This report analyses the results of our audits of the Health cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Health cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of Health cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for the financial statements of all Health cluster agencies.

The COVID-19 pandemic increased the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2020–21 was $250.2 million, of which $226.0 million were pandemic related.

A qualified audit opinion was issued on the Annual Prudential Compliance Statement. The basis of the qualification related to 19 instances (18 in 2018–19) of non-compliance relating to three of the 20 prudential requirements across five aged care facilities.

What the key issues were

The total number of matters we reported to management across the cluster increased from 112 in 2019–20 to 116 in 2020–21. Of the 116 issues raised in 2020–21, three were high risk (one in 2019–20) and 57 were moderate risk (47 in 2019–20). Nearly one half of the issues were repeat issues.

The three new high-risk issues identified were:

Hotel Quarantine (HQ) fees

The absence of a tailored debt recovery strategy, data integrity issues and uncertainties around future HQ arrangements increased risks around the recoverability of HQ fees from travellers.

COVID-19 inventories

Data errors and anomalies in the impairment model and difficulties forecasting key factors impacting the management of Personal Protective Equipment (PPE) increased uncertainty associated with the valuation and impairment of COVID-19 inventories.

COVID-19 vaccines

The Commonwealth did not provide information about the cost of vaccines provided to NSW free of charge, which required the performance of internal valuations to reflect the consumption of vaccines in the financial statements.

What we recommended

Hotel Quarantine (HQ) fees

Develop a tailored assessment methodology to estimate recoverability of HQ fees and work with Revenue NSW to develop a tailored debt recovery strategy.

COVID-19 inventories

Review the current stocktaking and impairment methodology to incorporate validation of data key to the management of COVID-19 related PPE.

COVID-19 vaccines

Work with the Commonwealth to obtain primary price information on COVID-19 vaccines.

This report provides Parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

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 Health cluster (the cluster) for 2021.

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 Health cluster.

Findings reported to management

The number of findings reported to management has increased, with 47.4 per cent of all issues being 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 cluster agencies. The Audit Office does this through our management letters, which include observations, implications, recommendations and risk ratings.

In 2020–21, there were 116 findings raised across the cluster (112 in 2019–20). 47.4 per cent of all issues were repeat issues (38.4 per cent in 2019–20).

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.

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

Complexities arising from the COVID-19 response

The 2020–21 audit identified three new high-risk findings

COVID-19 has presented the cluster with several new accounting challenges. New and evolving matters arose from changes to operating conditions, which characterised the 2020–21 financial reporting period. Issues with a high degree of estimation uncertainty will require ongoing attention as the strategies employed to deal with the COVID-19 pandemic evolve.

Expected rate of recovery of outstanding Hotel Quarantine invoices

The estimation of the amount likely to be recovered is complicated not only by the uncertainties that exist regarding the assumptions those estimations rely upon, but also the debt collection processes and strategies put into place to manage the accumulated debtors' balance. Debt collection is not administered by the cluster, but rather Revenue NSW. We observed an absence of a methodology to assess the likelihood of recovery. Instead, Sydney Local Health District was relying on Revenue NSW to develop and execute on a collection strategy. Sydney Local Health District was using the same approach to hotel quarantine debts as it did to other Health receivables. As the approach to managing international borders evolves over time, so too will the cluster's need to develop robust estimation models to assess the likely collectability of debtors. 

Procurement, management and impairment of COVID-19 inventories

$656.2 million of COVID-19 inventories were procured in 2020–21, with $220.2 million consumed; $558.7 million impaired and a further $217.1 million written off. Estimates of the degree to which inventories are expired, not fit for purpose or are faulty is often based on management judgement at all stages in the procurement cycle.

With respect to the stocktaking methodology applied, the following issues were identified:

• discrepancies noted in the stock bin listing provided for audit
• discrepancies in the recount sheet generated
• inconsistent application of the stocktake methodology
• inconsistent labelling of quarantined stock
• a lack of an approach for validating stock expiry dates, which is a key input to the impairment calculations.

Although management had developed processes and a methodology to count as well as to assess the level of inventory that was not fit for purpose, ongoing attention to the operating environment that emerges post pandemic will be important in assessing the degree to which existing COVID-19 inventories can be integrated into a ‘business as usual’ model going forward. Further refinement of the key elements of the stocktaking methodology will also be required to ensure that key inputs upon which management relies to calculate the year-end inventory impairment provision can be appropriately validated.

Valuation and recognition of COVID-19 vaccines received from the Commonwealth Government

The 2020–21 financial reporting period saw the Commonwealth acquire COVID-19 vaccines and provide these to state jurisdictions to dispense to their communities. The vaccines, although provided free of charge require recognition. However, Health entities were not responsible for acquiring the vaccines and data on the vaccines' cost was not shared by the Commonwealth. Management undertook a valuation using publicly available data to estimate the value to attribute to the vaccine inventory; developed new systems and leveraged existing pharmacy systems to track physical quantities received from the Commonwealth and ultimately distributed to NSW citizens. As the response to the pandemic evolves, larger quantities, and new lines of vaccine stock will be dealt with, and policy settings will need to adapt when patterns of distribution of those vaccines (e.g., timing of third booster shots) emerge. The Ministry of Health will need to ensure that the valuations applied to the prices of inventory distributed and held in stock are as accurate as possible. This can be done through further refinement of the existing valuation methodology, obtaining price information from the Commonwealth and engaging specialist pharmaceutical valuers.

Emerging trends

Recognition of provisions without sufficient support

Several NSW Health entities raised accruals and provisions in 2020–21, which did not have an appropriate basis for recognition. Liabilities can only be recognised where there is a present obligation to make a payment arising from a past event. A number of these errors remain uncorrected in the financial statements of those entities as they are not material, individually or in aggregate to the financial statements as a whole. Increased training and guidance are required to ensure that treatment within the cluster is consistent and reflects events that have occurred and give rise to obligations.

Treatment of Commonwealth funding

In the 2020–21 and 2019–20 financial reporting periods, we observed prior period errors arising from the treatment of Commonwealth funding. These errors related to recognising revenue under funding agreements entered into with the Commonwealth in the incorrect period. The conditions of these funding arrangements, the transactional information requiring validation and the circumstances when revenue should be recognised are not always clear and can be complex. Early and continuous engagement with the Commonwealth is required to ensure that revenue recognition principles are consistently applied across the cluster.

Key repeat issues

Management of excessive annual leave

NSW Treasury guidelines stipulate annual leave balances exceeding 30 days are considered excess annual leave balances. Managing excess annual leave balances has been reported as an issue for the cluster for more than five years, with the average percentage of employees with excessive leave balances over the last five years being 36.1 per cent (35.5 per cent over five years covering 2015–16 to 2019–20).

The operational demands required to manage the COVID-19 pandemic have presented new challenges for the cluster in trying to manage its excessive leave balances. 39.2 per cent of employees now have excess leave balances at 30 June 2021 (35.4 per cent at 30 June 2020).

The state's leave policy C2020-12 Managing Accrued Recreation Leave Balances requires agencies to manage excessive leave balances to 30 days or less to maintain their workforces physical and mental health.

Accurate time recording

Forced-finalisation of time records by system administrators within HealthRoster remains an issue and we continue to observe time records forced-finalised by system administrators so pay runs can be finalised on a timely basis. During 2020–21, a total of two million (2.2 million in 2019–20) time records were force approved, which represents 5.7 per cent of total time records (6.9 per cent in 2019–20).

Existence, completeness and accuracy of key agreements

Delivery of major capital projects

Health Infrastructure (a division of the Health Administration Corporation) is responsible for the delivery of major capital projects with a budgeted spend of more than $10.0 million. Health Infrastructure oversee the planning, design, procurement, and construction phases. Capital works in progress are recognised in the financial statements of the health entity that intends to use those assets upon completion. The health entities recognise both the capital work in progress and the revenue associated with the capital funding from the Ministry for the construction of the assets. Capital funding is currently agreed with health entities as part of the annual Service Agreement. The assumption that the health entities control the assets during their construction is consistent with Health Infrastructure's role as an agent for the health entity and the Ministry's policy directive PD2020-033 'Management and control of Health Administration Corporation owned Real Property'.

We continued to observe a lack of clarity regarding agreements between Health Infrastructure, the Ministry and the cluster agency that will eventually receive the completed asset. This can lead to confusion and uncertainty around the rights and obligations of each party to the transaction.

Cross border patient funding arrangements

When patients require medical care in a jurisdiction where they are not generally domiciled, there are arrangements in place to provide funding to support cross border patient treatments. We have previously observed that agreements between NSW and other jurisdictions have not been finalised, and this continues to be the case. In the case of Victoria, no agreement has been finalised for the past seven years.

We continue to note that the cluster has long outstanding receivables and payables with other states. The absence of formal agreements between the states hampers the settlement of the debts relating to the treatment of cross border patients. The following table shows the status of Cross Border Agreements between NSW and other jurisdictions:

Albury Base Hospital

Albury Base hospital is located on the border of NSW and Victoria and services residents of both states. Documentation supporting the extension of the expired Intergovernmental Agreement 2009–2017 between NSW and Victoria in relation to the integration of health services in Wodonga and Albury could not be located.

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.

What the report is about

This audit examined a state-wide program to provide small-group tuition to students disadvantaged by the move to learning from home during 2020.

The audit assessed the design and implementation of the program.

What we found

The program design was based on research and data showing learning loss during 2020. 

The department rapidly planned and developed the policy design and guidelines for schools. 

Governance arrangements matured during program delivery.

The department changed the models for funding schools but did not clearly explain the reasons for doing so.

Government schools with over 900 students were disadvantaged by the funding model compared to smaller schools. 

Guidelines, resources and professional learning helped schools implement the program.

Staff eligibility for the program was expanded after reported difficulties in recruiting qualified teachers in some areas. 

Online tuition and third-party provider options were developed throughout the program.

There were issues with the quality and timeliness of data used to monitor school progress. 

Evaluation arrangements were developed early in the program.

Data limitations mean the evaluation will not be able to fully assess all program objectives.

What we recommended

1. Distributing funds between schools more equitably and improving communication of the funding methods. 
2. Clearer communication about the intended targeted group of students.
3. Reviewing the time needed to administer the program.
4. Improve support for educators other than qualified teachers.
5. Offer the online tuition program to more schools.
6. Analysis of the effects of learning from home during 2021 across equity groups and geographic areas.
7. Working with universities to increase use of pre-service teachers in the program.

The report also identifies lessons learned for future programs.
 

The NSW Government announced the COVID Intensive Learning Support Program on 10 November 2020, as part of the 2020–21 NSW Budget. The primary goal of the $337 million program was to deliver intensive small group tuition for students who were disadvantaged by the move to remote and/or flexible learning, helping to close the equity gap. It included:

• $306 million to provide small-group tuition for eligible students across every NSW Government primary, secondary and special purpose school
• $31.0 million for around 400 non-government schools to provide small-group tuition to students with the greatest levels of need.

The objective of this audit was to assess the effectiveness of the design and implementation of the COVID Intensive Learning Support Program (the program). To address this objective, the audit assessed whether the Department of Education (the department):

• effectively designed the program and supporting governance arrangements
• is effectively implementing the program.

This audit focuses on activities between October 2020 and August 2021, which aimed to address the first session of learning from home in New South Wales. From August to October 2021, students in many areas of New South Wales were learning from home again, but this second period has not been a focus of this audit. On 18 October 2021, the NSW Government announced the program would be extended into 2022.

This chapter considers how effectively the COVID Intensive Learning Support Program (the program) was designed and planned for implementation.

This chapter considers how effectively the COVID Intensive Learning Support Program was implemented over our period of review (Terms 1 and 2, 2021).

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 #358 - released (15 December 2021).

This report analyses the results of our audits of the Education cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Education cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Education cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued on the Department of Education (the department), the NSW Education Standards Authority and the NSW Skills Board's financial statements.

An 'other matter' paragraph was included in the Technical and Further Education Commission's (the TAFE Commission) audit opinion drawing attention to legislative non-compliance concerning financial delegations during the reporting year.

The number of misstatements identified in the financial statements of cluster agencies decreased from 14 in 2019–20 to seven.

What the key issues were

The department and the TAFE Commission revalued their land assets this year, recognising collective increases of $863.8 million.

The department and the TAFE Commission are not scheduled to perform comprehensive revaluations of their buildings until 2022–23. Construction costs, which are a key input in their current replacement cost valuation methodologies for buildings, may have increased by an estimated nine per cent since the last comprehensive revaluation in 2017–18 based on broad based indices used by the department and the TAFE Commission. While the estimated index increase indicates the fair value of buildings may exceed the carrying values, the use of such high-level indicators has a degree of estimation uncertainty due to the specialised nature of the assets. Therefore, both agencies did not adjust the values of their buildings.

The number of issues we reported to management decreased. Fifty per cent of issues were repeated from prior years.

Of the 11 newly identified moderate rated issues, seven related to internal control deficiencies, with six identified in procurement and payroll controls.

What we recommended

The department and the TAFE Commission reconsider policy settings governing the frequency of revaluations; and refine and consider the outcomes of interim fair value assessments to ensure asset carrying values reflect fair value at each balance date.

Cluster agencies should prioritise and action recommendations to address internal control deficiencies.

This report provides Parliament and other users of the Education cluster’s 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 Education cluster (the cluster) for 2021.

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.

Findings reported to management

The number of findings reported to management has decreased. Fifty 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 28 findings raised across the cluster (33 in 2019–20). Fifty per cent of all issues were repeat issues (45 per cent in 2019–20).

The most common repeat issues related to weaknesses in controls over information technology general controls, application controls, and identified deficiencies in 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.

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

The department continues to address recommendations to improve monitoring of privileged user access

Privileged users have higher levels of access to systems, and in some instances, may include access that can bypass segregation of duty controls. If reviews of access logs are not fully embedded in the control environment, the risk of unauthorised transactions occurring and not being detected in a timely manner is elevated.

In 2019–20 a high-risk issue was reported at the department relating to the inadequate monitoring and follow up of privileged user activity in its enterprise resource planning system – SAP. This year the department has largely addressed our findings by initiating a review of the identified instances of privileged user activity and establishing periodic oversight controls. There remains a need to improve the timeliness and completeness of these newly implemented controls.

Data analytics identified the root cause of internal control deficiencies in procurement and payroll

Our 2020–21 agency management letters identified seven new moderate risk internal control deficiency matters, of which six related to payroll and procurement.

To enhance our financial statement audit of the department we applied data analytics over elements of the department's procurement and payroll control processes. Our procedures, conducted over periods across the financial year, helped identify the following:

• a low level of compliance with procurement practices requiring the creation of purchase orders before invoices are received. The root cause was a lack of understanding by agency staff of the procurement processes
• transactions related to previous years being recorded in the current year. The root cause was a lack of understanding of the three-way matching process and the goods received/not invoiced facilities within SAP
• negative payments in fortnightly pay runs, predominantly representing deductions to recover salary payments made in error. The root cause was the lack of timeliness in notifying payroll for cessation of employment, or for employees undertaking secondments who should have been classified as being on leave without pay.

Appendix one – Early close procedures

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© 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.

The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the planning and delivery of new, redeveloped and upgraded public schools.

School Infrastructure NSW has identified the need to accommodate an additional 180,000 enrolments in public schools by 2039 with a large portion of this growth expected in metropolitan Sydney. It has also identified that around 34,000 teaching spaces will require upgrading to be fit-for-purpose.

Although School Infrastructure NSW has developed a long-term strategic plan that advises government of ongoing funding requirements, it has not presented a list of priorities to meet those needs. Developing a longer-term list of priorities would help signal the areas of greatest need and allow more time to develop the best options to meet those needs.

The audit found that School Infrastructure NSW has focused on delivering existing projects, election commitments and other government announcements. This has diverted attention from identifying and delivering projects that would have better met present and future needs. 

The report makes eight recommendations to improve long-term planning for future needs, strengthen the quality of estimated project costs and benefits, and embed a continuous improvement program. 

In 2016, the Department of Education prepared a School Assets Strategic Plan (2016 SASP) which outlined long-term funding needs to support the expected growth in enrolments to 2031. Following the release of the 2016 SASP, the NSW Government substantially increased funding for new and upgraded schools from $2.4 billion in the 2016–17 State Budget to $4.2 billion in 2017–18.

In 2017, the Department of Education established School Infrastructure NSW (SINSW) to lead the delivery of the 2016 SASP and the 123 new projects announced in the 2017–18 Budget. This significantly larger program of work required rapid development of internal capacity, governance arrangements, and project management systems. This needed to be done at the same time as scoping and planning for the list of announced projects.

As there are limited funds available to meet growing needs across the State, it is important that SINSW has effective methods to prioritise projects to communities with the greatest need. To ensure that projects deliver value for money, business cases need to have robust estimates of project costs and benefits. Business cases also need to account for the inherent risks in delivering infrastructure projects. Unplanned cost escalations can reduce the number of new or modernised classrooms SINSW can deliver. Unforeseen delays may also impact families who make significant life choices based on their expectations that a school will open at the beginning of the school year.

The objective of this audit was to assess the effectiveness of planning and delivery of new, upgraded and redeveloped schools to meet demand for public school education in New South Wales. To address this objective, the audit examined whether the Department:

• has effective procedures for planning and prioritising school capital works to meet present and future demands
• develops robust business cases for school capital works that reliably inform decision-making
• has effective program/project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.

The audit examined business cases for 12 projects as case studies. These include a mix of projects initiated before and after the establishment of SINSW.

This audit commenced in June 2020 and examined strategies and demographic projections developed prior to the emergence of COVID-19. This audit did not examine potential longer-term impacts of COVID-19 on future demands for public school education.

1. Key findings

SINSW delivered projects against an established program of works in its first years of operation

At establishment, SINSW inherited a portfolio of existing projects and 123 new projects announced as part of the 2017–18 Budget (to commence over 2017–18 and 2018–19). It has progressively worked through individual project planning to deliver against these projects.

The 2018–19 Budget funded two new projects that had not already been announced. Both projects were identified by SINSW as a priority. The 2018–19 Budget also allocated funding for 'planning' 22 new projects. Seventeen of the 22 projects had been identified by SINSW as a priority.

SINSW identified 31 new priority projects in its Capital Investment Plan for 2019–20. Thirteen of these projects were funded in that year with a further 27 projects included as election commitments. SINSW identified 20 new projects in its Capital Investment Plan for 2020–21 but only two of these were funded. SINSW advised this was due to a constrained budget environment.

There is an anticipated shortfall of classrooms based on the current funded program

Despite increased funding since 2017–18, SINSW advised the NSW Government in early 2020 that the currently funded infrastructure program would not meet forecast classroom requirements for 2023 and beyond. Accordingly, it is vital that new funding is prioritised to projects which best meet demand.

SINSW only identified specific priorities over a two-year horizon in its Capital Investment Plans for 2018–19, 2019–20 and 2020–21. The School Assets Strategic Plan 2016 and the 2020 update make the case for sustained funding for school building and redevelopment. These plans estimate annual funding requirements and show geographic areas with increasing forecast enrolments. Detailing how priorities over a ten-year timeframe fit within a ten-year capital planning limit would create more certainty about meeting growth demands.

There has been progress in formalising prioritisation frameworks, data tools and supporting governance arrangements

SINSW committed to planning for new and redeveloped schools in 'School Community Groups' in the School Assets Strategic Plan 2016. This is a new way of planning which considers the educational needs over a defined geographical area. It has developed a planning tool to prioritise School Community Groups based on weighted criteria. It has also established governance frameworks to improve transparency over decisions to reprioritise this list.

SINSW has refined its approach to planning in School Community Groups over the past four years. It now prepares Service Needs Reports to investigate needs, identify projects, prioritise, determine scope and timing, and assess non-capital options. SINSW has yet to finalise arrangements for how needs identified in Service Needs Reports progress to the strategic business case stage.

Projects announced prior to developing a business case have less opportunity to consider a range of options to meet the service needs

Business cases for projects already announced by government (or announced for planning) go through the same process of determining the service need and impacts on surrounding schools. However, for some announced projects, the range of options considered in the business case is influenced by the parameters of the announcement. This makes it more difficult to genuinely pursue alternate options that could better meet the identified service need.

Projects identified by SINSW have a more rigorous process of considering options. Service Needs Reports explore a wide range of asset and non-asset interventions across the School Community Group. Options are narrowed as the projects move through the strategic and final business case stages. SINSW uses its Investment Review Committee to engage key stakeholders early in the process so that they are informed about how non-asset solutions have been considered and why SINSW is progressing the business case for a capital solution for particular projects.

Several business cases underestimated project costs and risks, leading to scope and budget increases

Several business cases we reviewed did not adequately identify the initial scope requirements, project-specific risks or the likely project cost. For two business cases, this appeared to be due to an attempt to fit the project within a predetermined amount. Announcing a project’s scope, budget and timeframe before proper planning increases risks to successful delivery against expectations.

Several of the projects we examined required drawdowns on contingency funds due to inadequate consideration of scope, costs and project risks at the planning stage. Contingency funds are intended for unanticipated extra costs rather than those that could have or should have been identified at the planning stage.

Guidance on benefit calculations has provided a consistent framework for business cases

Business cases we examined presented a consistent set of benefits based on guidance developed in partnership with NSW Treasury. Following this guidance helps to compare cost-benefit analyses across business cases. However, the evidence for the estimated benefits is based on contexts outside of NSW. SINSW has the tools and data sources to calculate benefits more suited to the context of particular schools. Doing so would improve the accuracy of cost-benefit analyses. SINSW advised that it is currently updating the guidance in partnership with NSW Treasury.

SINSW involves school principals, executives and teaching staff in developing education rationales when commencing projects. These documents help align projects with education outcomes. They also provide a baseline for post-occupancy evaluation, which is important to determine whether the new school infrastructure is being used in the ways that were anticipated in the business case.

SINSW could elevate its existing assurance review process to consolidate lessons learned

SINSW engages external peer reviewers to conduct assurance reviews on its projects at multiple stages of planning and delivery. It has established a Community of Practice for external reviewers to keep them up to date on new developments and requirements. Higher value projects are also subject to review by Infrastructure NSW under the Investor Assurance Framework.

By looking at all projects at all stages, assurance reviews can identify systematic issues across the full portfolio of projects. A recent assurance review analysed common findings from reviews of strategic and final business cases. This provides a helpful way to improve internal processes. SINSW advised that it is implementing a continuous improvement program, which will be able to take findings from assurance reviews to build organisational capabilities.

2. Recommendations

By September 2021, the Department of Education should:

1. finalise the investment prioritisation approach with agreement from key stakeholders
2. finalise and update on an ongoing basis a ten-year list of priorities to meet the forecast demand for new classrooms and contemporary fit for purpose learning environments, which identifies individual projects and programs in the short-term and priority geographic areas and programs in the medium-term
3. seek a ten-year Capital Planning Limit from NSW Treasury to ensure the needs identified in the ten-year list of priorities are met and are coordinated with the forward capital programs of other agencies
4. improve the quality of data on cost benchmarks that underpin the annual ten-year Capital Investment Plan and updates to the School Assets Strategic Plan
5. embed an evidence-based cost benefit analysis framework for school investment, in consultation with NSW Treasury, by:
   • validating benefits estimated in previous business cases with actual results
   • building the evidence base in relation to contemporary learning environments
6. regularly share data on forecast needs with relevant planning agencies to promote strategic opportunities for servicing education needs
7. implement the continuous improvement program for service planning, options assessment, business case development, project delivery and handover. The program should be informed by findings from assurance reviews, post-occupancy evaluations and project lessons learned
8. establish benefits realisation processes and practices that:
   • ensure business cases set baselines and targets for benefits
   • review benefits during delivery, prior to handover and as part of Post Occupancy Evaluations
   • identify which part(s) of the Department are best placed to develop, manage and evaluate benefits on an ongoing basis.

There have been significant increases in funding for education infrastructure since the 2017–18 Budget and further growth in demand for places in schools is forecast. SINSW has the challenge, not only of meeting the need for new classrooms due to population growth, but also upgrading facilities to enable modern teaching techniques. In addition, community expectations of what constitutes a vibrant and successful school community continues to increase.

Given growing demand and budget constraints, projects must be selected to best meet the needs of the community and planning and prioritisation are vital. SINSW has been progressing planning for announced projects as well as implementing a new type of strategic state-wide planning and prioritisation, cluster planning, where options are developed for School Community Groups.

The primary role of a business case is to reliably inform an investment and/or policy decision. Over the period of review, the NSW Government's guidelines for business cases have established this requires recommendations based on convincing arguments, sufficient evidence, and accurate costing of alternatives and expected benefits. Business case guidelines are underpinned by guides for economic appraisal and cost-benefit analysis.

As SINSW moves to prioritise business cases for interventions in School Community Groups, it will increasingly need to demonstrate rigour in its assessment of all options. It will also need to ensure that scope identification, cost and risk planning and the setting of contingencies are accurate. This will help decision-makers better understand, plan for and manage the investment required to meet the demand for school infrastructure.

For this audit, we examined business cases and related documentation for 12 projects. Several of these projects were developed before School Infrastructure NSW was established in mid-2017.

Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.

SINSW's guidance similarly highlight the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by SINSW that can be tailored to the planning and delivery of school infrastructure projects.

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 #347 - released (8 April 2021).

Auditor-General’s Report to Parliament on Delivering School Infrastructure 

This corrigendum has been prepared to amend the following text within my Auditor-General’s Report to Parliament on Delivering School Infrastructure, dated 8 April 2021. 

On page two, the original text was as follows: 

Further NSW Government announcements in the 2018–19 Budget and election commitments in the 2019–20 Budget made up the majority of new projects, rather than projects prioritised by SINSW. 

The original text has now been changed to 

Further NSW Government announcements in the 2018–19 Budget, election commitments in the 2019–20 Budget, and announcements in the 2020–21 Budget, made up the majority of new projects, rather than projects prioritised by SINSW. 

On page three, the original text was as follows: 

The 2018–19 Budget funded three new projects that had not already been announced. One of the three projects was identified by SINSW as a priority. 

The original text has now been changed to: 

The 2018–19 Budget funded two new projects that had not already been announced. Both projects were identified by SINSW as a priority. 

On page three the original text was as follows: 

SINSW identified 33 priority projects in its Capital Investment Plan for 2019–20.

The original text has now been changed to  

SINSW identified 31 new priority projects in its Capital Investment Plan for 2019–20. 

On page eleven, in Exhibit 4, the original text was as follows: 

The 2018–19 NSW Budget announced funding for an additional 43 new and upgraded schools to commence works in 2018–19. Of the 43 projects: 

•    1 was identified by SINSW as a priority in its Capital Investment Plan (SINSW requested funding for one new project)
•    40 had already been announced
•    2 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).

The original text has now been changed to: 

The 2018–19 NSW Budget announced funding for an additional 42 new and upgraded schools to commence works in 2018–19. Of the 42 projects: 

•    2 were identified by SINSW as a priority in its Capital Investment Plan (SINSW requested funding for two new projects)
•    40 had already been announced.

On page eleven, the original text was as follows: 

The 2019–20 NSW Budget announced funding for an additional 40 new and upgraded schools as election commitments. Of the 40 election commitment projects: 

•    13 were identified by SINSW as priorities in its Capital Investment Plan (SINSW requested funding for a total of 33 new projects)
•    27 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).

The original text has now been changed to: 

The 2019–20 NSW Budget announced funding for an additional 40 new and upgraded schools as election commitments. Of the 40 election commitment projects: 

•    13 were identified by SINSW as priorities in its Capital Investment Plan (SINSW requested funding for a total of 31 new projects)
•    27 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).

The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.  

The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the management of the One TAFE NSW modernisation program.

In 2016, the Government released 'A Vision for TAFE NSW' which stated that TAFE NSW needed to become more flexible, efficient and competitive. It set out the need to progressively reduce significant cost inefficiencies, including by moving away from separate institutes to a single institute model. TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision.

The Auditor General found that the One TAFE NSW modernisation program did not deliver against its key objectives within planned timeframes. The modernisation program originally aimed to realise $250 million in annual savings from 2018–19. Because of project delays and higher than expected transition costs, TAFE NSW did not meet the original savings target. TAFE NSW has made progress on key elements of the program and anticipates that savings will be realised in coming years.

The report makes two recommendations to improve governance arrangements for delivering on commercial objectives and increasing transparency of non commercial activities. 

The report also identifies a series of lessons for future government transformation programs.

TAFE NSW is the public provider of Vocational Education and Training (VET) in New South Wales. In 2018, TAFE NSW enrolled 436,000 students in more than 1,200 courses at around 130 locations across the State.

There have been major policy changes impacting TAFE NSW over the past decade. Under the Smart and Skilled reform, TAFE NSW started to compete with other Registered Training Organisations (RTOs) for a share of the student market.

In 2016, the NSW Government released 'A Vision for TAFE NSW'. The Vision stated that a failure to adapt to market circumstances had left TAFE NSW with unsustainable costs and inefficiencies. To address this, TAFE NSW needed to become more flexible, efficient and competitive. It set out that TAFE NSW must progressively reduce significant cost inefficiencies, including by moving away from a model of separate institutes to a One  TAFE NSW model. The NSW Government set TAFE NSW a target to achieve savings through implementing the Vision.

TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision. The program initially aimed to deliver savings of $250 million per year from 2018–19, but this target was reviewed and updated as the program was being delivered.

This audit assessed whether TAFE NSW effectively managed the One TAFE NSW modernisation program to deliver on the NSW Government's vision for TAFE NSW. In making this assessment, the audit examined whether:

• delivery of the program was well planned
• the program was driven by sound governance arrangements
• TAFE NSW is making progress against the intended outcomes of the program.

The audit focused on the effectiveness of planning, governance and reporting arrangements. It examined five projects within the overall modernisation program as case studies.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #346 - released 17 December 2020

This report analyses the results of our audits of financial statements of the Health cluster for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

This report provides parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

The impacts of the COVID-19 pandemic on the cluster were significant and included changes to the operations of the health entities and increased revenue, expenditure, assets and liabilities.

As a part of this year's audits of health entities, we have considered:

• financial implications of the COVID-19 emergency at both health entity and cluster levels
• changes to agencies' operating models
• agencies' access to technology and the maturity of systems and controls to prevent unauthorised and fraudulent access to data.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.

The response to the COVID-19 pandemic primarily impacted the financial reporting of NSW Health through:

• additional revenue from the State government in the form of grants and stimulus payments
• additional revenue from the Commonwealth government under the National Partnership Agreement for COVID-19 to cover part of the cost of responding to the COVID-19 pandemic
• increased expenses, largely due to increased payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists and increased cleaning costs
• increased purchases of personal protective equipment.

Chapter one outlines the impacts of NSW Health’s response to the COVID-19 pandemic. This chapter outlines our other audit observations related to the financial reporting of agencies in the Health cluster for 2020.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.

The primary impact of the COVID-19 pandemic on the effectiveness of the internal controls of NSW Health and health entities relates to the effectiveness of controls implemented by HealthShare relating to the stocktake of personal protective equipment inventories. Inventory managed by HealthShare increased by 2,746 per cent during 2019–20. HealthShare’s inventory controls did not maintain pace with the sudden, significant increase.

The impacts of NSW Health’s response to the COVID-19 pandemic are outlined in chapter one. This chapter outlines other observations and insights from our financial statement audits of agencies in the Health cluster.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations 

Appendix three – Financial data

Appendix four – Analysis of financial indicators 

Appendix five – Analysis of performance against budget

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Auditor-General’s Report to Parliament

Health 2020

11 December 2020

This corrigendum has been prepared to amend the following text within the Auditor-General’s Report to Parliament on Health 2020, dated 10 December 2020.

NSW Health emergency department treatment times

On page five the original text was as follows:

NSW Health also measures the percentage of patients whose clinical care in emergency departments is completed within four hours. The measure is used as an indicator of accessibility to public hospital services.

NSW Health aims to complete clinical care in the emergency department for 81 per cent of patients within four hours. In 2019–20 NSW Health reports it completed clinical care within four hours for 72.1 per cent of patients (a 7.3 per cent decrease from 2018–19).

At Western Sydney Local Health District, 59 per cent of patients were treated within the targeted timeframe. NSW Health attribute this to the profile of patients presenting in emergency departments and additional time taken processing COVID-19 patients to ensure staff safety.

The original text has now been changed to:

NSW Health also measures the percentage of patients with total time in the emergency department of four hours or less for each local health district. The measure is used as an indicator of accessibility to public hospital services.

The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.

The Auditor-General for New South Wales, Margaret Crawford, released a report today titled Education 2020. This report focuses on key observations and findings from the most recent audits of agencies in the Education cluster.

Unqualified audit opinions were issued for all cluster agencies’ financial statements. However, internal control deficiencies were identified across the cluster agencies, including deficiencies in the management of purchasing cards and 15 internal control issues that were repeated from the previous year.

The 2019–20 natural disasters caused widespread damage in both Northern and Southern NSW. The COVID‑19 pandemic further challenged agencies, requiring social distancing and other infection control measures which disrupted the traditional means of teaching students. Agencies have adjusted their operations to respond to these emergency events.

The TAFE Commission’s revenues 2019–20 were impacted by the pandemic. Lower enrolments and an increase in fee-free short courses offered during the year contributed to the result.

Read the PDF report

This report analyses the results of our audits of financial statements of entities within the Education cluster for the year ended 30 June 2020. The table below summarises our key observations and recommendations.

1. Financial reporting 

2. Audit observations

This report provides parliament and other users of the Education cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• the impact of emergencies and the COVID-19 pandemic.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.

The COVID-19 Legislation Amendment (Emergency Measures–Treasurer) Act 2020 amended legislation administered by the Treasurer to implement further emergency measures as a result of the COVID-19 pandemic. These amendments:

• allowed the Treasurer to authorise payments from the consolidated fund until the enactment of the 2020–21 budget – supporting the going concern assessments of cluster agencies
• revised budgetary, financial and annual reporting time frames – impacting the timeliness of financial reporting
• exempted certain statutory bodies and departments from preparing financial statements.

This chapter outlines our audit observations related to the financial reporting of agencies in the Education cluster for 2020, including any financial implications from the recent emergency events.

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. It also comments on our review of elements of the financial control framework applied by schools in NSW whose financial results form part of the Department of Education's (the Department) financial statements.
• assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 and 2018 recommendations

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.

The Auditor-General for New South Wales, Margaret Crawford, released her report today on State Finances for the year ended 30 June 2020.

‘I am pleased to once again report that I issued an unmodified audit opinion on the State’s consolidated financial statements,’ the Auditor-General said.

The report acknowledges this has been a challenging year, with New South Wales impacted by natural disasters and the COVID-19 pandemic.

The State’s Budget Result, reported in the financial statements, was a deficit of $6.9 billion. This is different to the 2019-20 budget forecast surplus of $1.0 billion and is an outcome of the government’s significant response to bushfires and COVID-19.

The report summarises a number of audit and accounting matters arising from the audit of the Total State Sector Accounts, a sector that comprises 291 entities controlled by the NSW Government with total assets of $495 billion and total liabilities of $256 billion.

Read full report (PDF)

Our audit opinion on the State’s 2019–20 financial statements was unmodified

An unmodified audit opinion was issued on the State’s 2019–20 consolidated financial statements.

The State extended signing its financial statements by six weeks.

Natural disasters, the COVID-19 pandemic and other factors impacted the State’s 2019–20 reporting timetable. The State extended signing its financial statements by six weeks, compared with 2018–19.

All agencies were also given a two-week extension to prepare their financial statements compared with 2018–19. Further extensions beyond two weeks were subsequently approved for the following 11 agencies (7 in 2018–19) to submit completed financial statements for audit:

• Department of Communities and Justice
• Department of Customer Service
• Department of Planning, Industry and Environment
• Department of Regional NSW
• Department of Transport
• Environment Protection Authority
• Infrastructure NSW
• Lord Howe Island Board
• NSW Crown Holiday Parks Land Manager
• Service NSW
• Water Administration Ministerial Corporation.

The extensions reflected that the COVID-19 pandemic impacted agencies’ work environments during the first six months of 2020. This was at a time when many were still implementing machinery of government changes and preparing to implement three significant new accounting standards:

• AASB 15 Revenue from Contracts with Customers (issued December 2014, effective 1 July 2019)
• AASB 16 Leases (issued February 2016, effective 1 July 2019)
• AASB 1058 Income of Not-for-profit entities (issued December 2016, effective 1 July 2019).

These new accounting standards were issued some years before they became effective, to allow reporting entities sufficient time to prepare for implementation. Notwithstanding this, some agencies had not fully implemented the new accounting standards in time for early close procedures, and the unforeseen impact of COVID-19 further complicated the year-end financial reporting processes for the State and its agencies.

The graph below shows the number of reported errors exceeding $20 million over the past five years in agencies’ financial statements presented for audit.

In 2019–20, agency financial statements presented for audit contained 19 errors exceeding $20 million (six in 2018–19). The total value of these errors increased to $1.4 billion ($927 million in 2018–19).

The errors resulted from:

• incorrectly applying Australian Accounting Standards and Treasury Policies
• incorrect judgements and assumptions when valuing noncurrent physical assets and liabilities
• incorrectly interpreting the accounting treatment for unspent stimulus funding.

Errors in agency financial statements exceeding $20m (2016–2020)

$4.1 billion in stimulus funding was allocated in 2019–20

The government implemented an economic stimulus package primarily to mitigate the impacts of the COVID-19 pandemic on New South Wales.

The COVID-19 pandemic and bushfires had a significant impact on the State’s finances, reducing its revenue and increasing its expenses especially in sectors directly responsible for responding to the COVID-19 pandemic, such as Health.

The government announced a $4.1 billion health and economic stimulus package in 2019–20. This primarily included:

• $2.2 billion in health measures including purchases of essential medical equipment and increasing clinical health capacity (like intensive care spaces)
• $1.0 billion in small business and land tax relief
• $355 million in extra cleaning services and quarantine costs.

Cluster agencies had spent $3.0 billion (just under 75 per cent) of the COVID-19 stimulus package by 30 June 2020.

The Health cluster incurred most of this expenditure.

Total spend relating to bushfires was $1.3 billion in 2019–20.

The graph below shows the total allocation and spend by cluster to 30 June 2020.

Economic stimulus allocation and spend by cluster to 30 June 2020

Deficit of $6.9 billion compared with a budgeted surplus of $1.0 billion

An outcome of the government’s overall activity and policies is its net operating balance (Budget Result). This is the difference between the cost of general government service delivery and the revenue earned to fund these sectors.

The General Government Sector, which comprises 199 entities, generally provides goods and services funded centrally by the State.

The Non-General Government Sector, which comprises 92 government businesses, generally provides goods and services, such as water, electricity and financial services that consumers pay for directly.

The Budget Result for the 2019–20 financial year was a deficit of $6.9 billion. The original budget forecast, set before the COVID-19 pandemic and bushfires, was a $1.0 billion surplus. The main driver of the change in result was:

• $1.3 billion of higher employee costs, mainly due to:
  • increased workers compensation claims
  • additional personnel required (mainly in the Health sector) to respond to the COVID-19 pandemic
• $2.3 billion of higher operating expenses, mainly due to:
  • $828 million from first time recognition of a child abuse claim liability
  • $507 million from additional insurance claims from the NSW bushfires
  • $343 million from COVID-19 claims by agencies for loss of revenue.
• $1.8 billion in higher grants and subsidy expenses, mainly due to:
  • small business grants
  • COVID-19 quarantine compliance measures
  • costs incurred in response to the 2019–20 bushfires, drought and disaster relief payments
  • third party-controlled assets that were subsequently transferred to councils and utility providers, mainly arising from construction of the CBD and South East Light Rail.

The deficit was further driven by:

• $1.9 billion less taxation revenue, mainly resulting from:
  • $1.3 billion less in payroll tax due to relief measures introduced by the government as part of its COVID-19 economic stimulus
  • $424 million less in gambling and betting taxes, due to venue closures required by COVID-19 public health orders
• $523 million less in dividends and income tax revenue from the Non-General Government Sector, due to lower dividends received from NSW Treasury Corporation and from the State’s other commercial government businesses
• lower fines, regulatory fees and other revenue, due to a $305 million decrease in mining royalties, largely driven by lower coal prices.

Main drivers of the 2019–20 actual vs. budget variance

Revenues increased $209 million to $86.3 billion

In 2019–20, the State’s total revenues increased by $209 million to $86.3 billion, 0.2 per cent higher than in 2018–19. COVID-19 impacted taxation revenue, which fell by $1.1 billion and revenue from the sale of goods and services, which fell by $1.1 billion. These falls were offset by a $2.5 billion (7.7 per cent) increase in grants and subsidies from the Australian Government, mainly in the form of additional stimulus funding.

Taxation revenue fell 3.5 per cent

Taxation revenue fell by $1.1 billion, mainly due to a:

• $861 million fall in payroll tax as a result of COVID-19 relief (reduced payroll tax payments for eligible small businesses)
• $430 million fall in stamp duty collections, driven by lower than expected growth in the property market
• $427 million decline in gambling and betting taxes, mainly due to venue closures driven by COVID-19 public health orders.

Stamp duties of $8.8 billion were the largest source of taxation revenue, $473 million higher than payroll tax, the second-largest source of taxation revenue.

Australian Government grants and subsidies

The State received $34.2 billion in grants and subsides which are mainly from the Australian Government, $2.4 billion more than in 2018–19.

The increase was driven by a $1.1 billion increase in Commonwealth Specific Purpose Payments to support the Health cluster respond to the COVID-19 pandemic. Commonwealth National Partnership Payments increased by a similar amount to provide the State with Natural Disaster relief.

Sales of goods and services

In 2019–20, sales of goods and services fell $1.1 billion. This was due to the COVID-19 pandemic reducing:

• patronage and related transport passenger revenue
• health billing activities with elective surgery being put on hold

Fines, regulatory fees and other revenues

Fines, regulatory fees and other revenues fell $505 million. This was mainly due to a $409 million decrease in mining royalties attributed to a drop in thermal coal prices during 2019–20.

Other dividends and distributions

Other dividends and distributions rose by $616 million due to higher distributions received from the State’s investments. This was due to an additional $1.3 billion held in the State’s investment portfolio compared with last year.

Expenses increased $8.2 billion to $96.0 billion

The State’s expenses increased 9.3 per cent compared with 2018–19. Most of the increase was due to higher employee expenses, other operating costs and grants and subsidies.

Employee expenses, including superannuation, increased 5.7 per cent to $42.6 billion.

Salaries and wages increased to $42.6 billion from $40.3 billion in 2018–19. This was mainly due to increases in staff numbers and a 2.5 per cent increase in pay rates across the sector. Salaries and wages for the Education and Health sectors increased by $659 million and $732 million in each sector respectively.

The Health sector employed an additional 2,763 full time staff in 2019–20. It also incurred more overtime in response to COVID-19. Education increased staff numbers by 4,866 full time equivalents and paid a one off 11 per cent pay rise to school administration staff in 2019–20. Historically, the government wages policy aims to limit growth in employee remuneration and other employee related costs to no more than 2.5 per cent per annum.

Operating expenses increased 8.7 per cent to $27.0 billion.

Operating expenses increased to $27.0 billion in 2019–20 ($24.8 billion in 2018–19) due to higher operating activities in Health. The higher level of activities and related costs is attributed to a full year of operations at the Northern Beaches Hospital (opened November 2018), and responding to COVID-19. The response to COVID-19 involved the State providing viability payments to private hospitals, higher visiting medical officer costs due to additional overtime hours and spending more on equipment to set up COVID-19 testing clinics.

Insurance claims increased by $2.0 billion. This was mainly due to NSW Self Insurance Corporation (SiCorp) recognising a liability for child abuse claims incurred but not reported for the first time, and claims for the 2019–20 bushfires, floods and COVID-19.

Health costs remain the State’s highest expense.

Total expenses of the State were $96 billion ($87.8 billion in 2018–19). Traditionally, the following clusters have the highest expenses as a percentage of total government expenses:

• Health – 24.3 per cent (25.8 per cent in 2018–19)
• Education – 17.6 per cent (19.3 per cent in 2018–19)
• Transport - 12.8 per cent (12.6 per cent in 2018–19).

General public service expenses as a percentage of total State expenses is higher due to a $2.0 billion increase in SiCorp’s accrued claim expenses.

Other expenses increased due to additional grant funding by the State for drought relief and COVID-19 stimulus spend.

Health expenses increased by $632 million compared with 2018–19 but fell as a proportion of total State expenses.

Education expenses remained stable compared with last year due to savings in student transportation costs primarily driven by COVID-19. This led to a decrease in the proportion of the State’s costs relating to education activities.

Grants and subsidies increased $2.5 billion to $14.1 billion.

The increase in grants and subsidies was due to payments the State made to support businesses and local communities in the face of COVID-19 and bushfires. In addition, the State transferred CBD and South East Light Rail assets to councils and utility providers during 2019–20 as it no longer controlled these.

Depreciation expense increased $1.0 billion to $9.2 billion.

Depreciation increased to $9.2 billion from $8.0 billion in 2018–19. At 1 July 2019, the State implemented the new leases standard recognising a right of use (ROU) asset and related lease liability in its financial statements. The value of ROU assets are amortised over the term of the lease. This contributed to $980 million of the increase in 2019–20 depreciation expense. Last year, these costs were previously reported within other operating expenses.

Assets grew by $28.0 billion to $495 billion

The State’s assets primarily include physical assets such as land, buildings and infrastructure, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $28.0 billion to $495 billion. This was a six per cent increase compared with 2018–19, mostly due to changes in asset carrying values.

Of the State’s $28.0 billion increase in asset values, $9.3 billion was due to a new accounting standard requirement for operating leases to be valued and recorded on balance sheet for the first time.

AASB 16 Leases requires entities recognise values for right-ofuse assets (ROU) for the first time. An ROU asset is a lessee’s right to use an asset, the value of which is amortised over the term of the lease. This standard came into effect from 1 July 2019.

Valuing the State’s physical assets

The value of the State’s physical assets increased by $14.1 billion to $365 billion in 2019–20. The assets include land and buildings ($168 billion), infrastructure ($180 billion) and plant and equipment ($16.7 billion). A prior period error relating to the valuation of RMS infrastructure assets reduced the reported values by $1.0 billion from $352 billion to $351 billion at 30 June 2019.

The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include reclassification of physical assets leased under finance leases to right of use assets upon adoption of AASB 16 Leases on 1 July 2019.

Movements in physical asset values

Liabilities increased $38.4 billion to $256 billion

The State borrowed additional funds in response to natural disasters and COVID-19.

The State’s borrowings rose by $33.9 billion to $113.8 billion at 30 June 2020. This accounted for most of the increase in the State’s total liabilities.

The value of TCorp bonds on issue increased by $25.2 billion to $97.0 billion to largely fund capital expenditure and costs associated with the bushfires, drought and COVID-19.

TCorp bonds are actively traded in financial markets and are guaranteed by the NSW Government.

Over 2019–20, TCorp continued to take advantage of lower interest rates, buying back short-term bonds and replacing them with longer dated debt. This lengthens the portfolio matching liabilities with the funding requirements for infrastructure assets.

With effect from 1 July 2019, AASB 16 Leases required the State to recognise liabilities for operating leases for the first time. This increased total lease liabilities from $5.3 billion at 30 June 2019 to $11.8 billion at 30 June 2020.

More than a third of the State’s liabilities relate to its employees. They include unfunded superannuation and employee benefits, such as long service and recreation leave.

Valuing these obligations involves complex estimation techniques and significant judgements. Small changes in assumptions and other variables, such as a lower discount rate, can materially impact the valuation of liability balances in the financial statements.

The State’s unfunded superannuation liability rose $300 million from $70.7 billion to $71.0 billion at 30 June 2020. This was mainly due to a lower discount rate of 0.87 per cent (1.32 per cent in 2018–19). The State’s unfunded superannuation liability represents the value of its obligations to past and present employees less the value of assets set aside to fund those obligations.

The State maintained its AAA credit rating

The object of the Fiscal Responsibility Act 2012 is to maintain the State’s AAA credit rating.

The government manages New South Wales’ finances in accordance with the Fiscal Responsibility Act 2012 (the Act).

The Act establishes the framework for fiscal responsibility and the strategy to maintain the State’s AAA credit rating and service delivery to the people of New South Wales.

The legislation sets out targets and principles for financial management to achieve this.

This year, the State’s credit rating from Standard & Poor’s changed from AAA/Stable to AAA/Negative. Moody’s Investors Service credit rating of Aaa/Stable did not change from the previous year.

The fiscal target for achieving this objective is that General Government annual expenditure growth should be lower than long term average revenue growth.

The State did not achieve its fiscal target of maintaining annual expenditure growth below the long-term revenue growth rate target of 5.6 per cent.

In 2019–20, General Government expenditure grew by 9.7 per cent (5.5 per cent in 2018–19).

Expenditure items that contributed most to the growth rate include:

• recurrent grants and subsidies (20.4 per cent)
• other operating expenses (9.5 per cent)
• employee costs (including superannuation) (5.6 per cent)

Recurrent grant and subsidy expenses increased by $2.8 billion in 2019–20 mainly due to the COVID-19 and natural disaster payments. Other operating expenses increased mainly due to a $2.0 billion increase in SiCorp insurance claims. This included the $828 million provision for child abuse claims incurred but not reported. The bushfires and COVID-19 pandemic also increased the number and cost of claims in 2019–20.

Superannuation funding position since inception of the Act - AASB 1056 Valuation

Appendix one - Prescribed entities

Appendix two - Legal opinions

This report examines whether NSW Health effectively planned and delivered major capital works to meet the demand for health services in New South Wales.

The report found that NSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, the program was driven by Local Health District priorities without assessment of the State’s broader and future‑focussed health requirements.

The report found that unclear decision making roles and responsibilities between Health Infrastructure and the Ministry of Health limited the ability of NSW Health to effectively test and analyse investment options.

Project delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved.

The Auditor‑General recommends that NSW Health ensure its capital projects offer the greatest value to New South Wales by establishing effective policy guidance and enhancing project governance and management systems.

Read full report (PDF)

Since 2011–12, NSW Health has aimed to improve its facilities and build 'future focused' infrastructure. The NSW Government’s 2015–16 election commitments established a four-year $5.0 billion capital program for NSW Health to build and upgrade more than 60 hospitals and health services. The 2019–20 State Budget committed a further $10.1 billion over four years for another 29 projects. This is the largest investment to date on health capital works in New South Wales.

Recent reviews of infrastructure have recognised that population and demographic growth will require a change in the delivery and composition of health infrastructure, including considering greater use of non-traditional, non-capital health service options and assets.

To ensure that expenditure on capital works represents the best value for money, NSW Health's business cases need to be robust and supported by evidence that demonstrates they are worthy investments. The NSW Process of Facility Planning has been the main framework guiding the detailed planning and development of NSW Health's capital works proposals. This framework was developed by the then NSW Department of Health in 2010. Its aim is to ensure investment proposals are supported by rigorous planning processes that address health service needs and provide value for money.

Infrastructure projects of the complexity and scale being delivered by NSW Health carry inherent risks. For example, unplanned cost escalations can potentially impact on the State’s finances. Unforeseen delays can also reduce the intended benefits. The growth in the State’s health capital spend and project profile, means its exposure to such risks has increased over time.

The objective of this audit was to assess the effectiveness of planning and delivery of major capital works to meet demand for health services in New South Wales. To address this objective, the audit examined whether:

• the Ministry of Health has effective procedures for planning and prioritising investments in major health capital works
• Health Infrastructure develops robust business cases for initiated major capital works that reliably inform government decision making
• Health Infrastructure has effective project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.

The audit focused on the Ministry of Health and Health Infrastructure – being the lead agencies within NSW Health responsible for prioritising, planning and delivering major health capital works across the State. The audit examined 13 business cases for eight discrete projects over a ten-year period.

Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.

NSW Health's Process of Facility Planning similarly highlights the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by Health Infrastructure that can be tailored to the planning and delivery of health infrastructure projects greater than $10.0 million.

The three major hospital redevelopments examined in metropolitan, regional and rural areas had a combined Estimated Total Cost of more than $1.2 billion and comprised eight discrete projects and 13 separate business cases.

Almost all these projects experienced delivery challenges which impacted achievement of their original objectives and intended benefits. This is expected in complex and large-scale health infrastructure programs. However, in some projects the impacts were significant and resulted in substantial delays, unforeseen costs, and diversion of resources from other priority areas.

Our review of the selected case studies highlighted opportunities for enhancing governance and project management. Specifically, it indicates a need for improving transparency in the management of contingencies, risk management and assessments particularly relating to adverse site conditions and the selection of contractors. There is also a need to strengthen forward planning for options to address unfunded priorities within business cases that risk complicating the delivery of future project stages resulting in unforeseen costs and potentially avoidable budget overruns.

In February 2017, the Ministry's Capital Strategy Group approved the use of surplus funds of $13.76 million from Stage 1 of the Hornsby Ku-ring-gai Hospital Redevelopment for new works deemed needed to support Stage 2. Following this decision, Health Infrastructure finalised and submitted a business case addendum for Stage 1 to the Ministry in March 2017, addressing the new works comprising a two-storey building for medical imaging and paediatric floors. The business case addendum also addressed options to fit out and procure major medical imaging equipment. The Ministry approved the Stage 1 business case in July 2017, noting the Ministry's Capital Strategy Group had already approved the use of remaining Stage 1 funds to deliver the new works.

Stage 1 was completed in 2015, almost two years before the Stage 1 business case addendum was prepared in February 2017.

The Ministry's decision to approve the new works using $13.76 million of surplus Stage 1 funds did not comply with the NSW Treasury Circular TC 12/20. This policy establishes the Treasurer's approval must be sought and received before a new capital project with an Estimated Total Cost of $5.0 million or more can be approved by NSW Health. The Ministry therefore exceeded its delegated authority in making this decision, as it was not evident it had sought and received the Treasurer's approval prior to doing so.

Consequently, the surplus Stage 1 funds should not have been used by the Ministry to deliver new works in the circumstances. Instead, they should have been released from the Stage 1 project in accordance with established NSW Health procedures, and the Stage 1 Estimated Total Cost revised down accordingly. This did not occur, and NSW Health ultimately directed $11.0 million in surplus Stage 1 funds to the new works.

These circumstances indicate a need to strengthen transparency and accountability within NSW Health for the approval of new projects, and how contingency funds are used in the management of major health capital works. They also demonstrate the impact of weaknesses with options appraisal as the initial Stage 1 business case did not consider alternative options for addressing the initially unfunded works later covered by the Stage 1 business case addendum and ultimately funded from the Stage 1 contingency provision.

In addition to proposing the above-noted new works, the 2017 Stage 1 Business Case Addendum for the Hornsby-Ku-ring-gai development sought to retrospectively address the estimated funding gap of around $14.0 million for the internal fit out, supply of major medical imaging equipment, and cost to operate the medical imaging service at Hornsby Ku-ring-gai Hospital also not addressed in the originally Stage 1 business case.

The Stage 1 business case addendum considered various procurement options to purchase and run the medical imaging services ranging from State operation purchase options to private operation purchase options.

It recommended outsourcing the operation and provision of equipment to the private sector based on estimated savings to the public sector initially of around $650,000 per annum reducing over time to $270,000. The Ministry endorsed this option in June 2017, but it did not ultimately proceed.

A July 2018 report to the Executive Steering Committee on the project shows NSW Health later decided to deliver operation of the medical imaging unit 'traditionally' with an updated estimate of the cost at approximately $16.4 million. The report also shows the Ministry supported the costs now being met by the Northern Sydney Local Health District.

This means the funding gap previously identified in the Stage 1 business case addendum for fitting out the medical imaging building and supply of major medical equipment would need to be met fully by the State, representing a $16.4 million cost overrun for the project.

Examined reports to the Executive Steering Committee show this was largely funded by the Northern Sydney Local Health District via the disposal of land realising approximately $15.0 million in proceeds.

This initially unforeseen cost, along with the additional $11.0 million for the new works approved under the Stage 1 business case addendum, were ultimately merged with the Stage 2 project initially approved in 2017–18 with an Estimated Total Cost of $200 million.

The 2019–20 State Budget provided an additional $65.0 million for a further Stage 2A to deliver additional built capacity to support outpatient services, enhanced allied health services, re-housed community health services and the delivery of prioritised clinical services unfunded as part of Stage 2. The funds were approved based on an Investment Decision Template (IDT) that examined two options in addition to the base case representing scoping alternatives to the preferred master planned capital solution.

However, we found the IDT showed around 23 per cent of the $65.0 million sought (i.e. $15.0 million) was to be allocated to fund the deficit in Stage 2, which had arisen as a result of project delays due to adverse site conditions. This was not discussed in the IDT.

The February 2020 report to the Executive Steering Committee shows a combined Stage 2 and 2A final forecast cost of $292.6 million against a potential budget of $290.7 million representing an overall deficit for the project of around 0.6 per cent.

However, this favourable final budget position does not transparently show the funding challenges experienced over the project's implementation to-date. The three major budget issues include:

• inappropriate use of around $11.0 million in Stage 1 contingency for originally unfunded works contrary to Treasury policy
• the additional $16.4 million cost unforeseen in the Stage 1 business case for delivering medical imaging services mostly funded through the sale of land
• an additional $15.0 million from Stage 2A to cover the budget overrun in Stage 2 due to adverse site conditions.

The cumulative impact of these events is that Stages 1 and 2 of the Hornsby project cost approximately $42.4 million than it should have in the circumstances around 14 per cent more than what the revised combined Estimated Total Cost for both stages should have been after releasing the $11.0 million in surplus Stage 1 funds, with Stage 2 delayed by around 14 months.

Major construction projects often experience adverse site conditions which can be difficult to fully detect in advance. However, we found this was a common occurrence in the projects we examined sometimes with significant time and/or budget impacts indicating scope to enhance related risk and cost assessments. Specifically:

• Hornsby Ku-ring-gai Hospital Redevelopment Stage 2: adverse site conditions during demolition works resulted in an 11-month delay for delivering the medical imaging unit and 14-month delay completing Stage 2 main works including need for additional $15.0 million in funds to cover the resultant budget deficit for the project.
• Blacktown Mt Druitt Hospital Redevelopment Stage 2: adverse site conditions combined with project complexity delayed completion of the early works by approximately five months. This contributed to the delay in completing the main construction works which occurred around nine months later than planned in the business case.
• Dubbo Health Service Redevelopment Stages 3 and 4: Health Infrastructure advised adverse site conditions including asbestos containing materials and ground conditions delayed works for the main building with completion forecast for March 2021, around 21 months later than planned in the final business case. This resulted in the need for additional $13.5 million to cover increased construction costs and risks, increasing the Stage 3 and 4 forecast final cost from $150 million to $163.5 million as at February 2020.

These examples indicate a risk the cumulative impact of adverse site conditions may be substantial when measured across both time and Health Infrastructure's full delivery program. They also point to potential for Health Infrastructure to achieve efficiencies and improved outcomes from strengthening its approach to assessing and mitigating the risks from adverse site conditions.

Main construction works on Stage 1 of the Dubbo Health Service Redevelopment were completed in October 2015, approximately 13 months later than planned in the final business case. Delays were mainly due to insolvency of the early works contractor resulting in their departure from the project. The ensuing 11-month delay in completing the early works significantly impacted the overall schedule and delivery of main construction works.

The insolvency event was significant as it affected nine separate Health Infrastructure projects – three of which had yet to reach practical completion. It also affected state-funded projects in other sectors. It resulted in the need for additional funding of $11.5 million that was provided in the 2014–15 State Budget increasing the total Stage 1 and 2 budget from $79.8 million to $91.3 million.

Health Infrastructure’s analysis of lessons learned shows it worked actively to mitigate the impacts of the insolvency event across all affected projects. However, it also indicates a risk the lessons were mainly focused on mitigating the impacts after an insolvency event occurred rather than on prevention.

Although Health Infrastructure initially commissioned a financial assessment of the now insolvent early works contractor before engagement, it did not detect any risks of the impending insolvency and instead concluded the contractor was in a strong financial position. However, the contractor became insolvent shortly after commencement approximately seven months later. This indicates a risk of weaknesses in the assessment performed that was not explicitly addressed by the lessons learned.

Delivery of the main construction works were further impacted by disputes with the main works contractor over the scope of works for the renal unit resulting in Health Infrastructure terminating the contract in November 2016 following lengthy negotiations over several months.

The scope of works relating to the renal unit were ultimately transferred to Stages 3 and 4 and were delivered in December 2019, around five years later than originally planned in the business case.

Health Infrastructure advised the delay was ultimately beneficial to the project because the refurbishment works for the renal unit, initially scheduled for Stages 1 and 2, would have been demolished to accommodate the new Western Cancer Centre proposed after Stages 1 and 2 and currently being delivered in parallel with Stages 3 and 4.

Health Infrastructure advised the actual cost of Stages 1 and 2 was $84.7 million against the budget of $91.3 million. The residual $6.6 million relates to the renal works not delivered during Stage 1 and 2 and transferred to Stage 3 and 4.

Health Infrastructure advised the contractual provisions for mitigating insolvency events 'in-flight' are limited highlighting the importance of proactive and effective due diligence prior to engaging contractors for significant construction projects.

Health Infrastructure's 2017-20 Corporate Plan identifies the development of a quality framework to support delivery of future-focused outcomes as a key organisational priority. Related initiatives within the Corporate Plan describe a framework underpinned by a Quality Committee providing advice on:

• records management, to meet the requirements of the State Records Act 1998
• project assurance, to ensure future focused outcomes and enhance Health Infrastructure's Standards, Policies, Procedures and Guidelines, Templates and Design Guidance Notes
• knowledge management and library services, to promote and leverage from project learnings.

Although Health Infrastructure has some elements of a quality framework it is not yet fully in place. Health Infrastructure advised it had yet to establish the quality framework and related committee described in its Corporate Plan due in part to its focus on responding to the growth of its capital program.

Health Infrastructure's Development and Innovation team has been active in supporting continuous improvement in knowledge and project management including development of business cases. Although useful, these initiatives have relied heavily on leveraging and disseminating insights from Gateway reviews and have not formed part of a systematic quality and continuous improvement framework.

The limited focus on the quality of business cases is reflected in internal performance monitoring and reporting which focuses mainly on tracking the delivery of projects against internal benchmarks, often revised from the baselines in the business case, and expenditure against cashflow targets. There is no evident internal monitoring and/or reporting to the Chief Executive and Board on defined quality metrics linked to business case development and staff capability.

Performance reporting on balanced scorecard metrics has similarly focused mainly on process rather than quality and has been inconsistent in recent years.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Appendix four – Ministry of Health planning tools and guidelines

Appendix five – Streamlined investment decision process for Health Capital Projects

Appendix six – Timeline of business cases and relevant policy guidelines

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #338 - released 12 August 2020

The Auditor-General for New South Wales, Margaret Crawford, released a report today examining whether the Department of Communities and Justice had effective governance and partnership arrangements in place to deliver ‘Their Futures Matter’.

Their Futures Matter was intended to place vulnerable children and families at the heart of services, and direct investment to where funding and programs deliver the greatest social and economic benefits. It was a four-year whole-of-government reform in response to the 2015 Tune Review of out-of-home care.

The Auditor-General found that while important foundations were put in place, and new programs trialled, the key objective to establish an evidence-based whole-of-government early intervention approach for vulnerable children and families in NSW was not achieved.

Governance and cross-agency partnership arrangements to deliver Their Futures Matter were found to be ineffective. 'Their Futures Matter lacked mechanisms to secure cross portfolio buy‑in and did not have authority to drive reprioritisation of government investment', the Auditor-General said.

At the reform’s close, the majority of around $380 million in investment funding remains tied to existing agency programs, with limited evidence of their comparative effectiveness or alignment with Their Futures Matter policy objectives. The reform concluded on 30 June 2020 without a strategy or plan in place to achieve its intent.

The Auditor-General made four recommendations to the Department of Communities and Justice, aimed at improving implementation of outstanding objectives, revising governance arrangements, and utilising the new human services data set to address the intent of the reform. However, these recommendations respond only in part to the findings of the audit.

According to the Auditor-General, ‘Cross-portfolio leadership and action is required to ensure a whole-of-government response to delivering the objectives of Their Futures Matter to improve outcomes for vulnerable children, young people and their families in New South Wales.’

Read full report (PDF)

In 2016, the NSW Government launched 'Their Futures Matter' (TFM) - a whole-of-government reform aimed at delivering improved outcomes for vulnerable children, young people and their families. TFM was the government's key response to the 2015 Independent Review of Out of Home Care in New South Wales (known as 'the Tune Review').

The Tune Review found that, despite previous child protection reforms, the out of home care system was ineffective and unsustainable. It highlighted that the system was not client-centred and was failing to improve the long-term outcomes for vulnerable children and families. The review found that the greatest proportion of relevant expenditure was made in out of home care service delivery rather than in evidence-based early intervention strategies to support children and families when vulnerabilities first become evident to government services (such as missed school days or presentations to health services).

The then Department of Family and Community Services (FACS) designed the TFM reform initiatives, in consultation with central and human services agencies. A cross-agency board, senior officers group, and a new unit in the FACS cluster were established to drive the implementation of TFM. In the 2016–17 Budget, the government allocated $190 million over four years (2016–17 to 2019–20) to the reform. This resourced the design and commissioning of evidence-based pilots, data analytics work, staffing for the implementation unit and secretariat support for the board and cross-agency collaboration.

As part of the TFM reform, the Department of Premier and Cabinet, NSW Treasury and partnering agencies (NSW Health, Department of Education and Department of Justice) identified various existing programs that targeted vulnerable children and families (such as the preceding whole-of-government ‘Keep Them Safe’ reform coming to an end in June 2020). Funding for these programs, totalling $381 million in 2019–20, was combined to form a nominal ‘investment pool’. The government intended that the TFM Implementation Board would use this pool to direct and prioritise resource allocation to evidence-based interventions for vulnerable children and families in NSW.

This audit assessed whether TFM had effective governance and partnership arrangements in place to enable an evidence-based early intervention investment approach for vulnerable children and families in NSW. We addressed the audit objective with the following audit questions:

• Was the TFM reform driven by effective governance arrangements?
• Was the TFM reform supported by effective cross-agency collaboration?
• Has the TFM reform generated an evidence base to inform a cross-agency investment approach in the future?

The audit did not seek to assess the outcomes for children, young people and families achieved by TFM programs and projects.

Their Futures Matter (TFM) is a whole-of-government reform to deliver improved outcomes for vulnerable children, young people and their families.

Supported by a cross-agency TFM Board, and the TFM Unit in the then Department of Family and Community Services (FACS), the reform aimed to develop whole-of-government evidence-based early intervention investment approaches for vulnerable children and families in NSW.

Governance refers to the structures, systems and practices that an organisation has in place to:

• assign decision-making authorities and establish the organisation's strategic direction
• oversee the delivery of its services, the implementation of its policies, and the monitoring and mitigation of its key risks
• report on its performance in achieving intended results, and drive ongoing improvements.

We examined whether the TFM reform was driven by effective governance arrangements and cross-agency collaboration.

The reform agenda and timeframe set down for Their Futures Matter (TFM) were ambitious. This chapter assesses whether the TFM Board and TFM Unit had the capability, capacity and clout within government to deliver the reform agenda.

Creating a robust evidence base was important for Their Futures Matter, in order to:

• identify effective intervention strategies to improve supports and outcomes for vulnerable children and families
• make efficient use of taxpayer money to assist the maximum number of vulnerable children and families
• inform the investment-based approach for future funding allocation.

This chapter assesses whether the TFM reform has developed an evidence base to inform cross-agency investment decisions.

Appendix one – Response from agency

Appendix two – TFM governance entities

Appendix three – TFM Human Services Data Set

Appendix four – TFM pilot programs

Appendix five – About the audit

Appendix six – Performance auditing

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

Parliamentary reference - Report number #337 - released 24 July 2020