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 arrangement orders.

The Administrative Arrangements (Minns Ministry—Administration of Acts) Order 2023, effective 5 April 2023, transferred the administration of the Infrastructure NSW Act 2011 from the Minister for Transport to the Treasurer. Infrastructure NSW is in the Treasury portfolio effective 5 April 2023.

This report is focused on agencies in the Treasury portfolio as at 30 June 2023.

Audit opinions

Unqualified audit opinions were issued on all Treasury portfolio agencies’ financial statements

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

Four ‘emphasis of matter’ paragraphs were included in the Independent Auditor’s Reports

An emphasis of matter paragraph, which does not modify the audit opinion, was included in each of the following Independent Auditor’s Reports:

• TCorp IM Cash Fund
• Energy Industries Superannuation Scheme Pool A (EISS Pool A)
• Energy Industries Superannuation Scheme Pool B (EISS Pool B)
• Energy Investment Fund.

Each emphasis of matter related to disclosure in these financial reports that these entities were prepared on a non-going concern basis as they are expected to be wound up within the next 12 months.

Unqualified audit opinions were issued on 22 of the 24 other engagements prepared by portfolio agencies (ie. non-general purpose financial reporting engagements), and two were issued with qualified audit opinions

Portfolio agencies prepared information for 24 engagements other than general purpose financial statements during 2022–23. These included:

• 6 audits of special purpose financial reports of NSW Treasury administered funds
• audits of TCorp’s description of controls with respect to their design and operating effectiveness over managed asset portfolios and investment management services, and of Commonwealth Guarantee Fee Forms
• an audit on the NSW Fire Brigades Superannuation Pty Ltd’s compliance with requirements of the Australian Financial Services (AFS) Licence
• audits of seven superannuation entities’ Australian Prudential Regulation Authority (APRA) forms and regulatory compliance requirements.

Qualified audit opinions were issued on the following administered funds:

• Electricity Retained Interest Corporation – Ausgrid (ERIC-A) Fund
• Electricity Retained Interest Corporation – Endeavour (ERIC-E) Fund.

Qualified audit opinions were issued as payments from these funds did not comply with the relevant legislation. The audits found instances where payments were made from the funds that were outside the scope of the approved expenditure. This is further discussed in Chapter 3 ‘Audit observations’.

Refer to Appendix five for further details about other engagements.

Identified monetary misstatements

The number of monetary misstatements identified during the audits of portfolio agencies’ financial statements increased from 29 in 2021–22 to 39 in 2022–23. A monetary misstatement is an error in amount recognised in the financial statements initially submitted for audit. In our view, misstatements should be corrected. They are reported to management for this purpose. Management has determined not to correct some errors because they are not material, either individually or in aggregate. These are reported in this report as ‘uncorrected misstatements’.

Reported corrected misstatements increased from 16 in 2021–22 to 25 with a gross value of $7.1 billion in 2022–23. Reported uncorrected misstatements increased from 13 in 2021–22 to 14 with a gross value of $277.6 million in 2022–23.

The table below shows the number and quantum of monetary misstatements for the past two years.

Refer to Appendix one for details of corrected and uncorrected monetary misstatements by agency.

Of the 25 corrected monetary misstatements, ten had a gross value of greater than $5 million and related to the following:

Of the 14 uncorrected monetary misstatements, four had a gross value of greater than $5 million, which comprise the following:

In the instances highlighted above, the portfolio agencies concluded that the effects of not correcting the misstatements were immaterial, individually and in aggregate to their financial statements as a whole.

Sixty-five agencies were exempted from financial reporting in 2022–23

Part 3A, Division 2 of the Government Sector Finance Regulation 2018 (GSF Regulation) prescribes certain kinds of GSF agencies not to be a reporting GSF agency. For 2022–23, the following portfolio agencies have assessed and determined they met the reporting exemption criteria under the GSF Regulation, and therefore were not required to prepare annual financial statements:

Matters around the effectiveness of the exemptions framework will be included in our State Finances 2023 NSW Auditor-General’s Report to Parliament.

Six Special Deposits Accounts (SDAs) were exempt from financial reporting in 2022–23

The new financial reporting provisions in section 7.8 of the GSF Act commenced on 1 July 2023 effective for the 2022–23 financial year. These provisions require responsible managers of SDAs to prepare financial reports for each SDA account in accordance with the Treasurer’s Directions and give those reports to the Auditor-General to audit unless they are exempted from reporting under a Treasurer’s Direction.

On 29 November 2023, NSW Treasury issued Treasurer’s Direction TD 23-24 ‘SDA Account financial reports’ which specifies the mandatory requirements for preparation of financial reports for SDAs in accordance with section 7.8(2) of the Government Sector Finance Act 2018 (GSF Act).

Under TD 23-24, SDAs are exempt from the requirement to prepare financial reports if they are:

• consolidated into the financial report of another GSF agency
• disclosed as an administered item by a GSF agency (per AASB 1050 Administered Items)
• not controlled by the NSW Total State Sector
• within the threshold limits set within TD 23-24, which include assets, liabilities, income, expenses and contingent liabilities of the SDA are each less than $5 million and total cash or cash equivalents are less than $2.5 million.

The following SDAs were exempt from financial reporting under TD 23-24 as they were administered (per AASB 1050 ‘Administered Items’) by NSW Treasury, and thus disclosed as an administered item, in NSW Treasury’s financial statements:

• Snowy Hydro Legacy Fund established under the Snowy Hydro Legacy Fund Act 2018
• Policyholders Protection Fund established as a SDA under the Insurance Protection Tax Act 2001
• Electricity Network Residual Liabilities Fund
• Crown Long Service Leave Pool SDA
• Structure Finance Activities SDA
• Confiscated Proceeds Account SDA.

While the following entities are exempt from financial reporting under TD 23-24, they are still required by their establishing legislation to prepare financial reports and have these audited by the Auditor-General:

• Restart NSW Fund
• Social and Affordable Housing NSW Fund
• Electricity Retained Interest Corporation – Ausgrid Fund
• Electricity Retained Interest Corporation – Endeavour Fund
• NSW Generations (Debt Retirement) Fund
• NSW Generations (Community Services and Facilities) Fund.

Appendix five Acquittals and other opinions contains the details of the audits performed.

Early close procedures

Early close mandatory procedures were submitted on time

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.

Energy Corporation of New South Wales needs to improve their completion of early close procedures

Energy Corporation of New South Wales did not complete all mandatory early close procedures:

Year-end financial reporting

NSW Treasury required all agencies to submit their financial statements by 1 August 2023

In June 2023, NSW Treasury issued a suite of Treasurer’s Directions and Treasury Policy and Guidelines for 2022–23 financial reporting requirements and timetables:

• Treasurer’s Direction TD21-02 ‘Mandatory Annual Returns to Treasury’ (TD21-02) and Treasury Policy and Guidelines TPG23-13 ‘Agency Direction for the 2022–23 Mandatory Annual Returns to Treasury’ require agencies listed in the Appendix A of TD21-02 to submit their 2022–23 financial statements to both NSW Treasury and the Audit Office by 1 August 2023
• Treasury Policy and Guidelines TPG23-14 ‘Agency guidelines for the 2022–23 Mandatory Annual Returns to Treasury for New South Wales public sector agencies that are not included in TD21-02’ requires New South Wales public sector agencies not listed in Appendix A of TD21-02 to submit their draft 2022–23 financial statements to NSW Treasury by 1 August 2023.

NSW Treasury extended the year-end submission deadline for agencies to provide the note to the financial statements that provides disclosures on appropriations to 11 August 2023. The submission date for the rest of the financial statements (that is, excluding the appropriations disclosures) remained as 1 August 2023. The extension was granted under clause 7A of TD21-02.

Treasurer’s Direction TD21-03 ‘Submission of Annual GSF Financial Statements to the Auditor-General’ requires reporting GSF agencies that are not listed in Appendix A of TD21-02 to submit their annual financial statements for audit within six weeks after the year end.

Financial statements were submitted on time for all portfolio agencies

Portfolio agencies met the reporting deadlines for submitting their 2022–23 year-end financial statements. The Government Sector Audit Act 1983 does not specify the statutory deadline for issuing the audit reports. At the date of this report, the audits of all portfolio agencies’ financial statements have been completed.

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

NSW Treasury related matters

Investments administered on behalf of the General Government Sector

NSW Treasury has previously contributed amounts to entities within the Public Non-Financial Corporation (PNFC) and Public Financial Corporation (PFC) sectors. These contributions were made on behalf of the General Government Sector (GGS).

In 2022–23, NSW Treasury reassessed the accounting requirements when administering transactions on behalf of the GGS, and concluded they were administering investments on behalf of the State. Previously, Treasury recognised these as either administered ‘distributions to owners’ directly in equity or administered capital grant expenditure. No administered investment asset was disclosed by Treasury for these contribution payments provided to government owned entities.

This resulted in the following adjustments to the financial statements:

• $85.8 billion increase to administered investments at 1 July 2021, to reflect the State’s investment in the PNFC sectors and PFC sectors
• $28.7 billion increase to administered assets and administered revenue at 30 June 2022, to reflect the increased value of the State's investment in the PFC and PNFC sectors.

Insurance related matters

The NSW Self Insurance Corporation's liability for abuse claims

At 30 June 2023, NSW Self Insurance Corporation (SiCorp) reported $2.3 billion in liabilities relating to abuse claims for unreported and reported claims – a $533 million or 31% increase from last year (2021–22: $1.7 billion).

Amendments to the Civil Liability Act 2002 removed restrictions to accessing compensation when the abuse occurred while a child was an offender in custody. Prior to these amendments, SiCorp received approximately 200 claims per annum related to abuse that occurred in a Juvenile Justice setting. In the 12 months to 31 March 2023 this increased to 776 claims.

The number of abuse claims in an education setting has also been increasing. In previous years, the number of education claims averaged less than 100 per year. In the 12 months to 31 March 2023, this increased to 483 claims.

The measurement of this liability for financial reporting purposes involves significant uncertainty and judgement, including estimating unreported claims that will emerge in the future. This means that the range of reasonable estimates for this liability is wider than usual.

Superannuation related matters

Financial statements for the Energy Investment Fund and the Energy Industries Superannuation Scheme Pool A and Pool B were prepared on a liquidation basis

The Energy Industries Superannuation Scheme Pty Limited, as trustee for Energy Industries Superannuation Scheme Pool A and Pool B, approved the transfer of all assets, liabilities, obligations and membership to the Construction and Building Unions Superannuation Fund (Cbus Super) effective from 11 May 2023. This transfer included the jointly held investments in the Energy Investment Fund. Cbus Super then redeemed all of its investment in the Energy Investment Fund on 20 June 2023.

Pool A and Pool B were wound up on 11 May 2023 and deregistered after submitting relevant information to the Australian Prudential Regulation Authority. The Energy Investment Fund was wound up on 20 June 2023. Accordingly, the financial statements for Pool A, Pool B and the Energy Investment Fund were prepared on a liquidation basis.

‘Emphasis of Matter’ paragraphs were included in the Independent Auditor’s Reports for the financial statements to draw users’ attention to management’s disclosures that the financial statements prepared on a liquidation basis.

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.

NSW Treasury

NSW Treasury leads the economic, jobs and investment conversation across New South Wales. From its position at the centre of government, NSW Treasury drives the economic development strategy to guide the State’s growth for the benefit of the people who live, work and study in New South Wales.

Infrastructure NSW

Infrastructure New South Wales (INSW) was established in July 2011 as a statutory authority under the Infrastructure NSW Act 2011. It provides independent advice to help the government identify, prioritise project delivery, and oversee delivery of critical public infrastructure across New South Wales.

New South Wales Treasury Corporation (the corporation)

The corporation provides financial services for the NSW Government, public authorities and other public bodies of New South Wales.

Insurance and Care NSW (icare)

icare provides services including staff and facilities for NSW Government managed insurance and compensation schemes. It also monitors the performance of the insurance or compensation schemes in respect of which it provides services.

NSW Self Insurance Corporation (SiCorp)

SiCorp has responsibility for the direction, control and management of a range of funds including the NSW Treasury Managed Fund.

Lifetime Care and Support Authority of New South Wales (the authority)

The authority monitors the operation of the scheme which pays for treatment, rehabilitation and care for people severely injured in a motor accident in New South Wales.

Workers Compensation Nominal Insurer (Nominal Insurer)

The Nominal Insurer operates as a licensed workers compensation insurer. The Nominal Insurer is not, and does not, represent New South Wales (the State) or any authority of the State. The scheme is not consolidated as part of the NSW Total State Sector Accounts. The Workers Compensation Act 1987 requires the Auditor-General to inspect and audit the accounts and records of financial transactions of, or relating to, the Nominal Insurer.

SAS Trustee Corporation Pooled Fund (the fund)

The fund is the NSW Government’s largest defined benefit superannuation fund with over 85,000 members and $38.7 billion in assets at
30 June 2023.

Twenty per cent of audit findings are 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 69 findings raised across the portfolio (61 in 2021–22). Twenty per cent of all issues were repeat issues (30% in 2021–22).

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

2022–23 audits identified five high-risk findings

High-risk findings, including repeat findings, were reported at the following portfolio agencies.

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

The number of moderate risk findings has increased

Thirty-five moderate risk findings were reported in 2022–23 (31 in 2021–22). Of these, ten were repeat findings, and 25 were new issues. These included findings around internal control deficiencies, improvements to financial reporting, procurement, and conflicts of interest processes.

NSW Treasury related matters

There was lack of guidance provided on new paid parental leave obligations to agencies

On 27 September 2022 the former Department of Premier and Cabinet issued a determination that provided for a change to the paid parental leave scheme (the scheme) for all NSW government employees with children born on or after 1 October 2022. This change expanded on previous parental leave entitlements and provided greater access to paid parental leave to eligible public sector employees.

Previously, paid parental leave was only available for the primary carer (14 weeks) after 40 weeks of continuous service and needed to be taken upfront after the birth of the child, whilst the support carer was entitled to two weeks. In these circumstances, a provision was never recognised as it was non-accumulating as the entitlement could not be carried forward to future periods. Under the new provisions, parents can take the full 14 weeks (with some employees eligible to receive an additional two weeks) and can do so across a two-year period subject to meeting eligibility criteria.

AASB 119 ‘Employee Benefits’ refers to the recognition of accumulating non-vesting obligations that increases their entitlement to paid absences in future time periods. This provides an obligation to the employers to provide for any unused parental leave.

The new parental leave policy impacted agencies across all portfolios and the recording of this liability across the sector would have been assisted by timely guidance to the sector on the financial reporting impacts. This caused late accounting assessments across all portfolios to assess whether the impact was material.

Over $300 million of unsuccessful bid costs have been capitalised by Transport for NSW and Sydney Metro

At 30 June 2023, Transport for NSW and Sydney Metro have capitalised unsuccessful bid cost contributions totalling $158 million and $175 million respectively in their assets under construction. These costs represent payments made to unsuccessful bidders, reimbursing them for expenses incurred during the tender phase of a project – up to the appointment of the preferred bidder. These reimbursed costs include, but are not limited to:

• design
• technical modelling
• legal advice
• specialist reports required to develop a conforming bid.

The partial reimbursement of costs incurred by unsuccessful bidders is consistent with the NSW Treasury’s Bid Cost Contributions Policy, which sets out the arrangements for when and how it will make a financial contribution to unsuccessful bidders to partially reduce the cost of bidding for construction and infrastructure projects in New South Wales. While the policy provides clarity on the reimbursement of unsuccessful bidders’ costs, it does not contemplate how these costs should be recognised in agency’s financial statements, including whether they should be capitalised or expensed.

Non-compliance with legislation

During 2022–23, the Audit Office identified non-compliance with the Electricity Retained Interest Corporations Act 2015. Payments totalling $439 were made from the Electricity Retained Interest Corporation Fund - Endeavour (ERIC-E Fund) and $1,436 were made from the Electricity Retained Interest Corporation Fund – Ausgrid (ERIC-A Fund) that did not comply with section 34 of the Act. Section 34 of the Act specifies what payments can be made from the Fund.

Insurance related matters

Insurance and Care NSW (icare)

The Audit Office is currently performing a performance audit, which will assess the effectiveness and economy of icare’s management of workers compensation claims. It will also assess the effectiveness of SIRA’s oversight of workers compensation insurance.

The report is expected to be tabled in the first half of 2024.