Reports
Government's acquisition of private property: Sydney Metro project
What the report is about
Sydney Metro is Australia’s largest public transport project. It requires the acquisition of many private properties, including residential and business properties.
This audit assessed the effectiveness of the acquisition of private properties for the Sydney Metro project. The audited agencies were Sydney Metro, the Department of Planning and Environment (Valuer General NSW) and Transport for NSW (the Centre for Property Acquisition).
The audit assessed agencies against the framework for property acquisitions in New South Wales. It did not re-perform the valuations done for individual properties that were acquired by Sydney Metro.
What we found
Acquisitions of private property for the Sydney Metro project were mostly effective in the sample of acquisitions we assessed. We found Sydney Metro:
- complied with legislative and policy requirements for compensation and communication with people subject to property acquisitions
- kept accurate records of its acquisitions and applied probity controls consistently
- did not complete detailed plans or negotiation strategies for the high-risk and high-value acquisitions we reviewed
- did not comply with legislative timelines for most compulsory acquisitions because of delays in receiving the required information from the Valuer General in these cases.
The Centre for Property Acquisition has overseen the implementation of reforms to residential acquisition processes, but its assessment of the effectiveness of these reforms has not been comprehensive.
What we recommended
The audit made four recommendations to the audited agencies to improve:
- plans and strategies for the acquisition of high-risk and high-value properties
- timeliness of issuing compensation determinations for compulsory acquisitions
- data quality on the experience of people subject to property acquisitions.
The NSW Government has the power to acquire land that is owned or leased by individuals or businesses, if it is needed for a public purpose. The power arises from the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act). Government agencies that have the power to compulsorily acquire private property are referred to as ‘acquiring authorities’. People who are subject to acquisitions are referred to as ‘affected parties’ and include property owners (business or residential), businesses with a commercial lease on a property, or individuals with residential tenancy leases. In recent years, the vast majority of acquisitions by the NSW Government have been for public transport or road projects.
Sydney Metro is a NSW Government agency with responsibility for building the Sydney Metro railway project. Sydney Metro is Australia’s largest public transport project. The project requires the acquisition of a large number of private properties. Sydney Metro has been one of the largest acquirers of private property in recent years, completing over 500 acquisitions between 2020 and mid-2022, with a total acquisition value of over $2 billion. Other agencies and statutory officers involved in the acquisition of property for the Sydney Metro project include:
- the Department of Planning and Environment (DPE), which supports the minister responsible for the Just Terms Act. DPE also provides staff to the Valuer General of NSW
- the Valuer General of NSW, an independent statutory officer that determines compensation in cases where the acquiring authority and the affected party cannot agree on compensation for property that has been acquired
- Transport for NSW, which includes the Centre for Property Acquisition (CPA). The CPA does not have a direct role in acquiring properties, but its responsibilities include developing guidance for acquiring agencies and monitoring and reporting on their activities.
About this audit
The objective of this audit was to assess the effectiveness of acquisitions of private properties for Sydney Metro projects. The audit assessed agencies against the legislative and policy requirements in place for government acquisitions of private property in New South Wales. In line with the Audit Office's legislative mandate, the audit does not comment on the merits of the policy objectives reflected in the Just Terms Act.
The audit examined a sample of 20 property acquisitions. This was not a statistically representative sample. While our report provides comments on Sydney Metro’s overall acquisition processes, it does not provide assurance regarding the acquisitions that were not examined for this audit.
The audit did not re-perform the valuations done for individual properties that were acquired by Sydney Metro. Affected parties who disagree with the valuation of their property have the right to seek independent assessment of this via the Valuer General and the Land and Environment Court.
Conclusion
Acquisitions of property for the Sydney Metro project were mostly effective in the sample of acquisitions we assessed. Sydney Metro followed requirements for communication with affected parties. Compensation processes were conducted in compliance with legislative requirements, but compensation determinations for compulsory acquisitions were not completed within legislated time frames due to delays in receiving these from the Valuer General. Governance and probity processes were followed consistently, with some relatively minor exceptions.
Sydney Metro has detailed guidelines for acquisitions that are based on relevant legislation and government policy. In the 20 acquisitions we assessed for this audit, these procedures were followed consistently. This included adhering to minimum timelines for negotiation periods, engaging independent valuers and other experts when needed, and complying with governance and probity processes.
Sydney Metro staff followed requirements for communication and support for residential acquisitions by assigning ‘personal managers’ and providing additional support to affected parties when needed. The Centre for Property Acquisition (CPA) has overseen reforms to the residential property acquisition process in recent years. These reforms include the introduction of the NSW Property Acquisition Standards and the use of personal managers, in addition to the existing acquisition managers, for residential acquisitions. However, the CPA has not assessed the impact of these changes on the experiences on people affected by property acquisitions.
Sydney Metro did not comply with the legislative requirement to provide a formal compensation notice to the affected party within 45 days of a compulsory acquisition starting in any of the eight relevant acquisitions in our sample. This was because Sydney Metro must wait for the Valuer General to complete a compensation determination before Sydney Metro can send the compensation notice, and the Valuer General did not do this within 45 days. We acknowledge that Sydney Metro does not have full control over this process, and that it has taken steps to mitigate the impact of delays on affected parties.
This chapter presents our findings on Sydney Metro's acquisition of industrial and commercial properties. Industrial properties include construction businesses and manufacturing facilities. Commercial properties were mostly properties such as shopping centres and office towers. Many of these acquisitions involve businesses and properties that are relatively complex and have high values. This means the valuation process can require multiple experts and can be lengthy and contested. Adherence to governance and probity requirements is important for these acquisitions in order to demonstrate that the acquiring authority has achieved value for money.
This chapter presents our findings on Sydney Metro's acquisition of residential properties, which include apartments and houses, and small business leases, which mostly affected businesses in small shopping centres or arcades. Most of these acquisitions were lower value compared to industrial and commercial property acquisitions and did not require as much expert advice on complex technical issues. However, residential property acquisitions can be personally distressing for the affected parties and require staff from the acquiring authority to provide support and show empathy while ensuring legislative compliance and value for money.
Appendix one – Responses from agencies
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 #375 - released 9 February 2023
Design and implementation of the Transport Asset Holding Entity
What the report is about
The Transport Asset Holding Entity (TAHE) is the State's custodian of rail assets. It is a state owned corporation and commenced operating on 1 July 2020.
This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. We audited TAHE, Transport for NSW (TfNSW) and NSW Treasury.
Separate and related audits on TAHE are reported in 'State Finances 2022', 'State Finances 2021' and 'Transport and Infrastructure 2022' reports.
What we found
The design and implementation of TAHE, which spanned seven years, was not effective.
The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.
The benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose.
Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed.
Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.
What we recommended
We recommended that the audited agencies should:
- improve accountability and transparency for major new fiscal transformation initiatives
- ensure entities do not reflect the financial impact of significant initiatives in the Budget when there is uncertainty, or it creates perverse incentives
- review record keeping practices, systems and policies to ensure compliance with the State Records Act 1998, and the NSW Government Information Classification, Labelling and Handling Guidelines
- review procurement policies to ensure that consultant use complies with all NSW Government policy requirements.
The NSW Government established the Transport Asset Holding Entity (TAHE), a statutory State Owned Corporation (SOC), on 1 July 2020 to replace the former rail infrastructure owner – RailCorp. It is the State's custodian of rail network assets, including rail tracks and other infrastructure, rolling stock, land, train stations and facilities, retail space, and signal and power systems, within metropolitan and regional New South Wales. It is responsible for $2.8 billion of major capital projects in 2022–23.
TAHE was established under Part 2 of the Transport Administration Act 1988 and is governed by a decision-making board. The Treasurer and the Minister for Finance and Employee Relations are the Shareholding Ministers of TAHE, and they annually agree performance expectations articulated in a Statement of Corporate Intent.
Whereas TAHE is the custodian of rail assets, Sydney Trains and NSW Trains operate public rail services. TAHE does not have responsibility for the operation of the heavy rail network or train services, nor does it have network control functions. TAHE, Sydney Trains and NSW Trains are in the Transport and Infrastructure cluster in the public sector (formerly the Transport cluster and renamed in April 2022), which also includes Sydney Metro and Transport for NSW (TfNSW).
TfNSW leads the Transport and Infrastructure cluster. Its role is to set the strategic direction for transport across the State. This involves the shaping of planning, policy, strategy, regulation, resource allocation and other service and non-service delivery functions for all modes of transport.
TAHE's Operating Licence is granted by the Portfolio Minister and authorises the entity to perform the functions required to acquire, develop, finance, divest and hold assets, pursuant to the Transport Administration Act 1988. The Portfolio Minister also issues a Statement of Expectations which outlines the government’s expectation for the business for the next three to five years.
TAHE's original Portfolio Minister was the Minister for Transport who approved, on 30 June 2020, the issuing of an interim 12-month Operating Licence to enable TAHE to commence operating on 1 July 2020. The Portfolio Minister then granted TAHE's current Operating Licence in 2021. After TAHE requested a 12-month extension to its current Operating Licence, its next Operating Licence is due on 1 July 2024. The current Portfolio Minister is the Minister for Infrastructure, Cities and Active Transport.
About this audit
This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. In making this assessment, we considered whether:
- the process of designing and implementing TAHE was cohesive and transparent, and delivered an effective outcome
- agencies' roles and responsibilities were clear in the planning of TAHE
- agencies effectively identified and managed certain risks.
Conclusion
The design and implementation of TAHE was not effective. The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments to sustain TAHE through continuing investment, and funding of the state owned rail operators. The ineffective process to design TAHE delivered a model that entails significant uncertainty as to whether the anticipated longer-term financial improvements to the Budget position can be achieved or sustained.
NSW Treasury and TfNSW had different objectives for TAHE
Up to June 2013, RailCorp had been the owner and operator of rail services and maintainer of the metropolitan rail network for almost a decade. It had been operating as a not-for-profit Public Non-Financial Corporation (PNFC).
In 2012, NSW Treasury (hereafter Treasury) decided there was a risk that the Australian Bureau of Statistics (ABS) would reclassify RailCorp to the General Government Sector (GGS), meaning depreciation expenses of approximately $870 million would be reflected in the GGS Budget. Treasury wanted to avoid this impact on the GGS Budget, and considered the establishment of a transport asset holding entity as a means to do so. Capital grants to RailCorp were being treated as an expense to the GGS Budget.
TfNSW also wanted an asset holding entity – but one that would be a non-trading ‘shell’ company with no staff that would hold and manage all public transport assets. TfNSW's concept envisaged the entity would have a structure that would enable future public transport reforms and strategic directions while ensuring vertical integration of operations between asset owners and the rail operators to maintain rail safety.
However, Treasury pursued its objective to improve the GGS Budget result, and sought to expand on TfNSW's 'shell' asset holding entity concept. Treasury wanted an entity that could generate a return on investment, as this meant that government investment in transport assets could be treated as equity investments, rather than a Budget expense, and in turn improve the GGS Budget position. As an example of the potential impact of creating this new entity, capital grants of $2.3 billion were paid to RailCorp in 2013–14. If Treasury's objective was met, grants of this significance would then be treated as an equity investment, rather than an expense in the GGS Budget.
In 2017, Treasury's preferred option was progressed through legislation, but both agencies' central objectives for the proposed asset holding entity would continue to prove difficult to reconcile. To achieve Treasury's objective to improve the Budget result, the entity would need to generate a return on investment (this is further discussed below). However, TfNSW expressed concerns that the prioritisation of rail safety, and the effective management of governance, regulation and operations would be more complex in an entity with commercial imperatives.
Asset holding entities are a common approach to the management of transport assets in Australia and internationally, and there are a range of approaches to how they are structured and used. Such structures should be driven by the goal of improved asset management. Ultimately, TfNSW's objectives could have been delivered through a simpler entity structure. However, reconciling TfNSW's objectives with Treasury's imperative to deliver and justify a Budget improvement in the short-term resulted in an overly lengthy process and an unnecessarily complex outcome that places an obligation on future governments to sustain. There is still significant uncertainty as to whether the short-term improvements to the Budget can continue to be realised in the longer-term.
The Budget benefits of TAHE were claimed before the entity was legislated, committing the agencies to deliver, regardless of the complexities that subsequently arose
The 2015–16 GGS Budget treated the government's investment in TAHE (still known at this time as RailCorp) as an equity contribution. This had the immediate impact of improving the Budget result by $1.8 billion per annum. However, the legislation to enable the establishment of TAHE had not yet been passed by Parliament, key elements of the operating model were still under development, and imminent changes in accounting standards had the potential to impact TAHE's financial model. The decision to book the benefits in the Budget early committed the involved agencies to implement a solution that justified the 2015–16 Budget impacts, irrespective of the challenges that arose.
TAHE's financial structure requires circular government investment to work
For the NSW Government to continue to treat its investment in TAHE as an equity contribution, rather than an expense to the Budget, there must be a reasonable expectation that TAHE will generate a sufficient rate of return as required by the Government Finance Statistics (GFS) framework. In doing so, it needs to recover a revaluation loss created by a $20.3 billion reduction in the value of its assets which was incurred in its first full year of operation. This loss occurred as a result of a revaluation of TAHE's assets when RailCorp (a not-for profit entity) became TAHE (a for-profit commercial entity) – and is discussed further in the 'Key findings' below.
TAHE generates a small portion of its income from transactions with the private sector but, as noted in our report 'State Finances 2021', TAHE receives the majority of its revenue (more than 80%) from access and licence fee agreements with Sydney Trains and NSW Trains. Both of these entities are funded by grants (a Budget expense) to TfNSW from the GGS Budget.
Based on Treasury’s correspondence with the ABS in 2015, TAHE was initially expected to pay a return on equity of 7% in 2016–17. The assumption of a 7% return persisted through to 2018, after the legislation enabling the establishment of TAHE was passed by Parliament. However, when the initial access and licence fees were agreed on 1 July 2020, this figure had been revised to an expected rate of return of 1.5% excluding the revaluation loss. This was below the long-term inflation target and did not include the recovery of the revaluation loss – risking the government's ability to treat its investment in TAHE as an equity contribution. Importantly, as TAHE is primarily reliant on fees paid by the state owned rail operators that, in turn, are funded by the GGS Budget (as an expense), the decision to change the returns model from 7% to 1.5% would in its own right have had a positive impact on the GGS Budget. However, the decision to use a 1.5% return would ultimately be problematic as it made it difficult to treat the government's contributions to TAHE as an equity investment, as discussed below.
On 14 December 2021, to avoid a qualified audit opinion, the NSW Government made the decision to increase TAHE's expected rate of return to 2.5%, equal to the Reserve Bank’s long-term inflation target.
In 2021-22, TAHE needed to start charging rail operators higher access and licence fees in order to generate a return of 2.5%, so as to support the government's treatment of its investment in TAHE as an equity contribution in the GGS Budget. This meant the government needed to provide additional grant (expense) funding to the state owned rail operators so they could pay the increased access and licence fees to TAHE. Based on current projections, TAHE is not expected to recover the revaluation loss until 2046.
There remains a risk that TAHE will not be able to generate a sufficient return on the NSW Government's investment without relying on increased funding to state owned rail operators so that they can in turn pay the higher access and licence fees. TAHE's ability to generate returns on government investment from other sources are uncertain and may not be achievable or sustainable. Current modelling highlights that TAHE remains largely reliant, through to 2046, on increasing fees (which are assumed to increase at 2.5% per annum from 2031 onwards when the current 10 year contracts with rail operators expire) paid by the state owned rail operators that remain principally reliant on GGS Budget grants.
The process of designing and implementing TAHE was not transparent to independent scrutiny
Our report 'State Finances 2021' commented that Treasury did not always provide this Office with information relating to TAHE on a timely basis. Similarly, during this performance audit, there were also multiple instances where auditees were unable to provide documentation regarding key activities in the process to deliver TAHE. Agencies also applied higher sensitivity classifications to large tranches of documents than was justified or required by policy. Of particular concern is the incorrect classification of documents as Cabinet sensitive information. The incorrect or over-classification of documentation as Cabinet sensitive delayed this Office's ability to provide scrutiny or independent assurance.
There was a lack of clarity around the roles and responsibilities of governance structures set up to oversee the design and implementation of TAHE
From 2014, multiple workstreams and advisory committees were established to progress the design and implementation of TAHE. For some of these committees and workstreams, there is limited information on what they were tasked to do and what they achieved. Most had ceased meeting by 2018, before significant work needed to deliver TAHE was completed.
The lack of clarity around the roles and responsibilities of these governance structures reduced opportunities for TfNSW and Treasury to reconcile their differing objectives for TAHE, and resolve key questions earlier in the process.
There was a heavy reliance on consulting firms throughout the process to establish TAHE, and the management of consultant engagements failed to ensure that agencies received independent advice to support objective decision-making
In 2020, Treasury and TfNSW failed to prevent, identify, or adequately manage a conflict of interest when they engaged the same 'Big 4' consulting firm to work on separate TAHE-related projects. Both agencies used the firm's work to further their respective views with regard to the financial implications of TAHE's operating model. At this time those views were still unreconciled.
Treasury engaged the firm to provide a fiscal risk management strategy and advice on the impact of changes to accounting standards. TfNSW engaged the same firm to develop operating and financial models for TAHE, which raised concerns regarding the viability of TAHE. Disputes arose around the findings of these reports. Treasury disagreed with some of the outcomes of the work commissioned by TfNSW, relating to accounting treatment and fiscal advice.
The management of this conflict (real or perceived) was left to the 'Big 4' consulting firm when it was more appropriate for it to be managed by Treasury and TfNSW. If these agencies had communicated more effectively, used available governance structures consistently, and shared information openly about their use of the firm and the nature of their respective engagements, these disputes might have been avoided. This issue, coupled with deficiencies in procurement by both agencies, reflected and further perpetuated the lack of cohesion in the design and implementation of TAHE.
More broadly, over the period 2014 – 2021, 16 separate consulting firms were employed to work on 36 contracts, valued at over $22.56 million, relating to TAHE ranging from accounting and legal advice, project management, and the provision of administrative support and secretariat services.
Consultants are legitimately used by agencies to provide advice on how to achieve the outcomes determined by government, including advising agencies on the risks and challenges in achieving those outcomes. Similarly, consultants can provide expert knowledge in the service of achieving those outcomes and managing the risks. However, the heavy reliance on consulting firms during the design and implementation of TAHE heightened the risk that agencies were not receiving value for money, were outsourcing tasks that should be performed by the public service, and did not mitigate the risk that the advice received was not objective and impartial. The risk that the role of consultants could have been blurred between providing independent advice to government on options and facilitating a pre-determined outcome was not effectively treated or mitigated. This risk was amplified because a small number of firms were used repeatedly to provide advice on one topic. The effective procurement and management of consultants is an obligation of government agencies.
Appendix two – Classification of government entities
Appendix three – About the audit
Appendix four – 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 #372 - released 24 January 2023
Transport and Infrastructure 2022
What the report is about
Result of the Transport and Infrastructure cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all Transport and Infrastructure cluster agencies' financial statements.
An 'other matter' paragraph was included in TAHE's Independent Auditor's Report for its 30 June 2022 financial statements which draws attention to Transport and Asset Holding Entity's (TAHE) reliance on government-funded customers.
We included an ‘emphasis of matter’ paragraph in the Independent Auditor’s Report for State Transit Authority of New South Wales’ (the authority) 30 June 2022 financial statements, which draws attention to the financial statements being prepared on a liquidation basis as the authority’s principal activities ceased operations on 3 April 2022.
What the key issues were
The 2021–22 audits identified five high-risk findings:
- detailed business modelling to support returns from TAHE
- valuation of assets at TAHE
- control of assets at TAHE
- accounting and valuation of tree assets at Centennial Park and Moore Park Trust and Parramatta Park Trust.
Access and licence fees - TAHE
Revised commercial agreements were signed between TAHE, the operators and Transport for NSW on 23 June 2022 to reflect increased access and licence fees detailed in the 18 December 2021 Heads of Agreement.
TAHE’s ability to generate the expected return of 2.5% based on the current modelling is heavily reliant on the government funding the public rail operators (TAHE's customers).
There are risks that:
- TAHE will not be able to recontract for access and licence fees at a level that is consistent with current projections
- future governments' funding to TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections
- TAHE will be unable to grow its non-government revenues.
Valuation of assets - TAHE
Although TAHE's selected valuation of assets falls within an acceptable range, there remains a significant gap between what has been assessed as an acceptable range and TAHE's range.
What we recommended
Control of assets - TAHE
While we accepted TAHE’s position on control for the current year, NSW Treasury and TAHE should continue to monitor the risk that control of TAHE assets could change in future reporting periods. TAHE must continue to demonstrate control of its assets or the current accounting presentation would need to be reconsidered.
This report provides Parliament and other users of the Transport and Infrastructure cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 and Infrastructure cluster (the cluster) for 2022.
Section highlights
|
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 cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Coordination of the response to COVID-19 (June to November 2021)
What the report is about
This audit assessed the effectiveness of NSW Government agencies’ coordination of the response to COVID-19, with a focus on the Delta variant outbreak in the Dubbo and Fairfield Local Government Areas (LGA) between June and November 2021. We audited five agencies - the Department of Premier and Cabinet, NSW Health, the NSW Police Force, Resilience NSW and the Department of Customer Service.
The audit also considered relevant planning and preparation activities that occurred prior to June 2021 to examine how emergency management and public health responses learned from previous events.
What we found
Prior to Delta, agencies developed capability to respond to COVID-19 related challenges.
However, lessons learned from prior reviews of emergency management arrangements, and from other jurisdictions, had not been implemented when Delta emerged in June 2021. As a result, agencies were not as fully prepared as they could have been to respond to the additional challenges presented by Delta.
Gaps in emergency management plans affected agencies' ability to support individuals, families and businesses impacted by restrictions to movement and gathering such as stay-at-home orders. In LGAs of concern, modest delays of a few days had a significant impact on people, especially those most vulnerable.
On 23 July 2021, the NSW Government established a cross-government coordinating approach, the Delta Microstrategy, which complemented existing emergency management arrangements, improved coordination between NSW Government agencies and led to more effective local responses.
Where possible, advice provided to government was supported by cross-government consultation, up-to-date evidence and insights. Public Health Orders were updated as the response to Delta intensified or to address unintended consequences of previous orders. The frequency of changes hampered agencies' ability to effectively communicate changes to frontline staff and the community in a rapidly evolving situation.
The NSW Government could provide greater transparency and accountability over decisions to apply Public Health Orders during a pandemic.
What we recommended
The audit made seven recommendations intended to improve transparency, accountability and preparedness for future emergency events.
This audit assessed the effectiveness of NSW Government agencies’ coordination (focused on the Department of Premier and Cabinet, NSW Health, the NSW Police Force, Resilience NSW and the Department of Customer Service) of the COVID-19 response in selected Local Government Areas (Fairfield City Council and Dubbo Regional Council) between June and November 2021.
As noted in this report, Resilience NSW was responsible for the coordination of welfare services as part of the emergency management arrangements. On 16 December 2022, the NSW Government abolished Resilience NSW.
During the audited period, Resilience NSW was tasked with supporting the needs of communities subject to stay-at-home orders or stricter restrictions and it provided secretariat support to the State Emergency Management Committee (SEMC). The SEMC was, and remains, responsible for the coordination and oversight of emergency management policy and preparedness.
Our work for this performance audit was completed on 15 November 2022, when we issued the final report to the five audited agencies. While the audit report does not make specific recommendations to Resilience NSW, it does include five recommendations to the State Emergency Management Committee. On 8 December 2022, the then Commissioner of Resilience NSW provided a response to the final report, which we include as it is the formal response from the audited entity at the time the audit was conducted.
The community of New South Wales has experienced significant emergency events during the past three years. COVID-19 first emerged in New South Wales after bushfire and flooding emergencies in 2019–20. The pandemic is now into its third year, and there have been further extreme weather and flooding events during 2021 and 2022.
Lessons taken from the experience of these events are important to informing future responses and reducing future risks to the community from emergencies.
This audit focuses on the NSW Government's response to the COVID-19 pandemic, and in particular, the Delta variant (Delta) that occurred between June and November 2021. The response to the Delta represents six months of heightened challenges for the NSW Government.
Government responses to emergencies are guided by legislation. The State Emergency and Rescue Management Act 1989 (SERM Act) establishes emergency management arrangements in New South Wales and covers:
- coordination at state, regional and local levels through emergency management committees
- emergency management plans, supporting plans and functional areas including the State Emergency Management Plan (EMPLAN)
- operations centres and controllers at state, regional and local levels.
This audit focuses on the activities of five agencies during the audit period:
- The NSW Police Force led the emergency management response and was responsible for coordinating agencies across government in providing the tactical and operational elements that supported and enhanced the health response to the pandemic. The NSW Police Force also led the compliance response which enforced Public Health Orders and included household checks on those required to isolate at home after testing positive to COVID-19. In some parts of NSW, they were supported by the Australian Defence Force in this role.
- NSW Health was responsible for leading the health response which coordinated all parts of the health system, initially to prevent, and then to manage, the pandemic.
- Resilience NSW coordinated welfare services as part of the emergency management arrangements and provided secretariat support to the State Emergency Management Committee (SEMC). The SEMC is responsible for the coordination and oversight of emergency management policy and preparedness. Resilience NSW was also tasked with supporting the needs of communities subject to stay-at-home orders or stricter restrictions.
- The Department of Customer Service (DCS) was responsible for the statewide strategic communications response.
- The Department of Premier and Cabinet (DPC) held a key role in providing policy and legal services, as well as supporting the coordination of activity across a range of functional areas and decision-making by our State’s leaders.
This audit assessed the effectiveness of NSW Government agencies’ coordination (focused on the Department of Premier and Cabinet, NSW Health, the NSW Police Force, Resilience NSW and the Department of Customer Service) of the COVID-19 response in selected Local Government Areas (LGA) (Fairfield City Council and Dubbo Regional Council) after June 2021.
The audit investigated whether:
- government decisions to apply LGA-specific Public Health Orders were supported by effective crisis management governance and planning frameworks
- agencies effectively coordinated in the communication (and enforcement) of Public Health Orders.
While focusing on the coordination of NSW Government agencies’ response to the Delta variant in June through to November 2021, the audit also considered relevant planning and preparation activities that occurred prior to June 2021 to examine how emergency management and public health responses learned from previous events.
This audit does not assess the effectiveness of other specific COVID-19 responses such as business support. It refers to the preparedness, planning and delivery of these activities in the context of supporting communities in selected LGAs. NSW Health's contribution to the Australian COVID-19 vaccine rollout was also subject to a separate audit titled 'New South Wales COVID-19 vaccine rollout' tabled in NSW Parliament on 7 December 2022.
This audit is part of a series of audits which have been completed, or are in progress, regarding the New South Wales COVID-19 emergency response. The Audit Office of New South Wales '2022–2025 Annual Work Program' details the ongoing focus our audits will have on providing assurance on the effectiveness of emergency responses.
In this document Aboriginal refers to the First Nations peoples of the land and waters now called Australia, and includes Aboriginal and Torres Strait Islander peoples.
Conclusion
Prior to June 2021, agencies worked effectively together to adapt and refine pre-existing emergency management arrangements to respond to COVID-19. However, lessons learned from prior reviews of emergency management arrangements, and from other jurisdictions, had not been implemented when Delta emerged in June 2021. As a result, agencies were not as fully prepared as they could have been to respond to the additional challenges presented by Delta.
In the period March 2020 to June 2021, the State's Emergency Management (EM) arrangements coordinated the New South Wales emergency response to COVID-19 with support from the Department of Premier and Cabinet (DPC) which led the cross-government COVID-19 Taskforce. NSW Government agencies enhanced the EM arrangements, which until then had typically been activated in response to natural disasters, to meet the specific circumstances of the pandemic.
However, the State Emergency Management Committee (SEMC), supported by Resilience NSW, did not address relevant recommendations arising from the 2020 Bushfires Inquiry before June 2021 and agencies did not always integrate lessons learned from other jurisdictions or scenario training exercises into emergency management plans or strategies before Delta. As a result, deficiencies in the EM arrangements, including representation of vulnerable communities on EM bodies, well-being support for multicultural communities in locked down environments and cross-agency information sharing, persisted when Delta emerged in June 2021.
It should be noted that for the purposes of this audit there is no benchmark, informed by precedent, that articulates what level of preparation would have been sufficient or proportionate. However, the steps required to address these gaps were reasonable and achievable, and the failure to do so meant that agencies were not as fully prepared as they could have been for the scale and escalation of Delta’s spread across the State.
The Delta Microstrategy complemented the EM arrangements to support greater coordination and agencies are working to improve their capability for future events
The Delta Microstrategy (the Microstrategy) led to innovations in information sharing and collaboration across the public service. Agencies involved in the response have completed, or are completing, reviews of their contribution to the response. That said, none of these reviews includes a focus on whole-of-government coordination.
On 23 July 2021, the NSW Government approved the establishment of the Microstrategy to respond to the additional challenges presented by Delta including the need to support communities most impacted by restrictions to movement and gathering in the LGAs of concern. An extensive range of government agencies were represented across eight Microstrategy workstreams, which coordinated with the existing EM arrangements to deliver targeted strategies to communities in high-risk locations and improve data and information sharing across government. This enhanced the public health, compliance, income and food support, communications and community engagement aspects of the response.
Agencies also leveraged learnings from early weeks of the Delta wave and were able to replicate those lessons in other locations. The use of pre-staging hubs in Fairfield to support food and personal hamper distribution was used a month later in Dubbo which acted as a central hub for more remote parts of the State.
Emergency management plans did not enable government to respond immediately to support vulnerable communities in high-risk LGAs or regional NSW
There are gaps in the emergency management plans relating to the support for individuals, families and businesses impacted by the stay-at-home orders and other restrictions to movement and gathering. These gaps affected agencies' ability to respond immediately when the need arose during Delta.
Emergency management plans and supporting instruments did not include provision for immediate relief for households, which meant arrangements for isolation income support and food security measures had to be designed in the early stages of Delta before it could be approved and deployed.
There were delays – sometimes only days, on occasion, weeks - in providing support to affected communities. In particular, there were delays to the provision of income support and in scaling up efforts to coordinate food and grocery hampers to households in isolation. In LGAs of concern, modest delays of a few days had a significant impact on people, especially those most vulnerable.
Although government issued stricter restrictions for workers in the Fairfield LGA on 14 July 2021, it only approved targeted income support for people in LGAs of concern on 16 August 2021.
Overall, agencies coordinated effectively to provide advice to government but there are opportunities to learn lessons to improve preparedness for future events
Agencies coordinated in providing advice to government. The advice was supported by timely public health information, although this was in the context of a pandemic, where data and information about the virus and its variants was changing regularly. However, agencies did not always consider the impact on key industries or supply chains when they provided advice to government, which meant that Public Health Orders would sometimes need to be corrected.
Public Health Orders were also updated as the response to Delta intensified or to address unintended consequences of previous orders. The frequency of changes hampered agencies' ability to effectively communicate changes to frontline staff and the community in a rapidly evolving situation.
The audit identified several occasions where there were delays, ranging from three to 21 days, between the provision of advice to government and subsequent decision-making (which we have not detailed due to the confidentiality of Cabinet deliberations). Agency officers advised of instances where they were not provided sufficient notice of changes to Public Health Orders to organise local infrastructure (such as traffic support for testing clinics) to support compliance with new requirements.
The COVID-19 pandemic arrived in Australia in late January 2020 as the bushfire and localised flooding emergencies were in their final stages. Between 2020 and mid-2021, agencies responded to the initial variants of COVID-19, managed a border closure with Victoria that lasted nearly four months and dealt with localised ‘flare-ups’ that required postcode-based restrictions on mobility in northern parts of Sydney and regional New South Wales. During this period, New South Wales had the opportunity to learn from events in Victoria which imposed strict restrictions on mobility across the State and the growing emergence of the Delta variant (Delta) across the Asia Pacific.
This section of the report assesses how emergency management and public health responses adapted to these lessons and determined preparedness for, and responses to, widespread community transmission of Delta in New South Wales.
The previous chapter discusses how agencies had refined the existing emergency management arrangements to suit the needs of a pandemic and describes some gaps that were not addressed. This chapter explores the first month of Delta (mid-June to mid-July 2021). It explores the areas where agencies were prepared and responses in place for the outbreak. It also discusses the impact of the gaps that were not addressed in the period prior to Delta and other issues that emerged.
NSW Health provided advice on the removal of restrictions based on up-to-date advice
The NSW Government discussed the gradual process for removing restrictions using the Doherty Institute modelling provided to National Cabinet on 10 August 2021. NSW Health highlighted the importance of maintaining a level of public health and safety measure bundles to further suppress case numbers. This was based on additional modelling from the Doherty Institute.
The Department of Regional NSW led discussion and planning around reopening with a range of proposal through August and September 2021. The Department of Premier and Cabinet and NSW Health jointly developed a paper to provide options on the restrictions when the State reached a level of 70% double dose vaccinations.
The roadmap to reopening was originally published on 9 September 2021. However, by 11 October 2021, the restrictions were relaxed when the 70% double dose threshold was reached to allow:
- up to ten fully vaccinated visitors to a home (increased from five)
- up to 30 fully vaccinated people attending outdoor gatherings (increased from 20)
- weddings and funerals limits increased to 100 people (from 50)
- the reopening of indoor pools for training, exercise and learning purposes only.
On the same day, the NSW Government announced further relaxation of restrictions once the 80% double dose threshold was reached. These restrictions were further relaxed on 8 November 2021. This included the removal of capacity restrictions to the number of visitors to a private residence, indoor pools to reopen for all purposes and density limits of one person for every two square metres, dancing allowed in nightclubs and 100% capacity in major stadia.
The NSW Government allowed workers in regional areas who received one vaccination dose to return to their workplace from 11 October 2021.
The Premier extended the date of easing of restrictions for unvaccinated people aged over 16 from 1 December to 15 December 2021.
Many agencies have undertaken reviews of their response to the Delta outbreak but a whole-of-government review has yet to be conducted
Various agencies and entities associated with the response to the Delta outbreak conducted after-action review processes. These processes assessed the achievements delivered, lessons learned and opportunities for improvement. However, a whole-of-government level review has not been conducted. This limits the New South Wales public service's ability to improve how it coordinates responses in future emergencies.
The agencies/entities that conducted reviews included:
- South West Metropolitan region, Western NSW region, Fairfield Local Emergency Management Committee (LEMC), Dubbo Local Emergency Operations Controller (LEOCON), which were collated centrally by the State Emergency Operations Centre (SEOC)
- Aboriginal Affairs NSW assessed representation and relevance of the emergency management arrangements for Aboriginal communities following the 2019 bushfires
- Resilience NSW developed case studies to capture improved practice with regard to food security and supply chains
- a community support and empowerment-focused after-action review undertaken by the Pillar 5 workstream of the Microstrategy.
Key lessons collated from the after-action reviews include:
- the impact of variation in capability across agencies on the management of key aspects of the response including welfare support and logistics
- issues with boundary differences between NSW Police Force regions, local government areas (LGA and local health districts (LHD) caused issues in delivering and coordinating services in an emergency situation
- the need to improve relationships between state and local Government outside of acute emergency responses to improve service delivery
- issues arising from impediments to information sharing between agencies and jurisdictions, such as:
- timeliness and accuracy of data used to direct compliance activities
- the impact of insufficient advance notice on changes to Public Health Orders
- timely access to data across public sector agencies and other jurisdictions to inform decision-making, analysis and communications
- gaps in data around ethnicity, geolocation of recent positive cases and infection/vaccination rates in Aboriginal communities.
- the lack of Aboriginal community representation on many LEMCs
- compared with the response to COVID-19 in 2020, improved coordination of communications with Culturally and Linguistically Diverse (CALD) populations with a reduction in overlapping messages and over-communication
- improved attendance from agency representatives in LEMCs, and regional emergency operations centres (REOC) to improve interagency communications, planning, capability development and community engagement issues
- deficiencies in succession planning and fatigue management practices
- the potential for REOC Welfare/Well-being subgroups to be included as part of the wider efforts to community needs during emergencies.
NSW Health commenced a whole of system review of its COVID-19 response in May 2022. At the time of writing, the completion due date for the debrief is 7 November 2022. This debrief is expected to explore:
- governance
- engagement
- innovation and technology
- community impact
- workforce impact
- system impact and performance.
NSW Health is also undertaking a parallel Intra-Action Review that is focused on the public health aspects of the response with finalisation estimated for the end of November 2022. At the time of completing this performance audit report, NSW Health had not finalised these reviews and, as a result, we cannot validate their findings against our own observations.
Recent inquiries are likely to impact the governance of emergency management in New South Wales
In March 2022, the NSW Government established an independent inquiry to examine and report on the causes of, preparedness for, response to and recovery from the 2022 floods. The Flood Inquiry report made 28 recommendations, which the NSW Government supported in full or in principle. Some of the recommendations relate directly to the governance and leadership of emergency management arrangements in New South Wales.
The State Emergency Management Committee (SEMC) will likely be involved in, and impacted by, the recommendations arising from the Flood Inquiry with potential changes to its membership and reshaping of functional areas and agencies. At the same time, the SEMC may have a role in overseeing the changes that emerge from the SEOC consolidated after-action reviews. This can also extend to ensuring local and regional bodies have incorporated the required actions. There is a risk that the recommendations from the pandemic-based after-action reviews may not be considered due to the priority of action resulting from the Flood Inquiry.
Furthermore, there is potential for the SEMC to work with NSW Health during its system-wide review. Such an approach is likely to improve preparedness for future events.
Appendix one – Response from agencies
Appendix two – Chronology 2020–2021
Appendix three – About the audit
Appendix four – 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 #371 - released 20 December 2022
Stronger Communities 2022
What the report is about
Results of the Stronger Communities cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unqualified audit opinions were issued on all completed 30 June 2022 financial statement audits. One audit is ongoing.
All 13 cluster agencies that have accommodation arrangements with Property NSW derecognised right-of-use assets and lease liabilities of $917 million and $1 billion respectively. The agencies also collectively recorded a gain on derecognition of $136 million.
The Department of Communities and Justice (the department) assumed the responsibility for delivery of the Process and Technology Harmonisation program from the Department of Customer Service. In 2021–22, the department incurred costs of $42.8 million in relation to the project, which remains ongoing.
The number of monetary misstatements identified during the audits decreased from 50 in 2020–21 to 48 in 2021–22.
What the key issues were
Six of the 15 cluster agencies required to submit 2021–22 mandatory early close procedures did not meet the statutory deadlines. One agency did not complete all mandatory procedures.
Five high-risk findings were identified in 2021–22. They related to deficiencies in:
- user access administration at the department, NSW Rural Fire Service and New South Wales Aboriginal Land Council (NSWALC)
- segregation of duties at the NSW Trustee and Guardian and NSWALC.
Recommendations were made to those agencies to address these control deficiencies.
This report provides Parliament and other users of the Stronger Communities cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Stronger Communities cluster (the cluster) for 2022.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Stronger Communities cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Education 2022
What the report is about
Result of the Education cluster financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Education cluster agencies.
An 'other matter' paragraph was included in the TAFE Commission's independent auditor's report as it did not have a delegation or sub-delegation from the Minister for Education and Early Learning to incur expenditure from cluster grants.
What the key issues were
Annual fair value assessments of land and buildings showed material differences in their carrying values. As a result, the Department of Education and the TAFE Commission completed desktop revaluations of land and buildings, collectively increasing the value of these assets by $1.2 billion and $4.7 billion respectively.
The Department of Education and the NSW Education Standards Authority accepted changes to their office leasing arrangements managed by Property NSW. These changes resulted in the collective derecognition of $270.6 million of right-of-use assets and $382.9 million in lease liabilities.
What we recommended
A high-risk matter was reported in the management letter for the TAFE Commission highlighting non-compliance with policies and procedures guiding appropriate use of purchasing cards.
We recommended cluster agencies prioritise and address internal control deficiencies.
This report provides Parliament and other users of the Education cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 Education cluster (the cluster) for 2022.
Section highlights
|
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 Education cluster.
Section highlights
|
The number of findings reported to management has increased, and 31% were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2021–22, there were 29 findings raised across the cluster (28 in 2020–21). Thirty-one per cent of all issues were repeat issues (50% in 2020–21).
The most common new and repeat issues related to internal control deficiencies in agencies’ information technology general controls, application controls, and procurement and payroll practices.
A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.
A high-risk matter was reported at the TAFE Commission highlighting instances of non-compliance with policies and procedures guiding appropriate purchasing card use
As part of our audit of the TAFE Commission, we integrated the use of data analytics into the audit approach. We performed data analytics over aspects of payroll, procurement and accounts payable activities. This helped us to highlight anomalies or risks in those data sets that are relevant to the audit of the TAFE Commission and plan testing procedures to address those risks. Data analytics also assisted us in providing an insight into the internal control environment of the TAFE Commission, highlighting areas where key controls are not in place or are not operating as management intended.
Our analysis over purchasing card data supplied by the TAFE Commission for the period July 2021 to March 2022 found deficiencies in the provisioning, use and cancellation of purchasing cards. This included identified instances of:
- controls effectively bypassed when a purchasing card surrendered by a former employee had been used by another employee
- split payments, circumventing delegation / cardholder limits
- delays in the submission and approval of purchasing card transactions.
The table below describes the common issues identified across the cluster by category and risk rating:
| Risk rating | Issue |
| Information technology | |
|
High: 0 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 2 new, 1 repeat 3 |
The financial audits identified areas for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of note were deficiencies identified in:
|
| Internal control deficiencies or improvements | |
|
High: 1 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 4 new, 1 repeat 3 |
The financial audits identified internal control weaknesses across key business processes relevant to financial reporting. Of note were deficiencies identified in:
|
| Financial reporting | |
|
High: 0 new, 0 repeat 1 Moderate: 1 new, 1 repeat 2 Low: 2 new, 0 repeat 3 |
The financial audits identified:
|
2 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
3 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Recommendation
We recommend cluster agencies prioritise and action recommendations to address the internal control deficiencies outlined above.
Student attendance
What the report is about
Poor attendance at school is related to poor student outcomes, particularly once patterns of non-attendance have been established.
This report examined how the NSW Department of Education (the department) is managing student attendance in NSW government schools.
What we found
Around a third of students in Years 1–10 attended school less than 90% of the time in semester one, 2021. Missing more than 10% of school may put a student's educational outcomes at risk.
Since 2018, the department has improved the quality of student attendance data, analysis and reporting. However, there are still gaps in understanding the reasons for absence at a system level.
The department set state-wide and school-level targets to increase the proportion of students attending school at least 90% of the time. This emphasis risks diverting attention away from students with very low attendance rates.
There are gaps in central programs to support schools in lifting student attendance. Schools are taking a variety of approaches to this work.
There is a large gap in attendance between Aboriginal and non-Aboriginal students, which has increased since 2018.
What we recommended
The Department of Education should:
- set new state-wide and school level attendance targets
- evaluate its attendance support programs
- update its attendance strategies and programs
- publish the attendance level for each school in their annual reports
- improve internal analysis and reporting of attendance data
- finalise the review of the attendance policy, procedure and codes
- review programs supporting Aboriginal student attendance and address any gaps
- review the approach to enforcing compulsory school attendance.
Fast facts
- 90% - attending school less than 90% of the time can put a student's educational outcomes at risk
- 67.9% of Year 1–10 students in NSW government schools attended at least 90% of the time in semester one, 2021
- 42.7% of Aboriginal Year 1–10 students in NSW government schools attended school at least 90% of the time in semester one, 2021.
Regular attendance at school is important for academic and other long-term outcomes. Students who do not attend regularly are less likely to complete school and more likely to experience poorer long-term health and social outcomes. A range of factors influence student attendance including student engagement and wellbeing, family and community factors and the school environment.
The NSW Department of Education's (the department's) Strategic Plan for 2018–2022 identifies improving student attendance as a priority. It has identified 95% as its expected level of attendance. It set targets to increase the proportion of students attending school at least 90% of the time, from 79.4% to 82% in primary schools and 64.5% to 70% for secondary schools.
This report focuses on attendance data for semester one of 2018, 2019 and 2021. Unless otherwise noted, attendance data refers to Years 1–10 in alignment with national reporting conventions. Changes in recording systems and definitions mean attendance data prior to 2018 is not comparable. Attendance data for semester one of 2020 and 2022 was significantly affected by COVID-related disruptions, which prevented many students across the State from attending school. Data for semester one of 2021 is considered relatively less affected by COVID-related disruptions.
The Education Act 1990 (the Act) sets out the responsibilities of students, parents and the department for ensuring students receive compulsory schooling. The department has developed policies, procedures and guidance to assist schools in managing their responsibilities to promote regular attendance. In this report, we define 'regular' attendance as at least 90% of the time. This is equivalent to missing one day of school each fortnight or four weeks of school across a school year.
The objective of this audit was to assess whether student attendance is effectively managed in NSW government schools for students from kindergarten to Year 10. In making this assessment, the audit examined whether:
- there are effective systems and policies for managing student attendance
- the department effectively supports schools to manage student attendance
- schools are effectively managing student attendance.
Conclusion
There are too many students in NSW Government schools who regularly miss school. In semester one of 2021, around a third of students in Years 1–10 attended school less than 90% of the time — a level that puts their educational outcomes at risk. Attendance problems are widespread. 775 of 2,200 schools in NSW had an average attendance rate below 90% in 2021. Aboriginal student attendance is significantly below non-Aboriginal students and there is no specific strategy to address this gap. The department needs to place greater attention on supporting schools to lift student attendance.
Good quality data on attendance patterns is critical to developing strategies to address the underlying reasons for absence. The quality of the department's data on student attendance has improved from 2018. This has allowed it to monitor attendance more closely throughout the year, rather than relying on a yearly collection. However, there are still gaps in capturing and analysing the reasons for absence.
The improved data collection allowed the department to begin reporting on the 'attendance level' for the first time in 2018. This measures the proportion of students attending more than 90% of the time. The department has set state-wide and school-level targets to improve the attendance level. The new targets have influenced the focus of strategies to lift attendance. There is now a greater focus on lifting students above the reportable benchmark of 90% rather than addressing more serious attendance concerns.
The School Success Model formalises the focus on achieving school-level targets. When introduced, the department stated that schools would receive targeted support as part of the rollout of the model. Targeted support for attendance was initially planned to be delivered in late 2021 but was delayed due to the impact of COVID. The two main attendance support programs do not cater to schools with fewer than 100 students and there are gaps in support due to two different methodologies being used to select schools.
The Home School Liaison Program is a longstanding program to support students with low attendance. Requests for support are rationed pending availability of case officers, which leads to younger students being prioritised. Older students are not supported because there is a lower chance of prosecution in the legal system if attendance is not restored by the program. There is insufficient monitoring of the adequacy of resources, activities and long-term outcomes of this program.
The department's Aboriginal Education Policy aims to have Aboriginal students matching or exceeding outcomes of non-Aboriginal students. In semester one, 2021 42.7% of Aboriginal students attended school regularly (at least 90% of the time) compared with 70.3% of non-Aboriginal students. The gap in attendance between Aboriginal and non-Aboriginal students has grown since 2018. There are relatively new programs supporting Aboriginal students in secondary school to attain their Higher School Certificate, but greater attention should be placed on supporting attendance for Aboriginal students in primary schools.
Schools are using a wide range of strategies to improve student attendance depending on their local contexts. Schools we spoke with told us of allocating responsibility to key staff members, closer monitoring of data, community engagement, rewards and incentives, before school sporting and breakfast programs, and partnerships with external agencies. The school planning and annual reporting process prompts schools to evaluate the impact of their strategies on progress towards their targets. The department could do more to promote evidence-based programs, showcase better practice examples from schools in NSW and identify the circumstances where these approaches are most effective.
This chapter considers the effectiveness of systems to accurately collect, analyse and report student attendance data. It also considers the effectiveness of policies and procedures to support attendance and central oversight of attendance issues.
This chapter considers the effectiveness of the department's strategies to improve student attendance and the support it provides to schools to achieve this. It also considers the effectiveness of school-level strategies and actions for students with low attendance.
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 #368 - released 27 September 2022
Audit Insights 2018-2022
What the report is about
In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.
This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.
The report is framed by recognition that the past four years have seen significant challenges and emergency events.
The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.
The report is a resource to support public sector agencies and local government to improve future programs and activities.
What we found
Our analysis of findings and recommendations is structured around six key themes:
- Integrity and transparency
- Performance and monitoring
- Governance and oversight
- Cyber security and data
- System planning for disruption
- Resource management.
The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.
In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.
The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
Fast facts
- 72 audits included in the Audit Insights 2018–2022 analysis
- 4 years of audits tabled by the Auditor-General for New South Wales
- 6 key themes for Audit Insights 2018–2022.
I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.
The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.
While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.
Margaret Crawford
Auditor-General for New South Wales
| Integrity and transparency | Performance and monitoring | Governance and oversight | Cyber security and data | System planning | Resource management |
| Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. | Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. | The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. | Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. | Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. | Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest. |
| Government entities should report to the public at both system and project level for transparency and accountability. | Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. | Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. | In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. | Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. | Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds. |
| Entities must provide balanced advice to decision-makers on the benefits and risks of investments. | Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. | Active review of policies and procedures in line with current business activities supports more effective risk management. | Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. | Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. | Transformation programs can be improved by resourcing a program management office. |
| Clear guidelines and transparency of decisions are critical in distributing grant funding. | Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. | Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues. | Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need. | ||
| Governments must ensure timely and complete provision of information to support governance, integrity and audit processes. | |||||
| Read more | Read more | Read more | Read more | Read more | Read more |
This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.
- Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
- Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
- Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.
This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.
The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.
This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.
Appendix one – Included reports, 2018–2022
Appendix two – About this report
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.
COVID-19: response, recovery and impact
What the report is about
This report draws together the financial impact of COVID-19 on the agencies integral to responses across the state government sector of New South Wales.
What we found
Since the COVID-19 pandemic hit NSW in January 2020, and until 30 June 2021, $7.5 billion was spent by state government agencies for health and economic stimulus. The response was largely funded by borrowings.
The key areas of spending since the start of COVID-19 in NSW to 30 June 2021 were:
- direct health response measures – $2.2 billion
- personal protective equipment – $1.4 billion
- small business grants – $795 million
- quarantine costs – $613 million
- increases in employee expenses and cleaning costs across most agencies
- vaccine distribution, including vaccination hubs – $71 million.
The COVID-19 pandemic significantly impacted the financial performance and position of state government agencies.
Decreases in revenue from providing goods and services were offset by increases in appropriations, grants and contributions, for health and economic stimulus funding in response to the pandemic.
Most agencies had expense growth, due to additional operating requirements to manage and respond to the pandemic along with implementing new or expanded stimulus programs and initiatives.
Response measures for COVID-19 have meant the NSW Government is unlikely to meet targets in the Fiscal Responsibility Act 2012 being:
- annual expense growth kept below long-term average revenue growth
- elimination of State’s unfunded superannuation liability by 2030.
Fast facts
- First COVID-19 case in NSW on 25 January 2020
- COVID-19 vaccinations commenced on 21 February 2021
- By 31 December 2021, 25.2 million PCR tests had been performed in NSW and 13.6 million vaccines administered, with 93.6% of the 16 and over population receiving two doses
- During 2020–21, NSW Health employed an extra 4,893 full-time staff and incurred $28 million in overtime mainly in response to COVID-19
- During 2020–21, $1.2 billion was spent on direct health COVID-19 response measures and $532 million was spent on quarantine for incoming international travellers
Section highlights
|
Section highlights
|
Transport 2021
What the report is about
The results of the Transport cluster agencies’ financial statement audits for the year ended 30 June 2021.
What we found
Unmodified financial statement audit opinions were issued for all Transport cluster agencies. Resolution of issues delayed signing the Transport Asset Holding Entity of NSW (TAHE) until 24 December 2021. Matters relating to TAHE are also reported in the report on State Finances 2021.
Emphasis of Matter - TAHE
An Emphasis of Matter paragraph was included in TAHE's audit opinion to draw attention to uncertainty associated with:
- future access and licence fees that are subject to re-signed agreements
- an additional $4.1 billion of funding that is outside the forward estimates period
- a significant portion of the fair value of TAHE’s non-financial assets is reflected in the terminal value, which is outside the ten-year contract period to 30 June 2031, and the risk that TAHE will not be able to negotiate contract terms to support current projections.
TAHE's transition from RailCorp also changed its valuation of assets to an income approach, resulting in a $20.3 billion decrease to the fair value. The fair value decrease was because the cash flows were not sufficient to support the previous recorded value.
TAHE corrected a misstatement of $1.2 billion relating to the valuation of its assets. This followed significant deliberation on key judgements and assumptions, with TAHE adopting risk assumptions in its valuation that were not in line with comparable benchmarks.
Emphasis of Matter - State Transit Authority of New South Wales
An Emphasis of Matter paragraph was included in the State Transit Authority of NSW's (the Authority) audit opinion to draw attention to the financial statements not prepared on a going concern basis. This was because the NSW Government put the Authority's bus contracts out to competitive tender and accordingly, management assessed the Authority's principal activities are not expected to operate for a full 12 months after 30 June 2021.
The implementation of AASB 1059 ‘Service Concession Arrangements: Grantors’ resulted in a net increase in assets of $23.5 billion across the Transport cluster.
The 2020–21 audits identified six high-risk and 45 moderate risk issues across the cluster. Fourteen of the moderate risk issues were repeat issues, including information technology controls around management of user access for key financial systems and payroll processes.
The high-risk issues, in addition to those related to TAHE and previously reported in the report on State Finances 2021, include:
- absence of conflict of declarations related to land acquisition processes at Transport for NSW
- no evidence of conflict of interest declarations obtained by TAHE from consultants and contractors regarding involvement in other engagements.
What we recommended
TAHE needs to:
- finalise revised commercial agreements to reflect fees detailed in a Heads of Agreement signed on 18 December 2021
- prepare robust projections and business plans to support the required rate of return.
NSW Treasury and TAHE should monitor the risk that control of TAHE assets could change in the future.
Transport for NSW needs to significantly improve its processes to ensure all key information is identified and shared with the Audit Office.
Transport agencies should implement a process to ensure conflicts of interest declarations are completed for land acquisitions and applied consistently across the cluster.
Transport agencies should implement a process to capture all contracts and agreements entered to ensure:
- agencies are aware of contractual obligations
- financial reporting implications are assessed, particularly with respect to leases, revenue and service concession arrangements.
Fast facts
The Transport cluster plans and delivers infrastructure and integrated services across all modes of transport. This includes road, rail, bus, ferry, light rail, cycling and walking. There are 11 agencies in the cluster.
- $128b road and maritime system infrastructure assets as at 30 June 2021
- 100% unqualified audit opinions were issued on agencies 30 June 2021 financial statements
- 26 monetary misstatements were reported in 2020–21
- $24.9b rail systems infrastructure assets as at 30 June 2021
- 6 high-risk management letter findings were identified
- 37% of reported issues were repeat issues
This report provides Parliament and other users of the transport cluster (the cluster) agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 cluster for 2021.
Section highlights
|
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 cluster.
Section highlights
|
Findings reported to management
The number of findings reported to management has increased, and 37 per cent of all issues were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2020–21, there were 73 findings raised across the cluster (56 in 2019–20) and 37 per cent of all issues were repeat issues (43 per cent in 2019–20).
In view of the recent performance audit ‘Managing Cyber Risks’ and compliance audit ‘Compliance with the NSW Cyber Security Policy’ involving the cluster, it is noted with concern that the most common repeat issues related to weaknesses in controls over information technology user access administration and password management. Moderate risk issues included completeness and accuracy of contract registers, accounting for assets and management of supplier and payroll masterfiles.
A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports, and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Control deficiencies may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation, and central agency policies.
The table below describes the common issues identified across the cluster by category and risk rating.
| Risk rating | Issue |
| Information technology | |
| Moderate: 7 new, 4 repeat** |
The financial audits identified opportunities for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of particular concern are issues associated with:
|
| Low: 4 new, 1 repeat*** | |
| Internal control deficiencies or improvements | |
| High: 1 new* |
The financial audits identified internal control deficiencies across key business processes, including:
|
| Moderate: 15 new, 8 repeat** | |
| Low: 2 new, 5 repeat*** | |
| Financial reporting | |
| High: 3 new* |
The financial audits identified opportunities for agencies to strengthen financial reporting, including:
|
| Moderate: 3 new, 1 repeat** | |
| Low: 2 new*** | |
| Governance and oversight | |
| High: 1 new* |
The financial audits identified opportunities for agencies to improve governance and oversight processes, including:
|
| Moderate: 2 new** | |
| Non-compliance with key legislation and/or central agency policies | |
| High: 1 new* |
The financial audits identified the need for agencies to improve its compliance with key legislation and central agency policies, including:
|
| Moderate: 4 new, 1 repeat** | |
| Low: 1 new, 7 repeat*** | |
** Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
*** Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Note: Management letter findings are based either on final management letters issued to agencies.
2020–21 audits identified six high-risk findings
High-risk findings were reported at the following cluster agencies.
| Agency | Description |
| 2020–21 findings | |
| Transport for NSW (new finding) |
Declaration of conflicts of interest in the land acquisition process In 2021, we conducted a performance audit over the Acquisition of 4–6 Grand Avenue, Camellia which examined:
The report made several recommendations over Transport for NSW’s internal policies and procedures to guide the land acquisition process. As part of the financial audit, we obtained an understanding of key controls and processes relating to the acquisition of land, relevant to the audit of the financial statements. We found that conflicts of interests were not always declared by all officers involved in the land acquisition process. Furthermore, processes for declaring conflicts of interests are not consistently applied across cluster agencies. Out of a sample of 19 land acquisitions tested, we identified:
Management advised that the land acquisition processes, at the time of the land acquisitions, did not require formal conflicts of interests to be declared as they believe that as per Transport for NSW code of conduct, declaration is only required where the staff member considers that a potential or perceived Conflict of Interest exists. However, Transport for NSW's Procurement Policy requires the documentation of formal declarations from all staff involved in procurement activities to formally disclose any conflicts of interest or state that they do not have a conflict of interest. This matter has been included as a high-risk finding in the management letter as absence of rigorous and consistent management of conflicts of interests, and non-compliance with established policies increases the risk that Transport for NSW may be exposed to reputational damage or financial losses in relation to land acquisitions. Furthermore, this may result in lack of probity or value-for money considerations during the land acquisition process. Further details are elaborated below under 'Land acquisitions'. |
| Transport Asset Holding Entity of New South Wales (new finding) |
Control over TAHE assets and operations The State-Owned Corporations Act 1989 maintains that all decisions relating to the operation of a statutory state-owned corporation (SOC) are to be made by or under the authority of the board. However, under the Transport Administration Act 1988 (TAA), the functions of TAHE may only be exercised under one or more operating licences issued by the portfolio minister. The current Operating Licence confers terms and conditions for TAHE to carry out its functions, and imposes constraints on TAHE, including (but not limited to):
Such operating licences are short term in nature, and the TAA allows the transport minister (portfolio minister) to grant one or more operating licences to TAHE and may amend, substitute, or impose, amend or revoke conditions of the operating licence. For the current year, the legal form of the arrangements established in its first year of operation imply TAHE has control over the assets based on the Implementation Deed and the agreements signed with the public operators. However, risks remain as TAHE is in its early stages, and the actual substance of operations will need to be observed and considered. Given the restrictions that can be placed on the entity through the Operating Licence, and the ability to make further changes to the Operating Licence and Statement of Expectations set by the portfolio minister, there is a risk there could be limitations placed on the Board of Directors to operate with sufficient independence in its decision-making with respect to the operations of TAHE. Over time, this may further impact the degree of control required by TAHE to satisfy the recognition criteria over its assets. It may also fundamentally change the presentation of TAHE’s financial statements. Future limitations to the degree of control TAHE, and its Board, can exercise over its functions may impact the degree of control TAHE has over its assets going forward. As part of the 2021–22 audit, we will monitor and assess whether, in substance, these assets continue to be controlled by TAHE and whether, in substance, TAHE can operate as an independent SOC. We require management continue to demonstrate that TAHE continues to maintain control over its assets and has the ability to operate as an independent SOC. Further details are described below under 'Transport Asset Holding Entity'. |
| Transport Asset Holding Entity of New South Wales (new finding) |
Asset valuation The final updated valuation was based on cash flows that were in a signed Heads of Agreement, which stated that it set out the proposed indicative future access and licence fees which will form the basis of the negotiations between TAHE, Transport for NSW, Sydney Trains and NSW Trains, who will work together to review access fees and licence fees payable under the agreements and to make all necessary changes to the Operating Agreements by 1 July 2022. This adds uncertainty in the cash flows. It is crucial that TAHE formalises these updated fees in legally binding signed access and licence agreements with the relevant parties as soon as possible. Refer below for further details on the Heads of Agreement. |
| Transport Asset Holding Entity of New South Wales (new finding) |
Conflict of interest (COI) management For procurement transactions through direct negotiation with single quotes, there was no evidence of COI declarations obtained from the consultants and contractors regarding involvement in other engagements. Contractors and consultants are required to declare actual COI. However, there was no requirement to confirm nil conflict of interest. In addition, there is a risk that perceived COI may not be adequately assessed or managed. TAHE is expected to operate as an independent SOC and would need to ensure any perceived or actual conflict of interest is adequately addressed. Management should implement a process to:
The declarations should consider individuals and relationships that may create, or may be perceived to create, conflicts of interest. |
| Transport Asset Holding Entity of New South Wales (new finding) |
Detailed business modelling to support returns On 18 December 2021, Transport for NSW, TAHE and the operators, Sydney Trains and NSW Trains entered into a Heads of Agreement (HoA). This HoA forms the basis of negotiations to revise the pricing within the existing 10-year contracts and deliver upon the shareholders' expectation of a return of 2.5 per cent per annum of contributed equity, including recovering the revaluation loss incurred in 2020–21. TAHE needs to revise its business plan and include detailed business modelling that supports the shareholding ministers' revised expectations of return (2.5 per cent return on the State’s equity injections and recovery of the write-down of assets over the average useful life of those assets) and align the business plan and Statement of Corporate Intent. This requires more detailed projections, estimates and plans that support how TAHE expects to recover the asset write-down and expected returns to government. The current modelling for ten years needs to be enhanced with modelling over the expected recovery period of approximately 33 years. |
| Transport Asset Holding Entity of New South Wales (new finding) |
Access price build-up Management explained that in determining access and licence fees for the agreements with Sydney Trains and NSW Trains, assets prior to the commencement of equity injections in 2015–16 were excluded from the calculations. Management explained the premise being that these assets were previously funded by government through capital grants. The replacement and refurbishment of these assets is expected to be through government funded maintenance performed through the public rail operators and/or the equity injections from NSW Treasury rather than through access and licence fees. |
The number of moderate risk findings increased from prior year
Forty-five moderate risk findings were reported in 2020–21, representing a 73.1 per cent increase from 2019–20. Of these, 14 were repeat findings, and 31 were new issues.
Key moderate risk findings related to:
- weaknesses in user access management to key financial systems
- management of contracts and agreements register
- management of supplier and payroll masterfiles
- accounting for assets
- control deficiencies at service organisations
- segregation of duties relating to the hiring of employees
- conflict of interest management
- annual leave management
- review of internal audit charter
- disaster recovery planning.
Transport Asset Holding Entity of New South Wales
Background
The establishment of TAHE was originally announced by the NSW Government in the 2015–16 State Budget. On 1 July 2020, the former Rail Corporation New South Wales (RailCorp), a not-for-profit entity, transitioned to the Transport Asset Holding Entity of New South Wales (TAHE), a for-profit statutory state-owned corporation under the Transport Administration Act 1988. There was no change in the structure of TAHE as a new entity was not created. Ownership remains fully with the government. TAHE, and the former RailCorp, were both classified as Public Non-Financial Corporation (PNFC) entities within the Total State Sector Accounts.
Prior to 1 July 2015, the government paid appropriations to Transport for NSW, a General Government Sector (GGS) agency, to construct transport assets. When completed, these assets were granted to the former RailCorp, a not for-profit entity within the PNFC sector. The grants to the former RailCorp were recorded as an expense in the State’s GGS budget result.
From 1 July 2015, the government announced the creation of TAHE (a dedicated asset manager). Funding for new capital projects was to be provided through equity injections and was no longer recorded as an expense to the GGS budget, even though the business model was yet to be determined. The change, as explained in the 2015–16 State Budget, was due to the expectation that the former RailCorp will transition to TAHE, which was intended, over time to provide a commercial return. That Budget also highlighted how the change, which was largely a change in the basis of accounting, was intended to improve the GGS budget result each year. In total, the GGS has contributed approximately $11.1 billion to TAHE since 2015–16. This includes the equity injections from the GGS to TAHE made in the current year of $2.4 billion.
NSW Treasury initially set a timetable for the stand-up of TAHE of 1 July 2019, which included finalising the business model, operating model and contracts for the use of TAHE's assets. The enactment of the Transport Administration Act 1988 resulted in RailCorp transitioning to TAHE on 1 July 2020, 12 months after its originally planned operational date. Contributions paid to the former RailCorp and subsequently to TAHE by the GGS were treated as equity investments from July 2015 forward. This treatment continued, despite delays in settling the business model. In 2020, the Audit Office raised a high-risk finding due to the significance of the financial reporting impacts and business risks for NSW Treasury and TAHE.
The business model adopted and the flow of funds between transport agencies in the GGS and PNFC sectors is shown in the diagram below. For further details refer to the Report on State Finances 2021.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – 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.
