Report highlights
What this report is about
Results of the Stronger Communities financial statement audits for the year ended 30 June 2023.
What we found
Unqualified audit opinions were issued on all completed Stronger Communities portfolio agencies.
Machinery of government changes during the year returned the sports-related agencies to the Stronger Communities portfolio.
Resilience NSW was abolished on 16 December 2022 with most of its functions transferred to the newly created NSW Reconstruction Authority.
The Trustee for the First Australian Mortgage Acceptance Corporation (FANMAC) is a prescribed entity under the Government Sector Finance Regulation 2018. The Trustee should have presented the FANMAC's financial statements for audit after it became a GSF agency on 1 July 2020.
The number of monetary misstatements identified in our audits decreased from 42 in 2021–22 to 29 in 2022–23.
What the key issues were
In 2022–23, agencies in the portfolio recorded net revaluation uplifts to land and buildings totalling $643 million.
Out of home care and permanency support grant expenditure has increased by 27% since 2019–20. An upcoming performance audit report will focus on the timeliness and quality of the child protection services provided by the department and its non-government service providers.
A high-risk matter was raised for the department over segregation of duties deficiencies in the Justice Link system.
Four high-risk matters reported in 2021–22 have been resolved.
Thirty-three agencies were onboarded into a new government-wide enterprise resource planning system. Additional agencies will be onboarded in three tranches from April 2024 through to October 2024.
What we recommended
Portfolio agencies should:
- ensure any changes to employee entitlements are assessed for their financial statement impact under the relevant Australian Accounting Standards
- prioritise and address internal control deficiencies identified in our management letters.
Fast facts
1. Introduction
This report provides Parliament and other users of the Stronger Communities portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
The NSW Government announced in the 2023–24 budget papers its intention to shift from agency-based outcomes to a broad set of wellbeing and performance measures. The outcomes that were applicable to this portfolio of agencies in 2022–23 are listed below.
Key objectives of the Stronger Communities portfolio: Delivers community services that support a safe, just and brighter future for New South Wales.
| State outcomes | Description |
|---|---|
| Children and families thrive | Ensuring the safety and wellbeing of vulnerable children, young people and families, and protecting them from the risk of harm, abuse and neglect. |
| Efficient and effective legal system | Resolving matters through legal services, the administration of courts and tribunals, and client-facing justice services to victims and vulnerable people. |
| Inclusive communities | Delivering programs and support services that aim to promote community harmony and social cohesion, particularly for participants in the National Disability Insurance Scheme (NDIS) and people from culturally and linguistically diverse backgrounds. |
| People have a safe and affordable place to live | Assisting people who are unable to access or maintain appropriate housing, including homelessness services. |
| Prepared for disasters and emergencies | Coordinating and delivering emergency management to enhance response and recovery efforts. |
| Reduce reoffending | Operating the State’s corrections system, including support for, and management of, adult and youth offenders in correctional centres and the community. |
| Safer communities | Preventing, detecting and investigating crime, maintaining social order and community safety, promoting road safety, and supporting emergency management. |
| Excellence in sport | Leverage our capabilities to position the State as a world-class centre for sport. |
1.2 Changes to the portfolio of agencies
Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions that are given effect by Administrative Orders.
This report is focused on agencies in the Stronger Communities portfolio as at 30 June 2023.
Sports agencies return to the Stronger Communities portfolio
Administrative Change Orders effective on 5 April and 5 May 2023 marked the return of sport-related agencies to the Stronger Communities portfolio, having been previously transferred out in December 2021.
| Incoming agency | Previous portfolio |
|---|---|
| Combat Sports Authority of New South Wales | Enterprise, Investment and Trade |
| Institute of Sport Staff Agency | Enterprise, Investment and Trade |
| NSW Institute of Sport | Enterprise, Investment and Trade |
| Office of Sport | Enterprise, Investment and Trade |
| State Sporting Venues Authority | Enterprise, Investment and Trade |
| Venues NSW | Enterprise, Investment and Trade |
| Venues NSW Staff Agency | Enterprise, Investment and Trade |
Abolition of Resilience NSW and creation of the NSW Reconstruction Authority
Resilience NSW (RNSW) aimed to help communities rebuild and recover after natural disasters like floods, droughts and bushfires. It was established to lead disaster and emergency efforts – from prevention to recovery.
On 16 December 2022, the 'Administrative Arrangements (Administrative Changes - Miscellaneous Order (no 10)) 2022' abolished RNSW. Employees and functions were subsequently transferred to the:
- NSW Police Force
- Department of Premier and Cabinet
- Department of Communities and Justice
- NSW Reconstruction Authority Staff Agency.
The financial statements of the former agency were certified on 27 August 2023 and the independent auditor's report issued 4 September 2023.
Changes to the Aboriginal Land Rights Amendment Act 2022
In November 2022 the Aboriginal Land Rights Amendment Act 2022 and the Government Sector Finance Regulation 2018 removed the New South Wales Aboriginal Land Council (the council) as a prescribed entity under the Government Sector Finance Act 2018.
Whilst no longer a government sector finance entity, the council, under its enabling legislation, is still required to prepare consolidated financial statements annually and be audited by the Auditor-General for NSW. The council's subsidiaries (NSWALC Employment and Training Limited, NSWALC Housing Limited, NSWALC Properties Pty Ltd, NSWALC Resources Pty Ltd and Social Enterprise Finance Australia Limited) are audited as part of the consolidated financial statements of the council. The subsidiaries are not legislatively required to be audited as separate reporting entities by the Auditor-General for NSW.
The consolidated financial statements of the council was certified on 18 October 2023 and the independent auditor's report issued 20 October 2023.
2. Financial reporting
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Stronger Communities portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of portfolio agencies, including the audit of the Crown Solicitor's Office's Trust Account for compliance with clause 14 of the Legal Profession Uniform Law Application Regulation 2015.
- The financial statement audits of the NSW Trustee and Guardian Common Funds (the common funds) – year ended 30 June 2022 were certified by management on 6 December 2022 and independent auditor's reports issued 21 December 2022. The 30 June 2023 financial statements audits of the common funds are ongoing.
- A variation to an agreement between the Commonwealth Attorney-General and the Legal Aid Commission of New South Wales for legal services to support the Royal Commission into Violence, Neglect and Exploitation of people with disability program extended the reporting period from 30 June 2023 to 29 September 2023 – the conclusion of the Royal Commission. The audit of the financial report acquitting expenditure under the agreement is expected to be completed before 28 February 2024.
- The audit of the Home Purchase Assistance Fund's (the fund) 30 June 2022 financial statements remains incomplete. Those charged with governance of the fund have not provided sufficient and appropriate evidence to support the carrying value of material investments reported in the fund's financial statements. The financial audit of the fund's 2023 financial statements remain incomplete as a result.
- The Trustee for the First Australian Mortgage Acceptance Corporation Master and Pooled Super Trusts had not prepared general purpose financial statements since 30 June 2021 when the financial reporting provisions of the Government Finance Sector Act 2018 were enacted and the Trustee was prescribed as a GSF agency under the regulations. The audits of these financial statements are ongoing.
- Reported corrected misstatements decreased from 28 in 2021–22 to six with a gross value of $8.8 million in 2022–23 ($277 million in 2021–22).
- Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
- In 2022–23, portfolio agencies collectively recorded net revaluation uplifts to the carrying values of land and buildings totalling $643 million (2021–22: $993 million) initiated through a combination of comprehensive and desktop valuations.
- The Department of Communities and Justice (the department) had previously deferred performing a comprehensive revaluation of its land and building portfolio relating to the Corrective Services and Youth Justice functions. The deferral was due to the challenges in providing valuers sufficient access to the facilities due to the pandemic. The department is scheduled to perform a comprehensive revaluation of its full land and building portfolio in 2023–24.
2.1 Portfolio financial information 2023
| Agency | Total assets $m |
Total liabilities $m |
Total income* $m |
Total expenses** $m |
| Principal department | ||||
| Department of Communities and Justice | 10,227.5 | 2,137.2 | 16,770.2 | 16,551.5 |
| Other portfolio agencies listed in Appendix A of Treasurer's Direction TD21-02 | ||||
| Crown Solicitor's Office | 85.4 | 30.0 | 84.5 | 77.9 |
| Fire and Rescue NSW | 1,374.1 | 419.3 | 996.5 | 1,006.4 |
| Judicial Commission of New South Wales | 2 | 1.5 | 6.6 | 6.6 |
| Legal Aid Commission of New South Wales | 103.6 | 57.4 | 492.1 | 481.2 |
| Multicultural NSW | 12.9 | 10.9 | 59.1 | 57.5 |
| New South Wales Crime Commission | 5.8 | 3.9 | 31.4 | 31.6 |
| NSW Police Force | 3,332.3 | 2,412.1 | 5,039.1 | 5,211.2 |
| NSW Rural Fire Service | 606.2 | 118.0 | 629.1 | 663.2 |
| NSW Trustee and Guardian | 237.9 | 37.5 | 112.6 | 105.3 |
| Office of Sport | 323.1 | 35.8 | 560.8 | 547.4 |
| Office of the Children's Guardian | 18.4 | 9.4 | 64.2 | 61.7 |
| Office of the Director of Public Prosecutions | 22.9 | 27.4 | 197.2 | 197.9 |
| NSW State Emergency Service | 234.4 | 36.1 | 235.0 | 224.7 |
| State Sporting Venues Authority | 204.9 | 0.8 | 11.7 | 11.8 |
| Venues NSW | 2,679.1 | 689.8 | 397.8 | 404.6 |
** Includes other losses.
Source: Agencies' audited 2022–23 financial statements.
2.2 Quality of financial reporting
Audit opinions
Unqualified audit opinions were issued on completed agencies' financial statements
Unqualified audit opinions were issued on all completed agencies' 30 June 2023 financial statements. Sufficient and appropriate audit evidence was obtained to conclude these financial statements were free of material misstatement.
The financial statements audits of the following entities remain outstanding at the date of this report:
| Entity | Year-end | Reason |
|---|---|---|
| Home Purchase Assistance Fund | 30 June 2023 30 June 2022 |
Evidence to support the carrying values of material investments held by the fund remain outstanding. The audits of the fund are ongoing. |
| First Australian Mortgage Acceptance Corporation Master Trust | 30 June 2023 30 June 2022 30 June 2021 |
Had not prepared general purpose financial statements for audit following its prescription as GSF agency under the GSF regulations. The audits of the trust are ongoing. |
| First Australian Mortgage Acceptance Corporation Pooled Super Trust | 30 June 2023 30 June 2022 30 June 2021 |
Had not prepared general purpose financial statements for audit following its prescription as GSF agency under the GSF regulations. The audits of the trust are ongoing. |
| NSW Trustee and Guardian Common Fund - Trustee | 30 June 2023 | The common fund - trustee is not a GSF agency. The audit of the common fund is ongoing. |
| NSW Trustee and Guardian Common Fund - Financial Management | 30 June 2023 | The common fund - financial management is not a GSF agency. The audit of the common fund is ongoing. |
Home Purchase Assistance Fund
The Home Purchase Assistance Fund (the fund) was established by a trust deed in 1989 to support and administer the State's home purchase programmes for low to moderate income earners who may have been unable to access finance from traditional private lending institutions. Prior to the establishment of the fund, NSW Treasury had incurred loan liabilities with the Commonwealth on behalf of the Home Purchase Assistance Scheme, which would later became the NSW HomeFund program (the program). The program, alongside other state home purchase assistance programs, was transferred from the NSW Land and Housing Corporation to the fund. The program was closed in 1993 to new participants and has been in run-off since then.
The fund records an investment in the First Australian Mortgage Acceptance Corporation (FANMAC) Master Trust in its financial statements. The FANMAC Master Trust was established for the specific purpose of providing a consolidated entity to house the fund’s holdings of NSW HomeFund mortgages and its future obligations from maturing FANMAC Trusts. At 30 June 2023, the value of this investment reported in the draft financial statements of the fund was $3.3 million (2021–22: $4 million).
In December 2019 the fund acquired NSW Rent Buy Pty Limited (Rent Buy) for $5.9 million. Rent Buy is the financial entity that supported the State's then rent-buy scheme. Rent Buy was previously owned by a private investor, who under a state deed signed in 1991, acquired interests in properties and leased them under an equity purchase agreement. The fund's interest in Rent Buy is reported as an investment in the fund's financial statements.
The financial statement audits of the fund for the year ended 30 June 2022 and 30 June 2023 remain outstanding as sufficient and appropriate evidence is yet to be obtained to support the carrying values of the fund's investment in the FANMAC Master Trust and Rent Buy.
The Trustee for FANMAC is a GSF agency required to prepare financial statements
The Government Sector Finance Regulation 2018 prescribed the Trustee for the FANMAC Master and Pooled Super Trusts (the trusts) as a GSF agency and as a result, it became subject to the financial reporting provisions of the Government Finance Sector Act 2018. From 1 July 2020 the Trustee was obliged to prepare general purpose financial statements for the trusts and present them for audit by the Auditor-General. Draft financial statements covering the reporting periods were provided in September 2023. The audits of these financial statements are ongoing.
An unqualified audit opinion was issued on the Crown Solicitor's Trust Account
An unqualified audit opinion was issued on 5 May 2023 over the Crown Solicitor's Office's compliance with clause 14 of the Legal Profession Uniform Law Application Regulation 2015. The opinion confirmed, that in all material respects, the:
- Crown Solicitor's Trust Account (the trust account) was established in an authorised deposit-taking institution in New South Wales
- Crown Solicitor maintained records in relation to the trust account that the Attorney-General had directed
- Crown Solicitor followed procedures in relation to operations of the trust account that the Attorney-General had directed.
The number of identified monetary misstatements decreased in 2022–23
The number of monetary misstatements identified during the audits of portfolio agencies' financial statements decreased from 42 in 2021–22 to 29 in 2022–23. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit. In our view, misstatements should be corrected. They are reported to management for this purpose. Management has determined not to correct some errors because they are not material, either individually or in aggregate. These are reported in this report as ‘uncorrected misstatements’.
Reported corrected misstatements decreased from 28 in 2021–22 to six with a gross value of $8.8 million in 2022–23. Reported uncorrected misstatements increased from 14 in 2021–22 to 23 with a gross value of $66.7 million in 2022–23.
The table below shows the number and quantum of monetary misstatements for the past two years.
| Year ended 30 June | 2023 | 2022 | ||
| Corrected misstatements | Uncorrected misstatements | Corrected misstatements | Uncorrected misstatements | |
| Less than $50,000 | 1 | 4 | 1 | 2 |
| $50,000 to $249,999 | 1 | 6 | 7 | 1 |
| $250,000 to $999,999 | 2 | 7 | 7 | 2 |
| $1 million to $4,999,999 | 2 | 2 | 4 | 4 |
| $5 million and greater | -- | 4 | 9 | 5 |
| Total number of misstatements | 6 | 23 | 28 | 14 |
Refer to Appendix one for details of corrected and uncorrected monetary misstatements by agency.
None of the six corrected monetary misstatements had a gross value of greater than $5 million.
Of the 23 uncorrected monetary misstatements, four had a gross value of greater than $5 million, which comprise the following:
| Agency | Description of uncorrected misstatements > $5 million |
|---|---|
| Department of Communities and Justice | Understatement of employee entitlement provisions estimated at $22.7 million arising from recent changes to the paid parental leave scheme effective from 1 October 2022. |
| NSW Police Force | Understatement of employee entitlement provisions estimated at $21.7 million arising from recent changes to the paid parental leave scheme effective from 1 October 2022. |
| NSW Police Force | Understatement of employee entitlement provisions totalling $5.7 million arising from changes in salary growth assumptions used in the present value adjustment for long service leave assumed by the Crown. |
| NSW Police Force | Classification between non-financial asset classes of $8 million due to the untimely capitalisation of works-in-progress. |
Paid Parental Leave Entitlements
On 27 September 2022 the former Department of Premier and Cabinet issued a determination that provided for a change to the paid parental leave scheme for all NSW government employees with children born on or after 1 October 2022. This change expanded on previous parental leave entitlements and provided greater access to paid parental leave to eligible public sector employees, regardless of gender. These changes created a new legal obligation for agencies, which needed to be assessed and recorded within their financial statements.
Agencies within the Stronger Communities portfolio had not evaluated the change to the paid parental scheme for any financial-statement related impacts prior to financial statements being submitted for audit. Given the accumulating nature of the entitlement, a collective liability of $51 million, of which the department and the NSW Police Force accounted for $44.4 million or 87.1%, should have been reported in the individual financial statements of agencies within the Stronger Communities portfolio.
Apart from the Office of the Director of Public Prosecutions, the remaining impacted agencies concluded that the effects of not correcting the misstatements were not material individually, or in aggregate to their financial statements as a whole.
Recommendation
Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards.
Six agencies were exempted from financial reporting in 2022–23
Part 3A Division 2 of the Government Sector Finance Regulation 2018 (GSF Regulation) prescribes certain kinds of GSF agencies not to be a reporting GSF agency. For 2022–23, the following portfolio agencies have assessed and determined they met the reporting exemption criteria under the GSF Regulation, and therefore were not required to prepare annual financial statements:
| Agencies | GSF Regulation reference | Basis for reporting exemption |
| Special purpose staff agencies | ||
| Institute of Sport (Staff Agency) Legal Aid Commission (Staff Agency) Multicultural New South Wales (Staff Agency) New South Wales Crime Commission (Staff Agency) Venues NSW (Staff Agency) |
Part 3A, Division 2, Section 9F of the GSF Regulation |
GSF Regulation prescribes that a GSF agency that comprises solely of persons who are employed to enable another particular GSF agency to exercise its function not to be a reporting GSF agency. Staff agencies satisfy this requirement and therefore are exempted from preparing financial statements in 2022–23. These exemptions are standing in nature and continue from the previous year. |
| Small agency | ||
| Bush Fire Coordinating Committee | Part 3A, Division 2, Section 9D of the GSF Regulation |
GSF Regulation prescribes that a GSF agency that meets all of the following requirements is not to be a reporting GSF agency:
|
Matters around the effectiveness of the exemptions framework will be reported in the Report on State Finances.
2.3 Timeliness of financial reporting
Early close procedures
Early close mandatory procedures were submitted on time for all portfolio agencies
NSW Treasury introduced early close procedures to improve the quality and timeliness of year-end financial statements. In February 2023, NSW Treasury reissued Treasurer’s Direction TD19-02 ‘Mandatory Early Close as at 31 March each year’ (TD19-02) and reissued Treasury Policy and Guidelines TPG22-11 ‘Agency Direction for the 2022–23 Mandatory Early Close’. These pronouncements require the GSF agencies listed in Appendix A of TD19-02 to perform the mandatory early close procedures and provide the outcomes to the audit team by 27 April 2023. The 17 mandatory procedures are listed in Appendix two.
Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
Agencies need to improve their completion of early close procedures
The following portfolio agencies did not complete all mandatory early close procedures:
| Portfolio agencies | Not completed | Description of incomplete early close procedures |
| Other agencies listed in Appendix A of TD19-02 | ||
| Office of Sport | 3 |
Significant management judgments and assumptions
|
| State Sporting Venues Authority | 3 | Inter and intra (cluster) agency transactions and balances The State Sporting Venues Authority did not agree and confirm inter and intra (cluster) agency balances and transactions with two counterparty agencies. Significant management judgments and assumptions Management had not documented its judgements and assumptions applied in assessing the fair value of work-in-progress assets. Prior year Management Letter and Engagement Closing Report issues Two matters flagged in prior year reports for resolution by 31 March 2023 remained outstanding. These related to:
|
| Fire and Rescue NSW | 1 | Finalise assessment of all revenue contracts Management had not performed nor documented its assessment of the July 2022 executed funding deed agreement with Resilience NSW. |
The review of agencies' early close procedures found more work needs to be done to:
- finalise revenue contract assessments before the lodgement of early close procedures
- appropriately document and complete a significant judgements and assumptions assessmen
- resolve long-standing reconciling items in the balance sheet reconciliations
- address prior year management letter and engagement closing report issues in a timely manner
- confirm all inter/intra portfolio agency transactions and balances.
Recommendation
Agencies should ensure all applicable mandatory early close procedures are completed and the outcomes provided to the audit team in accordance with the deadlines set by NSW Treasury.
Year-end financial reporting
NSW Treasury required all agencies to submit their financial statements by 1 August 2023
In June 2023, NSW Treasury issued a suite of Treasurer's Directions and Treasury Policy and Guidelines for 2022–23 financial reporting requirements and timetables:
- Treasurer's Direction TD21-02 ' Mandatory Annual Returns to Treasury' (TD21-02) and Treasury Policy and Guidelines TPG23-13 'Agency Direction for the 2022–23 Mandatory Annual Returns to Treasury' require agencies listed in the Appendix A of TD21-02 to submit their 2022–23 financial statements to both NSW Treasury and the Audit Office by 1 August 2023.
- Treasury Policy and Guidelines TPG23-14 'Agency guidelines for the 2022–23 Mandatory Annual Returns to Treasury for New South Wales public sector agencies that are not included in TD21-02' requires New South Wales public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2022–23 financial statements to NSW Treasury by 1 August 2023.
NSW Treasury extended the year-end submission deadline for agencies to provide the note to the financial statements that provides disclosures on appropriations to 11 August 2023. The submission date for the rest of the financial statements (that is, excluding the appropriations disclosures) remained as 1 August 2023. The extension was granted under clause 7A of TD21-02.
Treasurer's Direction TD21-03 'Submission of Annual GSF Financial Statements to the Auditor-General' requires reporting GSF agencies that are not listed in Appendix A of TD21-02 to submit their annual financial statements for audit within six weeks after the year end.
The following agencies obtained NSW Treasury's approval to extend submission of their 30 June 2023 financial statements:
| Portfolio agencies | Revised deadline | Reason |
|---|---|---|
| Department of Communities and Justice | 11 August 2023* | To incorporate the impact of the guidance on summary of compliance disclosures provided by NSW Treasury. |
| Office of Sport | 21 August 2023 | Due primarily to the impacts of:
|
| Combat Sports Authority of New South Wales | 21 August 2023 | Due primarily to the impacts of:
|
| State Sporting Venues Authority | 21 August 2023 | Due primarily to the impacts of:
|
| Home Purchase Assistance Fund | 30 November 2023 | The audit of the fund's 2021–2022 financial statements is not complete because the fund requires information to support the carrying values of the its investments. |
| First Australian Mortgage Acceptance Corporation Pooled Super Trust | 30 November 2023 | Had not prepared nor submitted for audit its general purpose financial statements as a GSF agency prescribed under the GSF regulations. The previous years' financial statements may be relevant to the opening balances reported in the trust's 2022–23 financial statements. |
| First Australian Mortgage Acceptance Corporation Master Trust | 30 November 2023 | Had not prepared, nor submitted for audit its general purpose financial statements as a GSF agency prescribed under the GSF regulations. The previous years' financial statements may be relevant to the opening balances reported in the trust's 2022–23 financial statements. |
Financial statements were submitted on time for all portfolio agencies
Portfolio agencies met the revised or approved reporting deadlines for submitting their 2022–23 year-end financial statements.
The Government Sector Audit Act 1983 does not specify the statutory deadline for issuing the audit reports. At the date of this report, the financial statements audits of the Home Purchase Assistance Fund, the First Australian Mortgage Acceptance Corporation Pooled Super Trust, the First Australian Mortgage Acceptance Corporation Master Trust, the NSW Trustee and Guardian Common Fund - Financial Management, and the NSW Trustee and Guardian Common Fund - Trustee remain outstanding.
The table in Appendix three shows the timeliness of the year-end financial reporting for portfolio agencies.
2.4 Key accounting issues
Land and Buildings Revaluations
In 2022–23, agencies within the Stronger Communities portfolio reported property, plant and equipment of $15.8 billion ($15.1 billion in 2021–22). Land and buildings, measured at fair value in accordance with Australian Accounting Standards and NSW Treasury financial reporting requirements, represent 87% of these assets and are controlled predominantly by the department, the NSW Police Force and Venues NSW.
Buildings controlled by the agencies comprising the Stronger Communities portfolio are mostly specialised in nature. They are either purpose-built facilities such as group homes or police stations; significantly modified buildings used in the provision of care to disability clients; large residential centres and institutional style buildings; court houses; correctional and youth justice centres and sporting stadiums. Due to their specialised nature, the fair value of these specialised assets is determined with reference to their current replacement cost.
The value of land, which is not a specialised asset, is determined with reference to market prices considering any restrictions that apply to that land.
In 2022–23, agencies in the portfolio recorded net revaluation uplifts to land and buildings of $643 million (2021–22: $993 million) initiated through a combination of comprehensive and desktop valuations.
The department is scheduled to comprehensively revalue its portfolio of assets next year
The department was due to perform the triennial comprehensive revaluation of its land and buildings in 2020–21. However, due to site access restrictions resulting from the COVID-19 pandemic, NSW Treasury approved the department to perform an indexation of Corrective Services and Youth Justice facilities in 2020–21, with a view to comprehensively revaluing them in 2021–22.
In January 2022, NSW Treasury approved a further deferral of the comprehensive revaluation of its Corrective Services and Youth Justice facilities to 2023–24 to align with the department's comprehensive revaluation of other land and buildings. Similarly, the exemption was provided because of the ongoing limitations on site access for physical inspections due to COVID-19.
Out of Home Care and Permanency Support
Out of home care and permanency support expenses continue to increase
The department has primary responsibility to provide support and a safe living environment for children and young people who are not able to live safely in the family home. These out-of-home care arrangements can take the form of foster or relative/kinship carers who take on the responsibilities of a parent for a period of time. Around half of children in out-of-home care are supported by non-government agencies, which are funded by the NSW Government to provide services to children and young people who require out-of-home care and support services.
The graph below shows the department's out-of-home care and permanency support expenditure over the last four years.
Since 2019–20, the department's out-of-home care and permanency support expenditure has increased by 27% – an average of around eight per cent per annum. In 2022–23 the department spent $1.9 billion (2021–22: $1.7 billion) to support the out-of-home care and permanency support program. These costs include grants and subsidies paid by the department as well as other departmental expenditure to support the program.
Our upcoming performance audit report Oversight of the child protection system will focus on the timeliness and quality of the child protection services and responses provided by the department and the non-government agencies funded to provide child protection services on behalf of the government. The report is expected to be tabled in March 2024.
2.5 Key financial statement risks
The table below details our specific audit coverage and response over key areas of financial statements risks that had the potential to impact the financial statements of significant portfolio agencies.
Department of Communities and Justice
The department is the lead agency in the Stronger Communities portfolio which aims to achieve a safe, just and brighter future for New South Wales.
| Key financial statement risk | Audit response | |
| Property, plant and equipment $9.4 billion | The department's property, plant and equipment consist of land and specialised and unique assets such as court houses, community centres and correctional facilities, which are measured at fair value. Our audit risk rating for property, plant and equipment is higher because the assets are specialised and unique in nature, significant to the department's financial statements and subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer. |
Our audit procedures included:
|
|
Victims Support Scheme claims liabilities Contingent liability relating to child sexual assault IBNR claims |
The liability for Victim Support Scheme (VSS) claims relates to lodged but not yet paid claims and Incurred But Not Reported (IBNR) claims. A contingent liability is disclosed in the department's financial statements for child sexual assault IBNR claims because a provision cannot be reliably measured. Our audit risk rating for VSS claims liabilities is higher because of the financial significance to the department's financial statements. Management also uses significant judgements in estimating and reliably measuring the liabilities and a minor change in assumptions can result in a material change in the liability and net result. Management also engaged an independent actuary to determine the department's outstanding claims liability. |
Our audit procedures included:
With the assistance of our own independent expert, we assessed the reasonableness of the valuation methodology and key actuarial assumptions and judgements, including the accuracy and completeness of data and appropriateness of management's conclusions. We assessed the adequacy of the financial statement disclosures against the requirements of applicable Australian Accounting Standards. |
Crown Solicitor's Office
The Crown Solicitor's Office's (CSO) principal objective is to advise and represent agencies so that they deliver the NSW government's policies, programs and projects in a lawful, effective and efficient manner. It is the sole provider of legal services in matters that require a single source of authoritative legal advice and central management, or when it relates to the statutory or common law functions of the Attorney General.
| Key financial statement risk | Audit response | |
| Sales of goods and services $83.3 million | Revenue generated by CSO is primarily from the provision of legal services to NSW government agencies and approved bodies. Our audit risk rating is higher because this revenue stream is proportionately significant to the financial statements of CSO. An element of management judgement is applied in recognising its revenue from the provision of legal services as performance obligations are satisfied in accordance with the relevant Australian Accounting Standards. |
Our audit procedures involved:
|
Fire and Rescue NSW
Fire and Rescue NSW (FRNSW) is one of the world’s largest urban fire and rescue services. It aims to enhance community safety, quality of life and confidence by minimising the impact of hazards and emergency incidents on the people, property, environment and economy of New South Wales.
| Key financial statement risk | Audit response | |
| Property, plant and equipment $1.2 billion | FRNSW's property, plant and equipment includes land, residential properties and specialised assets such as fire stations, and firefighting equipment which are measured at fair value. Our audit risk rating for property, plant and equipment is higher because the assets are specialised and unique in nature, significant to FRNSW's financial statements and subject to management judgements and estimates when determining their fair values. These judgements and estimates require the assistance of a qualified valuer. |
Our audit procedures included:
|
| Death and Disability Scheme provision $217 million | FRNSW records a death and disability benefits provision under the Crown Employees (NSW Fire Brigades Firefighting Staff Death and Disability) Superannuation Fund. Our audit risk rating for the provision is higher because of its financial significance to FRNSW’s financial statements. It involves significant management judgements in estimating and reliably measuring the provision. A minor change in assumptions can result in a material change in the provision and net result. Management also engaged an independent actuary to determine FRNSW’s provision. |
Our audit procedures included assessing the competence, capability and objectivity of management’s independent actuary. With the assistance of our own independent expert, we assessed the reasonableness of the methodology and key actuarial assumptions and judgements, and performed testing to ensure the accuracy and completeness of data used by the actuary. We assessed the adequacy of the financial statement disclosures against the requirements of applicable Australian Accounting Standards. |
Legal Aid Commission of New South Wales
Legal Aid Commission of New South Wales (the commission) provides legal services to socially and economically disadvantaged people across New South Wales. It is the largest legal aid commission in Australia and employs over 1,500 staff.
| Key financial statement risk | Audit response | |
|
Sales of good and services receivable $10.9 million Accrued estimated legal expenses $18.2 million |
The commission accrues the estimated net cost of work in progress by external legal practitioners who have yet to submit claims and the value of secured and unsecured legal debtors. Our audit risk rating for the accrued estimated legal expenses and receivable is higher because of their financial significance to the commission’s financial statements. These balances also involve significant management judgements and assumptions in estimating and reliably measuring the liability and the recoverability of debts. Management also engaged an independent actuary to determine the commission's liability and receivable. |
Our audit procedures included assessing the competence, capability and objectivity of management’s independent actuary. With the assistance of our own independent expert, we assessed the reasonableness of the valuation methodology and key actuarial assumptions and judgements including compliance with the relevant actuarial and accounting standards. We assessed the adequacy of the financial statement disclosures against the requirements of applicable Australian Accounting Standards. |
NSW Police Force
The NSW Police Force (NSWPF) operates under the Police Act 1990 and the Police Regulation 2015. It aims to provide a safer New South Wales and work with the community to reduce violence, crime and fear.
| Key financial statement risk | Audit response | |
| Property, plant and equipment $2.1 billion | NSWPF has a diverse property portfolio that is measured at fair value, including land, police residences and stations, aircraft and vessels. Our audit risk rating for property, plant and equipment is higher because the assets are specialised and unique in nature, significant to NSWPF's financial statements, and subject to management judgements and estimates when determining their fair values. These judgements and estimates require the assistance of a qualified valuer. |
Our audit procedures included:
|
| Death and Disability Scheme provision $467 million | NSWPF recognises a provision related to benefits provided to injured officers in the case of incapacity or death under the Police Blue Ribbon Insurance Scheme. Our audit risk rating for the provision is higher because it involves significant estimates. Management also engaged an independent actuary to determine the scheme provision. |
Our audit procedures included assessing the:
|
NSW State Emergency Service
The NSW State Emergency Service (SES) provides emergency and rescue services to the people of NSW. Its responsibilities include flood and storm emergencies, and provides the majority of general rescue effort in the rural parts of the state.
| Key financial statement risk | Audit response | |
|
Grants and contributions $231 million |
SES is predominantly funded by grants from the department to support its activities for flood and storm emergencies and rural general rescue efforts. |
Our audit procedures included understanding and reviewing grant agreements to confirm that the recognition, measurement and presentation principles of the accounting standards have been applied. |
NSW Trustee and Guardian
NSW Trustee and Guardian helps support and protect some of the most vulnerable members of the New South Wales community. It provides independent and impartial financial management, guardianship and trustee services that support customers and help them manage their health, lifestyle and financial affairs.
| Key financial statement risk | Audit response | |
|
Property, plant and equipment $8.9 million |
NSW Trustee and Guardian's property, plant and equipment included land and buildings, which are measured at fair value. |
Our audit procedures included:
|
NSW Trustee and Guardian Common Fund - Financial Management and Trustee
The NSW Trustee and Guardian Common Fund - Financial Management and Trustee (the common funds) were established and managed by the NSW Trustee and Guardian under the NSW Trustee and Guardian Act 2009. The Common Fund - Financial Management is the investment vehicle for financial management clients under a Direct Management or Private Management Order issued by a Court or Tribunal. The Common Fund - Trustee is the investment vehicle for trustee client funds received by the Trustee in its capacity as executor, trustee or attorney.
| Key financial statement risk | Audit response | |
|
Financial assets at fair value |
The common funds contain significant financial assets which are held in trust with a portion invested in unlisted unit trusts and are measured at fair value through profit and loss. Our audit risk rating for these balances is higher because assessing the fair value of these financial assets requires judgement as the valuation inputs are not based on observable market transactions or other readily available market data. |
Our audit procedures included:
|
Office of Sport
The Office of Sport (the office) is responsible for assisting the people of New South Wales to participate in sport and active recreation in order to improve personal and community well-being. Its functions include delivery of sport and recreation programs, implementing policy and regulatory frameworks, coordinating sport infrastructure and sport development and providing grants to peak sporting bodies.
| Key financial statement risk | Audit response | |
| Grants and subsidies $427 million |
In 2022–23 the office's grants and subsidies totalled $427 million ($351 million in 2021–22). Our audit risk rating is higher because:
|
Our audit procedures tested for accuracy, validity, compliance with conditions and presentation and disclosure to ensure that they are in accordance with the relevant Australian Accounting Standards and applicable NSW Treasury policies and procedures |
Office of the Director of Public Prosecutions
The Office of the Director of Public Prosecutions (ODPP) is the independent prosecuting authority of New South Wales. ODPP's principal functions are to institute and conduct prosecutions for indictable offences in the Local, District and Supreme Courts; and to conduct appeals arising from those prosecutions.
| Key financial statement risk | Audit response | |
|
Employee related expenses $155 million |
ODPP's payroll consists of payments made to solicitors, crown prosecutors and other corporate staff. |
Our audit procedures evaluated the design, and implementation of key controls over payroll processes and systems. In addition, our procedures included testing a sample of employees to ensure that employment details, award types and conditions in calculating payroll have been agreed to underlying supporting evidence. |
Venues NSW
Venues NSW is a statutory authority established under the Sporting Venues Authorities Amendment (Venues NSW) Act 2020. It owns, coordinates and promotes a portfolio of publicly owned sports and entertainment venues in NSW. It raises revenue through commercial activities such as hiring venues to sports and entertainment organisations, event ticketing, hospitality and catering sales and through advertising, leasing, membership naming rights and sponsorship arrangements.
| Key financial statement risk | Audit response | |
| Property, plant and equipment $2.3 billion |
Buildings such as the CommBank Stadium, Allianz Stadium, McDonald Jones Stadium, Newcastle Entertainment Centre and Showground, Win Sports and Entertainment Centre make up most of Venue NSW’s property, plant and equipment. They are mostly specialised buildings and are measured at fair value. Our audit risk rating for property, plant and equipment is higher because the assets are specialised and unique in nature, significant to Venue NSW's financial statements and subject to management judgements and estimates when determining their fair values. These judgements and estimates often require the assistance of a qualified valuer. | Our audit procedures included testing the completeness and accuracy of the asset register, assessing the competence and objectivity of management's valuation experts, reviewing the appropriateness of the valuation methodologies, key assumptions and judgements applied, and reviewing the disclosures on the fair value of the property, plant and equipment assets in the financial statements in accordance with Australian Accounting Standards. |
3. Audit observations
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Stronger Communities portfolio.
Section highlights
- The number of findings reported to management has decreased from 142 in 2021–22, to 71 in 2022–23, and 35% were repeat issues (36% in 2021–22). Repeat issues related to non-compliance with key legislation and/or agency policies, information technology and internal control deficiencies.
- A long-standing issue about segregation of duties over the JusticeLink system managed by the department has been elevated from moderate to high risk.
- Four out of six high-risk issues reported in the prior year have been addressed.
- Of the 15 newly identified moderate risk issues, 11 related to information technology and internal control deficiencies.
3.1 Findings reported to management
The number of findings reported to management has decreased, and 35% were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2022–23, there were 71 findings raised across the portfolio (142 in 2021–22). 35% of all issues were repeat issues (36% in 2021–22).
The most common repeat issues related to non-compliance with key legislation and/or agency policies, information technology and internal control deficiencies.
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.
A high risk-rated segregation of duties matter was raised at the department
JusticeLink is an electronic system which links all New South Wales courts onto the one computer system. It is used, among other functions, to track and record court related matters, receipt and disburse court public moneys.
Our previous management letters highlighted system control limitations in JusticeLink that allow users to process payments, change bank accounts and modify disbursement details. Inadequate segregation of duties elevates the risk and likelihood of invalid payments being made and/or public moneys being misappropriated. This risk is further exacerbated if manual detective controls are not effective.
Four out of 6 high-risk rated issues reported in 2021–22 have been addressed
Four high-risk findings reported in the management letters of five portfolio agencies in 2021–22 have been actioned, with two matters yet to be resolved but with risk ratings reassessed.
| Agency | Description |
|---|---|
| 2021–22 high-risk findings | |
| Department of Communities and Justice | The department has addressed a long-standing issue regarding the comprehensiveness of their review of Justice SAP user access. |
| NSW Trustee and Guardian | NSW Trustee and Guardian has remediated system control limitations over its Client Information System (CIS) and TEAMS which did not enforce adequate or appropriate segregation of duties. The finding was also relevant for the audits of the common funds. |
| NSW Rural Fire Service | NSW Rural Fire Service has addressed a long-standing issue regarding SAP user access reviews. |
| Office of Sport |
A high-risk management letter point was raised on the office regarding the quality and timeliness of its financial reporting. The office has made some progress in its financial statement preparation processes and quality assurance regimes this year. The risk rating has been reassessed to moderate. A second high-risk matter point relating to the appropriate approval and authorisation of grant expenditure within delegated limits was addressed. |
| State Sporting Venues Authority | A high-risk management letter point was raised on the office regarding the quality and timeliness of its financial reporting. The office has made some progress in its financial statement preparation processes and quality assurance regimes this year. The risk rating has been reassessed to moderate. |
The table below describes the common issues identified across the portfolio by category and risk rating.
| Risk rating | Issue |
| Information technology | |
|
High: 0 new, 0 repeat 1 Moderate: 7 new, 3 repeat 2 Low: 4 new, 1 repeat 3 |
The financial audits identified deficiencies in information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of particular concern are issues associated with:
|
| Internal control deficiencies | |
|
High: 0 new, 1 repeat 1 Moderate: 4 new, 3 repeat 2 Low: 10 new, 5 repeat 3 |
The financial audits identified internal control deficiencies across key business processes, including:
|
| Financial reporting | |
|
High: 0 new, 0 repeat 1 Moderate: 0 new, 0 repeat 2 Low: 12 new, 2 repeat 3 |
The financial audits identified the need for agencies to strengthen financial reporting, including:
|
| Governance and oversight | |
|
High: 0 new, 0 repeat 1 Moderate: 3 new, 1 repeat 2 Low: 2 new, 1 repeat 3 |
The financial audits identified control deficiencies in governance and oversight processes, including:
|
| Non-compliance with key legislation and/or central agency policies | |
|
High: 0 new, 0 repeat 1 Moderate: 1 new, 1 repeat 2 Low: 3 new, 7 repeat 3 |
The financial audits identified control deficiencies in compliance with key legislation and central agency policies, including:
|
The number of moderate risk findings decreased from the prior year
Twenty-three moderate risk findings were reported in 2022–23, representing a 67% decrease from 2021–22. Of these, eight were repeat findings, and 15 were new issues.
Moderate risk findings mainly related to:
- weaknesses in user access management, including:
- monitoring of privileged user activities
- the timing and frequency of reviews over the granting and revocation of access to key systems relevant to financial reporting
- cyber security management, including:
- identification and management of cyber incidents
- patch management improvement
- management of excessive annual leave balances and formalising key business arrangements.
Recommendation
Portfolio agencies should prioritise and action recommendations to address internal control deficiencies. Focus should be given to addressing high risk and repeat issues.
Process and Technology Harmonisation (PaTH) program
Staged strategy to consolidate NSW government ERP systems
On 1 November 2021, the department assumed responsibility to deliver the PaTH program. The program aims to optimise, simplify and standardise corporate and shared services functions through common standards for data and process systems.
Agencies were onboarded onto the new ERP in two distinct tranches. Wave 1a, comprising 21 agencies from the Planning and Environment and Regional NSW portfolios, were onboarded on 3 April 2023. A further 12 agencies predominantly from the Stronger Communities portfolio were onboarded on 26 June 2023 and 3 July 2023 as part of Wave 1b.
Agencies comprising Wave 2 will be onboarded in financial years 2023–24 and 2024–25.
Lessons that can be learnt from the PaTH implementation
The Audit Office assessed the implementation of PaTH, including project controls, elements of new controls design, data migration, and how management had adequately resolved project issues and defects.
Records management and document retention
Records management is an important part of effective administration and governance of public sector agencies as it facilitates:
- sound decision making
- efficient and effective delivery of objectives and outputs
- managing business information and resources
- meeting legal, evidential and accountability requirements
- documenting significant events and important records.
Key documents to evidence management activities undertaken such as data migrations plans and tests, data reconciliations, or approvals and sign-offs for key milestones, could not be located and provided within a reasonable timeframe. A number of documents provided for inspection had not been updated to accurately reflect the currency of these documents nor did they record the outcomes of any decision making.
Training attendance for key user groups was not effectively monitored
An extensive and comprehensive curriculum of training modules covering key elements of services and systems was developed to assist staff in their transition to the new product. While attendance was tracked and reported for staff operating in high impact business roles, no benchmarks were set for attendance, nor attendance mandated. Attendance by staff in training courses such as purchasing and project portfolio management was less than 70%.
Appendices
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
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