Transport for NSW (TfNSW) is the lead agency in the Transport cluster. It is responsible for the coordination, funding allocation, policy and planning and other delivery functions for transport services.

TfNSW is controlled by the Department of Transport (the Department). The Department does not control the Chief Investigator of the Office of Transport Safety Investigations (OTSI) or the Port Authority of New South Wales.

Effective from 1 July 2017, the Transport Administration Amendment (Transport Entities) Act 2017:

• established a new entity, Residual Transport Corporation New South Wales (RTC), to hold, manage, operate and maintain transport assets vested in or owned by it. RTC is controlled by TfNSW
• established Sydney Trains and NSW Trains as stand-alone entities. Previously Sydney Trains and NSW Trains were subsidiary corporations of Rail Corporation New South Wales (RailCorp).

The Transport cluster was also impacted by the Transport Administration Amendment (Sydney Metro) Act 2018. Effective from 1 July 2018 the amendment established a new entity, Sydney Metro. Sydney Metro will be responsible for delivering metro passenger services and developing land around the metro stations, depots and stabling yards.

Audit opinions

Unqualified audit opinions were issued for all agencies' financial statements

Unqualified audit opinions were issued for all 30 June 2018 financial reports that were submitted for audit. While financial reporting has improved across the cluster, valuation of assets continues to create challenges. There were some issues with asset valuations at Roads and Maritime Services (RMS) as discussed below.

Valuation of Infrastructure Assets

Asset valuations are complex. The Transport cluster has a large, geographically dispersed asset base, requiring significant resources, judgement and estimation techniques to determine fair values. Each year agencies perform a full revaluation of specific classes of its assets with all asset classes subject to a full revaluation over a 5-year period. Although overall agencies complied with the requirements of the accounting standards and Treasury policies on valuations, we identified some opportunities for improvements at RMS. 

Comprehensive valuation for roads and bridges identified some data limitations 

RMS incorporated data from its asset condition assessments for the first time in the valuation methodology in accordance with the accounting standards and Treasury policy requirements. This improved the valuation outcome by reflecting improvements in asset condition over the years. It resulted in an increase in the assets' remaining useful lives and an increment to value of the asset. We were satisfied with the overall valuation methodology and key assumptions, but we noted some deficiencies in the asset data in relation to asset component unit rates and old condition data for some components of assets. Some elements of condition data used in the valuation process dated back to 2010 and some assets did not have recent unit rates available to calculate replacement costs.

Also, a bypass and tunnel were incorrectly excluded from RMS records and valuation process since 2013. This resulted in an increase for these assets’ value by $133 million. 

Valuation basis for Wetlands and Moorings changed resulting in a $98 million increase 

RMS engaged an independent valuer to perform a revaluation of moorings and wetland assets using an income approach in 2017–18. Our review of the valuation noted some inputs, including the projected cash flow periods and the discount rate, did not adequately reflect the assets’ characteristics. Subsequent to our concerns, the valuer revised the valuation resulting in an increment of $98 million. RMS further engaged a peer review by a second independent valuer to ensure wetland and moorings assets were recorded at fair value. The total fair value of Maritime assets at 30 June 2018 was $801 million.

New accounting standards

The Australian Accounting Standards Board has issued new accounting standards effective in future financial years and include:

• AASB 9 Financial instruments
• AASB 15 Revenue from Contracts with customers
• AASB 16 Leases
• AASB 1058 Income of Not-For-Profit Entities
• AASB 1059 Service Concession Arrangements: Grantors.

Agencies across the cluster have established working groups to prepare for the implementation of the new accounting standards effective from 1 July 2019. As at 30 June 2018, agencies had not quantified the impact of these standards.

Most agencies complied with their statutory financial reporting timeframes

Timely financial reporting is essential for sound financial management, effective decision making and improving public accountability. All agencies complied with the statutory timeframe for completion of early close procedures. With the exception of Residual Transport Corporation (RTC), all Transport cluster agencies submitted financial statements on time in accordance with Treasury Circular 18-06 'Agency guidelines for the 2017–18 Mandatory Annual Returns to Treasury'.

	Timeliness of financial reporting
Cluster agencies	Early close procedures	Financial statements	Audit report
Principal Department
Department of Transport
Agencies related to the Department
Transport for NSW			^
NSW Trains
Rail Corporation New South Wales
Roads and Maritime Services
State Transit Authority
Sydney Ferries
Sydney Trains
Chief Investigator of the Office of Transport Safety Investigations
Transport Service of New South Wales			^
Port Authority of New South Wales
Residual Transport Corporation			#

Key:  Statutory reporting deadline was met  Statutory reporting deadline was not met

Residual Transport Corporation did not submit its financial statements by the statutory reporting deadline

RTC did not submit financial statements. RTC was established on 1 July 2017. The Public Finance and Audit Act 1983 required RTC to submit financial statements for audit for the year ended 30 June 2018 by 13 August 2018. The RTC did not submit financial statements on the basis that it remained a dormant entity with no transactions for the year ended 30 June 2018.
 

Letters of financial support

NSW Trains and Chief Investigator of the Office of Transport Safety Investigations require letters of financial support to continue to report as a going concern

NSW Trains and OTSI continue to require letters of financial support to confirm their ability to pay liabilities as they fall due. 

NSW Trains and OTSI reported negative net assets of $75.7 million and $89,000 respectively at 30 June 2018 ($64.1 million and $55,000 as at 30 June 2017). These entities receive grants from TfNSW on a year on year basis. 

While not requiring a letter of financial support, Sydney Trains reported an operating loss of $217 million for the year ended 30 June 2018 ($164 million). Future operating losses may erode its reported net assets of $480 million at 30 June 2018 ($689 million).

Transport agencies revenue growth increased at a higher rate than patronage

Public transport passenger revenue increased by $114 million (8.3 per cent) in 2017–18, and reported patronage increased by 37.1 million (5.1 per cent) across all modes of transport.

The continuing rise in patronage can increase pressure on public transport punctuality. 

Rail continues to be the most used mode of public transport earning 66.0 per cent of total 2017–18 passenger revenue, similar to 2016–17. It also accounted for 53.1 per cent of total public transport patronage in both 2017–18 and 2016–17.

Passenger revenue and patronage by transport mode

Negative balance Opal cards resulted in $3.8 million in revenue not collected

The total number of Opal cards with negative balances increased from 776,771 as at 30 June 2017 to 1.1 million as at 30 June 2018. Negative balance Opal cards resulted in $3.8 million in revenue not collected during 2017–18 ($2.6 million during 2016–17). While this represents less than 0.3 per cent (0.2 per cent) of total annual passenger revenue during 2017–18, the total balance of lost revenue will continue to grow over time. TfNSW advise the cumulative balance of negative balance Opal Cards is $7.8 million as at 30 June 2018. 

Approximately $200,000, has been recovered from prior year balances.

If a passenger’s card has the minimum value when they tap on they will be able to tap off and the card will go into a negative balance. Revenue from unregistered Opal cards with negative balances cannot be recovered unless the passenger tops-up the card. 

TfNSW advised it is liaising with the ticketing vendor to implement system changes and are investigating other ways to reduce the occurrences. 

Opal reader breakdowns are reducing

Data provided by TfNSW indicate there were over 2,500 Opal reader breakdowns during the year. Over 2,000 of the breakdowns were on buses. The risk of revenue loss is minimised on most modes of transport as there are multiple readers in each location to use if there is a breakdown. However, Opal reader breakdowns on buses can lead to loss of revenue as passengers are unable to tap on these buses.

There has been a reduction in Opal reader breakdowns reported by TfNSW year on year, reducing from over 14,700 total breakdowns in 2014–15. 

Cost recovery has decreased slightly

The overall cost recovery from public transport users (on rail and bus services provided by STA) decreased from 23.2 per cent to 22.4 per cent between 2016–17 and 2017–18. This is calculated based on revenue from customers and the cost to government of providing services. The main reason for the decrease is due to expenditure increasing at a faster rate than revenue in 2017–18.

The following modes of public transportation have not been included in our analysis as they are operated under contract by private operators and we have not audited the financial information:

• bus services operated under private contract
• light rail services
• Sydney Ferries.

Cost recoveries for rail and STA bus services are shown below.

Cost recovery

Department of Transport Consolidation

The Department is a not-for-profit NSW Government entity which controls all transport agencies in the Transport cluster, except OTSI and the Port Authority of New South Wales. The controlled entities are consolidated in the financial statements of the Department.

The Department's abridged consolidated financial information is shown below.

Key themes identified on internal controls related to information technology, employee leave entitlements and asset management

Breakdowns and weaknesses in internal controls increase the risk of fraud and error. We report deficiencies in internal controls, matters of governance interest and unresolved issues identified to management and those charged with governance. We do this through our Management Letters, which include our observations, related implications, recommendations and risk ratings.

There were 61 unique management letter findings raised across the cluster, compared to 56 in 2016–17. Eighteen per cent of all issues were repeat issues.

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

Category	Risk rating*	Issue
Information technology	Moderate: 17 new, 5 repeat Low: 5 new, 3 repeat	The financial audits identified 30 unique opportunities for agencies to improve information technology (IT) processes and controls that support the integrity of financial data used to prepare agencies’ financial statements. The audits noted issues associated with: user access administration privileged user activities.
Operational deficiencies or improvements	Moderate: 7 new, 1 repeat Low: 3 new, 1 repeat	The financial audits identified internal control weaknesses across key business processes, including: delays in capitalising completed capital works review of capitalised expenditure data entry of timesheets.
Financial reporting	Moderate: 5 new Low: 5 new, 1 repeat	The financial audits identified opportunities for agencies to strengthen financial reporting, including: completeness of heritage asset register review of long outstanding accruals.
Compliance with key legislation and/or policies	Moderate: 2 new Low: 6 new	The financial audits identified compliance matters including: employee leave issues review of policies.

 High risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.

The graph below shows 49 per cent of reported deficiencies were information technology related. The remaining matters were split between operational (20 per cent), financial reporting (18 per cent) and non-compliance with key legislation and/or policies (13 per cent).

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 financial reporting of the Transport cluster agencies this year include:

• Write-off of assets
• Transport Asset Holding Entity (TAHE)
• Project Management
• Maintenance.

Project management, identified in the work program, has been reported in the Service delivery chapter.

Write-off of assets

The Transport cluster wrote-off over $200 million of assets which were replaced by new assets or technology

Digital and technological advances could disrupt traditional service delivery models and the useful lives of traditional transport assets. Changing safety expectations and design specifications can also lead to asset useful lives being shortened. As part of our annual work program, we reviewed Transport’s identification of impaired assets and remaining useful life assessment in the context of this changing environment.

RMS recognised a write-off of $199 million for the year ended 30 June 2018 ($263 million at 30 June 2017). The write-off related to roads, bridges, maritime assets, traffic signals and controls network. These relate to new infrastructure assets constructed that substantially replaced an existing asset. The capitalised value of the original asset is written off.

RailCorp accelerated the depreciation of some assets on the Epping Chatswood Rail Line to write-off these assets as part of the conversion to the new automated metro rail system. The assets included signalling equipment, and certain substation and operational technology assets. 
TfNSW recorded a loss on disposal of their intangibles of $22.0 million as a result of the upgrades to their websites.

Transport Asset Holding Entity (TAHE)

RailCorp will convert to TAHE

TAHE has been established to be a dedicated asset manager for the delivery of public transport asset management. TAHE was announced in the 2015–16 State Budget. TAHE is proposed to be a commercial for-profit Public Trading Entity that will provide a commercial return to its shareholders. The 2015–16 State Budget papers explained the impact of TAHE on the budget. 

The Transport Administration Amendment (Transport Entities) Act 2017 will convert RailCorp into TAHE. RailCorp is expected to transition to TAHE from 1 July 2019. The transfer of public transport assets to TAHE is expected to occur over the next few years.

There are milestones planned for transferring assets to TAHE. Several working groups are considering different aspects of the TAHE transition including its status as a for-profit Public Trading Enterprise, which assets to transfer to TAHE, and which ones to retain in existing transport agencies. 
We will continue to monitor developments on TAHE for any impact to the financial statements.

Maintenance 

Our financial audit included a review of maintenance and asset management at RMS, Sydney Trains, TfNSW and STA. The review included backlog maintenance and levels of unplanned maintenance. Agencies in the Transport cluster do not have a consistent approach to estimate backlog maintenance and monitor unplanned maintenance. 

TfNSW is currently establishing a consistent definition for backlog maintenance

A maintenance backlog is the estimated cost to bring infrastructure, buildings and other structures to a defined standard, measured at a point in time.

1. TfNSW does not quantify maintenance backlog.
2. STA did not report any maintenance backlog in 2016–17 and 2017–18.

RMS’ estimated maintenance backlog at 30 June 2018 of $3.4 billion is lower than last year. RMS backlog maintenance remains the highest in the cluster. RMS advises the current level of pavement backlog is manageable and meets the minimum network condition which has been set to manage risks to assets and services at an acceptable level. 

Sydney Trains’ estimated maintenance backlog at 30 June 2018 increased by 20.6 per cent from $360 million to $434 million. 

STA did not report any maintenance backlog at 30 June 2018 as it does not manage any transport infrastructure.

TfNSW does not quantify its backlog maintenance, mainly relating to its Country Rail Network infrastructure assets. It advised it is liaising with: 

• Infrastructure NSW to develop a consistent definition of maintenance backlog across all transport service providers
• Transport for Victoria in benchmarking asset management practices. 

Individual agencies define and report on backlog maintenance in an inconsistent manner.

Backlog maintenance can indicate that maintenance tasks to repair or prevent equipment failures, or to maintain asset condition at a defined standard have not been completed. Asset maintenance is essential to ensure the optimal management of physical assets to maximise value. Postponing maintenance can lead to more costly and extensive maintenance. 

Not all agencies monitor unplanned maintenance across the Transport cluster

The agencies differ in the approach for monitoring unplanned maintenance across the Transport cluster. Levels of unplanned maintenance are not formally reported on by all Transport cluster entities (except RMS). TfNSW does not actively monitor levels of unplanned maintenance.
Unplanned maintenance can be more expensive than planned maintenance.

TfNSW should consider developing a consistent approach to define, monitor and track unplanned maintenance across the cluster. 

Ensuring on-time running of public transport is a NSW Government State Priority. Public transport services in Sydney are crucial in getting customers to their destinations. Although Sydney is undergoing significant infrastructure construction, public transport services must continue to be punctual.

In November 2017, timetable changes were introduced across the public transport network to address risks arising from patronage growth and potential capacity and punctuality issues. This change added 8,600 new weekly train, bus and ferry services. 

There are various mobile applications available to help the public with real time punctuality information. For details on these applications, refer to TfNSW's website at https://transportnsw.info/apps.

Rail

TfNSW considers a train service is punctual if it stops at all stations as specified in the timetable and arrives at its destination no later than the time shown in the timetable plus an on-time tolerance. The tolerance is five minutes for suburban services, six minutes for intercity services and 10 minutes for regional services. 

The punctuality target is 92 per cent for suburban and intercity services and 78 per cent for regional services. The targets apply to trains arriving into Sydney CBD during the morning peak (6 am to 10 am) and departing Sydney CBD during the afternoon peak (3 pm to 7 pm).

The 2017 performance audit 'Passenger Rail Punctuality' found rail agencies are well placed to manage the forecast increase in passengers up to 2019. Based on forecast patronage increases, the rail agencies will find it hard to maintain punctuality after 2019 unless the capacity of the network to carry trains and people is increased significantly. If recent higher than forecast patronage growth continues, the network may struggle to maintain punctuality before 2019. 

TfNSW advised it has undertaken work on developing strategies to increase capacity and maintain punctuality after 2019. Given the likely lead times involved with major infrastructure projects, there remains a significant risk of poor punctuality after 2019. 

Performance results and targets for rail services are shown in the table below.

Rail punctuality

Sydney Trains' average punctuality was below target in 2017–18

Data provided by TfNSW indicate Sydney Trains achieved an average punctuality performance of 91.6 per cent against the target of 92.0 per cent. Sydney Trains report it exceeded the punctuality target prior to the timetable change with on time running of 93.8 per cent of services. The average punctuality performance fell to an average of 89.8 per cent after the timetable change. 

Prior to the timetable change, three out of four train lines met the punctuality target. After the timetable change, only one train line out of five met the punctuality target. 

The chart below shows the performance of the train lines before and after the November 2017 timetable change against the target. 

Rail

Passenger crowding remains an issue in the AM peak

To measure crowding Sydney Trains uses a customer loading benchmark of 135 per cent of seating capacity for each service. A load above the benchmark is the point beyond which customers experience crowding and service dwell times (duration of stops at stations) which can impact on-time-running.

Opal data is used to continuously estimate the customer load for all train services throughout the year, through a model called ROAM (Rail Opal Assignment Model). This model was first used in 2016–17 and has been refined during the year.

While Opal data can continuously monitor the customer loads, TfNSW focuses on two periods of the year to assess capacity. These periods are chosen as they represent a typical week and are not impacted by events such as school holidays or public holidays. 

The unaudited data relates to services arriving at Central Station between 8 am to 9 am and departing between 5 pm to 6 pm in:

• March 2018
• September 2017.

In the September 2017 AM peak, two lines reported average passenger crowding above the benchmark of 135 per cent loading:

• T1 Northern via Strathfield
• T1 Western.

This increased from September 2016, where only the T2 Inner West Line reported average crowding above the benchmark.
 
The graph below shows the variation in passenger capacity against the threshold, for the September periods. 

One of the New South Wales Premier’s Priorities is to improve government services by improving customer satisfaction with key government services every year. In May 2018, interviewers engaged by TfNSW gathered information on satisfaction levels by surveying over 16,000 randomly selected customers on board all modes of public transport. TfNSW performs bi-annual customer satisfaction surveys across public transport modes. The surveys ask the passenger for their opinion on their current or most recent trip. The satisfaction levels on each mode rose from May 2017 to May 2018 for all modes of public transportation except for rail.

Between November 2012 and May 2018, the Transport Customer Satisfaction Index (TCSI) showed overall customer satisfaction with all public transport modes improved from 79.4 per cent to 87.6 per cent on a patronage-weighted basis. This is based on customer responses as either partly satisfied, satisfied or highly satisfied. 

However, between May 2017 and May 2018, total satisfaction dropped two percentage points from 89.6 per cent in 2016–17. Due to the large patronage on rail, the decrease in rail satisfaction impacted the overall patronage weighted results. The TCSI measures the proportion of transport users partly satisfied to very satisfied with the overall service they received. The target benchmark is 85.0 per cent of customers satisfied.

The Transport cluster manages eight out of ten major infrastructure projects of the State 

Infrastructure NSW issued the Infrastructure Investor Assurance Framework (the framework) in 2016. The framework is designed to ensure the State’s capital projects are effectively developed and delivered on time, on budget and in accordance with the government’s objectives. The framework has four Tiers with different levels of reporting and minimum mandatory gateway reviews. Tier 1 – High Profile/High Risk Projects attract the highest level of reporting and assurance. 

The Transport cluster manages many of the Tier 1 projects reported and monitored under the framework. 

The capital budget for the Transport cluster was $8.8 billion for the year ended 30 June 2018 ($7.4 billion in 2016–17) which includes $5.0 billion allocated to major road projects ($4.2 billion in 2016–17) and $941 million to minor works and capital maintenance ($772 million in 2016–17). 

We obtained information about five significant ongoing capital projects in the Transport cluster with a total budgeted cost of $34.9 billion. 

We looked at:

• the approval process for the original project and any subsequent revisions
• capitalisation of project costs to work in progress and then to depreciable assets 
• the amount and use of budgeted project contingencies
• monitoring and oversight of the delivery of the project. 

This information presents the results of that work. However, this analysis relies on unaudited information provided by cluster agencies. Where possible the details have been agreed to detail in the relevant State Budget Papers.

Other major Tier 1 capital projects managed by the Transport cluster but not assessed in this Report include:

• Circular Quay Precinct Renewal 
• F6 Extension (Southlink)
• More Trains, More Services
• Sydney Gateway
• Sydney Growth Trains
• Western Harbour Tunnel and Beaches Link
• Sydney Metro City and Southwest
• Sydney Metro West
• NorthConnex
• Newcastle Light Rail
• Parramatta Light Rail
• Northern Beaches B-Line
• Northern Beaches Hospital Road Connectivity and Network Enhancement 
• Regional Rail Fleet.

Major Transport projects

Projects	Original completion year	Forecast completion year	Variation - Timeline	Original budget  ($b)**	Revised budget ($b)**	Variation - Budget
Westconnex	2023	2023^		14.9*	16.8^
Sydney Metro Northwest	2019	2019		8.3	8.3
Woolgoolga to Ballina - Pacific Highway upgrade	2019	2020		3.7	4.9
CBD and South East Light Rail	2019	2019^		1.6	2.1^
New Intercity Fleet	2024	2024		2.8	2.8

Key  Later than original forecast completion date or more costly than original budget

Westconnex

WestConnex is an integrated public transport and road infrastructure solution. Sydney Motorway Corporation Pty Limited (SMC) was established by the New South Wales Government in August 2014 to deliver the project on behalf of the client, the Roads and Maritime Services (RMS).

At 30 June 2018, the project's governance arrangement included the following.

On 31 August 2018, the NSW Government announced the sale of 51 per cent of Sydney Motorway Corporation (SMC) to Sydney Transport Partners for $9.3 billion. The NSW Government will retain its 49 per cent equity interest in SMC, in a new entity, Roads Retained Interest Pty Ltd. The governance arrangements of the project may change as a result of the sale. 
 
The three stages of the project are shown in the table below.

There were two budget revisions since the original business case in 2014. The project's budget was updated to $15.4 billion in May 2015 and a further increase of $1.4 billion in October 2015 due to changes to the scope of work. The scope changes include extension of stage three to Anzac Bridge and Victoria Road and allow for the future connection of the proposed Western Harbour Tunnel and Beaches Link. These were included in the updated Business Case published in November 2015. 

In 2017, the Government announced that Sydney Gateway was a separate project from WestConnex. It aims to provide a new alternative route to enhance connections and reduce travel times to Sydney Airport and Port Botany. The 2018–19 State Budget notes the WestConnex budget includes an $800 million contribution towards Sydney Gateway. 

The WestConnex project reported total expenses of $6.9 billion at 30 June 2018. 

Key risks identified by RMS at 30 June 2018 for the project include:

• arrangements and co-ordination between multiple government agencies
• acquiring property required for construction sites 
• post approval modification, claims and contractual disputes. 

Management of SMC and RMS monitor the status of the project, including the progress against milestones, budget, key risks and key issues. However, as the project is in its early stages of construction, the profiles of existing risks may change and further risks may emerge. 

SMC has previously reported it had received claims from its design and construction contractor for unforeseen planning conditions and planning approval delays. As the validity of the claims are being assessed, the value of the claims cannot be reliably measured. RMS has been notified of claims where potential upstream claims exist. 

Total claims and variations paid amounted to $172 million (including a $13.3 million provision for claims relating to delayed approvals).

A performance audit is planned for this project post 30 June 2019.
 
Below is the development map of the WestConnex project.

Rail

Data provided by TfNSW shows that average monthly carriage failures on electric trains increased by six per month, from 128 carriages in 2016–17 to 134 carriages in 2017–18. This is in the context of increased fleet utilisation due to additional services introduced through the new timetable. At the same time, the target decreased, so that the average monthly carriage failures above target was 26 during 2017–18 (24.0 per cent) compared to 12 during 2016–17 (10.3 per cent). 

The chart below shows the actual and targeted reported average monthly electric fleet failures over the last three years.