Reports
Actions for WestConnex: changes since 2014
WestConnex: changes since 2014
What the report is about
The report examined whether Transport for NSW (TfNSW) and Infrastructure NSW (INSW) effectively assessed and justified major scope changes to the WestConnex project since 2014.
What we found
NSW Government decisions to fund WestConnex-related projects outside WestConnex's $16.812 billion budget have reduced transparency and understate the full cost of WestConnex.
The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency over the cost of the road component of Sydney Gateway. $1.76 billion of the cost to complete Sydney Gateway is funded outside the WestConnex budget.
Network integration costs, currently estimated at $2.3 billion, are also funded outside the WestConnex budget. Many of these costs are directly attributable to WestConnex and ought to be included in the reported budget.
The Parramatta Road Urban Amenity Improvement Program, costing $198 million, should also be included as part of the WestConnex reported budget.
Decisions to exclude or remove these elements from WestConnex without justification have seen $4.26 billion of projects funded outside the $16.8 billion budget.
Positively, robust analysis was used to develop and incorporate design improvements into the 2015 WestConnex Updated Strategic Business Case.
The separate components of WestConnex underwent all required assurance reviews. However, the NSW Government's assurance framework does not require ongoing ‘whole-of-program’ assurance for large and complex projects like WestConnex. The absence of a holistic review of WestConnex allows for some costs and benefits to avoid scrutiny.
What we recommended
TfNSW should:
- review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects
- ensure that estimated costs and benefits of works which are reasonably required to meet consent conditions are included in business cases for complex large infrastructure projects
- establish centralised and project specific record keeping for major infrastructure projects.
Infrastructure NSW should provide transparent whole of program assurance on total costs and benefits when complex projects are split into sub-projects.
Government should consider enhancing public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole-of-program level.
Fast facts
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WestConnex
WestConnex is a 33 km motorway network that will link the western and south‑western suburbs with the Sydney CBD and the Airport and Port Botany precinct. It will also connect with proposed future motorway links to the north shore, northern beaches, and southern Sydney. The project is being delivered in three stages, with completion scheduled for 2023.
When first conceived by Infrastructure NSW (INSW) in 2012, WestConnex was described as a single integrated concept. In August 2013, government approved a business case for an integrated concept of WestConnex, with an estimated cost of $14.881 billion (in nominal outturn costs). Transport for NSW (TfNSW) is the government agency (sponsor agency) accountable for the delivery of WestConnex in accordance with the business case. In August 2014, the NSW Government established the Sydney Motorway Corporation to fund, deliver and operate WestConnex.
In November 2015, the NSW Government publicly released an updated WestConnex business case with greater detail and design enhancements, which increased the estimated cost to $16.812 billion.
Subsequent to this update, further changes were made to the design, including realignment of the M4 to M5 Link connection to the Western Harbour Tunnel project, an expanded interchange at Rozelle, the deletion of the Camperdown Intersection, and the addition of the Iron Cove Link. The reported budget for WestConnex was not changed as a result of these design updates.
To fund WestConnex, Sydney Motorway Corporation consolidated a concessional loan of $2 billion from the Australian Government, private sector debt and equity funding from the State. The Australian Government also provided a $1.5 billion contribution to the State to partially fund construction of WestConnex.
In August 2018, the NSW Government sold 51 per cent of its stake in Sydney Motorway Corporation for $9.26 billion. At the time of writing, the NSW Government is in the process of selling its remaining 49 per cent stake of Sydney Motorway Corporation.
About this audit
In the course of delivering a complex major infrastructure project, it is reasonable to expect changes to the original design and scope. Changes may occur as the design moves from a high‑level concept to a detailed design for project delivery, as new risks or issues are identified, as demands change, or as other interdependent projects are approved. Changes can also occur in response to potential cost or delivery overruns which arise as a result of planning deficiencies. Where design and scope changes significantly change the project costs and/or expected benefits, the justification for these changes should be robust and transparent.
Following our 2014 performance audit, 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF) to improve accountability and transparency over major projects that are developed, procured, or delivered by government agencies. Under the framework, TfNSW, as project sponsor, is responsible for ensuring the WestConnex project meets all IIAF requirements. These include ensuring the project remains strategically aligned and viable, and benefits are on track. INSW is responsible for coordinating the assurance review process and reporting directly to NSW Cabinet on project delivery against time, budget and risks to project delivery.
The objective of this performance audit is to assess whether TfNSW and INSW effectively assessed and justified major scope changes to the WestConnex project since 2014.
ConclusionGovernment decisions to separate WestConnex related projects and deliver them outside WestConnex's 2015 business case budget of $16.812 billion has understated the total cost of WestConnex achieving its objectives. The rationale for separating these elements from the WestConnex project scope has not been transparent. Together, these projects represent costs of $4.26 billion funded outside the $16.812 billion WestConnex budget. Since 2015, the NSW Government has removed several projects from the scope described in the 2015 WestConnex business case, and funded them separately:
Work required to integrate WestConnex with existing roads ('network integration') was funded outside the $16.812 billion budget for the November 2015 WestConnex business case. TfNSW is obliged to deliver network integration works to meet the conditions of planning approval for WestConnex. As such, these costs should be included in the WestConnex budget. The current estimated cost of these network integration works is $2.3 billion. The rationale to exclude or remove each of these elements from the WestConnex project scope has not been transparent, nor supported by robust analysis and justification. These elements are required for WestConnex to achieve its objectives. The additional project costs will also deliver additional benefits not included in the 2015 WestConnex business case. Removing them understates the total cost of achieving the objectives set out in the 2013 and 2015 WestConnex business cases. WestConnex's complex financing arrangements further reduce transparency on costs. Transparency over the total cost of WestConnex – including elements funded from other project budgets – is further limited by the project's complex financing arrangements. Prior to 2018, the Audit Office provided assurance on costs borne and levied by Sydney Motorway Corporation and its controlled entities. Since the NSW Government sold its majority stake in WestConnex in August 2018, the Auditor‑General no longer has the mandate to provide this assurance. Considering this, and the lack of transparency on the cost of projects removed from the WestConnex project scope, there is no transparent or comprehensive view of the total cost to deliver WestConnex – nor of how these cost would be offset by the sale of the government's remaining stake. There is no 'whole‑of‑program' assurance over the WestConnex program of works. This limits transparency and confidence that WestConnex will meet intended objectives within its budget. After INSW conducted a gateway review of a draft of the 2015 WestConnex Business Case under the IIAF, the project was broken up into separate components to support staged delivery. Each of these projects, including the Sydney Gateway, as well as the Network Integration Program, underwent the required assurance reviews under the IIAF. INSW also provided monthly progress updates to government. These individual projects are, in themselves, significant in scale and complexity. Addressing them as discrete components for the purposes of the assurance review process is justified and there is no requirement under the IIAF to holistically review projects which together deliver final benefits of the WestConnex program. However, whole‑of‑program review would improve transparency over total costs and benefits. In 2016, TfNSW revised the design of the M4‑M5 Link and Rozelle to address traffic and integration issues. TfNSW identified that the concept designs used for the M4‑M5 Link and Rozelle Interchange in the 2015 WestConnex Business Case would not integrate well with surface roads, including the proposed Bays Precinct, and would result in increased traffic on Victoria Road and the ANZAC Bridge. Following a comprehensive review conducted in mid‑2016, TfNSW refined the design of the M4‑M5 Link and Rozelle Interchange to address these limitations without increasing the cost of delivery. TfNSW documented the rationale for the design changes, including how the changes improved on the original design to increase capacity, improve traffic conditions and create more open space. |
1. Key findings
Government decisions to fund WestConnex related projects outside of WestConnex's $16.812 billion reported budget have reduced transparency over costs and understate the full cost of WestConnex
In 2015, the work required to integrate WestConnex with existing roads ('network integration') was funded as a separate project with an estimated cost of $1.534 billion outside the 2015 WestConnex budget of $16.812 billion. TfNSW then created the Network Integration Program to respond to the conditions of planning approval for WestConnex. The current estimated cost to deliver all network integration works is $2.3 billion.
Since the 2015 WestConnex Business Case, the NSW Government has removed several elements from the scope of WestConnex and funded them as separate projects, while keeping the published WestConnex budget at an estimated $16.812 billion. Projects removed include:
- Sydney Gateway, currently costed at $2.56 billion (with an $800 million contribution from WestConnex)
- Parramatta Road Urban Amenity Improvement Program, costed at $198 million in late 2018 and funded though new funding to the Greater Sydney Commission.
Together, these projects represent costs of $4.26 billion that are not included in the WestConnex budget, but are required for WestConnex to achieve the objectives of the 2013 and 2015 WestConnex Business Cases. The costs of these elements in supporting the objectives of WestConnex is not tracked centrally, and there is no single point of oversight over them. Exhibit 1 compares total WestConnex forecast costs (including related projects) between November 2015 and April 2021.
November 2015 |
April 2021 ($ million) |
|
WestConnex | ||
Stage 1 | ||
Stage 1A (M4 Widening) | 497 | 517 |
Stage 1B (M4 East) | 3,802 | 3,782 |
Total | 4,299 | 4,299 |
Stage 2 | ||
King Georges Road Interchange | 131 | 131 |
New M5 | 4,335 | 4,335 |
Sydney Gateway Contribution | 800 | 800 |
Total | 5,266 | 5,266 |
Stage 3 | ||
M4‑M5 Link and Rozelle Interchange | 7,049 | 7,049 |
Urban renewal (Parramatta Road) | 198 | ‑‑ |
Urban renewal (Rozelle) | ‑‑ | 198 |
Total | 7,247 | 7,247 |
Total reportable WestConnex | 16,812 | 16,812 |
November 2015 ($ million) |
April 2021 ($ million) |
|
Related projects | ||
Network integration | 1,534 | 2,300 |
Urban renewal (Parramatta Road) | ‑‑ | 198 |
Sydney Gateway Road Component | ‑‑ | 1,760 |
Total | 1,534 | 4,258 |
Many network integration costs are directly attributable to WestConnex and ought to be included in the reported budget for WestConnex
Prior to 2015, the scope of WestConnex included enabling works needed before or during construction, as well as funding for future works to address any adverse traffic outcomes created by WestConnex which become apparent after its opening. These works are also known as network integration works.
When government approved the 2015 WestConnex Business Case, it noted that the project would require $1.534 billion for network integration works to address the impacts of WestConnex on the road network. However, the WestConnex project budget of $16.812 billion did not include funding for network integration works. Instead, Roads and Maritime Services (RMS, now TfNSW) was to fund network integration through its normal budget allocation.
It is important to recognise these costs as part of the total WestConnex project cost because:
- TfNSW created the Network Integration Program to respond to network traffic and transport elements of the planning conditions of approval for WestConnex granted by the then NSW Department of Planning and Environment under the Environment, Planning and Assessment Act 1979.
- NSW Treasury guidelines for business cases note that accurate cost estimates include assessment of the financial impact of meeting the conditions of planning approval.
- Travel time and vehicle operating cost benefits attributed to the WestConnex project in the 2015 WestConnex Business Case assume that some network integration works, then costed at $373 million, were in place.
Refer to Appendix two for more detail on network integration works.
Some of the projects in the WestConnex Network Integration Program provide community and place benefits, such as parklands and cycleways. These benefits have not been attributed to WestConnex. Additionally, some network integration works are likely to deliver additional traffic related benefits to WestConnex. As the Network Integration Program’s primary purpose is to meet the conditions of planning approval for WestConnex, TfNSW should attribute all the costs and benefits of the program to WestConnex.
To September 2021, the total funded cost of the Network Integration Program is approximately $2.077 billion. TfNSW estimates that it will need a further $222 million to complete all expected network integration works.
The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency and accountability for TfNSW's underestimation of the cost of the road component of Sydney Gateway
Sydney Gateway is a high‑capacity connection between the new St Peters Interchange and the Sydney Airport and Port Botany precinct. It includes a road and rail components. The road component was included in the scope of WestConnex in the 2015 WestConnex Business Case. The November 2015 design, which TfNSW costed at $800 million, involved separate roadways from the St Peters Interchange to the International terminal, and to the domestic terminals and Mascot airport precinct.
By October 2016, TfNSW was aware that the $800 million budget for Sydney Gateway was insufficient and revised the forecast cost for the road component to $1.8 billion. The original cost estimate did not sufficiently consider the cost of:
- constructing a complex design adjacent to the airport precinct
- obtaining access to land required for the project
- managing environmental contamination.
On 9 August 2017, the then Minister for WestConnex announced that the Sydney Gateway project was not part of WestConnex.
The 2015 WestConnex Business Case notes that material changes to the WestConnex budget, funding, scope, or timeframe are subject to Cabinet approval processes. It states that, when seeking approval for material changes, the portfolio Minister will make a submission to the relevant Cabinet Committee. Changes in project scope required the approval of the then Cabinet Committee on Infrastructure and should have been endorsed by the WestConnex Interdepartmental Steering Committee.
TfNSW and the NSW Department of Premier and Cabinet (DPC) assert that there is no documentation to support the government’s decision to separate Sydney Gateway from the WestConnex Program, or the WestConnex Interdepartmental Steering Committee's endorsement of a submission to Cabinet seeking approval for the separation.
The established governance processes for major scope changes were not followed in this instance. The lack of transparency regarding government's decision to separate Sydney Gateway from WestConnex also reduces visibility of TfNSW's underestimation of the cost of delivering the road component of Sydney Gateway.
The November 2018 Final Business Case for Sydney Gateway, which was approved by the government, included an estimate of $2.45 billion (nominal outturn cost) for the road component. This estimate included an $800 million contribution from WestConnex. A more recent estimate (late 2020) for this project is $2.56 billion (nominal outturn cost).
The Parramatta Road Urban Amenity Improvement Program should be included as part of the WestConnex budget
A specific objective of the 2015 WestConnex Business Case was the creation of opportunities for urban renewal along and around Parramatta Road. The business case included an allocation of $198 million in the $16.812 billion WestConnex budget for the Parramatta Road Urban Amenity Improvement program, designed to implement aspects of the objective. In November 2018, the NSW Government removed the Parramatta Road Urban Amenity Improvement Program from the WestConnex program of works and reallocated the $198 million (inside the $16.812 billion WestConnex budget) for urban renewal works around the Rozelle Interchange. As part of this decision, government approved new funding of $198 million to the Greater Sydney Commission for the urban amenity program, outside the $16.812 billion WestConnex budget. This understates the cost of WestConnex meeting its objectives by $198 million.
There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects
In August 2015, INSW conducted its first Gateway Review of WestConnex as a program consisting of composite projects. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or mega‑project. This is not inconsistent with the IIAF and all WestConnex related projects, including Sydney Gateway and the Network Integration Program, have undergone independent assurance reviews as individual projects under the IIAF.
Once a program like WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to provide independent assurance on the program as a whole until it is completed. This is then done as part of the Gateway review for benefits realisation, which examines whether project benefits are being measured and meet expectations. These individual projects are, in themselves, significant in scale and complexity. While addressing them as discrete components for the purposes of the assurance review process can be justified, the absence of strategic, holistic reviews of WestConnex allows for total costs and benefits to become opaque and avoid scrutiny. Programs of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.
There is a lack of public transparency on the total costs and benefits of the WestConnex project
Prior to 2018, the Audit Office provided assurance on costs borne and levied by Sydney Motorway Corporation and its controlled entities. Since the NSW Government sold 51 per cent of its stake in WestConnex in August 2018, the Auditor‑General no longer has the mandate to provide this assurance. The Audit Office is also unable to provide any assurance regarding the performance of tolling concessions.
This means that the total costs of WestConnex, including those levied on road users through tolling, are not reported alongside the full cost of delivering the project. This information, and independent assurance over that information, would provide transparency and context to the outcome of government's sale of its interest in WestConnex.
To enhance the transparency of existing infrastructure assurance processes, government could consider requiring large and complex infrastructure programs to undergo periodic review at a whole‑of‑program level. This could take the form of annual reports to Parliament on the total costs and benefits of selected large and complex projects by the responsible agency. The reports could include an assessment of the cost to government and cost to the community of funding and financing. Independent assurance of the agency report would provide Parliament with greater confidence that infrastructure is delivered economically and providing value for money for the people of NSW.
The Australian National Audit Office provides similar assurance on selected Department of Defence acquisition projects as part of its annual Major Projects Report.
Design enhancements included in the 2015 WestConnex Updated Strategic Business Case were supported by robust analysis
The 2015 WestConnex Business Case contained more detail than the 2013 WestConnex business case. Design enhancements were made as a result of modelling analysis conducted over the two years since the 2013 business case. Enhancements included a full underground link between Kingsgrove and St Peters as part of the New M5 and re‑alignment of the M4‑M5 link tunnel (Stage 3) to include the Rozelle Interchange. The Rozelle Interchange will provide a direct connection to the Anzac Bridge and Victoria Road, and will enable a connection to the proposed Western Harbour Tunnel and Beaches Link. A map and description of these elements can be found at Exhibits 2 and 3 of this report.
In 2016, TfNSW revised the design of the M4‑M5 Link and Rozelle to address traffic and integration issues
As part of preparing the 2015 WestConnex Business Case, TfNSW prepared a Project Definition and Delivery Report (PDDR) for the M4‑M5 Link. This report describes the scope of the project, including a high‑level concept design. TfNSW identified limitations with the proposed design of the M4‑M5 in the PDDR, which it would need to address as the project moved to a detailed design stage. In particular, these limitations included:
- poor integration with the Bays Precinct masterplan
- traffic capacity constraints on Victoria Road and Anzac Bridge
- construction complexity.
Following a comprehensive review in mid‑2016, TfNSW changed the design of the M4‑M5 Link and Rozelle Interchange to address these limitations. These changes included:
- deletion of the Camperdown intersection to improve traffic conditions on Parramatta Road
- a fully underground and larger Rozelle Interchange with 10‑hectare dedicated parklands
- a toll‑free tunnel link from Iron Cove Bridge to Anzac Bridge
- increasing the lanes in the dual tunnels from three to four each way.
TfNSW documented, but did not publish, the rationale for the design changes, including how the changes addressed the limitations of the previous design while providing increased community benefit through the creation of open space. TfNSW undertook cost comparison studies which estimated that these changes would have a neutral impact on the estimated project cost while achieving the same or improved benefits.
TfNSW's record‑keeping systems for large infrastructure investments negatively impact accountability and transparency
In response to our formal requests for relevant information, made during the conduct of this audit, TfNSW advised that complete and valid records of key decision‑making processes, analysis and advice were unavailable. Additionally, TfNSW often provided information that was incomplete or unverifiable (for instance, unsigned briefing notes). This is not consistent with accepted governance practices and does not comply with the requirements of the State Records Act 1998.
We also requested that TfNSW provide a list of relevant documents held by the Sydney Motorway Corporation (SMC). While TfNSW acknowledged that SMC may hold material relevant to the audit, TfNSW did not have a list or description of these documents. As SMC is now a majority privately held entity, both the Audit Office and TfNSW have limited power to require SMC to provide documentation.
The delivery timeframe for large and complex infrastructure projects such as WestConnex frequently exceeds five years, and some projects can take over a decade to deliver. These projects represent a significant investment of public resources and government agencies should expect independent review and assurance activities such as performance audits. The establishment of dedicated record keeping facilities for major infrastructure projects, such as data rooms, would improve transparency and accountability. This would ensure that the use of public resources is fully auditable in line with public expectations and the requirements of the Government Sector Finance Act 2018, the State Records Act 1998 and the Public Finance and Audit Act 1983.
2. Recommendations
By December 2021, TfNSW should:
1. review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects
2. when preparing business cases for complex large infrastructure projects, ensure that the estimated costs and benefits of works which are reasonably expected to meet consent conditions are included in the overall project cost and its benefits (as per Treasury guidelines)
3. establish and maintain centralised and project‑specific record keeping, including through dedicated project data rooms, to ensure major infrastructure projects can readily be subject to external oversight and assurance.
By June 2022, INSW should:
4. provide transparent whole‑of‑program assurance on total costs and benefits throughout the project life‑cycle when complex projects are split into sub‑projects.
By June 2022, NSW Government should:
5. consider enhancing the public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole‑of‑program level. This could take the form of reports to Parliament on the total costs and benefits on selected large and complex projects by the responsible agency, including cost to government and cost to community of funding and financing, as well as an accompanying independent assessment of the agency report.
Following our 2014 performance audit report 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF). INSW is responsible for the development, implementation and administration of the IIAF. The assurance framework involves gateway reviews, health checks, deep dive reviews, and project monitoring and reporting at various stages in the lifecycle of a project. The main aims of the IIAF are to help ensure major infrastructure projects are delivered on time and on budget, and to ensure that reports are regularly monitored by the Cabinet of the NSW Government. The IIAF gateway review process is compulsory for all significant investments and expenditure under the NSW Treasury Gateway Policy.
In accordance with the IIAF, INSW is responsible for the following:
- providing a dedicated Assurance Team including Gateway Review Managers to coordinate Reviews
- determining appropriate expert reviewers, and manages scheduling, commissioning and administration of Assurance Review reports. Infrastructure NSW is independent of the Expert Review Team
- monitoring Tier 1 – High Profile/High Risk projects, Tier 2 and Tier 3 (if required) project performance through independent Assurance Reviews
- providing independent analysis and advice on key risks and any corrective actions recommended for Tier 1 – High Profile/High Risk, Tier 2 and Tier 3 projects
- escalating projects to Infrastructure Investor Assurance Committee (IIAC) and Cabinet where projects present ‘red flag issues’ and where corrective action is needed
- working with delivery agencies to register all capital projects with an estimated cost greater than $10.0 million and ensures they are risk profiled and assigned a risk‑based project tier with an endorsed IIAF Project Registration report
- preparing forward looking annual Cluster Assurance Plans
- maintaining and continuously improves the IIAF process
- reporting to the IIAC, Cabinet and Infrastructure NSW Board
- regularly report to NSW Treasury on the performance of the IIAF.
In relation to WestConnex, TfNSW is the sponsor agency responsible for meeting relevant IIAF requirements, including:
- registering and risk profiling projects
- IIAF gateway, health check, and deep dive assurance reviews
- regular reporting.
Under the IIAF, it is mandatory for all capital projects valued over $10.0 million to be registered with INSW. Capital projects can be registered either as a program (comprising of a group of related projects or activities) or as a project (which may or may not be part of a program).
According to the IIAF, programs tend to have a lifespan of several years and aim to deliver outcomes and benefits related to an organisation's strategic objectives. Projects tend to have a shorter lifespan, and deal with outputs. Projects can, however, be grouped under a single program if they are similar in nature or if they are aimed at collectively achieving a strategic objective. Complex projects can be delivered in multiple stages, under different contracts, and across different time periods.
The last assurance review of the entire WestConnex program of works as a whole was in 2015
INSW conducted the first IIAF gateway review of WestConnex in August 2015. TfNSW developed a draft WestConnex Updated Strategic Business Case to consolidate the latest analysis on WestConnex, and to confirm that the project remained fit for purpose, economically viable, and financially deliverable. The review followed a recommendation in our 2014 performance audit report that business cases be thoroughly revisited.
During September 2015, INSW conducted additional informal reviews to identify strategic risks associated with public release of the WestConnex business case. Subsequently, INSW gave the Premier of NSW its views on the draft business case, including the following points:
- The $398 million budget for Sydney Gateway was insufficient to meet the benefits claimed in the business case for a ‘functional’ connection to Sydney Airport and Port Botany. INSW studies indicate a future‑proof solution would require a minimum spend of $755 million.
- Enabling works for WestConnex estimated at $1.534 billion were excluded from the cost of WestConnex. Significant work remained for RMS to identify mitigation measures to address planning approvals and network performance issues.
- Enabling works (a Southern Connector), an access ramp and surface road improvements within St Peters were excluded from the draft 2015 business case despite their inclusion in the WestConnex scope in the 2014–15 State Budget.
- The overall cost of works not funded within the WestConnex budget ranged from $2.011 billion to $2.196 billion. This included the enabling works, access ramp and surface road improvements and the shortfall for Sydney Gateway.
All WestConnex related projects, including Sydney Gateway have undergone independent assurance reviews under the IIAF
Since INSW submitted the first WestConnex progress update report to Cabinet in June 2015, INSW has been reporting monthly on the different stages of the WestConnex Program, including Sydney Gateway, as the projects were registered with INSW as High‑Profile, High‑Risk projects. Separate reporting enabled INSW to report and review each stage with more detailed scrutiny, compared to the reporting and reviewing at a program level.
WestConnex Stage 2 (New M5) underwent both mandatory and non‑mandatory reviews at key points in the project lifecycle. Three mandatory gateway reviews – at Gate 2 (Final business case), Gate 3 (Readiness for market), and Gate 4 (Tender evaluation) – were conducted by TfNSW before the introduction of IIAF. Four non‑mandatory health check reviews and one non‑mandatory deep dive review were conducted after the introduction of the IIAF managed by INSW.
Similarly, WestConnex Stage 3 projects – M4‑M5 link, M4‑M5 Tunnels, and Rozelle Interchange – also underwent mandatory and non‑mandatory reviews at key points in their lifecycle under IIAF.
The M4‑M5 Link had two mandatory gateway reviews and one non‑mandatory health check review under IIAF. These reviews were conducted before Stage 3 was split into two stages, due to major design changes to the Rozelle Interchange and the M4‑M5 tunnels.
The M4‑M5 tunnels had two mandatory gateway reviews (at Gates 3 and 4), one non‑mandatory health check review, and one non‑mandatory deep dive review under IIAF.
Rozelle Interchange also underwent three mandatory gateway reviews at Gate 3 (part 1), Gate 3 (part 2), and Gate 4, two non‑mandatory health check reviews, and one non‑mandatory deep dive review under IIAF.
Since mid‑2017, the Sydney Gateway project has undergone required independent assurance reviews, as well as a number of optional assurance reviews
In November 2016, INSW conducted a mandatory Gate 1 gateway review on a strategic business case for the Sydney Gateway Project. TfNSW did not proceed with this business case. Following the separation of Sydney Gateway from WestConnex in mid‑2017, TfNSW developed a new business case for Sydney Gateway. It has undergone the required Gate 1, Gate 2, and Gate 3 gateway reviews, as well as two non‑mandatory health check reviews, and three non‑mandatory deep dive reviews under IIAF.
Network integration works have undergone all IIAF required assurance reviews
TfNSW completed a strategic business case for the Network Integration Program in August 2020, and INSW completed a gateway review in November 2020. This is despite network integration projects starting as early as 2015, with $645 million having been spent by June 2020. The strategic business case included a prioritisation process for completing remaining works in the program. Prior to November 2020, TfNSW registered individual network integration projects with INSW, and these projects have undergone gateway reviews where required.
The Network Integration Program strategic business case does not include Rozelle interchange network integration works ($353 million) and additional network integration works to settle a contractor claim adjacent to St Peters Interchange ($190 million). These were excluded from the business case on the basis they had already been approved by government, and as such were not subject to the prioritisation elements of the business case. TfNSW has not developed separate business cases for these works, although the scope of the St Peters Interchange works was developed through a negotiated process.
TfNSW did not prepare business cases for some network integration works which have commenced, including the $323 million Campbell Road/Euston Road works
Prior to its development of the August 2020 strategic business case, TfNSW did not prepare business cases for many network integration works that have commenced, and in some instances were completed, before 2019. Significantly, TfNSW did not prepare a business case for the Campbell Road/Euston Road works, which cost $323 million and have been completed.
In 2016, TfNSW’s Business Case Policy requires the creation of business cases for capital projects costing over $1.0 million. At the time of writing this report, TfNSW’s draft policy requires full business cases for capital projects costing $10.0 million or more.
There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects
INSW conducted its first gateway review of WestConnex (as a program, which consisted of composite projects) in August 2015. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or complex project. The IIAF allows this to occur.
Separate registration enabled INSW to report and review each stage with more scrutiny compared to whole‑of‑program level review.
Such an approach has merit, considering the individual stages (and components of these stages) are multi‑million dollar works in their own right. Each project has its own timing for gateway reviews at stages such as 'Readiness for Market' and 'Tender Evaluation'.
Once a program such as WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to conduct independent assurance on the program of works as a whole until the whole program is completed as part of the Benefits Realisation (Gate 6) gateway review. The absence of strategic, holistic reviews of projects of the scale and complexity such as WestConnex during their delivery allows for total costs and benefits to become opaque and avoid scrutiny. Projects of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.
INSW has advised us that it has prepared a proposal to expand its assurance function to include whole‑of‑program review of inter‑related infrastructure projects.
Appendix one – Responses from agencies
Appendix two – Network integration works
Appendix three – About the audit
Appendix four – Performance auditing
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Parliamentary reference - Report number #351 - released (17 June 2021).
Actions for Acquisition of 4–6 Grand Avenue, Camellia
Acquisition of 4–6 Grand Avenue, Camellia
The Auditor-General for New South Wales, Margaret Crawford, has today released a report on Transport for NSW’s (TfNSW) acquisition of 4–6 Grand Avenue in Camellia.
This audit, which was requested on 17 November 2020 by the Hon. Andrew Constance MP, the Minister for Transport and Roads, examined:
- whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
- whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.
The audit found that TfNSW conducted an ineffective process when it purchased 4–6 Grand Avenue, Camellia. The audit also found that TfNSW’s internal policies and procedures to guide the transaction were, and continue to be, insufficient.
The Auditor-General has made seven recommendations to address the issues identified in the report.
On 17 November 2020, the Hon. Andrew Constance MP, the Minister for Transport and Roads, requested this audit under section 27B(3)(c) of the Public Finance and Audit Act 1983.
On 15 June 2016, Transport for New South Wales (TfNSW) acquired 6.3 hectares of land at 4–6 Grand Avenue, Camellia, by agreement from Grand 4 Investments Pty Ltd. Grand 4 Investments was a business entity established by the owners of Billbergia Pty Ltd, a property development and investment company.
TfNSW paid Grand 4 Investments $53.5 million and assumed liability for addressing environmental issues and contamination associated with the site. This took place seven months after the vendor acquired the land as part of a competitive Expression of Interest process, in which TfNSW also participated, for $38.15 million.
TfNSW is the NSW Government agency responsible for most major transport infrastructure projects in New South Wales. TfNSW acquired the Camellia site for use as a stabling and maintenance depot to support the Parramatta Light Rail (PLR) project.
Consistent with the minister’s request, this audit assessed:
- whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
- whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.
In considering the effectiveness of the processes for this purchase, the audit considered:
- the requirements of the Land Acquisition (Just Terms Compensation) Act 1991 (the Act)
- the application of sound processes to manage risk to the NSW Government and to achieve value for money
- the application of disciplines associated with complex procurement, such as probity, in a NSW Government context.
The acquisition of the 4–6 Grand Avenue site in Camellia was consistent with a 2014 feasibility study for the PLR, but occurred before the completion of detailed project planning or an acquisition strategy.
TfNSW made two attempts to acquire the 4–6 Grand Avenue site in Camellia, and was successful on the second attempt. TfNSW recognised the risks associated with early acquisition and had high-level strategies in place should the site not be required.
The specific site had been identified in a feasibility study for the PLR commissioned by TfNSW in 2014 as one of several options in Camellia for a stabling and maintenance depot. However, TfNSW had not done any substantive analysis of the various options to identify a preferred location before the two opportunities to acquire 4–6 Grand Avenue were brought to TfNSW’s attention by the landowners (or their agents). On both occasions, TfNSW chose to actively pursue acquisition in advance of any such analysis.
The acquisition was also not informed by a Property Acquisition Strategy, which TfNSW policy recommends in order to guide the process and manage acquisition specific risks.
In 2015, TfNSW identified that it would require a stabling and maintenance depot in the Camellia area for the Parramatta Light Rail
In 2014, TfNSW commissioned an external engineering consultancy to undertake a feasibility design study for the Parramatta Light Rail - the Parramatta Transport Corridor Strategy Feasibility Design study (herein referred to as ‘the feasibility study’). In early 2015, TfNSW received the feasibility study, which was one of several key sources that informed the development of business cases for the PLR.
The feasibility study recommended that TfNSW should consolidate the maintenance and cleaning operations with overnight stabling facilities on one site. The study noted that the optimal location for any such site would be in close proximity to the proposed network, and noted that the site must have access to road connections to accommodate access for cars and trucks.
The study found that a centrally located stabling and maintenance facility would be required for all routes serving the Parramatta CBD, and that the Camellia industrial area was a preferred location for such a facility. The study noted that the Camellia area was contaminated.
The feasibility study notes that its conclusions were based on assumptions about the light rail system adopted and decisions made by the future operator of the system, who had not yet been selected or appointed.
TfNSW's decision to progress a potential acquisition in 2015 considered the risk that the site may not be required
TfNSW's FIC was responsible for making decisions on funding allocations at a whole of program level within TfNSW. FIC was also responsible for approving ‘high-risk/high-value’ variations to program budgets. Members of the FIC included:
- Secretary of Transport for NSW
- Deputy Secretary, Infrastructure and Services
- Deputy Secretary, Freight, Strategy and Planning
- Deputy Secretary, Customer Services
- Deputy Secretary Finance and Investment
- Deputy Secretary People and Corporate Services.
An April 2015 submission, from the then Deputy Director-General to the agency’s FIC, sought authorisation and funding approval to participate in an Expression of Interest sale process. It noted the risk that the project may not go ahead. The submission advised that:
By acquiring a strategic site now, it reduces the risk of having to pay an improved value or a value that may be subject to rapidly improving land values due to changes in land use and rezoning.
The property can be acquired for the project, held strategically and income generated by leasing the site as hardstand 1 space until the project requires the land for the Parramatta Light Rail project.
If the project does not proceed in the medium to longer term, the property can be sold at a premium to what has been paid today as property fundamentals improve.
This submission acknowledged the risks associated with environmental contamination and proposed that these risks would be managed by negotiating a contract where the remediation and associated expenses would be at the landowner’s cost.
TfNSW assessed the 4–6 Grand Avenue site as one of several sites in Camellia that was a feasible location for a stabling and maintenance facility
The Departmental feasibility study assessed six potential sites for a stabling and maintenance facility, including 4–6 Grand Avenue, noting strengths and weaknesses of each site. A different site on Grand Avenue was assessed as the ‘base case’ option (1 Grand Avenue). The study’s comments on the 4–6 Grand Avenue site included the following:
With an area of approximately 63,000m2, this site has sufficient space for a depot with the required stabling yard and maintenance facilities. The location allows for good road access and LRT [light rail transit] access would be from Grand Avenue, which may require a road crossing or signalised intersection. The site has been used for general industrial uses; however the land has been cleared and is currently undergoing remediation 2. The site is not affected by flooding based on one in 100-year flood data.
In early 2015, once the opportunity to acquire 4–6 Grand Avenue emerged, TfNSW commissioned a specific feasibility study of the 4–6 Grand Avenue site. The feasibility studies clearly documented the existence of environmental contamination. In April 2015, the report concluded:
Given the limitations of this report and within the parameters that have been set it is concluded that from a spatial and geographic perspective the site at 6 Grand Avenue would be suitable as a stabling and maintenance depot for the Parramatta light rail project. There are few engineering and environmental constraints that would affect the feasibility level analysis of this site and all issues identified, within this desk study, are considered to be resolvable. However this being said there is a significant amount of work necessary to reach the final layout and definition of the stabling and maintenance depot. There are numerous items which require further consideration and conformation; planning approvals could impose restrictions on building heights, noise mitigation measures, light and visual impact requirements all of which can have significant impacts on the spatial requirements of any stabling and maintenance depot.
The acquisition of 4–6 Grand Avenue was not informed by a Property Acquisition Strategy
For major projects, TfNSW typically requires the project team to complete a Property Acquisition Strategy, which is intended to guide both process as well as specific acquisition issues expected to be faced during the project. The Property Acquisition Strategy is not a mandated document but is a recommended tool to support property acquisition as part of major projects.
TfNSW did not have a Property Acquisition Strategy in place to guide the 2015 Expression of Interest process. On 6 November 2015, the then Project Director for the PLR project emailed the property team, noting a need to develop a Property Acquisition Strategy to close off the scoping design and preliminary business case.
In January 2016, TfNSW developed a draft Property Acquisition Strategy for the Parramatta Light Rail Project, although it was silent on the potential sites for the stabling and maintenance facility.
TfNSW focussed on 4–6 Grand Avenue because it was available and aligned to TfNSW's strategic interests
In early 2015, officials commenced monitoring the market for industrial real estate in the Camellia area and surrounds for possible sites for a stabling and maintenance facility.
In March 2015, then owner of the site, Akzo Nobel Pty Limited released the 4–6 Grand Avenue site through an Expression of Interest process managed by CBRE.
TfNSW’s then Deputy Director-General, Planning, sought approval from FIC to lodge an Expression of Interest up to $30.0 million. Approval was sought on the basis that it would ‘provide certainty for the Parramatta Light Rail project by allowing for a depot site in a suitable location and potentially avoid higher costs or longer timeframes associated with compulsory acquisition following completion of the project’s business case’. FIC approved the request at its meeting on 9 April 2015.
At this time, TfNSW had not conducted any analysis of financial or operational benefits and costs of the potential sites identified in earlier feasibility studies. TfNSW staff advised us that the decision to participate in the Expression of Interest process for 4–6 Grand Avenue was because it was available. There is no documentation substantiating this statement, which TfNSW staff provided verbally as part of this audit.
In November 2015, TfNSW was advised that it was unsuccessful in the Expression of Interest process and that Grand 4 Investments (a related entity of Billbergia) had purchased 4–6 Grand Avenue. TfNSW did not conduct any further analysis of alternative potential sites in Camellia between this date and commencing discussions with Grand 4 Investments in April 2016. In that time there had been some movement on other properties that were included in the feasibility study, including 37–39a Grand Avenue being under offer in September 2015.
In March 2016, TfNSW approached CBRE to organise a meeting with Grand 4 Investments. On 1 April 2016, TfNSW met with Grand 4 Investments.
TfNSW advises that a perceived benefit of the 4–6 Grand Avenue site was that it was not subject to other uses or leaseholds that would increase the cost of compulsory acquisition. Officers involved in the acquisition advised that other nominated sites in the feasibility study were subject to other uses or leaseholds.
2 Officers familiar with the acquisition could not confirm the nature of remediation being undertaken, but noted that the previous landowner had cleared buildings from the site, which may have been considered part of remediation.
TfNSW's independent valuation, which it commissioned and received after the acquisition, specifically excluded consideration of environmental contamination risk. As a result, TfNSW is exposed to the risk that the acquisition was not fully compliant with the Land Acquisition (Just Terms Compensation) Act 1991 (the Act) because it did not use an accurate estimate of market value during negotiations. That said, the acquisition of 4–6 Grand Avenue by agreement was consistent with preferred processes described in the Act.
TfNSW acquired the site from the landowner by agreement, and this is consistent with provisions in the Act. Obtaining approval for compulsory acquisition should negotiations for agreement break down is also consistent with the Act. That said, TfNSW did not at any time assess whether a compulsory acquisition could have resulted in acquisition at a lower cost than what was negotiated by agreement.
Despite the high risks associated with the acquisition, TfNSW did not commission a formal valuation in time to inform the negotiation and purchase. Instead, TfNSW relied on internal advice to estimate market value, but did not obtain a formal valuation from those advisors. For high-risk transactions, the greater expertise and arm's-length independence of an external specialist valuer should be preferred over an agency's own staff.
On 15 June 2016, the settlement date for the acquisition, TfNSW commissioned a formal independent valuation of the site. On 23 November 2016, TfNSW received the final formal valuation report. By not obtaining a formal independent valuation of the property in advance of acquisition to inform the acquisition value, TfNSW exposed itself to non-compliance with the Act by not establishing the market value as the basis for the acquisition price. TfNSW also breached its own internal policies.
TfNSW instructed the valuer to conduct its valuation within the following parameters:
- Market valuation on an ‘as is’ basis – market value based on the methodology described in the Act. This approach valued the site at $25.0 million.
- Market valuation on a speculative development basis – market value based on the financial value of the vendor's intended use of the site which, in this case, involved leasing the site for industrial use. This approach valued the site at $52.0 million, and TfNSW advised us this valuation supported the purchase price.
- Disregard the impact of environmental contamination – TfNSW specifically instructed the independent valuer to disregard any known (or unknown) site contamination. As TfNSW knew of the significant environmental contamination affecting the site, this parameter resulted in a valuation that overstated the value of the site as it did not consider the cost of environmental remediation. The valuer applied this assumption for both market valuation approaches.
Additionally, as the independent valuer completed the valuation after the purchase was finalised, there is a risk that the valuation may have been influenced by the known purchase price.
TfNSW's failure to acquire a formal valuation and an assessment of the financial impact of environmental remediation before it purchased 4–6 Grand Avenue represents ineffective administration and governance.
TfNSW acquired the site at a time when there was demand and increasing prices for industrial property in the area. However, TfNSW did not effectively assess and manage the risks associated with the acquisition, and gaps in process led to increased risk. Briefings to decision-makers did not contain important information, and we found no evidence that gaps in advice were queried or explored by decision-makers.
TfNSW did not have plans or advice in place to assist in managing risk, such as:
- a property acquisition plan
- a comprehensive and up-to-date risk management plan
- a negotiation strategy, or any authorisation limit or minimal acceptable position
- an independent professional evaluation
- external expert advice (with the exception of legal advice relating to the contract of sale).
TfNSW was aware of contamination issues affecting the land and had access to considerable information about the environmental conditions, such as site environmental audit reports and information on the NSW Environment Protection Authority's contaminated land register. However, TfNSW had not analysed specific technical information about the contamination and therefore was not aware of the risk implications and cost for remediation. Despite this, TfNSW changed its position from not accepting the risks and costs of contamination, to acquiring the site unconditionally. The basis for this decision is unclear and undocumented.
Briefing to senior leaders on the acquisition was silent on a number of important matters that would have been important for approvers to consider, including:
- an explanation of the 40 per cent increase in purchase price between November 2015 and May 2016, and a 165 per cent increase from TfNSW’s offer in April 2015
- the contamination risks associated with the site and an evidence-based estimate of potential costs to remediate the site
- advice that an independent valuation had not been obtained, inconsistent with TfNSW policy.
Consideration of the acquisition by FIC was based on a summary business paper and was managed out-of-session, thereby removing the ability for comprehensive consideration of the acquisition proposal and its risks.
The probity management controls and assurances in place for the acquisition of the 4–6 Grand Avenue site were insufficient. These insufficiencies were exacerbated by the probity risk profile of the transaction.
The 4–6 Grand Avenue acquisition was a high-risk/high-value transaction, undertaken in a volatile property market in a short timeframe under pressure from Grand 4 Investments. TfNSW was engaging in a direct negotiation in advance of detailed planning for the acquisition, or the PLR as a whole. These circumstances contribute to heightened probity risk.
TfNSW did not establish a probity plan and sought no probity support throughout the acquisition. Also, with one exception, the staff involved in the acquisition did not complete conflict of interest declarations.
TfNSW was aware of the potential for probity or integrity issues with the transaction when it commissioned an internal audit in connection with the transaction in 2019. Internal discussions considered whether a misconduct investigation may be more appropriate, however no such investigation was undertaken.
TfNSW's insufficient probity practices, in addition to its failure to keep complete or comprehensive records of negotiations or decisions, reduce transparency of the process and its outcome and expose TfNSW to a greater risk of misconduct, corruption and maladministration.
At the time of the transaction, the TfNSW policy framework was not sufficiently risk-focussed and did not provide clarity on when officers ought to apply specific guidance or procedures. TfNSW's policies and procedures are more focussed on acquiring land to meet project needs and timeframes, and less on assuring value for money and managing risks.
At the time of its acquisition of 4–6 Grand Avenue, TfNSW had property acquisitions policies and procedures in place. Each of these were broadly sound in their content and intent. However, they lacked specificity on how or when to apply guidance, and when risk levels should elevate the importance of recommended guidance.
TfNSW's key guidance was principles based and relied on agency staff using their experience and expertise to apply guidance according to the circumstances of an individual transaction. This guidance was not duly applied in the acquisition of 4–6 Grand Avenue, Camellia. In addition, TfNSW does not have quality or control assurance to identify when TfNSW officers did not apply important policies or processes.
The primary focus of the TfNSW’s property acquisition guidance is to achieve vacant possession of land in a timeframe that meets the need of the relevant transport project. There is less specific focus on the need to meet the requirements of the NSW Government financial management framework.
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
Copyright Notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #349 - released (18 May 2021).
Actions for One TAFE NSW modernisation program
One TAFE NSW modernisation program
The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the management of the One TAFE NSW modernisation program.
In 2016, the Government released 'A Vision for TAFE NSW' which stated that TAFE NSW needed to become more flexible, efficient and competitive. It set out the need to progressively reduce significant cost inefficiencies, including by moving away from separate institutes to a single institute model. TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision.
The Auditor General found that the One TAFE NSW modernisation program did not deliver against its key objectives within planned timeframes. The modernisation program originally aimed to realise $250 million in annual savings from 2018–19. Because of project delays and higher than expected transition costs, TAFE NSW did not meet the original savings target. TAFE NSW has made progress on key elements of the program and anticipates that savings will be realised in coming years.
The report makes two recommendations to improve governance arrangements for delivering on commercial objectives and increasing transparency of non commercial activities.
The report also identifies a series of lessons for future government transformation programs.
TAFE NSW is the public provider of Vocational Education and Training (VET) in New South Wales. In 2018, TAFE NSW enrolled 436,000 students in more than 1,200 courses at around 130 locations across the State.
There have been major policy changes impacting TAFE NSW over the past decade. Under the Smart and Skilled reform, TAFE NSW started to compete with other Registered Training Organisations (RTOs) for a share of the student market.
In 2016, the NSW Government released 'A Vision for TAFE NSW'. The Vision stated that a failure to adapt to market circumstances had left TAFE NSW with unsustainable costs and inefficiencies. To address this, TAFE NSW needed to become more flexible, efficient and competitive. It set out that TAFE NSW must progressively reduce significant cost inefficiencies, including by moving away from a model of separate institutes to a One TAFE NSW model. The NSW Government set TAFE NSW a target to achieve savings through implementing the Vision.
TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision. The program initially aimed to deliver savings of $250 million per year from 2018–19, but this target was reviewed and updated as the program was being delivered.
This audit assessed whether TAFE NSW effectively managed the One TAFE NSW modernisation program to deliver on the NSW Government's vision for TAFE NSW. In making this assessment, the audit examined whether:
- delivery of the program was well planned
- the program was driven by sound governance arrangements
- TAFE NSW is making progress against the intended outcomes of the program.
The audit focused on the effectiveness of planning, governance and reporting arrangements. It examined five projects within the overall modernisation program as case studies.
Conclusion
The One TAFE NSW modernisation program was an ambitious plan to deliver on the NSW Government’s vision for TAFE NSW, while achieving ongoing savings. Several factors contributed to TAFE NSW not effectively managing the program to deliver on planned timeframes and objectives. These factors include unclear expectations of the primary role of TAFE NSW, unrealistic timeframes, undertaking a large number of complex projects concurrently, governance arrangements that were not fit-for-purpose and poor-quality data.
Planning for the modernisation program and its projects was driven by top-down savings targets and pre-determined timeframes. This led to TAFE NSW attempting to deliver a large number of programs concurrently within tight timeframes. Program management capability was underdeveloped at the commencement of the program and this affected the quality of planning for delivery.
There was a lack of clarity around TAFE NSW's primary purpose. Part of the NSW Government's vision for TAFE NSW was for it to be more commercial, competitive and efficient. These objectives were not fully supported by existing legislation. The commercial objectives of the modernisation program conflicted with legislated social objectives for TAFE NSW. TAFE NSW did not have the autonomy to operate like a government-owned business in a market environment. And while TAFE NSW received separate funding to support students facing disadvantage this did not cover the costs of other non-commercial activities undertaken for social purposes, such as delivering uneconomic courses. The role of the TAFE Commission Board was ambiguous during the initial years of the program, which increased reporting requirements and blurred accountabilities for decision-making.
TAFE NSW's Strategic Plan 2016-22 nominated ten key milestones for delivery by January 2019. TAFE NSW has made progress against several important milestones, including that TAFE ‘is a single TAFE NSW brand’ and has 'industry specific TAFE NSW SkillsPoints'. Other key elements have yet to be delivered, including that TAFE NSW achieves 'integrated enterprise-wide business systems'. Because of delays to projects and higher than expected transition costs, TAFE NSW reported that it did not meet the originally targeted $250 million in annual savings for 2018–19 (which was reviewed and updated as the program was being delivered).
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #346 - released 17 December 2020
Actions for Health 2020
Health 2020
This report analyses the results of our audits of financial statements of the Health cluster for the year ended 30 June 2020. The table below summarises our key observations.
1. Financial reporting
Financial reporting |
Unqualified financial audit opinions The financial statements of NSW Health and its 25 controlled entities received unqualified opinions. The number of corrected and uncorrected misstatements increased from the prior year. Misstatements related predominantly to the implementation of new accounting standards, asset revaluations and accounting for new revenue streams to cover the cost of HSW Health’s response to the COVID-19 pandemic. Qualified compliance audit opinion We issued a qualified audit opinion for the Ministry of Health’s Annual Prudential Compliance Statement for aged care facilities operated by NSW Health. We identified 18 instances of material non-compliance with the Fees and Payments Principles 2014 (No. 2) (the Principles) in 2019–20 (30 in 2018–19). |
Financial performance |
NSW Health received an additional $3.3 billion in funding to cover costs associated with its response to the COVID-19 pandemic. The impacts of the COVID-19 pandemic on the cluster were significant for health entities and included changes to operations, increased revenues, expenditure, assets and liabilities. Cancellation of elective surgery and decreased emergency department presentations meant that despite the pandemic, activity levels at many health entities decreased. Health Pathology and HealthShare were notable exceptions. In the period to the 30 June 2020, NSW Health reported that over 900,000 COVID-19 tests were conducted. Health Pathology conducted over 500,000 of these tests. Health Pathology's surge requirements were enhanced through arrangements with 13 private sector providers. HealthShare purchased $864.2 million of personal protective equipment. Overall, NSW Health recorded an operating surplus of $3.1 billion in 2019–20, an increase of $2.0 billion from 2018–19. As in previous years, the surplus largely resulted from additional revenue received to fund capital projects including the construction of new facilities, upgrades and redevelopments. In 2019–20 additional Commonwealth and State funding for the purchase and stockpiling of personal protective equipment also contributed to the operating surplus. |
Overtime payments | The Ambulance Service of NSW’s (NSW Ambulance) reduced their overtime payments to $79.7 million in 2019–20 ($83.1 million in 2018–19). Overtime payments in 2019–20 included $6.8 million related to the response to the 2019–20 bushfire season. NSW Ambulance overtime payments represent 16.8 per cent of total overtime payments in the cluster. |
2. Audit observations
Internal control deficiencies |
We identified more internal control deficiencies in 2019–20. The number of repeat issues from prior years also remains high. NSW Health addressed 18 out of the 25 information system control deficiencies during the year. Several key agreements lacked formal documentation. This included agreements between the Ministry and health entities, between health entities and agencies in other clusters and between the Ministry and health departments in other jurisdictions. |
Infrastructure delivery | NSW Health had 44 ongoing major capital projects at 30 June 2020 with a total revised budget of $12.3 billion. The revised total budget of $12.3 billion is $2.0 billion more than the original budget. NSW Health revises budgets when it combines project stages. |
This report provides parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
The impacts of the COVID-19 pandemic on the cluster were significant and included changes to the operations of the health entities and increased revenue, expenditure, assets and liabilities.
As a part of this year's audits of health entities, we have considered:
- financial implications of the COVID-19 emergency at both health entity and cluster levels
- changes to agencies' operating models
- agencies' access to technology and the maturity of systems and controls to prevent unauthorised and fraudulent access to data.
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.
The response to the COVID-19 pandemic primarily impacted the financial reporting of NSW Health through:
- additional revenue from the State government in the form of grants and stimulus payments
- additional revenue from the Commonwealth government under the National Partnership Agreement for COVID-19 to cover part of the cost of responding to the COVID-19 pandemic
- increased expenses, largely due to increased payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists and increased cleaning costs
- increased purchases of personal protective equipment.
Chapter one outlines the impacts of NSW Health’s response to the COVID-19 pandemic. This chapter outlines our other audit observations related to the financial reporting of agencies in the Health cluster for 2020.
Section highlights
- Unqualified audit opinions were issued for all health entities’ financial statements, although more misstatements were identified than last year.
- NSW Health recorded an operating surplus of $3.1 billion, an increase of $2.0 billion from 2018–19. This is largely due to additional capital grants for new facilities, upgrades and redevelopments and additional Commonwealth and State funding for the purchase of personal protective equipment.
- NSW Health’s expenses increased by 5.5 per cent in 2019–20 (7.0 per cent in 2018–19) despite the impact of the COVID-19 pandemic. The primary causes for the growth in expenses are increases in:
- employee related expenses due to higher employee numbers, increased overtime and a 2.5 per cent award increase
- payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists
- payments to private health operators due to the first full year of operation of the Northern Beaches hospital.
- The Ambulance Service of NSW (NSW Ambulance) continued to report higher overtime payments than other health entities. However, despite the response to the 2019–20 bushfire season, their overtime payments were lower than last year. NSW Ambulance paid $79.7 million in overtime payments in 2019–20 ($83.1 million in 2018–19).
- A qualified audit opinion was issued for the Ministry of Health’s Annual Prudential Compliance Statement for aged care facilities operated by NSW Health. There were 18 instances of material non-compliance with the Fees and Payments Principles 2014 (No. 2) (the Principles) in 2019–20 (30 in 2018–19)
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.
The primary impact of the COVID-19 pandemic on the effectiveness of the internal controls of NSW Health and health entities relates to the effectiveness of controls implemented by HealthShare relating to the stocktake of personal protective equipment inventories. Inventory managed by HealthShare increased by 2,746 per cent during 2019–20. HealthShare’s inventory controls did not maintain pace with the sudden, significant increase.
The impacts of NSW Health’s response to the COVID-19 pandemic are outlined in chapter one. This chapter outlines other observations and insights from our financial statement audits of agencies in the Health cluster.
Section highlights
- The number of internal control deficiencies has increased since 2018–19. More than a third of control deficiencies are repeat issues.
- Control deficiencies that relate to managing employees’ leave and employee’s time recording continue to be difficult for entities to resolve, particularly during the ongoing response to the COVID-19 pandemic.
- Several key agreements were undocumented. These included agreements between the Ministry and the health entities, between health entities, and between the Ministry and entities in other clusters and jurisdictions. These related to:
- a loan arrangement between the Ministry and HealthShare for $319 million.
- Northern Sydney Local Health District's use of land and buildings owned by the Graythwaite Charitable Trust
- agreements for the treatment of New South Wales residents while they are interstate, and interstate residents receiving treatment while they are in New South Wales from Queensland, Victoria, South Australia and the ACT for both 2019–20 and 2018–19.
- NSW Health reported that they completed nine major capital projects during 2019–20. As at 30 June 2020 there were 44 ongoing major capital health projects in NSW. The revised capital budget for these projects in total was $2.0 billion more than the original budget of $10.3 billion. NSW Health reported the budget revisions are largely the result of combining project stages.
Appendix one – List of 2020 recommendations
Appendix two – Status of 2019 recommendations
Appendix three – Financial data
Appendix four – Analysis of financial indicators
Appendix five – Analysis of performance against budget
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Auditor-General’s Report to Parliament
Health 2020
11 December 2020
This corrigendum has been prepared to amend the following text within the Auditor-General’s Report to Parliament on Health 2020, dated 10 December 2020.
NSW Health emergency department treatment times
On page five the original text was as follows:
NSW Health also measures the percentage of patients whose clinical care in emergency departments is completed within four hours. The measure is used as an indicator of accessibility to public hospital services.
NSW Health aims to complete clinical care in the emergency department for 81 per cent of patients within four hours. In 2019–20 NSW Health reports it completed clinical care within four hours for 72.1 per cent of patients (a 7.3 per cent decrease from 2018–19).
At Western Sydney Local Health District, 59 per cent of patients were treated within the targeted timeframe. NSW Health attribute this to the profile of patients presenting in emergency departments and additional time taken processing COVID-19 patients to ensure staff safety.
The original text has now been changed to:
NSW Health also measures the percentage of patients with total time in the emergency department of four hours or less for each local health district. The measure is used as an indicator of accessibility to public hospital services.
Local Health Districts | Target % (2019–20) | Actual % (2019–20) |
Central Coast | 77.0 | 59.9 |
Far West | 90.2 | 86.6 |
Hunter New England | 81.0 | 72.5 |
Illawarra Shoalhaven | 79.0 | 60.2 |
Mid North Coast | 82.0 | 76.7 |
Murrumbidgee | 85.3 | 81.9 |
Nepean Blue Mountains | 79.0 | 65.5 |
Northern NSW | 81.0 | 78.2 |
Northern Sydney | 79.0 | 73.9 |
South Eastern Sydney | 78.0 | 70.3 |
South Western Sydney | 78.0 | 61.2 |
Southern NSW | 85.0 | 83.0 |
Sydney | 76.0 | 70.9 |
Sydney Children’s Hospitals Network | 80.0 | 72.1 |
Western NSW | 85.9 | 81.0 |
Western Sydney | 78.0 | 59.0 |
St Vincent's Health Network* | 75.0 | 65.4 |
The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.
Actions for Transport 2020
Transport 2020
1. Financial Reporting |
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Audit opinion | Unmodified audit opinions issued for the financial statements of all Transport cluster entities. |
Quality and timeliness of financial reporting | All cluster agencies met the statutory deadlines for completing the early close and submitting the financial statements. Transport cluster agencies continued to experience some challenges with accounting for land and infrastructure assets. The former Roads and Maritime Services and Sydney Metro recorded prior period corrections to property, plant and equipment balances. |
Impact of COVID-19 on passenger revenue and patronage | Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19. The Transport cluster received additional funding from NSW Treasury during the year to support the reduced revenue and additional costs incurred such as cleaning on all modes of public transport and additional staff to manage physical distancing. |
Completion of the CBD and South East Light Rail | The CBD and South East Light Rail project was completed and commenced operations in this financial year. At 30 June 2020, the total cost of the project related to the CBD and South East Light Rail was $3.3 billion. Of this total cost, $2.6 billion was recorded as assets, whilst $700 million was expensed. |
2. Audit Observations |
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Internal control | While internal controls issues raised in management letters in the Transport cluster have decreased compared to the prior year, control weaknesses continue to exist in access security for financial systems. We identified 56 management letter findings across the cluster and 43 per cent of all issues were repeat issues. The majority of the repeat issues relate to information technology controls around user access management. There were three high risk issues identified - two related to financial reporting of assets and one for implementation of TAHE (see below). |
Agency responses to emergency events | Transport for NSW established the COVID-19 Taskforce in March 2020 to take responsibility for the overall response of planning and coordination for the Transport cluster. It also implemented the COVIDSafe Transport Plan which incorporates guidance on physical distancing, increasing services to support social distancing and cleaning. |
RailCorp transition to TAHE | On 1 July 2020, RailCorp was renamed Transport Asset Holding Entity of New South Wales (TAHE) and converted to a for-profit statutory State-Owned Corporation. TAHE is a commercial for-profit Public Trading Entity with the intent to provide a commercial return to its shareholders. A plan was established by NSW Treasury to transition RailCorp to TAHE which covered the period 1 July 2015 to 1 July 2019. A large portion of the planned arrangements were not implemented by 1 July 2020. As at the time of this report, the TAHE operating model, Statement of Corporate Intent (SCI) and other key plans and commercial agreements are not finalised. The State Owned Corporations Act 1989 generally requires finalisation of an SCI three months after the commencement of each financial year. However, under the Transport Administration Act 1988, TAHE received an extension from the voting shareholders, the Treasurer and Minister for Finance and Small Business, to submit its first SCI by 31 December 2020. In accordance with the original plan, interim commercial access arrangements were supposed to be in place with RailCorp prior to commencement of TAHE. Under the transitional arrangements, TAHE is continuing to operate in accordance with the asset and safety management plans of RailCorp. The final operating model is expected to include considerations of safety, operational, financial and fiscal risks. This should include a consideration of the potential conflicting objectives of a commercial return, and maintenance and safety measures. This matter has been included as a high risk finding in our management letter due to the significance of the financial reporting impacts and business risks for TAHE. Recommendation: TAHE management should:
Resolution of the above matters are critical as they may significantly impact the financial reporting arrangements for TAHE for 2020–21, in particular, accounting policies adopted as well as measurement principles of its significant infrastructure asset base. |
Completeness and accuracy of contracts registers | Across the Transport cluster, contracts and agreements are maintained by the transport agencies using disparate registers. Recommendation (repeat): Transport agencies should continue to implement a process to centrally capture all contracts and agreements entered. This will ensure:
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This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- the impact of emergencies and the pandemic.
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 Transport cluster for 2020, including any financial implications from the recent emergency events.
Section highlights
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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 Transport cluster
- assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.
Section highlights
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Appendix one – List of 2020 recommendations
Appendix two – Status of 2019, 2018 and 2017 recommendations
Appendix three – Management letter findings
Appendix four – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Internal controls and governance 2020
Internal controls and governance 2020
The Auditor-General for New South Wales, Margaret Crawford today released her report on the findings and recommendations from the 2019–20 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector.
The bushfire and flood emergencies and the COVID‑19 pandemic continue to have a significant impact on the people and public sector of New South Wales. The scale of the government response to these events has been significant. The report focuses on the effectiveness of internal controls and governance processes, including relevant agencies’ response to the emergencies. In particular, the report focuses on:
- financial and information technology controls
- business continuity and disaster recovery planning arrangements
- procurement, including emergency procurement
- delegations that support timely and effective decision-making.
Due to the ongoing impact of COVID‑19 agencies have not yet returned to a business‑as‑usual environment. ‘Agencies will need to assess their response to the recent emergencies and update their business continuity, disaster recovery and other business resilience frameworks to reflect the lessons learnt from these events’ the Auditor-General said.
The report noted that special procurement provisions were put in place to allow agencies to better respond to the COVID-19 pandemic. The Auditor-General recommended agencies update their procurement policies to reflect the current requirements of the NSW Procurement Framework and the emergency procurement requirements.
This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2020. These 40 agencies constitute an estimated 85 per cent of total expenditure for all NSW public sector agencies.
1. Internal control trends
New, repeat and high risk findings |
Internal control deficiencies increased by 13 per cent compared to last year. This is predominately due to a seven per cent increase in new internal control deficiencies and 24 per cent increase in repeat internal control deficiencies. There were ten high risk findings compared to four last year. The recent emergencies have consumed agency time and resources and may have contributed to the increase in internal control deficiencies, particularly repeat deficiencies. Agencies should:
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Common findings |
A number of findings remain common across multiple agencies over the last four years, including:
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2. Information technology controls
IT general controls |
We found deficiencies in information security controls over key financial systems including:
The deficiencies above increase the risk of non-compliance with the NSW Cyber Security Policy, which requires agencies to have processes in place to manage user access, including privileged user access to sensitive information or systems and remove that access once it is not required or employment is terminated. |
3. Business continuity and disaster recovery planning
Assessing risks to business continuity and Scenario testing |
The response to the recent emergencies and the COVID-19 pandemic has encompassed a wide range of activities, including policy setting, on-going service delivery, safety and availability of staff, availability of IT and other systems and financial management. Agencies were required to activate their business continuity plans in response, and with the continued impact of COVID-19 have not yet returned to a business-as-usual environment. Our audits focused on the preparedness of agency business continuity and disaster recovery planning arrangements prior to the onset of the COVID-19 pandemic. We identified deficiencies in agency business continuity and disaster recovery planning arrangements. Twenty-three per cent of agencies had not conducted a business impact analysis (BIA) to identify critical business functions and determine business continuity priorities. Agencies can also improve the content of their BIA. For example, ten per cent of agencies' BIAs did not include recovery time objectives and six per cent of agencies did not identify key IT systems that support critical business functions. Scenario testing improves the effectiveness with which a live crisis is handled, but 40 per cent of agencies had not conducted a business continuity scenario testing exercise in the period from 1 January 2019 to 31 December 2019. There were also opportunities to improve the effectiveness of scenario testing exercises by:
Agencies have responded to the recent emergencies but addressing deficiencies will ensure agencies have adequate safeguards in their processes to again respond in the future, if required. During 2020–21 we plan to conduct a performance audit on 'Business continuity and disaster recovery planning'. This audit will consider the effectiveness of agency business continuity planning arrangements to maintain business continuity through the recent emergencies and/or COVID-19 pandemic and return to a business-as-usual environment. We also plan to conduct a performance audit on whole-of-government 'Coordination of emergency responses'. |
Responding to disruptions |
We found agencies' governance functions could have been better informed about responses to disruptive incidents that had activated a business continuity or disaster recovery response between 1 January 2019 to 31 December 2019. For instance: in 89 per cent of instances where a business continuity response was activated, a post-incident review had been performed. In 82 per cent of these instances, the outcomes were reported to a relevant governance or executive management committee in 95 per cent of instances where a disaster recovery response was activated, a post incident review had been performed. In 86 per cent of these instances, the outcomes were reported to a relevant governance committee or executive management committee. Examples of recorded incidents included extensive air quality issues and power outages due to bushfires, system and network outages, and infected and hijacked servers. Agencies should assess their response to the recent emergencies and the COVID-19 pandemic and update business continuity, disaster recovery and other business resilience frameworks to incorporate lessons learned. Agencies should report to those charged with governance on the results and planned actions. |
Management review and oversight | Eighty-two per cent and 86 per cent of agencies report to their audit and risk committees (ARC) on their business continuity and disaster recovery planning arrangements, respectively. Only 18 per cent and five per cent of ARCs are briefed on the results of respective scenario testing. Briefing ARCs on the results of scenario testing exercises helps inform their decisions about whether sound and effective business continuity and disaster recovery arrangements have been established. |
4. Procurement, including emergency procurement
Policy framework |
Agency procurement policies did not capture the requirements of several key NSW Procurement Board Directions (the Directions), increasing the risk of non-compliance with the Directions. We noted:
Recommendation: Agencies should review their procurement policies and guidelines to ensure they capture the key requirements of the NSW Government Procurement Policy Framework, including NSW Procurement Board Directions. |
Managing contracts |
Eighty-eight per cent of agencies maintain a central contract register to record all details of contracts above $150,000, which is a requirement of GIPA legislation. Of the agencies that maintained registers, 13 per cent did not capture all contracts and eight per cent did not include all relevant contract details. Sixteen per cent of agencies did not periodically review their contract register. Timely review increases compliance with GIPA legislation, and enhances the effectiveness with which procurement business units monitor contract end dates, contract extensions and commence new procurement. |
Training and support |
Ninety-three per cent of agencies provide training to staff involved in procurement processes, and a further 77 per cent of agencies provide this training on an on-going basis. Of the seven per cent of agencies that had not provided training to staff, we noted gaps in aspects of their procurement activity, including:
Training on procurement activities ensures there is effective management of procurement processes to support operational requirements, and compliance with procurement directions. |
Procurement activities | While agencies had implemented controls for tender activities above $650,000, 43 per cent of unaccredited agencies did not comply with the NSW Procurement Policy Framework because they had not had their procurement endorsed by an accredited agency within the cluster or by NSW Procurement. This endorsement aims to ensure the procurement is properly planned to deliver a value for money outcome before it commences. |
Emergency procurement |
As at 30 June 2020, agencies within the scope of this report reported conducting 32,239 emergency procurements with a total contract value of $316,908,485. Emergency procurement activities included the purchase of COVID-19 cleaning and hygiene supplies. The government, through NSW Procurement released the 'COVID-19 Emergency procurement procedure', which relaxed procurement requirements to allow agencies to make COVID-19 emergency procurements. Our review against the emergency procurement measures found most agencies complied with requirements. For example:
Complying with the procedure helps to ensure government resources are being efficiently, effectively, economically and in accordance with the law. Recommendation: Agency procurement frameworks should be reviewed and updated so they can respond effectively to emergency situations that may arise in the future. This includes:
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5. Delegations
Instruments of delegation |
We found that agencies have established financial and human resources delegations, but some had not revisited their delegation manuals following the legislative and machinery of government changes. For those agencies impacted by machinery of government changes we noted:
Delegations manuals are not always complete; 16 per cent of agencies had no delegation for writing off bad debts and 26 per cent of agencies had no delegation for writing off capital assets. Recommendation: Agencies should ensure their financial and human resources delegation manuals contain regular set review dates and are updated to reflect the Government Sector Finance Act 2018, machinery of government changes and their current organisational structure and roles and responsibilities. |
Compliance with delegations |
Agencies did not understand or correctly apply the requirements of the Government Sector Finance Act 2018 (GSF Act), resulting in non-compliance with the Act. We found that 18 per cent of agencies spent deemed appropriations without obtaining an authorised delegation from the relevant Minister(s), as required by sections 4.6(1) and 5.5(3) of the GSF Act. Further detail on this issue will be included in our Auditor-General's Reports to Parliament on Central Agencies, Education, Health and Stronger Communities, which will be tabled throughout December 2020. Recommendation: Agencies should review financial and human resources delegations to ensure they capture all key functions of laws and regulations, and clearly specify the relevant power or function being conferred on the officer. |
6. Status of 2019 recommendations
Progress implementing last year's recommendations |
Recommendations were made last year to improve transparency over reporting on gifts and benefits and improve the visibility management and those charged with governance had over actions taken to address conflicts of interest that may arise. This year, we continue to note:
While we acknowledge the significance of the recent emergencies, which have consumed agency time and resources, we note limited progress has been made implementing these recommendations. Further detail on the status of implementing all recommendations is in Appendix 2. Recommendation: Agencies should re-visit the recommendations made in last year's report on internal controls and governance and action these recommendations. |
Internal controls are processes, policies and procedures that help agencies to:
- operate effectively and efficiently
- produce reliable financial reports
- comply with laws and regulations
- support ethical government.
This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.
Section highlights We identified ten high risk findings, compared to four last year with two findings repeated from the previous year. There was an overall increase of 13 per cent in the number of internal control deficiencies compared to last year due to a seven per cent increase in new internal control deficiencies, and a 24 per cent increase in repeat internal control deficiencies. The recent emergencies have consumed agency time and resources and may have contributed to the increase in internal control deficiencies, particularly repeat deficiencies. We identified a number of findings that remain common across multiple agencies over the last four years. Some of these findings related to areas that are fundamental to good internal control environments and effective organisational governance. Examples include:
Policies, procedures and internal controls should be properly designed, be appropriate for the current organisational structure and its business activities, and work effectively. |
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage key financial systems.
Section highlights Government agencies’ financial reporting is heavily reliant on information technology (IT). We continue to see a high number of deficiencies related to IT general controls, particularly those related to user access administration. These controls are key in adequately protecting IT systems from inappropriate access and misuse. IT is also important to the delivery of agency services. These systems often provide the data to help monitor the efficiency and effectiveness of agency processes and services they deliver. Our financial audits do not review all agency IT systems. For example, IT systems used to support agency service delivery are generally outside the scope of our financial audit. However, agencies should also consider the relevance of our findings to these systems. Agencies need to continue to focus on assessing the risks of inappropriate access and misuse and the implementation of controls to adequately protect their systems, focussing on the processes in place to grant, remove and monitor user access, particularly privileged user access. |
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency business continuity and disaster recovery planning arrangements.
Section highlights We identified deficiencies in agency business continuity and disaster recovery planning arrangements and opportunities for agencies to enhance their business continuity management and disaster recovery planning arrangements. This will better prepare them to respond to a disruption to their critical functions, resulting from an emergency or other serious event. Twenty-three per cent of agencies had not conducted a business impact analysis (BIA) to identify critical business functions and determine business continuity priorities and 40 per cent of agencies had not conducted a business continuity scenario testing exercise in the period from 1 January 2019 to 31 December 2019. Scenario testing improves the effectiveness with which a live crisis is handled. This section focusses on the preparedness of agency business continuity and disaster recovery planning arrangements prior to the onset of the COVID-19 pandemic. While agencies have responded to the recent emergencies, proactively addressing deficiencies will ensure agencies have adequate safeguards in their processes to again respond in the future, if required. During 2020–21 we plan to conduct a performance audit on 'Business continuity and disaster recovery planning'. This audit will consider the effectiveness of agency business continuity planning arrangements to maintain business continuity through the recent emergencies and/or COVID-19 pandemic and return to a business-as-usual environment. We also plan to conduct a performance audit on whole-of-government 'Coordination of emergency responses'. |
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of procurement agency procurement policies and procurement activity.
Section highlights We found agencies have procurement policies in place to manage procurement activity, but the content of these policies was not sufficiently detailed to ensure compliance with NSW Procurement Board Directions (the Directions). The Directions aim to ensure procurement activity achieves value for money and meets the principles of probity and fairness. Agencies have generally implemented controls over their procurement process. In relation to emergency procurement activity, agencies reported conducting 32,239 emergency procurements with a total contract value of $316,908,485 up to 30 June 2020. Our review of emergency procurement activity conducted during 2019–20 identified areas where some agencies did not fully comply with the 'COVID-19 Emergency procurement procedure'. We also found not all agencies are maintaining complete and accurate contract registers. This not only increases the risk of non-compliance with GIPA legislation, but also limits the effectiveness of procurement business units to monitor contract end dates, contract extensions and commence new procurement in a timely manner. We noted instances where agencies renewed or extended contracts without going through a competitive tender process during the year. |
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency compliance with financial and human resources delegations.
Appendix one – List of 2020 recommendations
Appendix two – Status of 2019 recommendations
Appendix three – Cluster agencies
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Government advertising 2018-19 and 2019-20
Government advertising 2018-19 and 2019-20
A report released today by the Auditor-General for New South Wales, Margaret Crawford found that select advertising campaigns conducted by Service NSW and the NSW Rural Fire Service met most requirements of the Government Advertising Act, regulations, Guidelines and other laws. However, the audit found that Service NSW inappropriately used its post campaign evaluation to measure sentiment towards and confidence in the NSW Government.
While agency analysis shows that the ‘Cost of Living’ (phases 2 and 3) and ‘How Fireproof is Your Plan?’ campaigns achieved most of their objectives, the campaign objectives and targets set by both agencies were not sufficient to measure all aspects of campaign effectiveness.
The report makes two recommendations to the Department of Customer Service. The first is to review its guidance to ensure agencies are not using post campaign evaluations to measure sentiment towards the government. The second, to review its guidance and the new process of peer review to ensure they support agencies to comply with the Act, the regulations and the Guidelines.
The Government Advertising Act 2011 requires the Auditor General to conduct an annual performance audit of one or more government agencies to see whether their advertising activities were carried out in an effective, economical and efficient manner and in compliance with the Government Advertising Act 2011.
The Government Advertising Act 2011 (the Act) requires the Auditor-General to conduct a performance audit on the activities of one or more government agencies in relation to government advertising campaigns in each financial year. The performance audit assesses whether a government agency or agencies have carried out activities in relation to government advertising in an effective, economical and efficient manner and in compliance with the Act, the regulations, other laws and the Government Advertising Guidelines (the Guidelines). This audit examined two campaigns run during the 2018–19 and 2019–20 financial years respectively:
- the 'Cost of Living' campaign run by Service NSW (phases 2 and 3 delivered in 2018–19)
- the 'How Fireproof Is Your Plan?' (Fireproof) campaign run by NSW Rural Fire Service (year two of a three-year campaign delivered in 2019–20).
Section 6 of the Act prohibits political advertising. Under this section, material that is part of a government advertising campaign must not contain the name, voice or image of a minister, member of parliament or a candidate nominated for election to parliament or the name, logo or any slogan of a political party. Further, a campaign must not be designed to influence (directly or indirectly) support for a political party.
Conclusion
Neither campaign breached the prohibition on political advertising contained in section 6 of the Act. While both campaigns met most requirements of the Act, the regulations, other laws and the Guidelines, we identified some instances of non-compliance. Service NSW inappropriately used its post campaign evaluation to measure sentiment towards and confidence in the NSW Government.
Service NSW used its post-campaign evaluation to measure sentiment towards and confidence in the NSW Government. While neither campaign breached the prohibition on political advertising contained in section 6 of the Act, measuring sentiment towards and confidence in the NSW Government is not an appropriate use of the post-campaign evaluation and creates a risk that the results may be used for party political purposes. This risk is heightened as both phases 2 and 3 of the Cost of Living campaign were run immediately before the NSW state election. We have made this finding previously in our report 'Government advertising 2017–18'.
The campaign objectives and targets set by both agencies were not sufficient to fully measure campaign effectiveness. Service NSW advertised seven rebates in phase 2 of the campaign but only set targets for the awareness and uptake of three of these rebates. NSW Rural Fire Service set objectives and targets to be achieved over the life of the three-year campaign but did not set targets to be achieved for each year of the campaign. While the Fireproof campaign is a three-year campaign, each year of the campaign is subject to a separate approval and peer review process.
Agency analysis shows that both campaigns achieved most of their objectives. There was some overlap in the timing of phases 2 and 3 of the Cost of Living campaign and both phases had similar high-level objectives to increase awareness of rebates, making it difficult to evaluate the effectiveness of each distinct campaign phase. NSW Rural Fire Service conducted a post-campaign evaluation for year two of the Fireproof campaign (2019–20) but although this showed positive results against the overall objectives of the three-year campaign, NSW Rural Fire Service did not set specific targets for year two of the campaign, making it difficult to evaluate effectiveness for that year.
Service NSW was not able to demonstrate that its campaign was economical as it directly negotiated with a single supplier for the creative materials for phase 2. This is contrary to the NSW Government's procurement rules which require agencies to obtain three quotes when using suppliers on a prequalification scheme. Service NSW did not comply with its own procurement policy, which restricts Service NSW employees from entering into discussions with a supplier until the appropriate delegate approves a direct procurement. NSW Rural Fire Service achieved cost efficiencies by re-using creative material developed in the first year of the campaign. NSW Rural Fire Service also received $4 million worth of free advertising time and space.
The cost benefit analyses prepared by both agencies did not fully meet the requirements in the Guidelines. Both agencies identified an alternative to advertising but did not assess the costs and benefits of that alternative. We have made this finding previously in our report 'Government advertising 2017–18' and in our report 'Government advertising 2015–16 and 2016–17'.
In 2018–19, Service NSW delivered phases 2 and 3 of the 'Cost of Living' campaign. The Cost of Living advertising campaign aimed to build awareness of the help available to ease the cost of living for people under financial pressure including awareness of specific rebates that can be claimed. As part of the Cost of Living program, Service NSW developed a webpage designed as a single portal to access more than 40 NSW Government savings, rebates and initiatives (which originated from over 12 different agencies). It also launched the Cost of Living service which includes face to face meetings and phone interviews to help people claim rebates from the NSW Government. Phase 2 of the campaign ran from September 2018 to August 2019. Phase 3 of the campaign ran from January 2019 to July 2019. The budgets for phases 2 and 3 were $4.127 million and $934,800 respectively. See Appendix two for more details on this campaign.
Campaign materials we reviewed did not breach section 6 of the Act
The audit team reviewed campaign materials developed as part of the paid advertising campaign including radio transcripts, digital videos and display. The audit team did not review the use of social media outside paid social media content as section four of the Act defines government advertising as the dissemination of information which is funded by or on behalf of a government agency. See Appendix two for examples of campaign materials for this campaign.
Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:
- be designed to influence (directly or indirectly) support for a political party
- contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
- contain the name, logo, slogan or any other reference to a political party.
The audit found no breaches of section 6 of the Act in the campaign material we reviewed.
Post-campaign evaluations measured sentiment towards and confidence in the NSW Government
The post-campaign evaluation for phases 2 and 3 measured levels of confidence with the statement ‘the NSW Government has your best interests at heart’, despite the fact this was not a stated objective of the campaign. This is not an appropriate use of the post-campaign evaluation, which should measure the success of the campaign against its stated objectives. The post-campaign evaluation for phase 3 found that exposure to the campaign improved sentiment towards the government amongst those who did not have confidence in the NSW Government.
Service NSW advised that it was important to measure the sentiment of the advertising including the wording 'best interests' as it did not want the whole of government brand to be detrimental to customer engagement with applying for the rebates.
Following phase 2, Service NSW conducted analysis of media sentiment using the key words 'cost of living' and the names of the Premier, Treasurer and Minister for Customer Service. The analysis presented the level of positive, negative and neutral media sentiment. The Government Advertising Guidelines 2012 list the purposes that government advertising may serve which do not include improving the perception of the government. The inclusion of this analysis in Service NSW's post-campaign evaluation creates a risk that the results may be used for party political purposes.
Section 10 of the Act restricts agencies from carrying out a campaign after 26 January in the calendar year before the Legislative Assembly is due to expire and before the election for the Legislative Assembly in that year. Service NSW authorised a media agency to book media in line with the media plans for the campaign. The media plans for the campaign show that Service NSW did not authorise or plan to run any advertisements between 27 January 2019 and 23 March 2019.
Service NSW did not set targets for all rebates advertised in phase 2
Service NSW did not set targets for four of the seven rebates that were advertised as part of phase 2 of the campaign. These rebates were the Family Energy Rebate, Appliance Replacement Offer, National Parks Concession Offer and the Pensioner Travel Voucher. As a result, it was unable to evaluate whether the advertisements for these rebates were effective. Service NSW advised that at the time the campaign went to peer review, when campaign objectives are set, it did not know which rebates would be included in the advertisements.
Service NSW stated in its submission to the Department of Premier and Cabinet that it may change the creative content for phase 2 as it announced new initiatives and rebates. The peer review process should have ensured that Service NSW set targets for any additional rebates or savings it intended to advertise before that advertising commenced to ensure a strategic approach to the campaigns that clearly demonstrated anticipated benefits were in place.
The post-campaign evaluation for phase 2 shows that the advertising campaign met most of its objectives
Service NSW set overall campaign objectives and specific targets for some rebates advertised as part of phase 2 of the campaign. The objectives, targets and results for phase 2 are shown in Exhibit 5. In phase 2, Service NSW established baseline data on levels of awareness of government rebates during the peer review process. The baseline level of awareness for government rebates was 44 per cent. The level of awareness for specific rebates was 46 per cent for the Compulsory Third Party (CTP) green slip refund, and 21 per cent for both Active Kids and Toll Relief.
Post-campaign evaluation reports for phase 2 show that the campaign met its objective to raise awareness of NSW Government rebates, achieving a 16 per cent increase in awareness from 44 per cent to 51 per cent. The campaign did not meet its target to increase awareness of the CTP green slip refund by ten per cent.
Service NSW did not report the results of the uptake of the CTP green slip refund, Active Kids and Toll Relief in its post campaign effectiveness report submitted to the Department of Premier and Cabinet. However, other post-campaign evaluation documentation, which Service NSW advise was submitted to the Department of Premier and Cabinet, show that these targets were met.
Service NSW did not report to the Department of Premier and Cabinet on whether it achieved the target of a ten per cent increase of average monthly visits to the Cost of Living webpage. Service NSW reported that it had achieved an average of 11,753 visitors to the webpage per day during the campaign. These average daily results indicate that the target was met.
Campaign objectives and targets | Does the post-campaign evaluation show that the target was met? |
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1. a) Increase awareness of rebates from the NSW Government by ten per cent. | |
b) Increase average monthly visits to the Cost of Living webpage by ten per cent. |
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2. Increase awareness of rebates and savings by ten per cent for: |
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3. Increase awareness that NSW Government initiatives relating to the cost of living are available via Service NSW by ten per cent. | |
4. Increase the uptake of rebates and savings for the CTP green slip refund, Active Kids and Toll Relief by ten per cent. |
Key | Yes | Not Fully |
Source: Service NSW. Audit Office analysis.
The post-campaign evaluation for phase 3 shows that the advertising campaign met most of its objectives
Service NSW set overall campaign objectives and specific targets for the two rebates advertised as part of phase 3 of the campaign. The objectives, targets and results for phase 3 are shown in Exhibit 6.
In phase 3, Service NSW established baseline data on levels of awareness during the peer review process. The baseline level of awareness for government rebates was 44 per cent. This is the same baseline that was used to measure performance for phase 2 of the campaign. Service NSW did not set baselines for awareness and uptake of Energy Switch and Creative Kids as these were new services.
Post-campaign evaluation reports for phase 3 show that the campaign met its objective to raise awareness of NSW Government rebates by ten per cent, achieving a 30 per cent increase in awareness from 44 per cent to 57 per cent. The overall increase in message take-out was met with 43 per cent agreeing with the message that the NSW Government is taking steps to ease the cost of living. The campaign achieved awareness and uptake targets for the specific rebates included in phase 3, except for awareness of Creative Kids which achieved 28 per cent awareness, falling short of the 30 per cent awareness target.
Campaign objectives and targets | Does the post-campaign evaluation show that the target was met? |
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1. Increase message takeout that ‘The NSW Government is taking steps to help ease the cost of living in NSW’ by ten per cent for those who can recall the campaign. | |
2. Increase awareness that the NSW Government has a range of rebates and savings by ten per cent. | |
3. Generate awareness with NSW residents aged 18+ of: |
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4. Create uptake of Energy Switch and Creative Kids (8,356 clicks on the Energy Switch website and 107,938 Creative Kids vouchers downloaded with 70 per cent conversion). |
Key | Yes | Not Fully |
The timing of campaign phases meant that it was difficult for Service NSW to evaluate each distinct campaign phase and reduced opportunities to incorporate learnings from previous phases
Service NSW commenced planning for phase 2 of the campaign while phase 1 was still underway. This limited the opportunity for Service NSW to incorporate learnings from phase 1 into phase 2. There was some overlap in the timing of phase 2 and the start of phase 3 of the campaign, making it difficult to evaluate the effectiveness of each distinct campaign phase. Both phases 2 and 3 had the same high-level outcome objective to raise awareness of rebates by ten per cent. The baseline measures that were used to evaluate performance for phase 3 were the same as those used to evaluate phase 2. As a result, Service NSW was not able to separately evaluate these two phases of the campaign. This is important given the budgets for phases 2 and 3 were $4.127million and $934,800 respectively.
Service NSW allocated 7.5 per cent of its media budget to communications with culturally and linguistically diverse (CALD) and Aboriginal audiences
The NSW Government CALD and Aboriginal Advertising Policy requires that agencies spend at least 7.5 per cent of an advertising campaign media budget on direct communications with CALD and Aboriginal audiences. Service NSW authorised a media company to book media in line with the media plans for the campaign. The media plans for phases 2 and 3 of the campaign indicate that Service NSW met this requirement, with 7.5 per cent of the budget allocated to these audiences in phase 2 and 10.4 per cent in phase 3.
The post campaign evaluation for phases 1 and 2 of the Cost of Living campaign contained a recommendation to look at other opportunities to reach CALD audiences. Effective communication with CALD audiences was particularly important in phase 3 of the campaign, where they made up 30 per cent of the target audience for the Creative Kids advertisement. The post-campaign analysis for phase 3 showed that the campaign performed well with some, but not all CALD audiences. The post-campaign analysis also showed low awareness and uptake with Aboriginal audiences. Pre-campaign focus groups in phase 3 found Aboriginal audiences had a negative reaction to the campaign tag line ‘NSW Government is helping with the cost of living’ however this tagline was still used in some advertisements in phase 3.
The cost-benefit analysis (CBA) for phase 2 did not accurately assess the benefits of the campaign and did not assess the costs and benefits of alternatives to advertising
Under the Government Advertising Act 2011, agencies are required to prepare a CBA when the cost of the campaign is likely to exceed $1 million. The CBA conducted by Service NSW for phase 2 includes $8 million in benefits attributed to the advertisements for the Energy Switch tool and $6.9 million in benefits attributed to the advertisements for Creative Kids vouchers. These benefits should not have been included in the CBA for phase 2 as they were not included in this phase of the campaign. The CBA did not estimate the benefits of some other rebates and savings advertised in phase 2 of the campaign. This means that the CBA did not accurately assess the benefits of the campaign. Service NSW advised that at the time the CBA was developed it had not selected the rebates to be included in the campaign.
The Government Advertising Guidelines require agencies to consider options other than advertising to achieve the desired objective including a comparison of costs and benefits. The CBA developed as part of phase 2 identified using existing NSW Government communication channels as an alternative to advertising but did not assess the costs and benefits of this alternative.
This is a repeat finding from two previous government advertising audits. The report ‘Government Advertising: 2015–16 and 2016–17’ found that both agencies subject to the audit did not meet the requirements in the guidelines to consider alternatives to advertising. The report made a recommendation to the Department of Premier and Cabinet to work with Treasury to ensure the requirements of the guidelines are fully reflected in the 'Cost-Benefit Analysis Framework for Government Advertising and Information Campaigns'. The report ‘Government advertising 2017–18’ found that one agency subject to the audit did not identify to what extent the benefits could be achieved without advertising, nor did it consider alternatives to advertising which could achieve the same impact as the advertising campaign.
Service NSW negotiated with a single creative agency in phase 2, making it difficult to demonstrate value for money
Agencies are required to obtain three quotes when procuring a creative agency on the prequalification scheme if the estimated cost of the creative content is greater than $150,000. In phase 2 of the campaign, Service NSW extended the contract with the creative agency used for phase 1 of the campaign and did not obtain three quotes despite the cost of the creative content for phase 2 being $731,480. The requirement to obtain three quotes was met in phase 1 when initially selecting this creative agency.
Service NSWs procurement policy details that direct negotiation may be appropriate where there is a compelling reason to renew or rollover a contract beyond temporal or convenience reasons or in the cases of a genuine emergency. In its briefing to the Chief Executive, Service NSW stated that this contract extension was sought due to the time-sensitive nature of the project and that if work was delayed by a tender process, Service NSW may not be able to meet marketing milestones and this could result in limited customer uptake. This reason is not a genuine emergency and is not compelling as it does not explain what consequences would occur if it did not meet the marketing milestones or if there was limited customer uptake.
Service NSW's procurement policy also states that under no circumstances must Service NSW employees enter into discussions with a supplier until the delegate has formally made their decision to enter into direct negotiation. Service NSW briefed the Chief Executive of Service NSW in relation to extending the contract on 5 September 2018. The briefing states that the creative agency had already begun developing creative content for phase 2 and Service NSW had already received quotes from the creative provider for the proposed work prior to 5 September 2018. Procurement sign-offs were not completed until 7 September 2018. The engagement of the creative provider prior to appropriate approvals was contrary to Service NSWs procurement policy.
The economy of the campaign may have been limited by not meeting the procurement requirements in phase 2. It is possible that the creative provider may have offered a more competitive rate if it was aware that Service NSW was seeking quotes from other creative providers. Additionally, it is possible that another creative provider could have provided better value for money.
In phase 3 of the campaign, the estimated cost of the creative exceeded $150,000 however Service NSW chose to contract two different creative agencies, and the cost for each agency fell below the threshold to obtain three quotes. Agencies are permitted to obtain one quote when using a creative provider on the prequalification scheme if the cost is between $50,000 to $150,000. Service NSW advised that it contracted two creative providers as two different project teams were responsible for the rebates, each with separate marketing budgets.
Service NSW allowed sufficient time for cost-efficient media placement
During the peer review process, the Department of Premier and Cabinet advised agencies about the time they should allow to ensure cost-efficient media placement. For example, the Department of Premier and Cabinet advised that agencies book television advertising six to 12 weeks in advance and that agencies book radio advertising two to eight weeks in advance.
Service NSW allowed sufficient time between the completion of the peer review process and the commencement of the first advertising. Service NSW signed the agreement with the approved Media Agency Services provider with sufficient time to achieve cost-efficient media placement for all types of media used in this campaign.
The campaign may have been misleading for some people who were not eligible for rebates
Advertisements we reviewed focused on the amount of savings that could be obtained from rebates, for example ‘Save up to $285’, and ended with a statement ‘To save, visit service.nsw.gov.au. This directed viewers to the Cost of Living website which contains eligibility information. However, the advertisements in phases 2 and 3 we reviewed did not contain any details on the eligibility for these rebates and not all advertisements stated that eligibility criteria apply. Service NSW advised that the eligibility criteria for each rebate is extensive and that it was not possible to include this in the creative material.
Post-campaign evaluations in phase 3 recommended that advertisements for Creative Kids should indicate eligibility (e.g. age criteria) as statements on savings have the potential to be misleading when not all viewers will be eligible for rebates. Social media analysis conducted following phase 2 showed ineligibility or inability to claim rebates or refunds caused anger for some respondents.
Some advertisements in phase 2 stated ‘we've got something for everyone’. However, as rebates were subject to eligibility criteria, it is possible that some residents in NSW would not be eligible for any rebates as part of the Cost of Living initiative. As such, this statement has the potential to be misleading.
The campaign included statements that underestimated the savings that some customers could obtain
The Guidelines require accuracy in the presentation of all facts, statistics, comparisons and other arguments. The Guidelines also require that all claims of fact included in government advertising campaigns must be able to be substantiated.
In phase 2, the possible savings customers could obtain for two rebates or savings exceeded the amounts stated in the advertising campaign. Exhibit 7 shows some advertisements in phase 2 which stated, ‘My Green Slip Saving Save up to $60’. However, the State Insurance Regulatory Authority website shows that savings for some types of motor vehicles under the 2017 CTP scheme exceed $60. The State Insurance Regulatory Authority website states that the average saving under this scheme has been $129. Service NSW advised that these advertisements were designed for regional markets and that it used different advertisements for metropolitan areas which contained different amounts of savings.
Some advertisements in phase 2 stated, ‘My Toll Relief save up to $700’. The Service NSW website states that drivers can obtain free vehicle registration if they have spent $1,352 or more in tolls in the previous financial year. The cost of registration for some vehicles exceeds $700. This means the savings detailed in the advertisement were lower than what some customers could actually save.
NSW Rural Fire Service conducted the 'How FireProof Is Your Plan?' (Fireproof) campaign. The Fireproof campaign is a three-year campaign which ran in 2018–19 (year one), 2019–20 (year two) and is planned for 2020–21 (year three). This audit examined year two of the campaign (2019–20).
The Fireproof campaign is a public safety campaign encouraging people to plan and prepare for bush fires across the summer period. The campaign aims to improve the quality of bush fire planning and preparation in the community and decrease the impact of fires on the community when they occur.
Campaign materials we reviewed did not breach section 6 of the Act
The audit team reviewed campaign materials developed as part of the paid advertising campaign for example radio advertisements, television commercials and digital displays. The audit team did not review the use of social media outside paid social media content as section four of the Act defines government advertising as the dissemination of information which is funded by or on behalf of a government agency. Examples of campaign materials are shown in Appendix two.
Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:
- be designed to influence (directly or indirectly) support for a political party
- contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
- contain the name, logo, slogan or any other reference to a political party.
The audit found no breaches of section 6 of the Act in the campaign material we reviewed.
NSW Rural Fire Service did not set targets for the second year of the campaign
The second year of the Fireproof campaign (2019–20) had the same objectives as the first year of the campaign (2018–19), however no specific targets were set for the second year. The advertising submission for the first year of the campaign (2018–19) details the targets for each objective as an increase of ten per cent against the baseline data to be achieved by March 2021, at the end of the three-year campaign.
The second year of the Fireproof campaign (2019–20) was one of the first campaigns approved under the new budget and peer review processes introduced by the Department of Customer Service in 2019–20. The new process for peer review introduced a new template for campaign submissions. The former template for campaign submissions contained more prompts for agencies to ensure the submission contained sufficient detail of campaign objectives, baseline measures, targets, dates for measurement and detail on how they would measure objectives. Despite this, the peer review process should have identified that NSW Rural Fire Service did not set targets for the second year of the campaign.
The 2016 Guidelines for Implementing NSW Government Evaluation Framework for Advertising and Communications requires campaign objectives to be SMART (specific, measurable, achievable, realistic and timed). NSW Rural Fire Service did not meet this requirement for year two of the Fireproof campaign.
Post-campaign evaluations showed increases against four out of five objectives, however there were no specific targets
NSW Rural Fire Service set three campaign objectives at the time it submitted the second year of the campaign (2019–20) to the Department of Customer Service for peer review. However, the post-campaign effectiveness report submitted to the Department of Customer Service measured campaign effectiveness against five campaign objectives. The objectives in the post-campaign effectiveness report were the same objectives set for the first year of the campaign, which is appropriate as this was a repeat campaign.
NSW Rural Fire Service achieved increases against four of their five objectives. However, as noted above there were no specific targets (such as percentage increases) against which performance of the 2019–20 campaign could be measured. Despite this, at the end of the second year, the Fireproof campaign had already achieved some of the targets that NSW Rural Fire Service had set for the end of the third year of the campaign. The post-campaign research showed that both audience recall and exposure to the campaign increased significantly from the prior year. The campaign objectives and results are shown in Exhibit 8.
For those people who already have a bush fire plan, the campaign aimed to increase the number of those plans which have included two or more elements from the Guide to Making a Bush Fire Survival Plan. Elements from the Guide to Making A Bush Fire Survival Plan include actions such as deciding what to take with you if you leave, ensuring you have the right equipment for defending your home and allocating responsibilities to members of a household. The post-campaign evaluation showed that the campaign did not achieve an increase against this objective for people who planned to stay and defend their property rather than leave.
Campaign objectives | Does the post-campaign evaluation show increases against the objective? |
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1. Continue to increase the number of people that have discussed and/or written a plan with regards to what they will do in the event of a fire. | |
2. Of those who indicate they have a plan, increase the number of people who have included two or more elements from the Guide to Making a Bush Fire Survival Plan: | |
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3. Increase the frequency in completing preparation activities around a person’s property. | |
4. Increase the number of people who correctly assess it is their responsibility to complete preparation activities and enact their plan without direct intervention from emergency services. | |
5. Visits to MyFirePlan website. |
Key | Yes | No |
NSW Rural Fire Service achieved cost efficiencies by reusing creative content developed in the first year of the campaign
Total creative and production costs incurred in year one of the campaign were $1.08 million. Rather than commissioning new creative materials, NSW Rural Fire Service re-used the same creative content in year two of the campaign. NSW Rural Fire Service incurred $100,000 in creative and production costs in year two of the campaign and achieved cost-efficiencies by reusing the same creative developed in the prior year.
NSW Rural Fire Service allowed sufficient time for cost-efficient media placement and received free media placements
The Department of Customer Service advises agencies to work with media contacts to book media in advance to ensure a cost-efficient placement. Prior to 2019–20, the Department of Premier and Cabinet provided suggested timeframes for agencies to book media as part of the peer review process. For example, it advised agencies to book television six to 12 weeks in advance and book radio advertising two to eight weeks in advance. NSW Rural Fire Service allowed sufficient time for a cost-efficient media placement.
NSW Rural Fire Service received $4 million of free advertising time and space donated by media companies due to the extent and impact of the 2019–20 fire season.
The cost benefit analysis (CBA) did not assess the costs and benefits of alternatives to advertising
Under the Government Advertising Act 2011, agencies are required to prepare a CBA when the cost of the campaign is likely to exceed $1 million. As part of the CBA, the Government Advertising Guidelines require agencies to consider options other than advertising to achieve the desired objective including a comparison of costs and benefits.
The CBA for the Fireproof campaign (year two) notes that the proposed campaign is one component of a broader community engagement strategy which has been developed over time and is based on research and evaluation. The CBA considers two options to achieve the objectives of the campaign. The first option is community engagement activities without an advertising campaign and the second option is community engagement activities alongside an advertising campaign. The CBA does not identify and assess the costs and benefits of both of the options in order to assess the most cost-efficient option.
This is a repeat finding from two previous government advertising audits. The report ‘Government Advertising: 2015–16 and 2016–17’ found that both agencies subject to the audit did not meet the requirements in the guidelines to consider alternatives to advertising. The report made a recommendation to the Department of Premier and Cabinet to work with Treasury to ensure the requirements of the guidelines are fully reflected in the 'Cost-Benefit Analysis Framework for Government Advertising and Information Campaigns'. The report ‘Government advertising 2017–18’ found that one agency subject to the audit did not identify to what extent the benefits could be achieved without advertising, nor did it consider alternatives to advertising which could achieve the same impact as the advertising campaign.
Appendix one – Responses from agencies
Appendix two – About the campaigns
Appendix three – About the audit
Appendix four – Performance auditing
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Parliamentary reference - Report number #342 - released 19 November 2020
Actions for State Finances 2020
State Finances 2020
The Auditor-General for New South Wales, Margaret Crawford, released her report today on State Finances for the year ended 30 June 2020.
‘I am pleased to once again report that I issued an unmodified audit opinion on the State’s consolidated financial statements,’ the Auditor-General said.
The report acknowledges this has been a challenging year, with New South Wales impacted by natural disasters and the COVID-19 pandemic.
The State’s Budget Result, reported in the financial statements, was a deficit of $6.9 billion. This is different to the 2019-20 budget forecast surplus of $1.0 billion and is an outcome of the government’s significant response to bushfires and COVID-19.
The report summarises a number of audit and accounting matters arising from the audit of the Total State Sector Accounts, a sector that comprises 291 entities controlled by the NSW Government with total assets of $495 billion and total liabilities of $256 billion.
Our audit opinion on the State’s 2019–20 financial statements was unmodified
An unmodified audit opinion was issued on the State’s 2019–20 consolidated financial statements.
The State extended signing its financial statements by six weeks.
Natural disasters, the COVID-19 pandemic and other factors impacted the State’s 2019–20 reporting timetable. The State extended signing its financial statements by six weeks, compared with 2018–19.
All agencies were also given a two-week extension to prepare their financial statements compared with 2018–19. Further extensions beyond two weeks were subsequently approved for the following 11 agencies (7 in 2018–19) to submit completed financial statements for audit:
- Department of Communities and Justice
- Department of Customer Service
- Department of Planning, Industry and Environment
- Department of Regional NSW
- Department of Transport
- Environment Protection Authority
- Infrastructure NSW
- Lord Howe Island Board
- NSW Crown Holiday Parks Land Manager
- Service NSW
- Water Administration Ministerial Corporation.
The extensions reflected that the COVID-19 pandemic impacted agencies’ work environments during the first six months of 2020. This was at a time when many were still implementing machinery of government changes and preparing to implement three significant new accounting standards:
- AASB 15 Revenue from Contracts with Customers (issued December 2014, effective 1 July 2019)
- AASB 16 Leases (issued February 2016, effective 1 July 2019)
- AASB 1058 Income of Not-for-profit entities (issued December 2016, effective 1 July 2019).
These new accounting standards were issued some years before they became effective, to allow reporting entities sufficient time to prepare for implementation. Notwithstanding this, some agencies had not fully implemented the new accounting standards in time for early close procedures, and the unforeseen impact of COVID-19 further complicated the year-end financial reporting processes for the State and its agencies.
The graph below shows the number of reported errors exceeding $20 million over the past five years in agencies’ financial statements presented for audit.
In 2019–20, agency financial statements presented for audit contained 19 errors exceeding $20 million (six in 2018–19). The total value of these errors increased to $1.4 billion ($927 million in 2018–19).
The errors resulted from:
- incorrectly applying Australian Accounting Standards and Treasury Policies
- incorrect judgements and assumptions when valuing noncurrent physical assets and liabilities
- incorrectly interpreting the accounting treatment for unspent stimulus funding.
Errors in agency financial statements exceeding $20m (2016–2020)
$4.1 billion in stimulus funding was allocated in 2019–20
The government implemented an economic stimulus package primarily to mitigate the impacts of the COVID-19 pandemic on New South Wales.
The COVID-19 pandemic and bushfires had a significant impact on the State’s finances, reducing its revenue and increasing its expenses especially in sectors directly responsible for responding to the COVID-19 pandemic, such as Health.
The government announced a $4.1 billion health and economic stimulus package in 2019–20. This primarily included:
- $2.2 billion in health measures including purchases of essential medical equipment and increasing clinical health capacity (like intensive care spaces)
- $1.0 billion in small business and land tax relief
- $355 million in extra cleaning services and quarantine costs.
Cluster agencies had spent $3.0 billion (just under 75 per cent) of the COVID-19 stimulus package by 30 June 2020.
The Health cluster incurred most of this expenditure.
Total spend relating to bushfires was $1.3 billion in 2019–20.
The graph below shows the total allocation and spend by cluster to 30 June 2020.
Economic stimulus allocation and spend by cluster to 30 June 2020
Deficit of $6.9 billion compared with a budgeted surplus of $1.0 billion
An outcome of the government’s overall activity and policies is its net operating balance (Budget Result). This is the difference between the cost of general government service delivery and the revenue earned to fund these sectors.
The General Government Sector, which comprises 199 entities, generally provides goods and services funded centrally by the State.
The Non-General Government Sector, which comprises 92 government businesses, generally provides goods and services, such as water, electricity and financial services that consumers pay for directly.
The Budget Result for the 2019–20 financial year was a deficit of $6.9 billion. The original budget forecast, set before the COVID-19 pandemic and bushfires, was a $1.0 billion surplus. The main driver of the change in result was:
- $1.3 billion of higher employee costs, mainly due to:
- increased workers compensation claims
- additional personnel required (mainly in the Health sector) to respond to the COVID-19 pandemic
- $2.3 billion of higher operating expenses, mainly due to:
- $828 million from first time recognition of a child abuse claim liability
- $507 million from additional insurance claims from the NSW bushfires
- $343 million from COVID-19 claims by agencies for loss of revenue.
- $1.8 billion in higher grants and subsidy expenses, mainly due to:
- small business grants
- COVID-19 quarantine compliance measures
- costs incurred in response to the 2019–20 bushfires, drought and disaster relief payments
- third party-controlled assets that were subsequently transferred to councils and utility providers, mainly arising from construction of the CBD and South East Light Rail.
The deficit was further driven by:
- $1.9 billion less taxation revenue, mainly resulting from:
- $1.3 billion less in payroll tax due to relief measures introduced by the government as part of its COVID-19 economic stimulus
- $424 million less in gambling and betting taxes, due to venue closures required by COVID-19 public health orders
- $523 million less in dividends and income tax revenue from the Non-General Government Sector, due to lower dividends received from NSW Treasury Corporation and from the State’s other commercial government businesses
- lower fines, regulatory fees and other revenue, due to a $305 million decrease in mining royalties, largely driven by lower coal prices.
Main drivers of the 2019–20 actual vs. budget variance
Revenues increased $209 million to $86.3 billion
In 2019–20, the State’s total revenues increased by $209 million to $86.3 billion, 0.2 per cent higher than in 2018–19. COVID-19 impacted taxation revenue, which fell by $1.1 billion and revenue from the sale of goods and services, which fell by $1.1 billion. These falls were offset by a $2.5 billion (7.7 per cent) increase in grants and subsidies from the Australian Government, mainly in the form of additional stimulus funding.
Taxation revenue fell 3.5 per cent
Taxation revenue fell by $1.1 billion, mainly due to a:
- $861 million fall in payroll tax as a result of COVID-19 relief (reduced payroll tax payments for eligible small businesses)
- $430 million fall in stamp duty collections, driven by lower than expected growth in the property market
- $427 million decline in gambling and betting taxes, mainly due to venue closures driven by COVID-19 public health orders.
Stamp duties of $8.8 billion were the largest source of taxation revenue, $473 million higher than payroll tax, the second-largest source of taxation revenue.
Australian Government grants and subsidies
The State received $34.2 billion in grants and subsides which are mainly from the Australian Government, $2.4 billion more than in 2018–19.
The increase was driven by a $1.1 billion increase in Commonwealth Specific Purpose Payments to support the Health cluster respond to the COVID-19 pandemic. Commonwealth National Partnership Payments increased by a similar amount to provide the State with Natural Disaster relief.
Sales of goods and services
In 2019–20, sales of goods and services fell $1.1 billion. This was due to the COVID-19 pandemic reducing:
- patronage and related transport passenger revenue
- health billing activities with elective surgery being put on hold
Fines, regulatory fees and other revenues
Fines, regulatory fees and other revenues fell $505 million. This was mainly due to a $409 million decrease in mining royalties attributed to a drop in thermal coal prices during 2019–20.
Other dividends and distributions
Other dividends and distributions rose by $616 million due to higher distributions received from the State’s investments. This was due to an additional $1.3 billion held in the State’s investment portfolio compared with last year.
Expenses increased $8.2 billion to $96.0 billion
The State’s expenses increased 9.3 per cent compared with 2018–19. Most of the increase was due to higher employee expenses, other operating costs and grants and subsidies.
Employee expenses, including superannuation, increased 5.7 per cent to $42.6 billion.
Salaries and wages increased to $42.6 billion from $40.3 billion in 2018–19. This was mainly due to increases in staff numbers and a 2.5 per cent increase in pay rates across the sector. Salaries and wages for the Education and Health sectors increased by $659 million and $732 million in each sector respectively.
The Health sector employed an additional 2,763 full time staff in 2019–20. It also incurred more overtime in response to COVID-19. Education increased staff numbers by 4,866 full time equivalents and paid a one off 11 per cent pay rise to school administration staff in 2019–20. Historically, the government wages policy aims to limit growth in employee remuneration and other employee related costs to no more than 2.5 per cent per annum.
Operating expenses increased 8.7 per cent to $27.0 billion.
Operating expenses increased to $27.0 billion in 2019–20 ($24.8 billion in 2018–19) due to higher operating activities in Health. The higher level of activities and related costs is attributed to a full year of operations at the Northern Beaches Hospital (opened November 2018), and responding to COVID-19. The response to COVID-19 involved the State providing viability payments to private hospitals, higher visiting medical officer costs due to additional overtime hours and spending more on equipment to set up COVID-19 testing clinics.
Insurance claims increased by $2.0 billion. This was mainly due to NSW Self Insurance Corporation (SiCorp) recognising a liability for child abuse claims incurred but not reported for the first time, and claims for the 2019–20 bushfires, floods and COVID-19.
Health costs remain the State’s highest expense.
Total expenses of the State were $96 billion ($87.8 billion in 2018–19). Traditionally, the following clusters have the highest expenses as a percentage of total government expenses:
- Health – 24.3 per cent (25.8 per cent in 2018–19)
- Education – 17.6 per cent (19.3 per cent in 2018–19)
- Transport - 12.8 per cent (12.6 per cent in 2018–19).
General public service expenses as a percentage of total State expenses is higher due to a $2.0 billion increase in SiCorp’s accrued claim expenses.
Other expenses increased due to additional grant funding by the State for drought relief and COVID-19 stimulus spend.
Health expenses increased by $632 million compared with 2018–19 but fell as a proportion of total State expenses.
Education expenses remained stable compared with last year due to savings in student transportation costs primarily driven by COVID-19. This led to a decrease in the proportion of the State’s costs relating to education activities.
Grants and subsidies increased $2.5 billion to $14.1 billion.
The increase in grants and subsidies was due to payments the State made to support businesses and local communities in the face of COVID-19 and bushfires. In addition, the State transferred CBD and South East Light Rail assets to councils and utility providers during 2019–20 as it no longer controlled these.
Depreciation expense increased $1.0 billion to $9.2 billion.
Depreciation increased to $9.2 billion from $8.0 billion in 2018–19. At 1 July 2019, the State implemented the new leases standard recognising a right of use (ROU) asset and related lease liability in its financial statements. The value of ROU assets are amortised over the term of the lease. This contributed to $980 million of the increase in 2019–20 depreciation expense. Last year, these costs were previously reported within other operating expenses.
Assets grew by $28.0 billion to $495 billion
The State’s assets primarily include physical assets such as land, buildings and infrastructure, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $28.0 billion to $495 billion. This was a six per cent increase compared with 2018–19, mostly due to changes in asset carrying values.
Of the State’s $28.0 billion increase in asset values, $9.3 billion was due to a new accounting standard requirement for operating leases to be valued and recorded on balance sheet for the first time.
AASB 16 Leases requires entities recognise values for right-ofuse assets (ROU) for the first time. An ROU asset is a lessee’s right to use an asset, the value of which is amortised over the term of the lease. This standard came into effect from 1 July 2019.
Valuing the State’s physical assets
State’s physical assets valued at $365 billion. |
The value of the State’s physical assets increased by $14.1 billion to $365 billion in 2019–20. The assets include land and buildings ($168 billion), infrastructure ($180 billion) and plant and equipment ($16.7 billion). A prior period error relating to the valuation of RMS infrastructure assets reduced the reported values by $1.0 billion from $352 billion to $351 billion at 30 June 2019.
The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include reclassification of physical assets leased under finance leases to right of use assets upon adoption of AASB 16 Leases on 1 July 2019.
Movements in physical asset values
Liabilities increased $38.4 billion to $256 billion
The State borrowed additional funds in response to natural disasters and COVID-19.
The State’s borrowings rose by $33.9 billion to $113.8 billion at 30 June 2020. This accounted for most of the increase in the State’s total liabilities.
The value of TCorp bonds on issue increased by $25.2 billion to $97.0 billion to largely fund capital expenditure and costs associated with the bushfires, drought and COVID-19.
TCorp bonds are actively traded in financial markets and are guaranteed by the NSW Government.
Over 2019–20, TCorp continued to take advantage of lower interest rates, buying back short-term bonds and replacing them with longer dated debt. This lengthens the portfolio matching liabilities with the funding requirements for infrastructure assets.
With effect from 1 July 2019, AASB 16 Leases required the State to recognise liabilities for operating leases for the first time. This increased total lease liabilities from $5.3 billion at 30 June 2019 to $11.8 billion at 30 June 2020.
More than a third of the State’s liabilities relate to its employees. They include unfunded superannuation and employee benefits, such as long service and recreation leave.
Valuing these obligations involves complex estimation techniques and significant judgements. Small changes in assumptions and other variables, such as a lower discount rate, can materially impact the valuation of liability balances in the financial statements.
The State’s unfunded superannuation liability rose $300 million from $70.7 billion to $71.0 billion at 30 June 2020. This was mainly due to a lower discount rate of 0.87 per cent (1.32 per cent in 2018–19). The State’s unfunded superannuation liability represents the value of its obligations to past and present employees less the value of assets set aside to fund those obligations.
The State maintained its AAA credit rating
The object of the Fiscal Responsibility Act 2012 is to maintain the State’s AAA credit rating.
The government manages New South Wales’ finances in accordance with the Fiscal Responsibility Act 2012 (the Act).
The Act establishes the framework for fiscal responsibility and the strategy to maintain the State’s AAA credit rating and service delivery to the people of New South Wales.
The legislation sets out targets and principles for financial management to achieve this.
This year, the State’s credit rating from Standard & Poor’s changed from AAA/Stable to AAA/Negative. Moody’s Investors Service credit rating of Aaa/Stable did not change from the previous year.
The fiscal target for achieving this objective is that General Government annual expenditure growth should be lower than long term average revenue growth.
The State did not achieve its fiscal target of maintaining annual expenditure growth below the long-term revenue growth rate target of 5.6 per cent.
In 2019–20, General Government expenditure grew by 9.7 per cent (5.5 per cent in 2018–19).
Expenditure items that contributed most to the growth rate include:
- recurrent grants and subsidies (20.4 per cent)
- other operating expenses (9.5 per cent)
- employee costs (including superannuation) (5.6 per cent)
Recurrent grant and subsidy expenses increased by $2.8 billion in 2019–20 mainly due to the COVID-19 and natural disaster payments. Other operating expenses increased mainly due to a $2.0 billion increase in SiCorp insurance claims. This included the $828 million provision for child abuse claims incurred but not reported. The bushfires and COVID-19 pandemic also increased the number and cost of claims in 2019–20.
Superannuation funding position since inception of the Act - AASB 1056 Valuation
Actions for Health capital works
Health capital works
This report examines whether NSW Health effectively planned and delivered major capital works to meet the demand for health services in New South Wales.
The report found that NSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, the program was driven by Local Health District priorities without assessment of the State’s broader and future‑focussed health requirements.
The report found that unclear decision making roles and responsibilities between Health Infrastructure and the Ministry of Health limited the ability of NSW Health to effectively test and analyse investment options.
Project delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved.
The Auditor‑General recommends that NSW Health ensure its capital projects offer the greatest value to New South Wales by establishing effective policy guidance and enhancing project governance and management systems.
Since 2011–12, NSW Health has aimed to improve its facilities and build 'future focused' infrastructure. The NSW Government’s 2015–16 election commitments established a four-year $5.0 billion capital program for NSW Health to build and upgrade more than 60 hospitals and health services. The 2019–20 State Budget committed a further $10.1 billion over four years for another 29 projects. This is the largest investment to date on health capital works in New South Wales.
Recent reviews of infrastructure have recognised that population and demographic growth will require a change in the delivery and composition of health infrastructure, including considering greater use of non-traditional, non-capital health service options and assets.
To ensure that expenditure on capital works represents the best value for money, NSW Health's business cases need to be robust and supported by evidence that demonstrates they are worthy investments. The NSW Process of Facility Planning has been the main framework guiding the detailed planning and development of NSW Health's capital works proposals. This framework was developed by the then NSW Department of Health in 2010. Its aim is to ensure investment proposals are supported by rigorous planning processes that address health service needs and provide value for money.
Infrastructure projects of the complexity and scale being delivered by NSW Health carry inherent risks. For example, unplanned cost escalations can potentially impact on the State’s finances. Unforeseen delays can also reduce the intended benefits. The growth in the State’s health capital spend and project profile, means its exposure to such risks has increased over time.
The objective of this audit was to assess the effectiveness of planning and delivery of major capital works to meet demand for health services in New South Wales. To address this objective, the audit examined whether:
- the Ministry of Health has effective procedures for planning and prioritising investments in major health capital works
- Health Infrastructure develops robust business cases for initiated major capital works that reliably inform government decision making
- Health Infrastructure has effective project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.
The audit focused on the Ministry of Health and Health Infrastructure – being the lead agencies within NSW Health responsible for prioritising, planning and delivering major health capital works across the State. The audit examined 13 business cases for eight discrete projects over a ten-year period.
ConclusionNSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, its planning and prioritisation processes were not assessed against a long-term statewide health infrastructure plan and lacked rigorous assessment against non-capital options creating a risk that they do not maximise value for New South Wales. The scale of NSW Health's capital investment is significant and has grown substantially in recent years. The NSW Government’s election commitments in 2015–16 and 2019–20 collectively set out a $15.0 billion capital program to build and upgrade 89 hospitals and health services. NSW Health developed this infrastructure program in the absence of a statewide health infrastructure strategy and investment framework to focus its planning and decisions on the types of capital investments required to meet the long-term needs of the NSW health system. Consequently, locally focused priorities of the State’s 17 Local Health Districts have been the primary drivers of NSW Health’s capital investments since 2015–16. Local Health District investment proposals for hospitals were developed without consideration of alternative health options such as community health service models, technology-driven eHealth care, or private sector options. Without rigorous assessment against a range of potential health service options, there is a risk that selected projects do not maximise value for New South Wales. In recognition of the need for a statewide approach to infrastructure planning, the Ministry of Health recently developed a 20-year Health Infrastructure Strategy and prioritisation framework in 2019. The strategy was approved by the NSW Government in April 2020. NSW Health's ability to effectively test and analyse its capital investment options has been compromised by unclear decision-making roles and responsibilities between its Health Infrastructure and the Ministry of Health agencies. While both Health Infrastructure and the Ministry of Health have responsibilities for the assessment of business cases for proposed infrastructure projects, confusion about the roles of each agency at key steps compromised the efficacy of the process. Health Infrastructure and the Ministry of Health have differing views about which agency is responsible for testing business case inputs and conducting comprehensive options appraisals. As a result of this confusion, Health Infrastructure and the Ministry of Health did not rigorously test Local Health District capital investment proposals against defined statewide health infrastructure investment priorities. The NSW Process of Facility Planning does not clarify the responsibilities of all parties in validating and prioritising Local Health District's Clinical Service Plans and progressing them to business cases. NSW Health's infrastructure priorities are not sufficiently supported by transparent documentation of selection methodology and the rationale for decisions. Consequently, there is a risk that recommended options, whilst having some economic and health service merit, do not represent the greatest value. Substantial delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved. Health Infrastructure did not fully comply with NSW Government guidelines for developing business cases and making economic appraisals for proposed capital investments. These weaknesses, along with delays and budget overruns on some projects, demonstrate a need for Health Infrastructure to strengthen its project governance, management and quality control systems. |
Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.
NSW Health's Process of Facility Planning similarly highlights the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by Health Infrastructure that can be tailored to the planning and delivery of health infrastructure projects greater than $10.0 million.
The three major hospital redevelopments examined in metropolitan, regional and rural areas had a combined Estimated Total Cost of more than $1.2 billion and comprised eight discrete projects and 13 separate business cases.
Almost all these projects experienced delivery challenges which impacted achievement of their original objectives and intended benefits. This is expected in complex and large-scale health infrastructure programs. However, in some projects the impacts were significant and resulted in substantial delays, unforeseen costs, and diversion of resources from other priority areas.
Our review of the selected case studies highlighted opportunities for enhancing governance and project management. Specifically, it indicates a need for improving transparency in the management of contingencies, risk management and assessments particularly relating to adverse site conditions and the selection of contractors. There is also a need to strengthen forward planning for options to address unfunded priorities within business cases that risk complicating the delivery of future project stages resulting in unforeseen costs and potentially avoidable budget overruns.
In February 2017, the Ministry's Capital Strategy Group approved the use of surplus funds of $13.76 million from Stage 1 of the Hornsby Ku-ring-gai Hospital Redevelopment for new works deemed needed to support Stage 2. Following this decision, Health Infrastructure finalised and submitted a business case addendum for Stage 1 to the Ministry in March 2017, addressing the new works comprising a two-storey building for medical imaging and paediatric floors. The business case addendum also addressed options to fit out and procure major medical imaging equipment. The Ministry approved the Stage 1 business case in July 2017, noting the Ministry's Capital Strategy Group had already approved the use of remaining Stage 1 funds to deliver the new works.
Stage 1 was completed in 2015, almost two years before the Stage 1 business case addendum was prepared in February 2017.
The Ministry's decision to approve the new works using $13.76 million of surplus Stage 1 funds did not comply with the NSW Treasury Circular TC 12/20. This policy establishes the Treasurer's approval must be sought and received before a new capital project with an Estimated Total Cost of $5.0 million or more can be approved by NSW Health. The Ministry therefore exceeded its delegated authority in making this decision, as it was not evident it had sought and received the Treasurer's approval prior to doing so.
Consequently, the surplus Stage 1 funds should not have been used by the Ministry to deliver new works in the circumstances. Instead, they should have been released from the Stage 1 project in accordance with established NSW Health procedures, and the Stage 1 Estimated Total Cost revised down accordingly. This did not occur, and NSW Health ultimately directed $11.0 million in surplus Stage 1 funds to the new works.
These circumstances indicate a need to strengthen transparency and accountability within NSW Health for the approval of new projects, and how contingency funds are used in the management of major health capital works. They also demonstrate the impact of weaknesses with options appraisal as the initial Stage 1 business case did not consider alternative options for addressing the initially unfunded works later covered by the Stage 1 business case addendum and ultimately funded from the Stage 1 contingency provision.
In addition to proposing the above-noted new works, the 2017 Stage 1 Business Case Addendum for the Hornsby-Ku-ring-gai development sought to retrospectively address the estimated funding gap of around $14.0 million for the internal fit out, supply of major medical imaging equipment, and cost to operate the medical imaging service at Hornsby Ku-ring-gai Hospital also not addressed in the originally Stage 1 business case.
The Stage 1 business case addendum considered various procurement options to purchase and run the medical imaging services ranging from State operation purchase options to private operation purchase options.
It recommended outsourcing the operation and provision of equipment to the private sector based on estimated savings to the public sector initially of around $650,000 per annum reducing over time to $270,000. The Ministry endorsed this option in June 2017, but it did not ultimately proceed.
A July 2018 report to the Executive Steering Committee on the project shows NSW Health later decided to deliver operation of the medical imaging unit 'traditionally' with an updated estimate of the cost at approximately $16.4 million. The report also shows the Ministry supported the costs now being met by the Northern Sydney Local Health District.
This means the funding gap previously identified in the Stage 1 business case addendum for fitting out the medical imaging building and supply of major medical equipment would need to be met fully by the State, representing a $16.4 million cost overrun for the project.
Examined reports to the Executive Steering Committee show this was largely funded by the Northern Sydney Local Health District via the disposal of land realising approximately $15.0 million in proceeds.
This initially unforeseen cost, along with the additional $11.0 million for the new works approved under the Stage 1 business case addendum, were ultimately merged with the Stage 2 project initially approved in 2017–18 with an Estimated Total Cost of $200 million.
The 2019–20 State Budget provided an additional $65.0 million for a further Stage 2A to deliver additional built capacity to support outpatient services, enhanced allied health services, re-housed community health services and the delivery of prioritised clinical services unfunded as part of Stage 2. The funds were approved based on an Investment Decision Template (IDT) that examined two options in addition to the base case representing scoping alternatives to the preferred master planned capital solution.
However, we found the IDT showed around 23 per cent of the $65.0 million sought (i.e. $15.0 million) was to be allocated to fund the deficit in Stage 2, which had arisen as a result of project delays due to adverse site conditions. This was not discussed in the IDT.
The February 2020 report to the Executive Steering Committee shows a combined Stage 2 and 2A final forecast cost of $292.6 million against a potential budget of $290.7 million representing an overall deficit for the project of around 0.6 per cent.
However, this favourable final budget position does not transparently show the funding challenges experienced over the project's implementation to-date. The three major budget issues include:
- inappropriate use of around $11.0 million in Stage 1 contingency for originally unfunded works contrary to Treasury policy
- the additional $16.4 million cost unforeseen in the Stage 1 business case for delivering medical imaging services mostly funded through the sale of land
- an additional $15.0 million from Stage 2A to cover the budget overrun in Stage 2 due to adverse site conditions.
The cumulative impact of these events is that Stages 1 and 2 of the Hornsby project cost approximately $42.4 million than it should have in the circumstances around 14 per cent more than what the revised combined Estimated Total Cost for both stages should have been after releasing the $11.0 million in surplus Stage 1 funds, with Stage 2 delayed by around 14 months.
Major construction projects often experience adverse site conditions which can be difficult to fully detect in advance. However, we found this was a common occurrence in the projects we examined sometimes with significant time and/or budget impacts indicating scope to enhance related risk and cost assessments. Specifically:
- Hornsby Ku-ring-gai Hospital Redevelopment Stage 2: adverse site conditions during demolition works resulted in an 11-month delay for delivering the medical imaging unit and 14-month delay completing Stage 2 main works including need for additional $15.0 million in funds to cover the resultant budget deficit for the project.
- Blacktown Mt Druitt Hospital Redevelopment Stage 2: adverse site conditions combined with project complexity delayed completion of the early works by approximately five months. This contributed to the delay in completing the main construction works which occurred around nine months later than planned in the business case.
- Dubbo Health Service Redevelopment Stages 3 and 4: Health Infrastructure advised adverse site conditions including asbestos containing materials and ground conditions delayed works for the main building with completion forecast for March 2021, around 21 months later than planned in the final business case. This resulted in the need for additional $13.5 million to cover increased construction costs and risks, increasing the Stage 3 and 4 forecast final cost from $150 million to $163.5 million as at February 2020.
These examples indicate a risk the cumulative impact of adverse site conditions may be substantial when measured across both time and Health Infrastructure's full delivery program. They also point to potential for Health Infrastructure to achieve efficiencies and improved outcomes from strengthening its approach to assessing and mitigating the risks from adverse site conditions.
Main construction works on Stage 1 of the Dubbo Health Service Redevelopment were completed in October 2015, approximately 13 months later than planned in the final business case. Delays were mainly due to insolvency of the early works contractor resulting in their departure from the project. The ensuing 11-month delay in completing the early works significantly impacted the overall schedule and delivery of main construction works.
The insolvency event was significant as it affected nine separate Health Infrastructure projects – three of which had yet to reach practical completion. It also affected state-funded projects in other sectors. It resulted in the need for additional funding of $11.5 million that was provided in the 2014–15 State Budget increasing the total Stage 1 and 2 budget from $79.8 million to $91.3 million.
Health Infrastructure’s analysis of lessons learned shows it worked actively to mitigate the impacts of the insolvency event across all affected projects. However, it also indicates a risk the lessons were mainly focused on mitigating the impacts after an insolvency event occurred rather than on prevention.
Although Health Infrastructure initially commissioned a financial assessment of the now insolvent early works contractor before engagement, it did not detect any risks of the impending insolvency and instead concluded the contractor was in a strong financial position. However, the contractor became insolvent shortly after commencement approximately seven months later. This indicates a risk of weaknesses in the assessment performed that was not explicitly addressed by the lessons learned.
Delivery of the main construction works were further impacted by disputes with the main works contractor over the scope of works for the renal unit resulting in Health Infrastructure terminating the contract in November 2016 following lengthy negotiations over several months.
The scope of works relating to the renal unit were ultimately transferred to Stages 3 and 4 and were delivered in December 2019, around five years later than originally planned in the business case.
Health Infrastructure advised the delay was ultimately beneficial to the project because the refurbishment works for the renal unit, initially scheduled for Stages 1 and 2, would have been demolished to accommodate the new Western Cancer Centre proposed after Stages 1 and 2 and currently being delivered in parallel with Stages 3 and 4.
Health Infrastructure advised the actual cost of Stages 1 and 2 was $84.7 million against the budget of $91.3 million. The residual $6.6 million relates to the renal works not delivered during Stage 1 and 2 and transferred to Stage 3 and 4.
Health Infrastructure advised the contractual provisions for mitigating insolvency events 'in-flight' are limited highlighting the importance of proactive and effective due diligence prior to engaging contractors for significant construction projects.
Health Infrastructure's 2017-20 Corporate Plan identifies the development of a quality framework to support delivery of future-focused outcomes as a key organisational priority. Related initiatives within the Corporate Plan describe a framework underpinned by a Quality Committee providing advice on:
- records management, to meet the requirements of the State Records Act 1998
- project assurance, to ensure future focused outcomes and enhance Health Infrastructure's Standards, Policies, Procedures and Guidelines, Templates and Design Guidance Notes
- knowledge management and library services, to promote and leverage from project learnings.
Although Health Infrastructure has some elements of a quality framework it is not yet fully in place. Health Infrastructure advised it had yet to establish the quality framework and related committee described in its Corporate Plan due in part to its focus on responding to the growth of its capital program.
Health Infrastructure's Development and Innovation team has been active in supporting continuous improvement in knowledge and project management including development of business cases. Although useful, these initiatives have relied heavily on leveraging and disseminating insights from Gateway reviews and have not formed part of a systematic quality and continuous improvement framework.
The limited focus on the quality of business cases is reflected in internal performance monitoring and reporting which focuses mainly on tracking the delivery of projects against internal benchmarks, often revised from the baselines in the business case, and expenditure against cashflow targets. There is no evident internal monitoring and/or reporting to the Chief Executive and Board on defined quality metrics linked to business case development and staff capability.
Performance reporting on balanced scorecard metrics has similarly focused mainly on process rather than quality and has been inconsistent in recent years.
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
Appendix four – Ministry of Health planning tools and guidelines
Appendix five – Streamlined investment decision process for Health Capital Projects
Appendix six – Timeline of business cases and relevant policy guidelines
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #338 - released 12 August 2020
Actions for Their Futures Matter
Their Futures Matter
The Auditor-General for New South Wales, Margaret Crawford, released a report today examining whether the Department of Communities and Justice had effective governance and partnership arrangements in place to deliver ‘Their Futures Matter’.
Their Futures Matter was intended to place vulnerable children and families at the heart of services, and direct investment to where funding and programs deliver the greatest social and economic benefits. It was a four-year whole-of-government reform in response to the 2015 Tune Review of out-of-home care.
The Auditor-General found that while important foundations were put in place, and new programs trialled, the key objective to establish an evidence-based whole-of-government early intervention approach for vulnerable children and families in NSW was not achieved.
Governance and cross-agency partnership arrangements to deliver Their Futures Matter were found to be ineffective. 'Their Futures Matter lacked mechanisms to secure cross portfolio buy‑in and did not have authority to drive reprioritisation of government investment', the Auditor-General said.
At the reform’s close, the majority of around $380 million in investment funding remains tied to existing agency programs, with limited evidence of their comparative effectiveness or alignment with Their Futures Matter policy objectives. The reform concluded on 30 June 2020 without a strategy or plan in place to achieve its intent.
The Auditor-General made four recommendations to the Department of Communities and Justice, aimed at improving implementation of outstanding objectives, revising governance arrangements, and utilising the new human services data set to address the intent of the reform. However, these recommendations respond only in part to the findings of the audit.
According to the Auditor-General, ‘Cross-portfolio leadership and action is required to ensure a whole-of-government response to delivering the objectives of Their Futures Matter to improve outcomes for vulnerable children, young people and their families in New South Wales.’
In 2016, the NSW Government launched 'Their Futures Matter' (TFM) - a whole-of-government reform aimed at delivering improved outcomes for vulnerable children, young people and their families. TFM was the government's key response to the 2015 Independent Review of Out of Home Care in New South Wales (known as 'the Tune Review').
The Tune Review found that, despite previous child protection reforms, the out of home care system was ineffective and unsustainable. It highlighted that the system was not client-centred and was failing to improve the long-term outcomes for vulnerable children and families. The review found that the greatest proportion of relevant expenditure was made in out of home care service delivery rather than in evidence-based early intervention strategies to support children and families when vulnerabilities first become evident to government services (such as missed school days or presentations to health services).
The then Department of Family and Community Services (FACS) designed the TFM reform initiatives, in consultation with central and human services agencies. A cross-agency board, senior officers group, and a new unit in the FACS cluster were established to drive the implementation of TFM. In the 2016–17 Budget, the government allocated $190 million over four years (2016–17 to 2019–20) to the reform. This resourced the design and commissioning of evidence-based pilots, data analytics work, staffing for the implementation unit and secretariat support for the board and cross-agency collaboration.
As part of the TFM reform, the Department of Premier and Cabinet, NSW Treasury and partnering agencies (NSW Health, Department of Education and Department of Justice) identified various existing programs that targeted vulnerable children and families (such as the preceding whole-of-government ‘Keep Them Safe’ reform coming to an end in June 2020). Funding for these programs, totalling $381 million in 2019–20, was combined to form a nominal ‘investment pool’. The government intended that the TFM Implementation Board would use this pool to direct and prioritise resource allocation to evidence-based interventions for vulnerable children and families in NSW.
This audit assessed whether TFM had effective governance and partnership arrangements in place to enable an evidence-based early intervention investment approach for vulnerable children and families in NSW. We addressed the audit objective with the following audit questions:
- Was the TFM reform driven by effective governance arrangements?
- Was the TFM reform supported by effective cross-agency collaboration?
- Has the TFM reform generated an evidence base to inform a cross-agency investment approach in the future?
The audit did not seek to assess the outcomes for children, young people and families achieved by TFM programs and projects.
ConclusionThe governance and cross-agency partnership arrangements used to deliver the Their Futures Matter reform were ineffective. Important foundations were put in place, and new programs trialled over the reform's four years. However, an evidence-based whole-of-government early intervention approach for vulnerable children and families in NSW − the key objective of the reform − was not established. The reform concluded in June 2020 without a strategy or plan in place to achieve its intent. The governance arrangements established for the Their Futures Matter (TFM) reform did not provide sufficient independence, authority and cross-agency clout to deliver on the reform’s intent. This hindered delivery of the reform's key elements, particularly the redirection of funding to evidence-based earlier intervention supports, and limited the impact that TFM could have on driving system change. TFM increased focus on the contribution that other agencies outside of the former Family and Community Services portfolio could make in responding to the needs of vulnerable children and families, and in reducing the demand costs of related government service delivery. Despite being a whole-of-government reform, TFM lacked mechanisms to secure cross-portfolio buy-in and lacked the powers to drive reprioritisation of government investment in evidence-based and earlier intervention supports across agencies. At the reform’s close, the majority of the reform's investment pool funding remained tied to existing agency programs, with limited evidence of their comparative effectiveness or alignment with Their Futures Matter policy objectives. TFM began building an evidence base about ‘what works’, including piloting programs and creating a new dataset to identify risk factors for vulnerability and future costs to government. However, this evidence base does not yet comprehensively map how existing services meet needs, identify system duplications or gaps, nor demonstrate which government funded supports and interventions are most effective to make a difference to life outcomes for vulnerable children and families in NSW. |
Their Futures Matter (TFM) is a whole-of-government reform to deliver improved outcomes for vulnerable children, young people and their families.
Supported by a cross-agency TFM Board, and the TFM Unit in the then Department of Family and Community Services (FACS), the reform aimed to develop whole-of-government evidence-based early intervention investment approaches for vulnerable children and families in NSW.
Governance refers to the structures, systems and practices that an organisation has in place to:
- assign decision-making authorities and establish the organisation's strategic direction
- oversee the delivery of its services, the implementation of its policies, and the monitoring and mitigation of its key risks
- report on its performance in achieving intended results, and drive ongoing improvements.
We examined whether the TFM reform was driven by effective governance arrangements and cross-agency collaboration.
The reform agenda and timeframe set down for Their Futures Matter (TFM) were ambitious. This chapter assesses whether the TFM Board and TFM Unit had the capability, capacity and clout within government to deliver the reform agenda.
Creating a robust evidence base was important for Their Futures Matter, in order to:
- identify effective intervention strategies to improve supports and outcomes for vulnerable children and families
- make efficient use of taxpayer money to assist the maximum number of vulnerable children and families
- inform the investment-based approach for future funding allocation.
This chapter assesses whether the TFM reform has developed an evidence base to inform cross-agency investment decisions.
Appendix one – Response from agency
Appendix two – TFM governance entities
Appendix three – TFM Human Services Data Set
Appendix four – TFM pilot programs
Appendix five – About the audit
Appendix six – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #337 - released 24 July 2020