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Published

Actions for Planning and Environment 2022

Planning and Environment 2022

Environment
Industry
Local Government
Planning
Asset valuation
Compliance
Financial reporting
Information technology
Infrastructure
Internal controls and governance
Management and administration
Risk

What the report is about

Result of the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.

Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.

Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.

Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.

The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.

All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).

NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.

What the key issues were

Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.

There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.

The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.

Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.

Recommendations were made to address these deficiencies.

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

  • financial reporting
  • audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster (the cluster) for 2022.

Section highlights

  • Unqualified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing. The audit of the Catholic Metropolitan Cemeteries Trust(CMCT) has not been able to commence, despite repeated requests to do so.
     
  • The audits of the Water Administration Ministerial Corporation's (WAMC) financial statements for the years ended 30 June 2011 to 30 June 2020 were completed in November 2022. These audits had been long outstanding due to insufficient records and evidence to support the transactions and balances of WAMC, particularly for the earlier years. In recent years, management commenced actions to improve WAMC's governance and financial management, and finalise the outstanding audits.

    Disclaimed audit opinions were issued on the 2010–11 to 2015–16 financial statements as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.

    Qualified audit opinions were issued for the 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.

    Unqualified audit opinions were issued for the 2018–19 and 2019–20 financial statements.

    The 2020–21 and 2021–22 WAMC audits are in progress.
     
  • The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.

    All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).

    The department needs to do more to ensure Category 2 SLMs and Commons Trusts meet their statutory reporting obligations.

    The department and Category 2 SLMs should finalise their reporting exemption assessments earlier to allow sufficient time for the non-exempted SLMs to prepare and submit annual financial statements by the statutory reporting deadline.
     
  • NSW Treasury has met with the Catholic Metropolitan Cemeteries Trust (CMCT) to consider their perspective as part of confirming CMCT is a controlled entity of the State for the purposes of financial reporting. NSW Treasury has confirmed that the CMCT is a controlled entity of the State. This means that the CMCT is statutorily obliged under section 7.6 of the GSF Act to prepare financial statements in accordance with the GSF Act and Treasurer's Directions, and give them to the Auditor-General for audit pursuant to the Government Sector Audit Act 1983 (GSA Act). Section 34 of the GSA Act requires the Auditor-General to furnish an audit report on these financial statements.

    The department wrote to CMCT to request it work with, and offer full assistance to, the Auditor-General in the exercise of her duties. To date, the CMCT has not met its obligations to prepare financial statements under the GSF Act as it has not submitted its financial statements to the Auditor-General for audit despite repeated requests, and has not provided access to its books and records for the purposes of a financial audit. The CMCT contends that they are not a GSF agency as defined by the GSF Act and therefore not a controlled entity of the State.
     
  • Six agencies required to perform early close procedures did not complete a total of 11 mandatory procedures. Incomplete procedures included the delayed resolution of matters raised in prior years and two agencies did not record movements in the fair value of physical assets in the financial statements.

 

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 Planning and Environment cluster.

Section highlights

  • Since 2017, the Audit Office of New South Wales has recommended that the Department of Planning and Environment (the department) address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue, and in 2022, 32 of 118 completed audits of councils received qualified audit opinions on their 2022 financial statements.
    Consistent with the department’s role to assess councils' compliance with legislative responsibilities, standards or guidelines, the department should intervene where councils do not recognise rural firefighting equipment.
  • There continues to be significant deficiencies in Crown land records. The department should implement an action plan to ensure the Crown land database is complete and accurate.
  • The number of findings reported to management decreased from 161 in 2020–21 to 132 in 2021–22. Eight high-risk findings were identified during 2021–22, of which six were repeat issues. One new high-risk finding related to deficiencies in governance processes and internal controls identified as a part of the Water Administration Ministerial Corporation's 2011–2020 financial statements audits.
  • The department and NSW Treasury did not comply with section 35 of the Energy and Utilities Administration Act 1987 (EUA Act). However, complying with the EUA Act could create non-compliance with other pieces of legislation. Amendments to the EUA Act have been made to resolve this inconsistency. The amendment took effect from April 1999.

 

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Appendix five – Councils received qualified audit opinions 

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.

Published

Actions for Regional NSW 2022

Regional NSW 2022

Environment
Industry
Planning
Asset valuation
Compliance
Financial reporting
Fraud
Information technology
Infrastructure
Internal controls and governance
Management and administration
Regulation
Risk
Shared services and collaboration

What the report is about

Result of the Regional NSW cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for Regional NSW cluster agencies. Two audits are ongoing.

What the key issues were

The Department of Regional NSW (the department) and Local Land Services (LLS) accepted changes to their office leasing arrangements managed by Property NSW.

These changes resulted in the collective derecognition of $100.6 million of rights-of-use-assets and $110.4 million of lease liabilities.

In 2021–22, the cluster agencies continued to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales.

The Northern Rivers Reconstruction Corporation was established in May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods.

The number of matters reported to management decreased from 36 in 2020–21 to 14 in 2021–22.

Five moderate risk issues were identified and 14% of reported issues were repeat issues.

One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.

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

  • financial reporting
  • audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW cluster (the cluster) for 2022.

Section highlights

  • Unqualified audit opinions were issued on the financial statements of cluster agencies. Two audits are ongoing.
  • Cluster agencies completed all required early close procedures.
  • Changes to accommodation arrangements managed by Property NSW on behalf of the department and cluster agencies resulted in the collective derecognition of approximately $100.6 million in right-of-use assets and corresponding lease liabilities totalling $110.4 million from the balance sheets of these agencies.
  • Cluster agencies continue to provide financial assistance to communities affected by natural disasters.

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 Regional NSW cluster.

Section highlights

  • The 2021–22 audits identified five moderate issues across the cluster. One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.
  • Of the four newly identified moderate rated issues, one related to internal control deficiencies and improvements and three related to financial reporting.
  • The number of findings reported to management has decreased from 36 in 2020–21 to 14 in 2021–22.

Published

Actions for Health 2022

Health 2022

Health
Whole of Government
Asset valuation
Compliance
Cyber security
Financial reporting
Information technology
Infrastructure
Internal controls and governance
Management and administration
Procurement
Risk
Service delivery
Shared services and collaboration
Workforce and capability

What the report is about

Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.

What we found

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

The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).

A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.

What the key issues were

The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.

Three unresolved high-risk issues were:

  • COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.

  • Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.

  • Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.

What we recommended

  • COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.

  • Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.

  • Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.

This report provides Parliament and other users of Health cluster (the cluster) agencies' financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

  • financial reporting

  • audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Health cluster (the cluster) for 2022.

Section highlights

  • Unqualified audit opinions were issued for all cluster agencies required to prepare general purpose financial statements.

  • The total gross value of corrected monetary misstatements for 2021–22 was $353.3 million, of which, $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests.

  • A qualified audit opinion was issued on the ministry's Annual Prudential Compliance Statements.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the cluster.

Section highlights

  • The total number of internal control deficiencies has decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised in 2021–22, four were high (2020–21: 3) and 37 were moderate (2020–21: 57); with nearly half of all control deficiencies reported in 2021–22 being repeat issues.

  • The following four issues were reported in 2021–22 as high risk:

    • impairment of COVID-19 inventories

    • inadequate review over the appropriateness of asset capitalisation threshold

    • forced-finalisation of HealthRoster time records

    • COVID-19 vaccination inventories – data quality issue at 31 March 2022.

  • Management of excessive leave balances and poor quality or lack of documentation supporting key agreements continued to be the key repeat issues observed in the 2021–22 financial reporting period.

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.

Published

Actions for COVID-19: response, recovery and impact

COVID-19: response, recovery and impact

Community Services
Education
Health
Justice
Premier and Cabinet
Transport
Treasury
Whole of Government
Cross-agency collaboration
Financial reporting
Management and administration
Service delivery
Shared services and collaboration

What the report is about

This report draws together the financial impact of COVID-19 on the agencies integral to responses across the state government sector of New South Wales.

What we found

Since the COVID-19 pandemic hit NSW in January 2020, and until 30 June 2021, $7.5 billion was spent by state government agencies for health and economic stimulus. The response was largely funded by borrowings.

The key areas of spending since the start of COVID-19 in NSW to 30 June 2021 were:

  • direct health response measures – $2.2 billion
  • personal protective equipment – $1.4 billion
  • small business grants – $795 million
  • quarantine costs – $613 million
  • increases in employee expenses and cleaning costs across most agencies
  • vaccine distribution, including vaccination hubs – $71 million.

The COVID-19 pandemic significantly impacted the financial performance and position of state government agencies.

Decreases in revenue from providing goods and services were offset by increases in appropriations, grants and contributions, for health and economic stimulus funding in response to the pandemic.

Most agencies had expense growth, due to additional operating requirements to manage and respond to the pandemic along with implementing new or expanded stimulus programs and initiatives.

Response measures for COVID-19 have meant the NSW Government is unlikely to meet targets in the Fiscal Responsibility Act 2012 being:

  • annual expense growth kept below long-term average revenue growth
  • elimination of State’s unfunded superannuation liability by 2030.

 Fast facts

  • First COVID-19 case in NSW on 25 January 2020
  • COVID-19 vaccinations commenced on 21 February 2021
  • By 31 December 2021, 25.2 million PCR tests had been performed in NSW and 13.6 million vaccines administered, with 93.6% of the 16 and over population receiving two doses
  • During 2020–21, NSW Health employed an extra 4,893 full-time staff and incurred $28 million in overtime mainly in response to COVID-19
  • During 2020–21, $1.2 billion was spent on direct health COVID-19 response measures and $532 million was spent on quarantine for incoming international travellers

Section highlights

  • Up to 30 June 2021, $7.5 billion has been spent by state government agencies for health and economic stimulus.
  • Revenue increased for most agencies as falling revenue from providing goods and services was offset by additional funding from appropriations, grants and contributions.
  • Expenses increased as most agencies incurred additional costs to manage and respond to the pandemic along with delivering stimulus and support programs.
  • Borrowings of $7.5 billion over the last two years helped to fund the response to COVID-19.

Section highlights

  • NSW Government unlikely to meet targets in Fiscal Responsibility Act 2012.

Published

Actions for Planning, Industry and Environment 2021

Planning, Industry and Environment 2021

Environment
Industry
Local Government
Planning
Asset valuation
Financial reporting
Information technology
Internal controls and governance
Risk

This report analyses the results of our audits of the Planning, Industry and Environment 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 Planning, Industry and Environment 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 Planning, Industry and Environment cluster agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all completed 30 June 2021 financial statements audits of cluster agencies. Three audits are ongoing.

An 'Other Matter' paragraph was included in the Independent Planning Commission's (the IPC) audit opinion because the prior year comparative figures were not audited. Prior to 2020–21, the IPC was not required to prepare separate financial statements under the Public Finance and Audit Act 1983 (PF&A Act). The financial reporting provisions of the Government Sector Finance Act 2018 now require the IPC to prepare financial statements.

The number of identified misstatements increased from 51 in 2019–20 to 54 in 2020–21.

The 2010–11 to 2019–20 audits of the Water Administration Ministerial Corporation’s (the Corporation) financial statements are incomplete due to insufficient records and evidence to support the transactions of the Corporation, particularly for the earlier years. Management has commenced actions to improve the governance and financial management of the Corporation. These audits are currently in progress and the 2020–21 audit will commence shortly.

There are 609 State controlled Crown land managers (CLMs) across New South Wales that predominantly manage small parcels of Crown land.

Eight CLMs prepared and submitted 2019–20 financial statements by the revised deadline of 30 June 2021. A further 24 CLMs did not prepare financial statements in accordance with the PF&A Act. The remaining CLMs were not required to prepare 2019–20 financial statements as they met NSW Treasury's financial reporting exemption criteria.

The Department of Planning, Industry and Environment's (the department) preliminary assessment indicates that 60 CLMs are required to prepare financial statements in 2020–21. To date, no CLMs have prepared and submitted financial statements for audit in 2020–21.

There are also 120 common trusts that have never submitted financial statements for audit. Common trusts are responsible for the care, control and management of land that has been set aside for specific use in a certain locality, such as grazing, camping or bushwalking.

What the key issues were

The number of matters we reported to management increased from 135 in 2019–20 to 180 in 2020–21, of which 40 per cent were repeat findings.

Seven high-risk issues were identified in 2020–21:

  • system control deficiencies at the department relating to user access to HR and payroll management systems, vendor master data management and journal processing, which require manual reviews to mitigate risks
  • deficiencies related to the Centennial Park and Moore Park Trust's tree assets valuation methodology
  • the Lord Howe Island Board did not regularly review and monitor privileged user access rights to key information systems
  • the Natural Resources Access Regulator identified and adjusted three prior period errors retrospectively, which indicate deficiencies within the financial reporting processes
  • deficiencies relating to the Parramatta Park Trust's tree assets valuation methodology
  • lease arrangements have not been confirmed between the Planning Ministerial Corporation and Office of Sport regarding the Sydney International Regatta Centre
  • the Wentworth Park Sporting Complex land manager (the land manager) has a $6.5 million loan with Greyhound Racing NSW (GRNSW). GRNSW requested the land manager to repay the loan. However, the land manager subsequently requested GRNSW to convert the loan to a grant. Should this request be denied, the land manager would not be able to continue as a going concern without financial support. This matter remains unresolved for many years.

There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that are managed and controlled by the department and land managers (including councils and land managers controlled by the state). The CLID system was not designed to facilitate financial reporting and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.

The department is implementing a new system to record Crown land (the CrownTracker project). The department advised that the project completion date will be confirmed by June 2022.

What we recommended

The department should ensure CLMs and common trusts meet their statutory reporting obligations.

Cluster agencies should prioritise and action recommendations to address internal control deficiencies, with a focus on addressing high-risk and repeat issues.

The department should prioritise action to ensure the Crown land database is complete and accurate. This will allow the department and CLMs to be better informed about the Crown land they control.

Fast facts

The Planning, Industry and Environment cluster aims to make the lives of people in New South Wales better by developing well-connected communities, preserving the environment, supporting industries and contributing to a strong economy.

There are 54 agencies, 609 State controlled Crown land managers that predominantly manage small parcels of Crown land and 120 common trusts in the cluster.

  • 42% of the area of NSW is Crown land
  • $33.2b water and electricity infrastructure as at 30 June 2021
  • 100% unqualified audit opinions were issued for all completed 30 June 2021 financial statements audits
  • 7 high-risk management letter findings were identified
  • 54 monetary misstatements were reported in 2020–21
  • 40% of reported issues were repeat issues

This report provides parliament and other users of the Planning, Industry and Environment cluster (the cluster) agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

  • financial reporting
  • audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning, Industry and Environment cluster (the cluster) for 2021.

Section highlights

  • Unmodified audit opinions were issued for all completed 30 June 2021 financial statements audits of cluster agencies. Three audits are ongoing.
  • An 'Other Matter' paragraph was included in the Independent Planning Commission’s (the IPC) audit opinion because the prior year comparative figures were not audited. Prior to 2020–21, the IPC was not required to prepare separate financial statements under the Public Finance and Audit Act 1983. From 2020–21, the IPC is required to prepare financial statements under the Government Sector Finance Act 2018.
  • The 2010–11 to 2019–20 audits of the Water Administration Ministerial Corporation’s (the Corporation) financial statements were incomplete due to insufficient records and evidence to support the transactions of the Corporation, particularly for the earlier years. These audits are currently underway, and the 2020–21 audit will commence shortly.
  • The Department of Planning, Industry and Environment's (the department) preliminary assessment indicates that 60 State controlled Crown land managers (CLMs) are required to prepare financial statements in 2020–21. To date, no CLMs have prepared and submitted financial statements for audit in 2020–21. All 120 common trusts have never submitted their financial statements for audit. The department needs to do more to ensure that the CLMs and common trusts meet their statutory reporting obligations.
  • Nine agencies that were required to perform early close procedures did not complete a total of 20 mandatory procedures. The most common incomplete early close procedures include the revaluation of property, plant and equipment, documenting all significant management judgments and assumptions, and the implementation of new and updated accounting standards.

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 statements audits of agencies in the Planning, Industry and Environment cluster.

Section highlights

  • The number of findings reported to management has increased from 135 in 2019–20 to 180 in 2020–21, and 40 per cent were repeat issues.
  • Seven high-risk issues were identified in 2020–21, and three high-risk findings were repeat issues.
  • There continues to be significant deficiencies in Crown land records. The department should prioritise action to ensure the Crown land database is complete and accurate.

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.

Published

Actions for Health 2021

Health 2021

Health
Asset valuation
Compliance
Cyber security
Financial reporting
Infrastructure
Internal controls and governance
Procurement

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.

Fast facts

The Health cluster, comprising 15 local health districts, five pillars agencies, two specialty health networks and six shared state-wise services agencies, deliver health services to the people of New South Wales.

  • 100% unqualified audit opinions were issued on agencies' 30 June 2021 financial statements
  • 24 monetary misstatements were reported in 2020–21
  • high risk management letter findings were identified
  • 47.4% of reported issues were repeat issues
  • $23.5b property, plant and equipment as at 30 June 2021
  • $26.8b total expenditure incurred in 2020–21

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.

Section highlights

  • Unqualified audit opinions were issued for all cluster agencies required to prepare general-purpose financial statements.

  • The total gross value of all corrected monetary misstatements for 2020–21 was $250.2 million, of which $226.0 million were related to complexities arising from the COVID-19 pandemic.

  • A qualified audit opinion was issued on the Ministry's Annual Prudential Compliance Statement.

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.

Section highlights

  • The total number of internal control deficiencies has increased from 112 issues in 2019–20 to 116 in 2020–21. Of the 116 issues raised in 2020–21, three were high (one in 2019–20) and 57 were moderate (47 in 2019–20); with nearly one half of all control deficiencies reported in 2020–21 being repeat issues.
  • The complexities arising from accounting for agreements between governments to respond to the COVID-19 pandemic presented three new high risk audit findings with respect to the:
    • expected rate of recoverability of outstanding Hotel Quarantine fees
    • procurement, stocktaking and impairment of COVID-19 inventories
    • valuation and recognition of COVID-19 vaccines received from the Commonwealth Government.
  • Management of excessive leave balances and poor quality or lack of documentation supporting key agreements were amongst the repeat issues observed again in the 2020–21 financial reporting period.

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.

Risk rating Issue
Information technology

Moderate2
7 new,
3 repeat

We identified the need for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of particular concern are issues associated with:

  • lack of reviews of user access and privileged user access for
  • HealthRoster
  • Assets and Facilities Management Online
  • vMoney Powerhouse
  • Patient Billing and Revenue Collection system.

Repeat issues included:

  • deficient password controls
  • no independent review for data integrity of any changes made to HealthRoster
  • incomplete reviews of StaffLink User Access.

Low1
4 new,
5 repeat

Internal control deficiencies or improvements

High3

1 new, 

0 repeat

We identified internal control weaknesses across key business processes, including new issues relating to:

  • procurement, stocktaking and impairment of COVID-19 inventories (personal protective equipment)
  • instances where employees' timesheets were approved in advance
  •  monthly reconciliations not reviewed in a timely manner
  • asset revaluation processes at Illawarra Shoalhaven Local Health District.
     

Repeat issues included:

  • forced finalisation of rosters in order to finalise processing of payroll
  • partial repeat issue relating to HealthShare NSW's stocktake process, refer to details in the following section of this report.

Moderate2
6 new,
12 repeat

 Low1
10 new,
4 repeat

Financial reporting

High3

2 new, 
0 repeat

We identified weaknesses with respect to financial reporting in relation to the:

  • expected rate of recoverability of outstanding Hotel Quarantine fees
  • valuation and recognition of COVID-19 vaccines received from the Commonwealth Government
  • application of AASB 16 'Leases'
  • improvement in health agencies' grant register to better support management's accounting treatment under the applicable revenue accounting standards.

Moderate2
6 new,
1 repeat

Low1
8 new,
3 repeat

Governance and oversight
Moderate2
9 new,
5 repeat

We identified opportunities for agencies to improve governance and oversight processes, including:

  • ensure better documentation around governance arrangements for major health capital works delivered by Health Infrastructure
  • absence of documented practices at health agencies level relating to Visiting Medical Officer claims.
     

Repeat issues include:

  • delegations manual for Health Infrastructure remains in draft and has done so since 2017.
Low1
2 new,
2 repeat
Non-compliance with key legislation and/or central agency policies
Moderate2
1 new,
7 repeat

We identified the need for agencies to improve compliance with key legislation and central agency policies, with new findings including:

  • bank signatories list not updated to remove terminated employees
  • subsequent changes made to Junior Medical Officers' approved rosters not approved by an authorised delegate.
     

Repeat issues include:

  • management of excessive annual leave
  • non-compliance with the Government Information (Public Access) Act 2009 (GIPA Act) by Ambulance NSW.
Low1
5 new,
13 repeat

4Extreme risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
3 High risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
2 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
1 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.

Note: Management letter findings are based either on final management letters issued to agencies, or draft letters where findings have been agreed with management.

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:

States 2014–15 2015–16 2016–17 2017–18 2018–19 2019–20 2020–21
Queensland Signed Signed Signed Signed Signed Not finalised Not finalised
Victoria Not finalised Not finalised Not finalised Not finalised Not finalised Not finalised Not finalised
Australian Capital Territory Signed Signed Signed Signed Signed Signed Not finalised
South Australia Signed Signed Signed Signed Signed Signed Not finalised
Tasmania Signed Signed Signed Signed Signed Signed Not finalised
Northern Territory Signed Signed Signed Signed Signed Signed Not finalised
Western Australia Signed Signed Signed Signed Signed Signed Not finalised

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

 

 

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