Commonwealth and the NSW Government entered into a bilateral agreement under the NDIS for financial contributions to be paid to the NDIA with effect from 2018–19. The Department administers but does not control disability services operated by the NDIS.

    The Department of Communities and Justice will write off project costs of $2.0 million in 2019–20

    The Corrective Services NSW division of the Department of Justice ceased work on the transition of its Ellipse finance system to Justice SAP during 2018–19. Consequently, the Department of Communities and Justice will write off $2.0 million of previously capitalised development costs during 2019–20.

    The project was suspended following the Machinery of Government changes referred to in chapter two. The Department of Communities and Justice will embark on a project to consolidate the various financial systems that now exist within the new department.

    The Office of the Director of Public Prosecutions wrote off project costs of $1.5 million in 2018–19

    The Office of the Director of Public Prosecutions (ODPP) ceased work on the replacement of its Case Management System (CMS) during the year. As a result, total costs incurred and capitalised on the project to 30 June 2019 were impaired. This decreased ODPP's net result by $1.5 million for the year ending 30 June 2019.

    ODPP had $4.0 million capital funding and $450,000 recurrent funding approved to replace its CMS over the four years from 2016–17 to 2019–20. However, as an outcome of the 2019–20 NSW Budget, ODPP was advised in May 2019 funding for continuation of the project in 2019–20 had not been approved.

    Preparedness for new accounting standards

    Agencies will implement four new accounting standards shortly. Three are effective from 1 July 2019 and the fourth is effective from 1 July 2020. These may significantly impact the financial position and operating results of agencies across the cluster. Accounting standards required agencies to assess and disclose where possible, the impact of new standards in their 2018–19 financial statements.

     

    Recommendation

    Cluster agencies should finalise their plans to implement the new accounting standards as soon as possible.

    Our review found instances where agencies needed to do more work on their impact assessments to minimise the risk of error in their 30 June 2019 financial statements disclosures, and to better prepare for their implementation from 1 July 2019. Some agencies disclosed the new standards would not have a material impact on their reported statements of financial position and performance but had little evidence to support this conclusion. Cluster agencies should finalise the implementation of these standards as soon as possible, if they haven't already done so.

    Each agency is unique and implementing the new standards is not straight forward. Many new principles apply. Management judgement is needed to interpret how the principles apply to each agency and in many instances, to each transaction. As a result, agencies face the following risks and challenges:

    • supporting their staff with additional technical advice and resources
    • having accurate data to assess the impacts
    • correctly and consistently interpreting the new requirements
    • adequately planning and preparing for their application
    • implementing new systems to capture the information needed to meet the new reporting obligations.

    To help agencies implement the new standards consistently, NSW Treasury:

    • issued guidance to agencies
    • prepared position papers on proposed accounting treatments
    • provided briefing sessions to agencies
    • mandated which option in the new standards agencies had to adopt on transition.

    Preparing well in advance is key for agencies to effectively transition to the new standards. The transition requires significant planning and resources to ensure the impacts are appropriately assessed and all necessary information is captured accurately for reliable reporting. Key points to consider in the transition are included in the Report on State Finances 2019.

    Infographic showing key dates
    Key dates

    The new accounting standard AASB 9 ‘Financial Instruments’ was implemented from 1 July 2018. AASB 9 introduced a simplified model for classifying and valuing financial instruments and a new method for calculating impairment (decreases in asset values). Applying the new method for calculating impairment in 2018–19 resulted in cluster agencies recognising additional impairment losses of $9.3 million at 1 July 2018.

    3.4 Financial performance key issues

    Demand funding

    A demand funding model for the criminal and civil justice system is being developed

    The Justice component of the cluster is integrated with key service delivery inter-dependencies. Ensuring communities are safe requires both upstream and downstream agencies to be appropriately resourced. This is a delicate balance. Increases in frontline policing can subsequently impact the court system as more offenders are apprehended. More convictions can in turn increase prisoner numbers and limit the opportunities for inmate rehabilitation. Failure to successfully rehabilitate prisoners and prevent reoffending could impact future police resourcing.

    Despite the inter-dependencies, funding in the criminal and civil justice system is determined in advance through the annual appropriation process. This does not always reflect the expenditure that will be required, which is driven by the level of activity. Where funding does not meet demand, added pressure is placed on downstream agencies which tend to respond by reducing non-core services to meet budget constraints.

    To help address this issue, a new demand funding model for the criminal and civil justice system is being developed by various agencies from across the cluster in conjunction with NSW Treasury. Cluster agencies advise:

    • a methodology underpinning the model is being developed with NSW Treasury including the nature of fixed costs, demand and decision-based costs, and relevant drivers
    • a final demand funding model and budget estimates are subject to endorsement by the NSW Government in February 2020
    • subject to final endorsement, the demand funding model is expected to be functional in 2020–21.

    The 2016 Auditor-General's Report to Parliament recommended that, in making decisions about Justice cluster resources, the Department of Justice should consider the activities of the interrelated components of the criminal justice system.

    Other financial performance matters

    The cost of the NSW Police Force Blue Ribbon Insurance Scheme increased and remains above the statutory target

    NSW Police data shows the cost of the NSW Police Death and Disability Insurance Scheme (Police Blue Ribbon Scheme) for the year ended 30 June 2019 was 5.6 per cent of total NSW Police Officers' remuneration (5.3 per cent in 2017–18). This cost remains higher than the statutory target of 4.6 per cent.

    The cost of the Police Blue Ribbon Scheme premium increased by 3.6 per cent to $115 million in 2018–19 ($111 million in 2017–18). The increase is due to higher employee costs during the year and a higher premium of 7.4 per cent (7.1 per cent in 2017–18).

    Graph showing performance of insurance premium paid against statutory target
    Performance of insurance premium paid against statutory target
    Source: NSW Police Force financial statements (audited).

    Last year's Auditor-General's Report to Parliament recommended NSW Police estimate the scheme costs for future years, to understand when the statutory target of 4.6 per cent of total NSW Police Officers’ remuneration, will be met. NSW Police estimated the cost of the Blue Ribbon insurance scheme for future years but advised it is difficult to predict if or when the statutory target may be met due to upward pressure on the insurance scheme's performance with no change to product design.

    Monitoring the performance of the insurance scheme is important to ensure premiums are kept to a reasonable level and NSW Police can budget to meet the costs. In 2011, a statutory target was determined which requires the cost of the Blue Ribbon Scheme to fall below 4.6 per cent of NSW Police Officers’ remuneration.

    The Fire and Rescue NSW Death and Disability Scheme liability increased by 52 per cent this year

    The Fire and Rescue NSW Death and Disability Scheme liability increased from $187 million at 30 June 2018 to $284 million at 30 June 2019. The rise is mainly due to:

    • lower interest rates which are used to discount the liability ($41 million)
    • changes in workers compensation legislation, which presumes certain cancers are a work-related injury for firefighters meeting minimum eligible service periods ($37 million). Further details on the legislative changes are included in the 'Audit observations' chapter later in this report
    • an additional year of claims being incurred ($15 million).

    The increased cost of the scheme will ultimately be passed on to consumers in New South Wales, through higher council rates and insurance premiums. Under the Fire and Rescue Act 1989, the cost of running Fire and Rescue NSW is passed on through levies to insurers, councils and NSW Treasury.

    3.5 Human resources

    This section outlines our review of annual leave, sick leave and Workplace Health and Safety at the Department of Justice, NSW Police and Fire and Rescue NSW, which employed a substantial proportion of frontline staff in the cluster in 2018–19.

    Managing annual leave

    The number of employees with excess annual leave balances has reduced, but remains high

    Managing excess annual leave is a continual challenge for certain agencies within the cluster. At the agencies we reviewed, 31 per cent of employees have an annual leave balance exceeding the State's 30-day target at 30 June 2019, despite an improvement of 9.7 percentage points since 2016.

     

    Recommendation (repeat issue)

    Cluster agencies with annual leave balances exceeding the State's target should further review their approach to managing leave balances. Strategies agencies should consider implementing include:

    • regularly (e.g. each month) projecting annual leave balances to the end of the financial year
    • for employees with projected balances above the target, developing and agreeing leave plans to reduce their balances over an acceptable timeframe
    • focusing on employees who have taken little or no leave in the last 12 months.

    The table below shows the number of employees with excess leave.

    At 30 June 2019 2018 2017 2016
    Number of staff with annual leave >30 days 11,647 14,056 14,380 14,980
    Percentage of full time equivalent staff 31.3% 38.9% 40.5% 41.0%
    Note: The figures in the table include the Department of Justice, NSW Police Force and Fire and Rescue NSW only. These agencies are the highest employers of frontline staff in the cluster.
    Source: Provided by the Department of Justice, NSW Police Force and Fire and Rescue NSW (unaudited).

    Whilst the number of employees that took less than five days annual leave decreased from 4,009 in 2017–18 to 2,783 in 2018–19, the number remains high. Many employees continue to take little or no annual leave. Our 2018–19 financial audits identified some employees with excess leave where the employer agency had not formally documented leave plans to reduce balances to acceptable levels. Some factors agencies within the cluster claim contribute to excess annual leave balances include:

    • increasing inmate numbers in the NSW prison system reduces the opportunity for frontline staff in the Corrective Services NSW division of the Department of Justice to take annual leave
    • some employees accrue more than the standard 20 days annual leave each year. The higher entitlement recognises some staff need more leave due to the nature or location of their work
    • police officers at NSW Police can accrue up to nine weeks of annual leave under the Crown Employees (Police Officers - 2017) Award. This equates to an annual entitlement of 36 working days which is more than the State target of 30 days.

    NSW Police data shows that whilst 6,297 police officers exceeded the State's 30-day target at 30 June 2019 (7,549 at 30 June 2018), only 788 (1,109 at 30 June 2018) exceeded the award annual entitlement of 36 days.

    Risks associated with excessive leave balances include:

    • adverse effects to the health and wellbeing of staff who do not take sufficient leave
    • possible work health and safety issues
    • disruptions to service delivery when key employees take lengthy periods of leave
    • employee fraud remaining undetected
    • an increasing financial liability over time as salaries increase.

    Sick leave

    Effectively managing sick leave remains challenging for cluster agencies

    Data from the three agencies we reviewed show each full time equivalent (FTE) employee took on average, 69.4 hours sick leave in 2018–19 (73.2 hours in 2017–18). This exceeds the 2017–18 public sector average of 65.2 hours per FTE employee referred to in the Public Service Commission's 'State of the NSW Public Sector Report 2018'.

    The total cost of sick leave at the agencies we reviewed was $124 million in 2018–19 ($121 million in 2017–18).

    Graph showing average sick leave hours per FTE
    Average sick leave hours per FTE
    Note: The figures in the table include the Department of Justice, NSW Police Force and Fire and Rescue NSW only. These agencies are the highest employers of frontline staff in the cluster.
    Source: Provided by the Department of Justice, NSW Police Force and Fire and Rescue NSW (unaudited).

    Data from the Department of Justice shows sick leave taken in 2018–19 by frontline staff, mainly custodial officers within the Corrective Services NSW division, was 25.6 per cent (16.7 hours) more than the 2017–18 public sector average of 65.2 hours.

    NSW Police data shows sick leave taken by administrative employees in 2018–19 exceeded the 2017–18 public sector average by 7.3 hours (11.2 per cent). Administrative employees took an average of 72.5 hours sick leave in 2018–19 (78.5 hours in 2017–18).

    Sick leave taken by employees at Fire and Rescue NSW in 2018–19 exceeded the 2017–18 public sector average by 36.3 per cent (23.7 hours). On average employees took 88.9 hours sick leave in 2018–19 (87.5 hours in 2017–18).

    TC14/13 ‘Managing Sick Leave Policy’ allows agencies to adopt a range of strategies that suit the workplace to help address genuine illness and sick leave abuse by employees. The strategies include:

    • using information management systems to monitor, measure and analyse sick leave data/information
    • identifying options, strategies and support available to manage absences when they occur
    • developing return to work plans and conducting effective return to work interviews.

    3.6 Workplace Health and Safety

    Workers’ compensation claims as a percentage of full time equivalent employees have increased since 2016

    Data from the agencies we reviewed shows workers' compensation claims in 2018–19 were 14.4 per cent (5,357 claims) of total FTE employees compared to 12.9 per cent (4,661 claims) in the prior year.

    Since 2016, NSW Police has had the highest number of claims as a percentage of FTE employees. But the largest increase has been at Fire and Rescue NSW where workers' compensation claims as a percentage of FTE employees increased by 5.0 percentage points over the same period.

    Graph showing workers' compensation claims as a percentage of FTE employees
    Workers' compensation claims as a percentage of FTE employees
    Note: The figures in the table include the Department of Justice, NSW Police Force and Fire and Rescue NSW only. These agencies are the highest employers of frontline staff in the cluster.
    Source: Provided by the Department of Justice, NSW Police Force and Fire and Rescue NSW (unaudited).

    The agencies we reviewed reported they spent $312 million in workers compensation insurance premiums in 2018–19 ($229 million in 2017–18) an increase of 36.2 per cent. The largest increase was at Fire and Rescue NSW, where premiums rose by $44.2 million due to new legislation that presumes certain cancers are a work-related injury for firefighters meeting minimum eligible service periods. Details on the new presumptive legislation is included in the 'Audit observations' chapter later in this report.

    Lost hours due to workplace injuries in NSW Police continue to increase

    NSW Police reports average workplace injury leave of 90.5 hours per FTE police officer in 2018–19 (71.3 hours in 2017–18), a 19.2 hour (26.9 per cent) increase compared to the prior year.

    Workplace injury leave per police officer FTE (hours)
             
    Year ended 30 June 2019 2018 2017 2016
    NSW Police* 90.5 71.3 65.6 57.9
    *Relates to workplace injury excluding all other sick leave.
    Source: NSW Police Force (unaudited).

    The cost of workplace injury leave for police officers rose to $50.8 million in 2018–19 ($39.4 million in 2017–18). On average, the cost per police officer FTE was $3,078 in 2018–19 ($2,412 in 2017–18) an increase of 27.6 per cent. NSW Police advised injury leave fluctuates year on year depending on the number of accidents that occur while on duty.

    NSW Police data shows body stress claims increased by 236 in 2018–19 compared to the prior year. NSW Police attributes the increase to older, more experienced police officers being injured during training and by the equipment they use.

    NSW Police lost 137.7 hours per FTE employee in 2018–19 (129.5 hours in 2017–18) for sick leave and workplace injury leave across police officers and administration staff. The total cost of sick and work place injury leave for police officers and administration staff was $118 million in 2018–19 ($107 million in 2017–18).

    4. 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 Stronger Communities cluster.

    Section highlights

    • Cluster agencies should action recommendations to address internal control weaknesses promptly. Particular focus should be given to prioritising high risk issues. The 2018–19 financial audits of cluster agencies identified 157 internal control issues. Of these, two were high risk and 37.6 per cent were repeat findings from previous audits.
    • Data from the Department of Justice shows the inmate population reached a maximum of 13,798, compared to an operational capacity of 14,626 beds on 31 August 2019. This equates to an operational vacancy rate of 5.7 per cent, which is more than the recommended 5.0 per cent buffer. This is the first time the vacancy rate has exceeded the target over the last five years. Growth in the NSW prison population is being managed through the NSW Government's $3.8 billion Prison Bed Capacity Program.
    • In September 2018, the NSW Government introduced new workers' compensation legislation, which gives eligible firefighters presumptive rights to workers' compensation when diagnosed with one of 12 prescribed cancers. The new legislation cost emergency services agencies $180 million in 2018–19, mainly through additional workers' compensation premiums.

      4.1 Internal control deficiencies

      Management letter findings

      Two high risk internal control deficiencies were identified

      Our 2018–19 cluster audits identified two high risk internal control weaknesses. One of the deficiencies related to financial controls and the other to information technology controls.

      High risk finding Implication

      We noted deficiencies in controls to manage inventories held for distribution at the Office of the NSW Rural Fire Service (RFS), including:

      • policies that did not require all items in warehouses, stores and caches to be included in the annual stocktake
      • inventory movements were not reflected in the financial management system on a timely basis
      • warehouse records were unable to establish the dates when inventory items were despatched.

      There is a risk inventories are materially understated for financial reporting purposes because:

      • certain items are excluded from the stocktake
      • warehouse records are not able to establish despatch dates.

      There is an increased risk theft will not be detected or will not be detected on a timely basis. RFS has previously experienced fraud in this area.

      We noted deficiencies in controls in monitoring privileged user activities on a key business system at the Sydney Cricket and Sports Ground Trust. Audit logs were not maintained or reviewed.

      Privileged users can access key systems and functions. They may also be able to remove records of their activity if programmed logging features are disabled.

      Inappropriate privileged user access exposes agencies to greater risk of unauthorised changes to systems and data by these users, or by cyber criminals using their logon details. The unauthorised changes may not be identified in a timely manner and/or be traceable to individual users.

      Source: Audit Office management letters.

      Agencies should address these high risk internal control deficiencies as a matter of priority.

      Over one-third of internal control issues reported were repeat findings

      The 2018–19 financial audits of cluster agencies identified 157 internal control issues, of which 59 or 37.6 per cent were repeat findings from previous financial audits. We reported these deficiencies to agency management and those responsible for governance at agencies, such as audit and risk committees and cluster secretaries. Our management letters outline each audit finding, assess its implications, rate the level of risk and make recommendations.

       

      Recommendation (repeat issue)

      Cluster agencies should action recommendations to address internal control weaknesses promptly. Particular focus should be given to addressing high risk and repeat issues.

      A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.

      The table in Appendix two shows the management letter findings for each cluster agency.

      Thirty-three per cent of internal control deficiencies were information technology related

      The graph below shows 33 per cent of reported deficiencies were information technology (IT) related. The rest were split between internal control deficiencies (26 per cent), financial reporting (20 per cent), governance and oversight (13 per cent), and non-compliance with key legislation and/or central agency polices (8 per cent).

      Graph showing category of management letter findings
      Category of management letter findings
      Source: Audit Office management letters.

      Good IT controls are an essential ingredient underpinning effective processes, policies and procedures for managing information systems, securing sensitive information, and ensuring the integrity of agency data. Poor IT controls increase risks to agencies, including unauthorised access, cyber security attacks, fraud, data manipulation, privacy breaches, non-compliance with laws and regulations and information theft.

      The table below describes the common issues identified across the cluster by category and risk rating.

      Category Risk rating Issue
      Information technology

      red circle, white exclamation mark High: 1 new

       

      yellow circle white minus symbol Moderate: 13 new, 19 repeat

      green circle white tick Low: 11 new, 7 repeat

      The high-risk matter related to the Sydney Cricket and Sports Ground Trust's lack of monitoring of privileged user activities referred to in Section 4.1.

      Other IT control issues of particular concern included:

      • user access administration
      • password security policies and parameters
      • development, review and testing of system disaster recovery plans.
      Internal control deficiencies

      yellow circle white minus symbol Moderate: 7 new, 5 repeat

      green circle white tick Low: 16 new, 12 repeat

      Moderate and low risk issues included:

      • ineffective management of inter-agency transactions and balances
      • approval of purchase requisitions after the invoice date
      • incomplete plant and equipment stocktakes
      • delays in capitalising completed capital works projects.
      Financial reporting

      red circle, white exclamation mark High: 1 new

       

      yellow circle white minus symbol Moderate: 12 new, 2 repeat

      green circle white tick Low: 15 new, 2 repeat

      The high-risk matter related to deficiencies in controls in managing inventory at the Office of the NSW Rural Fire Service referred to in Section 4.1.

      Moderate and low risk issues included:

      • insufficient evidence to support agencies' impact assessments for new accounting standards
      • concerns over the completeness and accuracy of annual leave and long service leave balances
      • fully depreciated assets still in use without a reassessment of their useful lives.
      Governance and oversight

      yellow circle white minus symbol Moderate: 6 new

      green circle white tick Low: 11 new, 4 repeat

      Moderate and low risk issues included:

      • outdated policies and procedures
      • incomplete contract registers
      • lack of laws and regulations compliance register to monitor key compliance activities
      • financial delegation instruments not reviewed to ensure their currency.
      Non-compliance with key legislation and/or central agency policies

      yellow circle white minus symbol Moderate: 3 repeat

      green circle white tick Low: 5 new, 5 repeat

      Moderate and low risk issues included:

      • excessive annual leave balances
      • underpayments of payroll tax.
      red circle, white exclamation mark High risk from the consequence and/or likelihood of an event that has had or may have a negative impact on the entity.
       
       
      yellow circle white minus symbol Moderate risk from the consequence and/or likelihood of an event that has had or may have a negative impact on the entity.
       
       
      green circle white tickLow 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 on interim and final management letters issued to agencies, or draft letters where findings have been agreed with management.

      4.2 Key issues

      Each year our financial audits examine a small number of specific topics across agencies. We determine which topics to consider by looking for opportunities to improve public-sector accountability, governance and administration. We also consider the risks and challenges to reporting the true financial position and performance of the State and how these may be addressed during our audits.

      Risks and challenges that may impact on agencies in the Stronger Communities cluster this year include:

      • delivery of the Prison Bed Capacity Program
      • rectification of identified control issues due to a new system implementation
      • implementation of the new ChildStory IT system
      • social housing management
      • introduction of presumptive legislation for firefighters.

      Delivery of the Prison Bed Capacity Program

      Growth in the NSW prison population is being managed through the Prison Bed Capacity Program

      Prison system capacity is being expanded through the NSW Government's $3.8 billion Prison Bed Capacity Program (the PBC Program). The PBC Program comprises the construction of rapid build prisons, prison expansions, recommissioning of correctional centres and the delivery of Immediate Future Needs beds. At 30 June 2019, the PBC Program has delivered a total of 3,506 beds (2,770 beds at 30 June 2018).

      The Department of Justice reported it spent $781 million on the PBC Program in 2018–19 ($456 million in 2017 18). Three prison expansion projects were completed during the year, adding 736 beds to the NSW prison system. This included 360 beds at the South Coast Correctional Centre at a cost of $174 million, 330 beds at the Shortland Correctional Centre in Cessnock at a cost of $178 million and 46 beds at the Goulburn Correctional Centre at a cost of $15.0 million.

      In our recent performance audit on managing growth in the NSW prison population, we assessed the efficiency and effectiveness of the Department's immediate, short, medium and longer-term responses to growth in the prison population and providing prison capacity. The audit found:

      • the Department has relied heavily on temporary responses to accommodate growing prisoner numbers
      • sustained reliance on temporary responses, including doubling and tripling up the number of beds in cells, reopening closed facilities and using ageing facilities, is inefficient and creates risks to safety and timely access to prisoner support services
      • to plan for longer-term needs, the Department has prepared a 20-year infrastructure strategy but it has yet to be funded.

      The report makes recommendations which aim to improve the quality of advice on prison population growth and capacity needs and ensure the prison system can respond to future prisoner population fluctuations while improving system efficiency and effectiveness.

      Operational capacity in the NSW prison system exceeded the recommended buffer

      The inmate population reached a maximum of 13,798 in 2018–19 compared to an operational capacity of 14,626 beds on 31 August 2019 (14,057 beds on 17 August 2018). This equates to an operational vacancy rate of 5.7 per cent (2.0 per cent on 17 August 2018).

      The Commissioner of Corrective Services NSW has previously referred to a target average 5.0 per cent operational capacity buffer, to enable the efficient and effective management of the inmate population. The operational vacancy rate of 5.7 per cent on 31 August 2019 exceeds the 5.0 per cent target. This is the first time the operational vacancy rate has exceeded the target over the last five years. Corrective Services NSW advised the actual buffer available on any given day will vary. However, when there is a sustained change above or below the buffer, it is used to plan for capacity changes.

      Inmate numbers and prison capacity
                 
      Year ended 30 June 2019 2018 2017 2016 2015
      Total daily average inmate number, all prisons 13,495 13,373 12,931 12,305 11,011
      Total daily average operational capacity, all prisons 14,243** 14,057* 14,106 13,290 12,103
      Maximum daily population, all prisons 13,798 13,772 13,265 12,737 11,878
      * Between February and May 2018, a total of 379 beds were temporarily removed from the prison system to enable bed modifications and upgrades. Following completion of the works, 246 beds were returned to the system between October 2018 and July 2019.
      ** Excludes beds temporarily removed from the prison system to enable bed upgrades.
      Source: Department of Justice (unaudited).

      While the daily average prison population continued to increase in 2018–19, the rate of increase decreased from 3.4 per cent in 2017–18 to 0.9 per cent in 2018–19. The Department advised in the longer-term, the NSW prison population is expected to grow by approximately three per cent per annum.

      Operational capacity is the total number of commissioned beds within the correctional system to which an offender can be permanently assigned or allocated. Operational bed capacity can be changed, for example, by installing more beds in existing cells.

      Around 2,500 beds will be removed from the NSW prison system

      In September 2019, the NSW Government announced the Prison Bed Capacity Adjustment Program. The program allows Corrective Services NSW to adjust prison capacity by retiring high risk and obsolete infrastructure as new infrastructure under the $3.8 billion PBC Program and the new Clarence Correctional Centre come on line.

      In August and September 2019, the Minister for Corrections announced:

      • the closure of prisons at Grafton, Berrima, Unanderra (Illawarra Reintegration Centre), Ivanhoe and Brewarrina
      • changes to remove obsolete and high-risk beds from across the prison network, to increase single cell capacity and reduce overcrowding.

      Overall, around 2,500 beds will be removed from the system.

      Rectification of identified control issues due to a new system implementation

      Control issues resulting from the 2016–17 implementation of Justice SAP continue to be addressed

      Our 2017 Auditor-General's Report to Parliament recommended the Department of Justice reinstate controls over financial information as soon as possible. The recommendation was made because there were significant IT, payroll and general finance related issues resulting from the Department's implementation of Justice SAP in 2016–17.

      The Department continues to address the control deficiencies. However, significant effort is still needed to ensure controls are operating as intended. The Department's 2018–19 financial audit reported several repeat findings from previous audits, including:

      • roles and responsibilities not being assigned properly in Justice SAP
      • privileged user access not being effectively managed in Justice SAP
      • ineffective processes for recording, reconciling and settling inter-agency transactions and balances
      • concerns over the accuracy of long service leave balances.

      The delay in rectifying the control issues increases the risk of fraud and error.

      The Department provides financial, human resources and IT services to other independently governed agencies within the cluster. The internal control environment at these agencies is similarly impacted by the Department's Justice SAP issues.

      The Department advised future initiatives planned to address the control issues include:

      • improving system change management
      • completing a capability assessment of internal resources and addressing skill gaps
      • optimising its shared services capabilities by combining similar functions to provide best practice business processes
      • harmonising policies and procedures to drive consistent service delivery.

      The Department reported it incurred additional costs of $12.3 million in 2018–19 addressing the implementation issues. The total cost of remediating control issues since the implementation of Justice SAP is $33.9 million.

      Implementation of the new ChildStory IT system

      The Department of Family and Community Service’s ChildStory information technology project commenced in 2014 and was deployed across two releases in November 2017 and June 2018. ChildStory replaced a number of the Department’s previous IT systems for child protection, early intervention and out-of-home care. The system collects and stores key information relating to the Department’s clients to support decision making and oversight.

      At the current time, ChildStory is available to:

      • FACS caseworkers
      • child protection practitioners in NSW Police, Health and Education
      • non-government organisations
      • other government agencies
      • mandatory reporters.

      According to the 2014–15 NSW Budget, $100 million was allocated for ChildStory over a four-year period. During the design and implementation stage, this amount was revised to $128 million. The actual cost incurred over the four years until 30 June 2018 was approximately $131 million, 31 per cent over the original budget and two per cent over the revised budget.

      ChildStory transitioned to business as usual but work is still ongoing

      ChildStory transitioned to business as usual for the Department in June 2018, although the full scope of the original business case had not been delivered. The completeness of the system currently remains uncertain and project work is still ongoing.

      New governance arrangements for ChildStory were introduced in July 2018. The ChildStory Steering Committee and the Reference Group are responsible for managing amendments to the ChildStory support and training model and overseeing the design, build and testing model for system enhancements rolled out during 2018–19.

      ChildStory has not yet demonstrated the achievement of its intended benefits

      Regular independent ‘health check’ reviews of the ChildStory project have been undertaken by the Department of Finance, Services and Innovation on behalf of the NSW Government since the project’s inception. A post implementation review of the project was completed in the first quarter of 2019. The review found that:

      • the completeness of the project is unclear with project work still continuing
      • the project had not yet demonstrated whether its intended benefits had been achieved
      • a strategic plan is needed to ensure the system can effectively respond to ongoing stakeholder demands and policy change.

      The Department advised that a benefits realisation assessment and the pre-work for the strategic plan have commenced. It predicts both will be finalised in early 2020.

      The first user access review of ChildStory is expected to be complete by the end of 2019

      ChildStory contains sensitive and confidential information about children, families and other clients. Due to the nature and volume of information held within ChildStory, access to the system is tightly controlled, restricted and monitored. The first user access review of ChildStory commenced in September 2019 and has moved progressively across all relevant districts and directorates. The review is expected to be complete by the end of 2019.

      Social housing management

      The Audit Office released a performance audit report on Managing antisocial behaviour in public housing in August 2018.

      The performance audit found that the Department of Family and Community Services had not adequately supported or resourced its staff to implement the antisocial behaviour policy. The Department's antisocial behaviour data was incomplete and unreliable. Accordingly, there was insufficient data to determine the nature and extent of the problem and whether the implementation of the policy is leading to improved safety and security. The Department had not dedicated sufficient training to equip frontline housing staff with the relevant skills to apply the antisocial behaviour management policy. However, the Department managed serious and illegal antisocial behaviour effectively.

      The performance audit also found that the Department’s information management system (HOMES-ASB) was poorly designed and had significant functional limitations which impeded the ability of staff to record and manage antisocial behaviour. Staff at most of the housing offices visited were unable to accurately record antisocial behaviour matters in HOMES-ASB, making the data incorrect and unreliable.

      The Department of Family and Community Services has actioned key recommendations from the performance audit

      The Department advises that the functional issues experienced by staff with the information management system (HOMES-ASB) have been addressed through a series of IT changes. Phase one of the changes went live on 30 November 2018 and phase two went live on 28 February 2019.

      The HOMES-ASB user guide was reviewed and updated. The revised user guide was implemented in parallel to the HOMES-ASB system changes in November 2018.

      To improve staff capacity and capability in managing antisocial behaviour, the Department advised it has:

      • undertaken a resource allocation review to ensure regional areas are adequately resourced and staff have received appropriate training
      • included an antisocial behaviour element in the compulsory Leadership Engagement and Professional training for all client service officers
      • continued training client service officers through the Certificate IV in Social Housing
      • introduced monthly team leader webinars to highlight issues that are identified, share best practices and provide policy and process updates.

      Introduction of presumptive legislation for firefighters

      The new presumptive legislation cost emergency services agencies more than $180 million in 2018–19

      In September 2018, the NSW Government introduced the Workers Compensation Legislation Amendment (Firefighters) Act 2018, which is presumptive legislation, and reverses the onus of proof for NSW firefighters who are diagnosed with one of 12 prescribed cancers.

      Employed and volunteer firefighters continue to have rights to workers compensation. However, they are now entitled to the presumption that any of the 12 prescribed cancers diagnosed post 27 September 2018 is a work related injury where the firefighter has met the applicable minimum service period.

      As shown below the new presumptive legislation cost emergency services agencies approximately $180 million in 2018–19, mainly through additional workers compensation premiums.

      Impacts of the new presumptive legislation in 2018–19
      Infographic showing impacts of the new presumptive legislation in 2018-19
      Note: The agencies report there is significant uncertainty surrounding the estimated impact of the presumptive legislation.
      Source: Fire and Rescue NSW and Office of the NSW Rural Fire Service financial statements (audited).

      Based on claims to date, firefighters covered by workers compensation may also have access to common law litigation. No common law claims have been settled at this point and the quantum of the claims are uncertain as at 30 June 2019.

      Appendices

      Appendix one – Timeliness of financial reporting by agency

      Appendix two – Management letter findings by agency

      Appendix three – List of 2019 recommendations 

      Appendix four – Status of 2018 recommendations 

      Appendix five – Cluster agencies 

      Appendix six – Financial data 

       

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