What the report is about

This audit examined whether the Department of Planning and Environment (DPE) and the Biodiversity Conservation Trust (BCT) have effectively designed and implemented the Biodiversity Offsets Scheme (‘the Scheme’) to compensate for the loss of biodiversity due to development.

Under the Biodiversity Conservation Act 2016, the Scheme enables landholders to establish in-perpetuity Biodiversity Stewardship Agreements on sites to generate credits for the unique biodiversity on that land. These credits can be sold to offset the negative impact of development on biodiversity.

What we found

DPE has not effectively designed core elements of the Scheme. DPE did not establish a clear strategic plan to guide the implementation of the Scheme.

The BCT has various roles in the Scheme but lacked safeguards against potential conflicts, creating risks to credit supply.

The effectiveness of its implementation has also been limited. Key concerns around the Scheme’s transparency, sustainability and integrity are yet to be fully resolved.

A market-based approach to biodiversity offsetting is central to the Scheme's operation but credit supply is lacking and poorly matched to growing demand. DPE has not established a clear, resourced plan to manage the shortage in credit supply. Data about the market, published by the DPE and the BCT, does not provide an adequate picture of credit supply, demand and price to readily support market participation.

These factors create a risk that biodiversity gains made through the Scheme will not be sufficient to offset losses resulting from development, and that the DPE will not be able to assess the Scheme’s overall effectiveness.

DPE is leading work with the BCT to improve the Scheme, but this is not yet guided by a long-term strategy with clear goals.

What we recommended

The audit made 11 recommendations to DPE and the BCT, focusing on:

• a long-term strategic plan for the Scheme
• improvements to the operation and transparency of the market and credit supply
• frameworks to ensure the financial and ecological sustainability of biodiversity stewardship sites
• enhanced public reporting and data management
• resolving issues in conflicting governance and oversight.

The NSW Government's Biodiversity Outlook Report 2020 estimates that, without effective management, only 50% of species and 59% of ecological communities that are listed as threatened in New South Wales will still exist in 100 years. The NSW State of the Environment 2021 report identifies habitat destruction and native vegetation clearing as presenting the single greatest threat to biodiversity in the State.

According to the Organisation for Economic Co-operation and Development (OECD), biodiversity offsets are 'measurable conservation outcomes that result from actions designed to compensate for significant, residual biodiversity loss from development projects'. The OECD states that a feature of such schemes is that biodiversity offsets are intended to be implemented as the 'final step of a mitigation hierarchy' whereby reasonable first steps are taken to avoid and minimise the negative impacts.

The NSW Biodiversity Offsets Scheme was established in 2017 under the Biodiversity Conservation Act 2016 (the Act). The purpose of the Act is to 'maintain a healthy, productive and resilient environment for the greatest well-being of the community, now and into the future, consistent with the principles of ecologically sustainable development'.

The Department of Planning and Environment (DPE) designed and manages this Scheme. Under the Act, a feature of the Scheme is a 'market-based conservation mechanism through which the impacts to biodiversity can be offset.' The Scheme enables landholders to establish in-perpetuity Biodiversity Stewardship Agreements (BSAs) on sites to generate biodiversity credits, which can be sold to offset the negative impact of development on biodiversity. BSA sites are intended to be managed over the long term to generate the biodiversity gains required to offset the impact.

The Biodiversity Conservation Trust (BCT) monitors and supports landholders to manage BSA sites under the Scheme. This includes making payments to landholders from funds held in the Biodiversity Stewardship Payments Fund for undertaking the required biodiversity management actions.

This Scheme was preceded by several other offsetting schemes in New South Wales, including the BioBanking scheme that started in 2008. DPE has arrangements to transition sites, credits, and offset obligations from this and other previous schemes.

The current biodiversity credit market in New South Wales consists of 1394 different types of ecosystem credits, which are approved to be traded in 364 different offset trading groups, and 867 different species credits. Trading rules, set out in the Biodiversity Conservation Regulation 2017 (the Regulation), prioritise offsetting the obligations of a development with like-for-like ecosystem or species credits.

The Scheme is implemented through the planning system in New South Wales. Proposed development that involves the clearing of native vegetation, and meets certain thresholds, is required to undertake a Biodiversity Development Assessment Report. These reports determine an offset obligation, in biodiversity credits, to compensate for the biodiversity loss proposed. These reports are considered by consent authorities (such as a council, for local development, or by the Minister for Planning for major projects). An offset obligation is then included in the conditions of development approval.

In addition to establishing a market for trading between developers, with offset obligations, and landholders, who sell credits from their BSA sites, the Scheme allows developers to pay into the Biodiversity Conservation Fund and transfer their obligations to the BCT. This allows the developer to proceed with their project. The BCT must then meet these acquired obligations by buying the required credits, or by undertaking other approved activities set out in the Regulation. The BCT has more options than developers on how and when it acquits its obligations.

This audit examined whether DPE and the BCT have effectively designed and implemented the Biodiversity Offsets Scheme to compensate for the loss of biodiversity due to development.

This section presents an overview of the status of the biodiversity credit market in New South Wales. It describes development of the market under the Scheme in the context of transitional arrangements from previous schemes, and the extent of market participation and transactions to date. It also presents information about emerging trends in credit demand and supply.

This section assesses the clarity and alignment of the goals of the Scheme to key features of its design and operations. It also examines structural elements of the Scheme that aim to maintain integrity within administering agencies, and the status of actions to address risks or issues.

This section assesses how effectively components of the Scheme have been designed and are being implemented to provide assurance that the impacts of development are being avoided and minimised such that only ‘unavoidable’ impacts remain to be offset. The section also assesses whether the Scheme and its market embeds the necessary controls to ensure that obligations are offset as required.

This section assesses how effectively the supply of biodiversity credits has been supported by encouraging and enabling landholders to participate in the Scheme. It also assesses whether sufficient action is underway to address issues and risks to the establishment of BSA sites, especially in the context of known credit supply issues (section 2).

This section assesses how effectively BSA sites, which need to be managed by landholders to generate the biodiversity gains represented by credits, are regulated and supported by the Biodiversity Conservation Trust. It also assesses whether actions have been taken to address identified risks to the suitability of funds required to ensure long-term BSA site management.

Appendix one – Response from agencies 

Appendix two – Like-for-like, variation and ancillary rules

Appendix three – Detail on progress of the IIAP

Appendix four – About the audit 

Appendix five – Performance auditing 

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Parliamentary reference - Report number #367 - released 30 August 2022

What the report is about

In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.

This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.

The report is framed by recognition that the past four years have seen significant challenges and emergency events.

The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.

The report is a resource to support public sector agencies and local government to improve future programs and activities.

What we found

Our analysis of findings and recommendations is structured around six key themes:

• Integrity and transparency
• Performance and monitoring
• Governance and oversight
• Cyber security and data
• System planning for disruption
• Resource management.

The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.

In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.

The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.

The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.

While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.

Margaret Crawford
Auditor-General for New South Wales

This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.

• Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
• Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
• Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.

This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.

The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.

This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.

Appendix one – Included reports, 2018–2022

Appendix two – About this report

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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.

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.

What the report is about

The Aboriginal Land Rights Act 1983 (NSW) (the Act) provides land rights over certain Crown land for Aboriginal Land Councils in NSW.

If a claim is made over Crown land (land owned and managed by government) and meets other criteria under the Act, ownership of that land is to be transferred to the Aboriginal Land Council.

This process is intended to provide compensation for the dispossession of land from Aboriginal people in NSW. It is a different process to the recognition of native title rights under Commonwealth law.

We examined whether relevant agencies are effectively facilitating and administering Aboriginal land claim processes. The relevant agencies are:

• Department of Premier and Cabinet (DPC)
• Department of Planning and Environment (DPE)
• NSW Aboriginal Land Council (NSWALC).

We consulted with Local Aboriginal Land Councils (LALCs) and other Aboriginal community representative groups to hear about their experiences.

What we found

Neither DPC nor DPE have established the resources required for the NSW Government to deliver Aboriginal land claim processes in a coordinated way, and which transparently commits to the requirements and intent of the Act.

Delays in determining land claims result in Aboriginal Land Councils being denied the opportunity to realise their statutory right to certain Crown land. Delays also create risks due to uncertainty around the ownership, use and development of Crown land.

DPC has not established governance arrangements to ensure accountability for outcomes under the Act, and effective risk management.

DPE lacks clear performance measures for the timely and transparent delivery of its claim assessment functions. DPE also lacks a well-defined framework for prioritising assessments.

LALCs have concerns about delays, and lack of transparency in the process.

Reviews since at least 2014 have recommended actions to address numerous issues and improve outcomes, but limited progress has been made.

The database used by DPC (Office of the Registrar) for the statutory register of land claims has not been upgraded or fully validated since the 1990s.

In 2020, DPE identified the transfer of claimable Crown land to LALCs to enable economic and cultural outcomes as a strategic priority. DPE has some activities underway to do this, and to improve how it engages with Aboriginal Land Councils – but DPE still lacks a clear, resourced strategy to process over 38,000 undetermined claims within a reasonable time.

What we recommended

In summary:

• DPC should lead strategic governance to oversee a resourced, coordinated program that is accountable for delivering Aboriginal land claim processes
• DPE should implement a resourced, ten-year plan that increases the rate of claim processing, and includes an initial focus on land grants
• DPE and DPC should jointly establish operational arrangements to deliver a coordinated interagency program for land claim processes
• DPC should plan an interagency, land claim spatial information system, and the Office of the Registrar should remediate and upgrade the statutory land claims register
• DPC and NSWALC should implement an education program (for state agencies and the local government sector) about the Act and its operations
• DPE should implement a five-year workforce development strategy for its land claim assessment function
• DPE should finalise updates to its land claim assessment procedures
• DPE should enhance information sharing with Aboriginal Land Councils to inform their claim making
• NSWALC should enhance information sharing and other supports to LALCs to inform their claim making and build capacity.

The return of land under the Aboriginal Land Rights Act 1983 (NSW) (the Act) is intended to provide compensation for the dispossession of land from Aboriginal people in New South Wales. A claim on Crown land¹ made by an Aboriginal Land Council that meets criteria under the Act is to be transferred to the claimant council as freehold title. The 2021 statutory review of the Act recognises the spiritual, social, cultural and economic importance of land to Aboriginal people.

The Minister for Aboriginal Affairs administers the Act, with support from Aboriginal Affairs NSW (AANSW) in the Department of Premier and Cabinet (DPC). AANSW also leads the delivery of Opportunity, Choice, Healing, Responsibility and Empowerment (OCHRE), the NSW Government's plan for Aboriginal affairs, and assists the Minister to implement the National Agreement on Closing the Gap – which includes a target for increasing the area of land covered by Aboriginal and Torres Strait Islander people's legal rights or interests.

The Act gives responsibility for registering land claims to an independent statutory officer, the Registrar of the Aboriginal Land Rights Act (the Registrar), whose functions are supported by the Office of the Registrar (ORALRA) which is resourced by AANSW.²

The Land and Environment Court of New South Wales has stated that there is an implied obligation for land claims to be determined within a reasonable time. The Minister administering the Crown Land Management Act 2016 (NSW) is responsible for determining land claims. This function is supported by the Department of Planning and Environment (DPE),³ whose staff assess and recommend claims for determination based on the criteria under section 36(1) of the Act. There is also a mechanism under the Act for land claims to be negotiated in good faith through an Aboriginal Land Agreement.

The NSW Aboriginal Land Council (NSWALC) is a statutory corporation constituted under the Act with a mandate to provide for the development of land rights for Aboriginal people in NSW, in conjunction with the network of 120 Local Aboriginal Land Councils (LALCs). LALCs are constituted over specific areas to represent Aboriginal communities across NSW. Both NSWALC and LALCs can make land claims.

DPC and DPE are responsible for governance and, in partnership with NSWALC, operational and information-sharing activities that are required to coordinate Aboriginal land claim processes. LALCs, statutory officers, government agencies, local councils, and other parties need to be engaged so that these processes are coordinated effectively and managed in a way that is consistent with the intent of the Act, and other legislative requirements.

The first land claim was lodged in 1983. The number of undetermined land claims has increased over time, and at 31 December 2021 DPE data shows 38,257 undetermined claims.

The issue of undetermined land claims has been publicly reported by the Audit Office since 2007. Recommendations to agencies to better facilitate processes and improve how functions are administered have been made in multiple reviews, including two Parliamentary inquiries in 2016.

The objective of this audit was to assess whether relevant agencies are effectively facilitating and administering Aboriginal land claim processes. In making this assessment, we considered whether:

• agencies (DPE, DPC (AANSW and ORALRA) and NSWALC) coordinate information and activities to effectively facilitate Aboriginal land claim processes
• agencies (DPE and DPC (ORALRA)) are effectively administering their roles in the Aboriginal land claim process.

We consulted with LALCs to hear about their experiences and priorities with respect to Aboriginal land claim processes and related outcomes. We have aimed to incorporate their insights into our understanding of their expectations of government with respect to delivering requirements, facilitating processes, and identifying opportunities for improved outcomes. 

Since 1983, 53,861 Aboriginal land claims have been lodged with the Registrar.²⁵

The Land and Environment Court of New South Wales has stated there is an implied obligation on the Crown Lands Minister to determine land claims within a reasonable time.²⁶

As at 31 December 2021, DPE has processed less than a third (31 per cent) of these land claims: 14,273 were determined by the Crown Lands Minister (that is, granted or refused, in whole or part) and 2,562 were withdrawn. This amounts to 16,835 claims processed, including the negotiated settlement of 15 claims through three Aboriginal Land Agreements. As a result, DPE reports that approximately 163,900 hectares of Crown land has been granted to Aboriginal Land Councils since 1983 up to 31 December 2021.

There are 38,257 land claims awaiting determination, which cover about 1.12 million hectares of Crown land.

The 2017 report on the statutory review of the Act noted that the land claims ‘backlog’ was one of the ‘Top 5’ priorities identified by LALCs during consultations. The importance of this issue is consistent with findings from our consultations with LALCs in 2021 (see Exhibit 7).

Delays in delivering on the statutory requirement to determine land claims, and limited use of other mechanisms to process claims in consultation or agreement with NSWALC and LALCs, undermines the beneficial and remedial intent of Aboriginal land rights under the Act. It also:

• impacts negatively on DPE’s ability to comply with the statutory requirement to determine land claims, because often the older a claim becomes the more difficult it can be to gather the evidence required to assess it
• creates uncertainty around the ownership, use and development of Crown land, which can have financial impacts on Aboriginal Land Councils, government agencies, local councils and developers.

Risks that arise in the context of undetermined claims are discussed further in section 3.3.

NSW Treasury describes public sector governance as providing strategic direction, ensuring objectives are achieved, and managing risks and the use of resources responsibly with accountability.

Consistent with the NSW Treasury’s Risk Management Toolkit (TPP-12-03b), governance arrangements for Aboriginal land claim processes should ensure their effective facilitation and administration. That is, arrangements are expected to contribute to and oversee the performance of administrative processes and service delivery towards outcomes, and ensure that legal and policy compliance obligations are met consistent with community expectations of accountability and transparency.

DPC and DPE are responsible for governance and, in partnership with NSWALC, operational and information-sharing activities required to coordinate Aboriginal land claim processes. LALCs, statutory officers, government agencies, local councils, and other parties (such as native title groups and those with an interest in development on Crown land) need to be engaged so that these processes are coordinated effectively with risks managed – consistent with the intent of the Act, and other legislative requirements.

Policy commitments to Aboriginal people and communities made by the NSW Government in the OCHRE Plan and Closing the Gap priority reforms establish an expectation for culturally informed governance.

The Crown Lands Minister, supported by DPE, is required to determine whether Aboriginal land claims meet the criteria to be ‘claimable Crown lands’ under section 36(1) of the Act. DPE staff within its Crown Lands division are responsible for assessing land claims and preparing recommendation briefs to the Crown Lands Minister, or their delegate, on determination outcomes. That is, on whether to grant or refuse the claim.³⁸ DPE staff also make decisions about which land claims within the large number of undetermined claims should be processed first.

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – Performance auditing

Banner image used with permission.
Title: Forces of Nature
Artist: Lee Hampton – Koori Kicks Art

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 #365 - released 28 April 2022.

What the report is about

The report focuses on how effectively the Department of Customer Service (DCS) and Department of Planning and Environment (DPE) led reforms addressing the unsafe use of combustible external cladding on existing residential and public buildings.

Nine local councils were included in the audit because they have responsibilities and powers needed to implement the NSW Government’s reforms.

What we found

After the June 2017 Grenfell Tower fire in London, the NSW Government committed to a ten-point action plan, which included establishing the NSW Cladding Taskforce, chaired by DCS, and with DPE as a key member. The Taskforce co-ordinates and oversees the implementation of the plan.

Depending on the original source of development approval, either individual local councils or DPE are responsible for ensuring that buildings are identified, assessed, and remediated. NSW Government-owned buildings are the responsibility of each department.

Identifying buildings potentially at risk was complex and resource intensive. However, on balance, it is likely that most affected buildings have now been identified.

By October 2021, around 40 per cent of assessed high-risk buildings that are the responsibility of local councils had either been remediated or found not to pose an unacceptable fire risk.

By February 2022, almost 50 per cent of affected NSW Government-owned buildings, and 90 per cent of buildings that are the responsibility of DPE, have either been cleared or are in the process of being remediated.

Earlier guidance on some key issues could have been provided by DCS and DPE in the two years after the Grenfell Tower fire. This may have reduced confusion and inconsistency across local councils we audited, and in some NSW Government departments. This especially relates to the application of the Fair Trading Commissioner's product use ban.

Given the inherent risks posed by combustible external cladding, buildings initially assessed as low-risk may also still warrant further action.

While most high-risk buildings have likely been identified, poor information handling makes it difficult to keep track of all buildings from identification, through to risk assessment and remediation.

What we recommended

DCS and DPE should:

1. address the confusion surrounding the application of the Commissioner for Fair Trading's product use ban for aluminium composite panels with polyethylene content greater than 30 per cent
2. develop an action plan to address buildings assessed as low-risk
3. improve information systems to track all buildings from identification through to remediation.

NSW Government's response to the risks posed by combustible external cladding

The NSW Government first became aware of the potential heightened risks posed by combustible external cladding on building exteriors after the 2014 Lacrosse Tower fire in Melbourne. However, it was the tragic loss of life from the Grenfell Tower fire in London, in June 2017, that gave added urgency to the need to address these risks.

Within six weeks of the London fire, the NSW Government committed to a ten-point plan of action for NSW to:

• identify and remediate any buildings with combustible external cladding
• ensure that regulation prevented the unsafe use of such cladding
• ensure that experts involved in providing advice and certifying fire safety measures had the necessary skills and experience.

One of the actions in the ten-point plan was the creation of the NSW Government's Fire Safety and External Wall Cladding Taskforce (the Cladding Taskforce) chaired by the Department of Customer Service (DCS) and with the Department of Planning and Environment (DPE) as a key member.

The ten-point plan also specified that NSW Government departments would be responsible, in regard to buildings they owned to '…audit their buildings and determine if they have aluminium cladding'.

Local councils play a key role in implementing the Government's reforms, given their responsibilities and powers under the Environmental Planning and Assessment Act 1979 (EPA Act) and Local Government Act 1993 (Local Government Act) to approve building works (as 'consent authorities'), as well as to ensure fire safety standards are met. DPE plays an equivalent role for a smaller number of 'State Significant Developments' for which it is the consent authority under delegation from the Minister for Planning.

Commissioner for Fair Trading's building product use ban

On 18 December 2017, the Building Products (Safety) Act 2017 (BPS Act) came into effect in NSW, introducing new laws to prevent the use of unsafe building products. Notably, the BPS Act gave the Secretary of DCS and the Commissioner for Fair Trading the power to ban unsafe uses of building products.

After an extensive consultative process, the Commissioner for Fair Trading used these powers to issue a product use ban on 15 August 2018. This banned the use of external wall cladding of aluminium composite panels with a core comprised of more than 30 per cent polyethylene by mass on new buildings, unless the proposed use was subject to independent fire propagation testing of the specific product and method of application to a building in accordance with relevant Australian Standards.

Buildings occupied before the product use ban came into force are not automatically required to have the banned product removed. Under the BPS Act, consent authorities may determine necessary actions to eliminate or minimise the risk posed by the banned material on existing buildings.

Project Remediate

Project Remediate is a three-year NSW Government program announced in November 2020. The program was designed by the NSW Government to assist building owners of multi-storey apartments (two storeys or more) with high-risk combustible cladding to remediate their building to a high standard and for a fair price.

The scheme is voluntary and includes government paying for the interest on ten-year loans, as well as incorporating assurance and project management services to provide technical and practical support to owners’ corporations and strata managing agents. Building remediations under the program are expected to commence in 2022.

About this audit

This audit assessed whether DCS and DPE effectively led reforms to manage the fire safety risk of combustible external cladding on existing residential and public buildings.

In making this assessment, we considered whether the expressed policy intent of the NSW Government's ten-point plan for fire safety reform had been achieved by asking:

• are the fire safety risks of combustible external cladding on existing buildings identified and remediated?
• is there a comprehensive building product safety scheme that prevents the dangerous use of combustible external cladding products on existing buildings?
• is fire safety certification for combustible external cladding on existing buildings carried out impartially, ethically and in the public interest by qualified experts?

Consistent with the focus of the Cladding Taskforce on multi-storey residential buildings and public buildings, the scope of our audit is limited to buildings categorised under the Building Code of Australia (BCA) as class 2, 3 and 9. These classes are defined in detail in section 1.2, but include: multi-unit residential apartments, hotels, motels, hostels, back-packers, and buildings of a public nature, including health care buildings, schools, and aged care buildings. The scope was also limited to existing buildings, which is defined as buildings occupied by 22 October 2018.

Auditees

The Department of Customer Service chairs the NSW Government's Cladding Taskforce, which is responsible for coordinating the combustible external cladding reforms. The Commissioner of Fair Trading sits within DCS and DCS regulates the industry accreditation scheme for fire safety practitioners, as well as administering the BPS Act.

The Department of Planning and Environment administers the EPA Act and the Environmental Planning and Assessment Regulation 2000 (EPA Regulation), which regulate the building development process. As well as being the delegated consent authority for State Significant Developments, DPE is also responsible for maintaining the mandatory cladding register requiring building owners of multi-storey (BCA class 2, 3 or 9) buildings to register buildings with combustible external cladding on an online portal.

Functions and responsibilities between DCS and DPE varied over time. For example, in October 2019, the DPE building policy team responsible for co-ordinating the DPE response to the combustible cladding issue was transferred to DCS, following changes to agency responsibilities resulting from machinery of government changes. DPE advised this resulted in a lessening of DPE's subsequent policy work on combustible cladding and its involvement in the Cladding Taskforce.

While the focus of the audit was on the oversight and coordination provided by DCS and DPE, nine councils were also auditees for this performance audit. Councils play an essential part as consent authorities for building development approvals in NSW, as well as having responsibilities and powers to ensure fire safety standards. To fully understand how well their activities were overseen and coordinated, a sample of councils was included as auditees.

Nine councils were selected to represent both metropolitan and regional areas, noting that there are very few in-scope buildings in rural areas. The audited councils were:

• Bayside Council
• City of Canterbury Bankstown Council
• Cumberland City Council
• Liverpool City Council
• City of Newcastle Council
• City of Parramatta Council
• City of Ryde Council
• City of Sydney Council
• Wollongong City Council.

Terminology

The two NSW Government department auditees have, over time, been subject to machinery of government changes, which have changed some of their functions and what the departments are called.

Relevant to this audit, the effect of these changes has been:

• the Department of Finance, Services, and Innovation (DFSI) became the Department of Customer Services (DCS) on 1 July 2019
• on 1 July 2019, the Department of Planning and Environment became the Department of Planning, Industry, and Environment (DPIE)
• on 21 December 2021, DPIE became the Department of Planning and Environment (DPE).

To avoid confusion, we use the titles by which these departments are known at the date of this report: the Department of Customer Service and the Department of Planning and Environment.

This chapter considers the part played by DCS and DPE as key members of the Cladding Taskforce in ensuring that buildings with combustible external cladding were effectively identified and remediated through processes implemented by:

• local councils or DPE, where those bodies were consent authorities under the EPA Act for the relevant buildings
• in the case of NSW Government buildings, the departments that owned those buildings.

This chapter considers what has been done to deliver a comprehensive building product safety scheme that prevents the dangerous use of combustible external cladding products.

This chapter considers whether reforms have ensured that only people with the necessary skills and experience are certifying buildings and signing off on fire-safety.

Inspections of existing buildings and development of any subsequent action plans to address combustible external cladding are not activities covered by accreditation or registration schemes for building certifiers

Almost all the risk assessment and remediation work done on buildings in the scope of this audit have been undertaken under fire safety orders issued by consent authorities using their powers under the EPA Act. This has been the recommended approach by DPE and DCS since at least 2016 (that is, before the Grenfell Tower fire in London).

While there have been reforms to certifier registrations scheme, these were not intended to ensure that combustible cladding-remediation on existing buildings is supported by people with the necessary skills and experience in fire safety under the fire safety order process. Instead, they are focused on offering better assurance for work done in respect to new building projects where accredited experts certify that building work is carried out in accordance with BCA under the DCS managed certifier registration schemes.

No steps have been taken to ensure the quality of the work done by experts inspecting, assessing the fire risk and developing action plans to address combustible external cladding on existing buildings, other than where consent authorities have chosen to exercise their discretion. This includes requiring fire safety experts to be appropriately qualified and requiring peer review of some cladding risk assessments and remediation plans.

Consent authorities determine whether individuals with accreditation are required for combustible cladding inspection, risk assessments and remediation on existing buildings

Whether an individual with certifier accreditation participates in a cladding inspection, risk assessment, or remediation for an existing building will be determined by what councils as consent authorities specify in their fire safety orders unless building owners opt to use such experts without being directed to do so by the consent authority.

As discussed earlier, councils acting as consent authorities vary in whether they require building owners to engage individuals with certifier accreditation. In most of the councils we audited, A1 or C10 accredited experts were either required, or recommended, to perform functions such as auditing suspected combustible cladding, or conducting fire safety risk assessments and developing plans to rectify combustible cladding.

However, these types of work are not functions covered by the accreditation or registration schemes that apply to building and development certifiers.

Certifier accreditation schemes do not cover cladding remediation work done under fire safety orders

While councils may require or recommend that independent accredited A1 or C10 certifiers be engaged by building owners for cladding risk assessment and remediation, they are not performing those functions as certifiers — they are, in effect, more akin to expert consultants. Accordingly, how they perform their functions and duties is not covered by the legislation supporting the accreditation scheme for certifiers that was operated until July 2020 by the Building Professional Board.

Instead, their use in this process is a convenient and practical way for consent authorities to ensure that building owners use appropriate experts who have the qualifications, skills and experience needed to investigate and identify combustible cladding, and then to formulate appropriate action to deal with such cladding. However, these individuals are not performing regulated or accredited work, are not subject to regulatory oversight, and are not accountable to any accreditation body for the quality of the work they perform.

While councils could (and sometimes do) choose to decline poor quality or incomplete cladding-related work prepared by A1 or C10 certifiers, the burden of resolving poor quality would fall on the building owner, who would have to seek amended or additional risk assessments or rectification plans.

In the absence of regulatory oversight, disincentives for poor quality cladding-related work, may include litigation being commenced by the property owner, harm to the expert's reputation in a small and competitive market, and the potential impact on whether the individual could retain their professional indemnity insurance at a reasonable cost (especially in an environment when many insurance providers withdrew coverage for cladding related work).

Reforms impact on regulated experts doing work on new buildings

The reforms that commenced on 1 July 2020, replaced categories of accreditation with classes of registration, and varied the classes such that:

• accredited building surveyor category A1 became registered building surveyor-unrestricted
• accredited certifier—fire safety engineer category C10 became registered certifiers-fire safety.

The legislation that introduced these reforms, the Building and Development Certifiers Act 2018, also repealed the pre-existing Building Professionals Act 2005 and abolished the Building Professionals Board. The new Act was accompanied by the Building and Development Certifiers Regulation 2020.

While the scope of this audit is limited to existing buildings, we note that there are buildings with combustible external cladding that are yet to be remediated. Just as these processes previously drew on the expertise of A1 and C10 category certifiers, it seems inevitable that the remediation of existing buildings will continue to draw on the expertise of the equivalent new classes of registered building surveyor-unrestricted and registered certifier-fire safety.

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #364 - released 13 April 2022.

What the report is about

The results of the consolidated General Government Sector (GGS) and Total State Sector (TSS) financial statements audits for the year ended 30 June 2021.

What we found

The Independent Auditor’s Report on the 2020–21 GGS and TSS financial statements was unqualified but contained an emphasis of matter. The resolution of significant issues delayed signing until 24 December 2021.

The emphasis of matter draws attention to significant uncertainties associated with key assumptions related to the recognition by the GGS of a $2.4 billion investment in the Transport Asset Holding Entity (TAHE).

The Audit Office advised NSW Treasury that it intended to issue a qualified audit opinion, but actions by the NSW Government avoided this outcome. All evidence provided prior to 14 December indicated that the GGS’s return on the $2.4 billion cash contributed to TAHE was insufficient to support accounting for it as an investment. Projected returns were below the long term inflation rate and were insufficient to recover:

• TAHE's revaluation loss of $20.3 billion in 2020–21
• an average rate of return of at least 2.5 per cent of equity invested in TAHE.

In these circumstances, the $2.4 billion contributed to TAHE should have been expensed. This could have impacted the GGS’s budget result.

The NSW Government’s actions to avoid a qualified audit opinion included:

• a government decision made on 14 December approving TAHE’s shareholding ministers communicating that their expectation of a return had increased to 2.5 per cent
• reflecting the revised shareholding ministers’ expectations in the 2021–22 ‘NSW Half-Yearly Review’ on 16 December. The NSW Government provided an additional $1.1 billion to fund increased access and license fees to TAHE from the public sector operators (Sydney Trains and NSW Trains)
• signing a Heads of Agreement (HoA) on 18 December between Transport for NSW (TfNSW),TAHE and the public sector operators. The HoA reflected the parties’ intent to renegotiate contracts to increase TAHE’s licence and access fees by $5.2 billion.

The uncertainty raised in our emphasis of matter relates to:

• TAHE’s future estimated access and licence fees, which remain subject to re-negotiation and must meet or exceed the indicative future access and licence fees set out in the HoA
• continued funding for TAHE's key customers (Sydney Trains and NSW Trains) to meet the price increases outlined in the HoA
• the 2021–22 'NSW Budget Half Yearly Review', which provides for $1.1 billion of the additional funding over the forward estimates period to 2024–25. A further $4.1 billion is required over the following six years (2026–31), which are outside the forward estimates period
• further significant cash flows required to support the funding model are outside the 10-year contract period. That is, beyond 30 June 2031.

There remains a risk that:

• TAHE will not be able to re-contract with the rail operators for access and licence fees at a level that is consistent with current projections
• future government's funding to TAHE’s key customers, the rail operators, may not be consistent with the current shareholding ministers’ expectations
• TAHE will be unable to grow its non-government revenues.

The audit found a risk of undue reliance on consultants, a need to improve quality controls on materials submitted to audit and an extreme risk finding raised with respect to providing key information on a timely basis.

The GGS Budget Result for the 2020–21 financial year was a deficit of $7.1 billion compared to an original forecast budget deficit of $16 billion.

The State did not achieve its fiscal target of maintaining annual expenditure growth below the long-term revenue growth target of 5.6 per cent. In 2020–21, the GGS expenditure grew by 6.9 per cent mainly due to grants and subsidies paid from the COVID-19 stimulus packages received from the Commonwealth.

What we recommended

Significant matters concerning TAHE

We recommend NSW Treasury:

• implement effective quality review processes over key accounting information
• establish a policy to determine the minimum expected rate of return on its equity injections into public sector entities
• report on the performance of investments in TAHE and all other public sector entities
• ensure the revised commercial agreements between TAHE and NSW rail operators reflect access and licence fees set out in the Heads of Agreement
• with TAHE, prepare robust projections and business plans to support returns beyond FY2031
• liaise with the Australian Bureau of Statistics (ABS) and reconfirm the sector classifications of TAHE, NSW Trains and Sydney Trains
• with TAHE, monitor the risk that control of TAHE assets could change in future reporting periods
• significantly improve its processes to ensure all key information is identified and shared on a timely basis
• consider whether there is sufficient competent oversight of its use of consultants and assess the risk of an overdependence on consultants at the cost of internal capability.

A number of other non-TAHE related recommendations have been raised in Section 6 ‘Key Audit Findings’.

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Pursuant to the Government Sector Audit Act 1983 I present my report on State Finances 2021. My independent auditor’s opinion on the State’s consolidated financial statements, albeit delayed, is unqualified. My independent auditor’s report however, does include an emphasis of matter drawing attention to significant uncertainties remaining in relation to the State’s equity investment in the Transport Asset Holding Entity (TAHE).

The 2020–21 year was challenging from many perspectives, not least being the continuing impact of and response to the COVID-19 pandemic. Once again, NSW Treasury provided government agencies extensions of time to submit financial statements for audit. Finance staff and management right across government must be congratulated for their responsiveness in meeting their financial reporting obligations in such challenging circumstances.

The General Government’s 2020–21 budget result, reflected within the Total State Sector Accounts, was a deficit of $7.1 billion. This compares with the original budgeted deficit of $16 billion. The factors that contributed to this outcome are presented in this Report to Parliament along with other significant matters related to the audit of the Total State Sector Accounts.

One section of my report is dedicated to issues related to the accounting for TAHE. This year’s audit was significantly delayed by protracted disagreement over the treatment of the government’s cash contribution to TAHE. This matter was further frustrated by the fact that information was withheld and not shared with my Office on a timely basis. This has warranted an extreme risk finding for NSW Treasury to significantly improve governance processes to ensure complete and timely sharing of information. This is key to preserving trust, which is one of the foundations that underpins my Office’s engagement with agencies in the conduct of their audits.

The challenges encountered in completing this year’s audit were extraordinary and tested the constructive partnership between the Audit Office and NSW Treasury. I want to acknowledge the enormous efforts of staff of both agencies to correct material errors and ultimately achieve my unmodified audit opinion. I saw first-hand the professionalism, resilience and dedication of my staff. A commitment to accurate and transparent financial reporting is a key basis upon which confidence in the financial management of New South Wales’ resources can be assured.

Margaret Crawford

Auditor-General for New South Wales

9 February 2022

The Independent Auditor's Report, which includes an emphasis of matter was issued on 24 December 2021

While the audit opinion on the State's 2020–21 financial statements was ultimately unmodified, NSW Treasury delayed signing the NSW Total State Sector Accounts (TSSA) in order to resolve significant accounting issues that were material to the TSSA, in particular the treatment of the General Government Sector's (GGS) investment in the Transport Asset Holding Entity (TAHE) during 2020–21.

The Treasurer and NSW Treasury signed the consolidated financial statements on 24 December 2021, eleven weeks later than the 2018–19 pre-pandemic timetable.

The Audit Office advised NSW Treasury that the 2020–21 TSSA would be qualified with respect to TAHE

Our review of all evidence received prior to 14 December indicated the GGS's expected returns were below the long-term inflation rate and that there was no expectation it should recover a significant asset revaluation loss. The levels of projected returns did not support the accounting treatment of the GGS's cash contribution of $2.4 billion to TAHE as an equity injection.

The TSSA are prepared in accordance with Australian Accounting Standards and particularly AASB 1049 ‘Whole-of-Government and General Government Sector Financial Reporting’. This standard requires contributions from owners to comply with the Australian Bureau of Statistics (ABS) Government Finance Statistics Manual 2015¹ (GFSM) where it would not conflict with Australian Accounting Standards.

The ABS GFSM states that an equity contribution is recognised unless there is no reasonable expectation that a sufficient rate of return can be generated by that investment, in which case the transfer is expensed. A realistic rate of return is defined in the ABS GFSM as the intention to earn a rate of return that is sufficient to generate dividends (including income tax equivalents) and holding gains or losses at a later date. Holding losses include the final asset revaluation decrement of $20.3 billion, which TAHE incurred on its property plant and equipment assets when it became a for-profit entity and was required to value its assets on the basis of the cash flows they are expected to generate. The lower the commercial returns (cashflows), the greater the potential valuation losses of a for-profit entity's assets. This $20.3 billion valuation loss is disclosed within notes 1 'Significant Accounting policies - TAHE Reform in 2020–21', Note 11 'Equity Investments in Other Public Sector Entities' and Note 14 'Property, Plant & Equipment of the Total State Sector and GGS' financial statements.

Multiple versions of models estimating the GGS's expected rate of return were submitted to the Audit Office by NSW Treasury attempting to demonstrate the commerciality of the GGS's investment in TAHE. Until 14 December 2021, our review of all calculations indicated the existing access and licence fees set up under commercial arrangements effective 1 July 2021 did not support a reasonable expectation that a sufficient rate of return would be earned on the equity injections to TAHE. The existing revenue arrangements reflected a shareholders' expected rate of return of only 1.5 per cent per annum of contributed equity and did not include recovery of the revaluation loss of $20.3 billion incurred in 2020–21.

Having reviewed all evidence provided, the Audit Office communicated to NSW Treasury that unless corrected, the State's accounts would be qualified as the $2.4 billion transfer made by the GGS to TAHE should have been reported as a grant expense instead of an investment. The GGS's estimated rate of return was not sufficient to cover:

• TAHE's final revaluation loss of $20.3 billion in 2020–21
• a dollar value equal to, or exceeding a 2.5 per cent rate of return on the equity invested in TAHE (ie: at least equal to the long term inflation rate).

Action was required by the NSW Government to avoid a qualified audit opinion

NSW Government actions avoided a qualified audit opinion related to the GGS’s cash contribution of $2.4 billion to TAHE. To support the TAHE structure as a commercial arrangement earning a sufficient rate of return, the NSW Government agreed to provide additional future funding to TAHE's key government customers (Sydney Trains and NSW Trains) to support increases in access and licence fees to be paid to TAHE.

Shareholding ministers increased their expectations as to TAHE's target average return to the expected long-term inflation rate of 2.5 per cent

On 14 December 2021, a government decision was made resulting in the TAHE shareholding ministers requesting that TAHE re-negotiate the access fees and license fees payable under the Operating Agreements between TAHE and the public operators (Sydney Trains and NSW Trains). The renegotiation was to target an average return to the GGS of 2.5 per cent on the equity contributed. TAHE's existing ten year agreements with the operators provide a mechanism by which the parties meet annually and consult in order to determine the amount of the access fees and licence fees that will be payable in the following financial year.

The revised shareholder expectations for TAHE were published in the 2021–22 'NSW Budget Half Yearly Review' on 16 December 2021. The revised expectations changed the basis of the expected returns on equity from the 10-year Commonwealth bond rate of only 1.5 per cent, to the expected long-term inflation rate of 2.5 per cent. This is consistent with the Reserve Bank's target band and the Commonwealth's Department of Finance's expected return on government investments in other sectors.

The revised shareholder expectations were confirmed in a signed Heads of Agreement

On 18 December 2021, Transport for NSW (TfNSW), TAHE and the operators, Sydney Trains and NSW Trains entered into a Heads of Agreement (HoA). This HoA forms the basis of negotiations to revise the pricing within the existing 10-year contracts and deliver upon the shareholders' expectation of a return of 2.5 per cent per annum of contributed equity. This revised return includes:

• income earned over the estimated weighted average remaining useful lives of TAHE’s assets
• recovery of the revaluation losses in 2020–21 on TAHE’s property, plant and equipment assets incurred when TAHE commenced operations as a for-profit entity, albeit the recovery of the revaluation loss is projected to take up to 2052.

The HoA reflects an intention between all parties to revise the contractual agreements to increase future access and license fees by $5.2 billion. This included $1.1 billion for the period FY2023–25, which is reflected in the 2021–22 'NSW Budget Half Yearly Review'. Further detail on the HoA is reported in Section 3 of this report ‘Investment in the Transport Asset Holding Entity’.

NSW Treasury revised its calculations to reflect the increased future returns

Following these changes, NSW Treasury revised its calculations of estimated returns to reflect a cumulative return equivalent to the expected long-term inflation rate, and recovery of the 2021 valuation loss by 2052. The rate of return period is consistent with the weighted average remaining useful life of TAHE's assets. The changes supported the financial reporting treatment of the $2.4 billion transfer from the GGS to TAHE as an investment rather than an expense, even though TAHE is currently heavily reliant on revenues from the public rail operators, Sydney Trains and NSW Trains. If the cash contribution had to be treated as a capital grant expense, it would have reduced the GGS's budget result by $2.4 billion.

The Independent Auditor’s Report includes an emphasis of matter drawing attention to uncertainty relating to the General Government Sector's investment in the Transport Asset Holding Entity (TAHE)

Despite the investment in TAHE being better supported, and the independent auditor's opinion being unqualified, the Independent Auditor’s Report includes an emphasis of matter, which draws attention to the significant uncertainties remaining in relation to the GGS’s equity investment in TAHE. The significant uncertainty is associated with key assumptions that support the recognition by the GGS of its $2.4 billion investment in TAHE during 2020–21.

As at the time of signing the Independent Auditor's Report, there was significant uncertainty with regards to judgements around the commerciality of TAHE's operations because:

• TAHE’s future estimated access and licence fees, which are critical to its ability to earn a realistic rate of return, remain subject to re-negotiation and re-signing of the current access agreements. The proposed indicative future access and licence fees, which are set out in the HoA are intended to form the basis of the re-negotiation.
• $1.1 billion in additional funding for TAHE's key customers, Sydney Trains and NSW Trains, was provided in the 2021–22 'NSW Budget Half Yearly Review' consistent with the terms in the HoA. However, this funding only extends to the end of the forward estimates period in 2024–25. There is an additional $4.1 billion required over the following six years, which falls outside of the forward estimates period (up to the end of the 10-year contract period). While this has been communicated to the government's Expenditure Review Committee, it is yet to be provided for in government's budget figures. As TAHE's projections are currently highly dependent on its government customers, it is critical that the government continue to provide sufficient funding to the GGS to support increases in the prices government customers will pay for access to TAHE's assets.
• A further significant portion of the required returns is earned outside of the 10-year contract period (terminating 30 June 2031). NSW Treasury has estimated $37.9 billion in returns from its investment in TAHE over the period from 1 July 2022 to 30 June 2052, but has not identified the source or means of these returns beyond 2031. Currently, TAHE derives the majority of its revenue from access and licence fee agreements with Sydney Trains and NSW trains, who in turn are both funded by grants to Transport for NSW from the GGS. The projected returns calculated by NSW Treasury beyond 2031 are calculated by assuming a 2.5 per cent growth rate. About 87 per cent of these estimated returns are being earned beyond the ten years, with $32.9 billion estimated over the period 2032–52. There remains risk that:
  • TAHE will not be able to re-contract for access and licence fees at a level that is consistent with current projections
  • future governments' funding to TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections
  • TAHE will be unable to grow its non-government revenues.

Significant accounting issues relating to TAHE are detailed in Section 3 to this report titled ‘Investment in the Transport Asset Holding Entity’. Other significant matters related to the TSSA audit are covered in section 6 to this report titled ‘Key Audit findings’.

Other financial reporting matters

The State extended the date for submission of agency financial statements for audit to provide relief to agencies impacted by the New South Wales' COVID-19 lockdowns

All agencies were given a one-week extension (two weeks in 2019–20) to prepare their financial statements and submit them for audit by 2 August 2021. Further extensions were subsequently approved for the following ten agencies and funds (11 in 2019–20) to submit completed financial statements for audit:

• Department of Communities and Justice (9 August 2021 for disclosures related to cloud computing costs)
• Investment NSW (13 August 2021)
• Jobs for NSW (13 August 2021)
• TCorp IM Funds (19 August 2021)
• Lord Howe Island Board (22 October 2021)
• Department of Customer Service (31 August 2021 for disclosures related to AASB 1059 'Service Concession Arrangements: Grantors')
• Department of Transport (20 August 2021)
• Sydney Olympic Park Authority (12 August 2021)
• Planning Ministerial Corporation (12 August 2021)
• Transport Asset Holding Entity (16 August 2021).

Additional extensions provided agencies with more time to resolve accounting issues relating to:

• asset valuations
• first time implementation of AASB 1059
• asset transfers and treatment of software as service costs.

The extensions outlined above resulted in a two-week delay submitting the State’s draft consolidated financial statements for audit.

In 2020–21, agency financial statements presented for audit contained 24 errors exceeding $20 million (19 in 2019–20). The total value of these errors was $6.6 billion, a significant increase from the previous year ($1.4 billion in 2019–20)

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

The errors resulted from:

• incorrect application of Australian Accounting Standards and NSW Treasury Policies
• incorrect judgements and assumptions when valuing non-current physical assets and liabilities
• human error or lack of oversight.

The completion of the 2020–21 Total State Sector Accounts was significantly delayed as material accounting issues were resolved. These issues related to how the General Government Sector’s (GGS)² investment in the Transport Asset Holding Entity was accounted for. The key areas of audit concern, which required considerable effort to satisfactorily resolve, included our assessment of:

• the accounting treatment of funds transferred to TAHE from the GGS, specifically:
  • whether funds transferred to TAHE from the GGS should be considered an equity investment or capital grant expense, with the latter having implication to the presentation of the NSW Government Budget positions. Funds are expensed unless, as an investment, there is a reasonable expectation to generate a sufficient rate of return
  • forming a view as to what a ‘reasonable expectation of a sufficient rate of return on investment³’ should be with respect to the Australian Bureau of Statistics' Government Finance Statistics Manual 2015 (GFSM)
  • the valuation of TAHE’s property, plant and equipment at 30 June 2021
• whether TAHE was correctly classified as a Public Non-Financial Corporation (PNFC) entity
• whether, under the agreements in place for the use and price of TAHE's assets, TAHE controlled its property, plant and equipment.

Our assessments were hindered by errors and omissions in information and models provided by NSW Treasury to demonstrate expected returns from TAHE, as well as a lack of timeliness and completeness in their responses to requests for documentation to support NSW Treasury's proposed accounting of government's contributions to TAHE.

Up until 13 December 2021, evidence provided by NSW Treasury to support the treatment of a $2.4 billion equity transfer from the GGS to TAHE did not demonstrate a sufficient rate of return on the State's investment. Instead, the evidence suggested the transfer was of the nature of a capital grant expense, which would impact the GGS budget result. Unless corrected, by either reversing the equity investment to a capital grant expense (impacting the GGS budget result) or providing additional resources to the rail operators to support additional TAHE access and licence fees (adding additional expenses to future GGS budget results), this matter would have caused the State's accounts to have been qualified.

After the Audit Office communicated the likely audit outcome to NSW Treasury, significant changes were made by government from 14 December 2021. Government decisions that avoided qualification of the TSSA included:

• On 14 December, a government decision approved communicating revised shareholders' expectations of rate of return of 2.5 per cent being the long-term inflation rate, and increased grants to Transport for NSW for the rail operators to pay increased access and licence fees to TAHE to support of the new rate of return (previously 1.5 per cent).
• On 16 December, the 2021–22 'NSW Budget Half Yearly Review' included an increase in expected returns to be derived through higher access and license fees charged by TAHE. To facilitate these returns, an increased allocation of funds of $1.1 billion was made to Transport for NSW (TfNSW) from 1 July 2022 as part of the forward estimates for the period 2022–25. This was to pay for the proposed increased access and licence fees the operators would be required to pay TAHE.
• On 18 December, TfNSW, TAHE and the operators Sydney Trains and NSW Trains signed a Heads of Agreement (HoA) forming the basis of negotiations to revise annual operating agreements to facilitate the shareholders’ expected returns of 2.5 per cent of contributed equity. The HoA included indicative access and licence charges to be used as a basis of renegotiation, increasing access fees and licence fees to be paid by Sydney Trains and NSW Trains over the 10-year period from 2022–2031 by a further $5.2 billion. Most of this increase occurs outside the forward estimates. The majority of the additional funding may need to be funded by future governments.

NSW Treasury has projected returns to be earned to 2052 (a period covering the weighted average remaining useful lives of TAHE's assets) as sufficient to recover the revaluation loss of $20.3 billion which arose when TAHE revalued its assets under the income approach. These assets were valued on a discounted cash flow basis as at 30 June 2021.

These key decisions and the circumstances leading up to these changes are detailed later in this section.

Background

On 1 July 2020, the former Rail Corporation of New South Wales (RailCorp), a not-for-profit entity, was renamed the Transport Asset Holding Entity of New South Wales (TAHE) transitioning to a for-profit statutory State-Owned Corporation under the Transport Administration Act 1988. There was no change in the structure of TAHE as a new entity was not created. Ownership remains fully with the government. TAHE, and the former RailCorp, were both classified as Public Non-Financial Corporation (PNFC) entities within the Total State Sector Accounts. TAHE was not a newly created entity, nor was it the result of a change in administrative re-arrangements (such as Machinery of Government change).

Prior to 1 July 2015, the government paid appropriations to TfNSW, a GGS agency, to construct transport assets. When completed, these assets were granted to RailCorp, a not for-profit entity within the PNFC sector. The grants to RailCorp were recorded as an expense in the State’s GGS budget result and in the NSW Total State Sector Accounts (TSSA).

From 1 July 2015, the government announced the creation of TAHE (a dedicated asset manager). Funding for new capital projects was to be provided through equity injections, even though the business model was yet to be determined. NSW Treasury initially set a timetable for finalising the business model, operating model and contracts for the use of TAHE's assets of 1 July 2019.

Contributions paid to TAHE by the GGS were treated as equity investments from July 2015 forward. This treatment continued, despite delays in settling the business model. In 2020, the Audit Office raised a high risk finding due to the significance of the financial reporting impacts and business risks for NSW Treasury and TAHE.

The business model eventually adopted was one whereby:

• The GGS invests in TAHE with an expectation of a sufficient rate of return.
• TAHE charges the operators (predominantly Sydney Trains and NSW Trains) to use network and rolling stock to deliver services. The operators remain responsible for both the delivery of the services and the maintenance and safe operation of the assets. The operators are primarily funded by TfNSW through grants.
• The GGS grants funds to operators, which allows them to pay access fees to TAHE. The amount of these grants impacts the budget result.
• TAHE pays a return back to GGS by way of dividends and tax equivalents. The return may also include holding gains and losses on the fair value of the net assets of TAHE.

TAHE earns relatively small amounts of income from transactions with the private sector. While the TAHE Board envisages that, over time, they will enhance the commerciality of TAHE’s operations, it is currently highly dependent on revenues from government contracts (over 80 per cent). The circularity in flow of funds between transport agencies in the GGS and PNFC sectors is shown in the diagram below:

The government continues to respond to the impacts of the COVID-19 pandemic on New South Wales through its economic stimulus measures

The COVID-19 pandemic continues to significantly impact the State’s finances, reducing revenue and increasing expenses especially in sectors directly responsible for responding to the COVID-19 pandemic, such as Health. Over 2020–21, the government allocated an additional $5.6 billion to agencies as part of its economic stimulus and pandemic response. Measures included:

• $1.8 billion in health measures including essential medical equipment purchases, vaccine distribution, quarantine, contract tracing and maintaining clinical health capacity (such as intensive care units)
• $508 million in additional cleaning services primarily to the Department of Education and Transport for NSW
• $500 million as part of the ‘Dine & Discovery NSW’ voucher program to the Department of Customer Service
• $350 million in combined land tax relief and small business recovery grants to Department of Customer Service and NSW Treasury respectively.

Around $4.5 billion of this package was spent in 2020–21, leaving $1.1 billion unspent and carried forward into 2021–22. The graph below shows the total allocation and spend by cluster for 2021 compared to their target spend.

Deficit of $7.1 billion compared with a budgeted deficit of $16 billion

The outcomes of the government’s overall activity and policies are reflected 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 204 entities, generally provides goods and services funded centrally by the State.

In addition to the 204 entities within the General Government Sector, a further 98 government controlled businesses are included within the consolidated Total State Sector financial statements. These businesses generally provide goods and services, such as water, electricity and financial services for which consumers pay for directly.

The Budget Result for the 2020–21 financial year was a deficit of $7.1 billion compared to an original forecast of a budget deficit of $16 billion.

Revenues increased $5.6 billion to $91.8 billion

In 2020–21, the State’s total revenues increased by $5.6 billion to $91.8 billion, 6.5 per cent higher than previous year. A decrease of 0.3 per cent was recorded in 2019–20. The main contributors to the increase in the State's revenues were an increase in taxation revenue of $4.6 billion and an increase in grants and subsidies of $1.4 billion when compared to the prior financial year.

Taxation revenue increased by 15.3 per cent

Taxation revenue increased by $4.6 billion, mainly due to:

• $2.9 billion higher stamp duties collected from property sales driven by:
  • $2.7 billion increase in contracts and conveyance duties (transfer duties) from both higher transaction volumes and strong property price growth during 2020–21
  • $200 million increase in motor vehicle registration duty driven by increases in new vehicle sales
• $520 million higher Gambling and Betting Taxes was earned as 2019–20. The previous year's revenues were impacted by club and hotel closures due to COVID-19. The operation of these venues in 2020–21 returned to normal for most of the year resulting in higher club gaming tax revenue of $216 million and hotel gaming taxes of $265 million
• $439 million higher collections of payroll taxes. The previous year's revenues were impacted by tax relief measures implemented by the government in response to COVID-19. Lower payroll tax was collected in 2019–20 as employment levels dropped during the State’s first lock down
• $416 million higher land tax revenues, driven by an average 3.2 per cent increase in valuer general land values, which are the basis for determining land tax values.

Stamp duties of $11.7 billion remains the largest source of taxation revenue, $2.9 billion higher than payroll tax of $8.8 billion, the second-largest source of taxation revenue.

Expenses increased $4.1 billion to $101 billion

The State’s expenses increased 4.3 per cent compared with 2019–20. Most of the increase was due to higher employee expenses, depreciation and amortisation, other operating costs and grants and subsidies expense.

Employee expenses, including superannuation, increased 3.6 per cent to $44.1 billion

Salaries and wages increased to $36.3 billion ($34.8 billion in 2019–20). This was mainly due to increases in staff numbers and an average increase of approximately three per cent in the cost of NSW's employees across the sector. Salaries and wages for the Education and Health sectors increased by $511 million and $619 million respectively.

The Health sector employed an additional 4,893 full time staff in 2020–21 (2,763 in 2019–20) and incurred an extra $28 million in overtime mainly in response to COVID-19. Education increased staff numbers by 2,418 full time equivalents in 2020–21 (4,866 in 2019–20). This year, the health and education sectors received a 0.3 per cent award increase in pay rates.

The Public Service Commission (PSC) noted in the ‘State of the NSW Public Sector Report, 2021’ that the government sector senior executive headcount increased by 347 to 3,680 (3,333 in 2019–20). The Transport cluster represented the majority of the increase in the government sector's senior executive headcount, with an increase of 182. The PSC report noted the increase was due to the growing portfolio of major transport infrastructure projects.

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.

Depreciation and amortisation expense increased 7.6 per cent to $10.3 billion

Depreciation and amortisation increased to $10.3 billion in 2020–21 ($9.6 billion in 2019–20). This increase was mainly driven by the depreciation of completed infrastructure projects including the State’s WestConnex M8 and M5 East Motorways, and other road projects such as Woolgoolga to Ballina project. This year also includes twelve months of depreciation relating to the CBD and South-East Light Rail versus six months in the previous financial year.

Furthermore, the first time adoption of AASB 1059 ‘Service Concession Arrangements’ resulted in the State recognising $45.4 billion of service concession assets in its capacity as grantor under arrangements with operators. More than 87 per cent of this balance was recognised by the Transport cluster. These assets are valued at current replacement cost and are depreciated on an annual basis. A service concession arrangement is an arrangement whereby the government as grantor, contracts with an operator to develop (or upgrade), operate and maintain the grantor's public service assets such as roads, bridges or hospitals. The grantor controls or regulates what services the operator must provide using the assets, to whom, and at what price. The grantor also retains any significant residual interest in the assets at the end of the arrangement. Further details about AASB 1059 are included in the ‘Implementation of new accounting standards’ section of this report.

Grants and subsidies increased $1.5 billion to $15.6 billion

The increase in grants and subsidies is due to payments made by the State in supporting businesses and local communities in response to COVID-19. These mainly included $240 million in Dine & Discover voucher payments, $156 million in land tax relief assistance, $160 million increase in grants to non-government schools (including $31 million to support Covid intensive learning support programs), and $109 million relating to small business grant payments.

The State also transferred $592 million in newly constructed assets to local councils. These mainly related to $378 million in assets transferred following completion of WestConnex stage 2 and $180 million from Northern Roads.

Other operating expenses increased two per cent to $27.5 billion

Operating expenses increased to $27.5 billion in 2020–21 ($26.9 billion in 2019–20) due to higher operating activities as agencies responded to the pandemic.

Supplies and Other Services increased by $1.7 billion. This was mainly due to funding of $533 million in hotel quarantine and associated services, and $495 million in medical equipment for the health sector.

Inventories consumed increased by $266 million. This included $217 million in COVID-19 medical equipment that was written off because it had expired or did not meet the TGA regulatory standards. Contractor expenses increased by $306 million because of increased capital works activity, primarily in the Transport sector.

The increase was offset by $1.6 billion in lower insurance claims expense. In 2019–20 financial year, higher claims were made in respect to natural disaster events, including bush fires.

Health costs remain the State’s highest expense

Total expenses of the State were $101 billion ($96.4 billion in 2019–20). In 2020–21, Health remains the highest contributor of expenses for the State with $25.7 billion ($24.2 billion in 2019–20). Education remains the second highest contributor of expenses reporting $18.4 billion in 2020–21 ($17.5 billion in 2019–20).

The following sectors have the highest expenses as a percentage of total State expenses:

• Health – 25.6 per cent (25.1 per cent in 2019–20)
• Education – 18.3 per cent (18.2 per cent in 2019–20)
• Transport – 14.5 per cent (13.3 per cent in 2019–20).

Assets grew by $12.3 billion to $526 billion

The State’s assets 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 $12.3 billion to $526 billion. This was a 2.4 per cent increase compared with 2019–20, mostly due to changes in asset carrying values.

Valuing the State’s physical assets

State’s physical assets valued at $391 billion

The value of the State’s physical assets increased by $1.7 billion to $391 billion in 2020–21 ($37.9 billion increase in 2019–20). The State’s physical assets include land and buildings ($172 billion), infrastructure systems ($202 billion) and plant and equipment ($16.7 billion).

The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include assets reclassified to held for sale and other opening balance adjustments.

Liabilities increased $16.4 billion to $291 billion

The State borrowed additional funds in response to COVID-19

The State’s borrowings rose by $15.8 billion to $134 billion at 30 June 2021. This accounted for most of the increase in the State’s total liabilities.

The value of TCorp bonds on issue increased by $16.8 billion to $114 billion, which largely funded the State's capital expenditure and response to the COVID-19 pandemic.

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

Over 2020–21, 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.

The State’s fiscal objective published in the 2021–22 Budget Papers is to repair the operating position by returning the budget to surplus by 2024–25 and rebuilding balance sheet capacity by bringing net debt down towards seven per cent of Gross State Product (GSP) over the medium-term. The State measures net debt as the sum of deposits held, government securities, loans payable and other borrowings, less the sum of cash and deposits, advances paid and investments, loans receivable and placements.

The chart below shows the actual net debt to GSP for NSW compared to the Commonwealth net debt to Gross Domestic Product (GDP) over the past six years. The trend shows an increase in net debt, particularly in the past two years, which is mainly driven by additional borrowings needed to fund stimulus measures when responding to COVID-19 and natural disaster relief.

GSF Act and GSF Regulation

Financial reporting provisions in the Government Sector Finance Act 2018 (GSF Act) have now commenced

From 1 July 2021, the Public Finance and Audit Act 1983 (PF&A Act) financial reporting provisions were repealed. Agencies prepared their 2020–21 financial statements under Part 7 of the GSF Act. They were audited under the Government Sector Audit Act (GSA Act). The GSF Act requires the timeframe for annual financial statement submission be specified in the Treasurer’s Directions.

Under the GSF Act, all reporting GSF agencies are required to prepare annual financial statements, unless exempt from the definition of a reporting agency under the Government Sector Finance Regulation 2018 (GSF Regulation). Those agencies exempt from preparing financial statements include certain small agencies, Crown Land Managers, special purpose staff agencies and retained State interests. These agencies must meet prescribed requirements or thresholds and self-assess each year to determine whether they remain exempt against the criteria in the GSF Regulation.

Most of the financial reporting provisions of the GSF Act have now commenced except for requirements concerning special deposit accounts (SDA) and special purpose financial reports, which are scheduled to commence on 1 July 2023, subject to approval from the Governor.

The GSF Act now includes most of the provisions applicable to GSF agencies, as requirements for appropriations, expenditure, financial services, and other matters were enacted on 1 December 2018 and 1 July 2019.

Once fully commenced, the GSF Act will consolidate and replace reporting provisions of four Acts:

• PF&A Act
• Public Authorities (Financial Arrangements) Act 1987
• Annual Reports (Departments) Act 1985
• Annual Reports (Statutory Bodies) Act 1984.

GSA Act and GSA Regulation

The PF&A Act was renamed the GSA Act on 1 July 2021 and now only contains provisions relating to the Auditor-General and the Audit Office, the audit of government sector finances and governance of the Public Accounts Committee.

Of note in the renamed GSA Act is that:

• a new principal object was added that specifically provides the Auditor-General is an independent and accountable statutory officer
• the previous financial reporting provisions in the PF&A Act were repealed as the financial reporting provisions are contained in Part 7 of the GSF Act. As a result, there are no longer financial reporting provisions in the GSA Act
• a new section 34 was added, which contains the requirements for the audit of State sector agencies’ financial statements. These were previously contained in two separate sections.

The GSA Regulation commenced on 1 July 2021, replacing the Public Finance and Audit Regulation 2015 (PF & A Regulation). The GSA Regulation contains the list of entities, funds and accounts prescribed for the purpose of audits under the GSA Act.

Inconsistencies exist in the GSF Act and GSA Act related to key statutory timeframes

There are inconsistencies between key statutory timeframes imposed on the Treasurer and Auditor-General in the GSF Act and GSA Act which has been brought to the attention of NSW Treasury. The inconsistencies identified include:

• Section 34(3)(a) of the GSA Act defines the audit period for the Statements be as soon as practicable after the Auditor-General is given the Statements. This appears to be inconsistent with section 49(3) of the GSA Act, which requires that the Auditor-General, on or before 22 October transmit the Statements and audit report to the Treasurer. Neither provision is a paramount provision.
• Section 49(3) of the GSA Act also appears to be inconsistent with section 52(1) of the GSA Act which provides that the Statements are to be given to the Auditor-General in accordance with section 7.17 of the GSF Act. Section 7.17 of the GSF Act requires that the Statements are to be prepared and given to the Auditor-General by an agreed date to enable the audit of the Statements. Part 7 of the GSF Act is a paramount provision under section 1.8 of the GSF Act, which means the requirements in section 7.17 of the GSF Act prevail.

There are also inconsistencies in key statutory reporting timeframes imposed on the Treasurer under the GSF Act.

The audited Statements are a key accountability mechanism that provides information on the State’s financial performance and position. Ambiguity in the statutory reporting timeframes could impact on the future timely provision of this information to Parliament. As noted at the beginning of this report, the delay in issuing the audit report for the 30 June 2021 Statements was due to NSW Treasury’s resolution of accounting issues that were material to the Statements, in particular the treatment of the General Government Sectors investment in TAHE during 2020–21. NSW Treasury's management letter will include a high risk finding with regards to the inconsistencies between the GSF Act and GSA Act.

Appropriations framework

NSW Treasury lacks a framework to monitor and provide assurance to ministers that they are in compliance with their appropriation authority

The GSF Act requires that money not be paid out of the Consolidated Fund except under the authority of an Act, such as the annual Appropriation Act or GSF Act. This means a minister is only authorised to spend out of the Consolidated Fund the amount they have been appropriated by the relevant Act(s).

Generally, money is authorised to be paid out of the Consolidated Fund either through:

• The Annual Appropriation Act - this is an act to appropriate out of the Consolidated Fund sums for the services of the government for the relevant financial year. These appropriations are made to the responsible ministers of principal departments, Special Offices and certain SDAs.
• The GSF Act - this act allows the responsible minister of a GSF agency to be given an appropriation out of the Consolidated Fund, at the time the agency receives or recovers any deemed appropriation money. Deemed appropriation money is defined in section 4.7(3) of the GSF Act.

Ministers can delegate and sub-delegate appropriation expenditure functions to accountable authorities and officers of GSF agencies. Any spending by accountable authorities and officers of GSF agencies in excess of the amount appropriated to their relevant minister would be made contrary to section 4.6(1) of the GSF Act.

The Budget Papers are an additional mechanism by which the government controls the level of expenditure by agencies both at the individual and departmental administrative cluster level. The Budget Papers set an administrative limit imposed by the government. Separately, the Treasurer can issue a Budget control authority under section 5.1 of the GSF Act. A Budget control authority can regulate expenditure of money by GSF agencies in a variety of ways, as set out in section 5.1(2) of the GSF Act.

In July 2021, NSW Treasury advised the Audit Office that it had received advice from the Crown Solicitor's Office, in January 2021, that payments between agencies in different administrative clusters would not meet the definition of a 'deemed appropriation' under the GSF Act by the receiving agency. This applies to money paid and received by two agencies across different administrative clusters that continue to hold the money in the Consolidated Fund. These intra-government receipts increase the amount an agency has available to spend, without there being a corresponding increase in the responsible minister’s appropriated expenditure limits, thus increasing the risk an agency’s expenditure could cause a minister to exceed their appropriated expenditure authority.

After being made aware of the issue, the Audit Office worked with NSW Treasury officers to clarify potential implications. The Audit Office also obtained further advice from the Crown Solicitor’s Office to clarify certain aspects of the appropriations framework more broadly. In the advice to the Audit Office, the Crown Solicitor advised that an agency is not subject to its own legally appropriated expenditure limit (assuming it is not subject to any annual spending limit imposed through an instrument of delegation or a budget control authority issued by the Treasurer under section 5.1 of the GSF Act). In effect, because responsible ministers are given appropriations, these legal expenditure limits, rest in aggregate, with the principal department and agencies the minister is responsible for. The advice also confirmed:

• a deemed appropriation for the services of an agency would ordinarily be available for the services of other agencies, if the officers of the other agencies had a delegation from the minister(s) to expend the deemed appropriation and funds remained available under those deemed appropriations
• that the ‘exhaustion’ of a minister’s appropriation may be precipitated by one agency’s level of expenditure in the financial year, but the effect is that the relevant appropriation is exhausted for all agencies (and their officers) that may otherwise rely on it
• whether expenditure by an agency occurred beyond the scope of its authority would require a progressive examination of the total amounts expended from the minister’s appropriation
• amounts expended from the Consolidated Fund without the authority of an appropriation are spent contrary to section 4.6(1) of the GSF Act
• a minister is responsible to Parliament for (i) the manner in which appropriations are expended, and (ii) any ‘overspends’ (that is, expenditure without authority) by agencies for which they are responsible.

Determining whether expenditure has occurred without the authority of an appropriation is complex and it is not possible for an individual agency to monitor or determine at what ‘point in time’ expenditure has been incurred in excess of the minister’s appropriation authority. As noted earlier, there are mechanisms in place to manage agencies' administrative expenditure limits set by the Budget Papers, but there is no mechanism in place to ensure expenditure by agencies does not exceed a minister’s appropriation authority received under the annual Appropriations Act and GSF Act.

In addition, principal departments and agencies that hold money in the Consolidated Fund are required by Australian Accounting Standard AASB 1058 'Income of Not-for-Profit Entities' and NSW Treasury Circular TC20/08 'Mandates of options and major policy decisions under Australian Accounting Standards' to prepare a Summary of Compliance in their financial statements. The Summary of Compliance applies to agencies that obtain part or all of their spending authority from a Parliamentary appropriation. It is intended to provide information on the amounts appropriated or authorised for an agency’s use and whether those expenditures were authorised. There remains uncertainty around how the Crown Solicitor’s Office advice received by the Audit Office impacts these disclosures, as the total spending authority given by Parliamentary appropriations and expenditure against these appropriations cannot generally be attributed to an individual agency. Such a scenario is not contemplated by the relevant Australian Accounting Standard. NSW Treasury's management letter will include high risk findings about improving mechanisms in place to manage agencies administrative expenditure limits, uncertainties related to appropriation spending authority on agencies summary of compliance disclosures.

Delegations to incur expenditure

Further to last year's reporting, some agencies have again spent monies without an authorised delegation

The delegation to incur expenditure is an important accountability mechanism of responsible government.

Last year’s Report on State Finances reported instances where government agencies did not understand or correctly apply the requirements of the GSF Act for deemed appropriations, resulting in some agencies spending deemed appropriations money without an authorised delegation from the relevant minister(s) as required by sections 4.6(1) and 5.5(3) of the GSF Act.

This year’s financial audits identified that further agencies: TAFE Commission, Multicultural NSW and the Office of the Ageing and Disability Commissioner spent money received from an annual Appropriation and/or deemed appropriation money without an authorised delegation from the relevant minister(s), as required by sections 4.6(1) and 5.5(3) of the GSF Act. NSW Treasury's management letter will include high risk issues about improving mechanisms in place to ensure agencies have appropriate delegations in place to spend Appropriation and/or deemed appropriation money.

In addition, the audit of the Jobs for NSW Fund (the Fund) special purpose statements identified that five payments from the Fund were authorised by an officer without the necessary delegation from the minister as required by section 14 of the Jobs for NSW Act 2015 and sections 5.5(2) and 5.5(3) of the GSF Act.

Implementation of new accounting standards

This year, the State implemented the requirements of AASB 1059

AASB 1059 ‘Service Concession Arrangements: Grantors’

AASB 1059 is an Australian Accounting Standard that requires public sector entities (grantors) that enter service concession arrangements with private sector operators for the delivery of public services recognise service concession assets and liabilities in their financial statements. The standard was effective from 1 July 2020.

AASB 1059 requires a grantor to:

• recognise an asset provided by the operator as a service concession asset if the grantor controls the asset
• initially measure the service concession asset at current replacement cost (CRC) in accordance with AASB 13 ‘Fair Value Measurement’
• recognise a corresponding liability measured initially at the fair value (CRC) of the service concession asset, adjusted for any consideration between the grantor and the operator
• make sufficient disclosure in the financial statements so that users can understand the nature, amount and timing of assets, liabilities, revenue and cash flows arising from these.

The adoption of AASB 1059 increased the State’s total assets and liabilities by $19.5 billion and $19.6 billion respectively, with net worth reducing by $131 million at 1 July 2019

The State adopted a modified retrospective approach when adopting AASB 1059 and recognised and measured service concession assets and liabilities at the date of initial application of 1 July 2019, with any net adjustments recognised in accumulated funds at that date. This means comparatives were restated to reflect the impact of AASB 1059.

Most of the service concession assets recognised by the State related to Property, Plant & Equipment, in particular infrastructure assets.

Agencies had to devote significant effort to implement AASB 1059 and ensure their 2020–21 financial statements materially complied with the standard's requirements. Last year, the Audit Office highlighted advance preparation was key to ensuring agencies effectively transitioning to this new standard. Despite the new standard being issued well in advance of its commencement date, Sydney Water Corporation, Department of Customer Service, Transport for NSW (TfNSW) and TAHE did not prepare sufficiently for their respective implementations.

Whilst most agencies in 2019–20 had commenced assessing their existing commercial arrangements to determine whether they were within the scope of AASB 1059, calculating and posting the accounting entries to support the implementation of this standard was delayed for TfNSW. TfNSW had not finalised its opening balance adjustments in time for the Audit Office’s early close review. Critical assessments of AASB 1059 to identify the accounting implications for the Transport sector, in particular TfNSW and TAHE were still being considered as late as 30 September 2021.

Restart NSW

Restart NSW was established in 2011 to fund the State’s major infrastructure projects

Restart NSW funds Rebuilding NSW, the government’s 10-year plan to invest $23 billion in new infrastructure. Its infrastructure projects, including Sydney Metro West and Parramatta Light Rail, are primarily funded by proceeds from the government’s asset recycling program. The Restart Fund had a balance of $12.4 billion at 30 June 2021 ($15 billion in 2019–20).

The Fund paid $3.8 billion for infrastructure projects in 2020–21 ($4.3 billion in 2020–21). The largest payments were for transport projects, including Sydney Metro West, Parramatta Light Rail, and contributed $319 million of the $2.4 billion equity contribution to the Transport Asset Holding Entity (TAHE).

The funds are invested in the NSW Infrastructure Future Fund (NIFF), which is allowed under the Restart NSW Fund Act 2011 (Restart Act). The NIFF is an investment vehicle for the fund to help the NSW Government meet its infrastructure objectives and this fund is managed by TCorp. In 2020–21, the fund earned a net return of 7.9 per cent, higher than its annual benchmark return of 4.2 per cent, benefiting from improved returns in financial markets over 2020–21.

The fund directed 30.1 per cent of its payments towards rural and regional infrastructure projects in 2020–21

The Restart Act requires the fund to report on the percentage of payments directed to rural and regional infrastructure projects and whether this represents at least 30 per cent of the total payments from the fund. The Restart NSW Fund Amendment (Rural and Regional Infrastructure Funding) Bill 2020 introduced in Parliament in 2020 would amend the Restart Act by requiring at least 30 per cent of the total payments each financial year and for the life of the Restart NSW Fund be made on infrastructure projects in rural and regional areas.

This year the fund exceeded its target of directing at least 30 per cent of funding towards rural and regional infrastructure projects. However, since the funds’ commencement, only 23 per cent of total payments went towards rural and regional infrastructure projects. Current projections for the life of the fund indicate only 27.5 per cent of funding will be spent on rural and regional projects, which is below the funds target of 30 per cent target for the life of the fund.

Audit Office’s work plan for 2021–22

The Audit Office’s 2021–22 work plan focuses on the State’s response, recovery and impact from the COVID-19 pandemic and natural disaster emergencies

The COVID-19 pandemic continues to have a significant impact on the people and the public sector of New South Wales. Government continues to assist communities in their recovery from the 2019–20 bushfires and subsequent flooding. The scale of government responses to these events has been significant and has required a wide-ranging response involving emergency response coordination, service delivery, governance and policy.

Significant resources have been directed toward these responses, and in assisting rebuilding and economic recovery. Some systems and processes have changed to reflect the need for quick responses to immediate needs. The increasing and changing risk environment presented by these events has meant that we have recalibrated and focused our efforts on providing assurance on how effectively aspects of these emergency responses have been delivered. This includes financial and governance risks arising from the scale and complexity of government responses to these events.

While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. We will take a phased approach to ensuring that our work addresses the following elements of the emergencies and government responses:

Appendix one – Prescribed entities

Appendix two – Legal opinions

Appendix three – TSS sectors and entities
 

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.

This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, 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 matters in this report impacting the Total State Sector Accounts we have decided to break with normal practice and table this report ahead of the ‘Report on State Finances’.

What the report is about

This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, for the year ended 30 June 2021.

What we found

Internal control trends

The proportion of control deficiencies identified as high risk this year increased to 2.8 per cent (2.5 per cent in 2019–20). Six high risk findings related to financial controls while three related to IT controls. Two were repeat findings from the previous year.

Repeat findings of control deficiencies now represent 49 per cent of all findings (42 per cent in 2019–20).

Information technology

We continue to see a high number of deficiencies relating to IT general controls, particularly around user access administration and privileged user access which affected 82 per cent of agencies.

Cyber security

Agencies' self-assessed maturity levels against the NSW Cyber Security Policy (CSP) mandatory requirements are low. Although agencies are required to demonstrate continuous improvement against the CSP, 20 per cent have not set target levels and of those that have set target levels, 40 per cent have not met their target levels.

Policies, processes and definition around security incidents and data breaches lack consistency. Improvement is required to ensure breaches are recorded in registers and action taken to address the root cause of incidents.

Conflicts of interest

Agencies' policies generally meet the minimum requirements of the Ethical Framework set out in the Government Sector Employment Act 2013. However, few meet the Independent Commission Against Corruption's best practice guidelines. Policies could be strengthened in relation to requirements around annual declarations of interests from employees and contractors.

Masterfile management

Policies governing the management of supplier masterfiles and employee masterfiles existed in 79 per cent and 54 per cent of agencies respectively.

Weaknesses were identified in those policies. Access restriction, segregation of duties and record keeping were the most common opportunities for improvement.

Tracking recommendations

Most agencies do not maintain a register to monitor recommendations from performance audits and public inquiries. Registers of recommendations could be improved to include risk ratings and record revisions to due dates. While recommendations can take several years to fully address, the oldest open items were originally due for completion by June 2016.

What we recommended

Agencies should:

• prioritise actions to address repeat control deficiencies, particularly those that have been repeated findings for a number of years
• prioritise improvements to their cyber security and resilience as a matter of urgency
• formalise and implement policies on tracking and monitoring the progress of implementing recommendations from performance audits and public inquiries.

Internal controls are processes, policies and procedures that help agencies to:

• operate effectively and efficiently
• produce reliable financial reports
• comply with laws and regulations
• support ethical government.

This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.

The scope of this year's report covers 25 general government sector agencies. Last year's report covered 40 agencies within the total state sector. For consistency and comparability, we have adjusted the 2020 results to include only the agencies remaining within scope of this year's report. Therefore, the 2020 figures will not necessarily align with those reported in our 2020 report.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency controls to manage key financial systems.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security planning and governance arrangements.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' conflicts of interest management processes.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency's management of supplier and employee masterfiles.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' processes to track and monitor the implementation of recommendations from performance audits and public inquiries.

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.

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.

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.

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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© 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

The term ‘machinery of government’ refers to the way government functions and responsibilities are organised.

The decision to make machinery of government changes is made by the Premier. Changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day.

Larger machinery of government changes typically occur after an election or a change of Premier.

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet (DPC) and NSW Treasury in overseeing machinery of government changes.

What we found

The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of benefits has not been monitored. The costs of the changes were not tracked or reported.

DPC and NSW Treasury provided principles to guide implementation but did not require departments to collect or report information about the benefits or costs of the changes.

The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled.

Major implementation challenges included negotiation about the allocation of corporate support staff and the integration of complex corporate and ICT systems.

What we recommended

DPC and NSW Treasury should:

• consolidate existing guidance on machinery of government changes into a single document that is available to all departments and agencies
• provide guidance for departments and agencies to use when negotiating corporate services staff transfers as a part of machinery of government changes, including a standard rate for calculating corporate services requirements
• progress work to develop and implement common processes and systems for corporate services in order to support more efficient movement of staff between departments and agencies.

The term ‘machinery of government’ refers to the way government functions and responsibilities are allocated and structured across government departments and agencies. A machinery of government change is the reorganisation of these structures. This can involve establishing, merging or abolishing departments and agencies and transferring functions and responsibilities from one department or agency to another.

The decision to make machinery of government changes is made by the Premier. These changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day. Machinery of government changes are formally set out in Administrative Arrangements Orders, which are prepared by the Department of Premier and Cabinet, as instructed by the Premier, and issued as legislative instruments under the Constitution Act 1902.

The heads of agencies subject to machinery of government changes are responsible for implementing them. For more complex changes, central agencies are also involved in providing guidance and monitoring progress.

The NSW Government announced major machinery of government changes after the 2019 state government election. These changes took place between April and June 2019 and involved abolishing five departments (Industry; Planning and Environment; Family and Community Services; Justice; and Finance, Services and Innovation) and creating three new departments (Planning, Industry and Environment; Communities and Justice; and Customer Service). This also resulted in changes to the 'clusters' associated with departments. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status. Most other departments that were not abolished had some functions added or removed as a part of these machinery of government changes. For example, the functions relating to regional policy and service delivery in the Department of Premier and Cabinet were moved to the new Department of Planning, Industry and Environment.

Our Report on State Finances 2019, tabled in October 2019, outlined these changes and identified several issues that can arise from machinery of government changes if risks are not identified early and properly managed. These include: challenges measuring the costs and benefits of machinery of government changes; disruption to services due to unclear roles and responsibilities; and disruption to control environments due to staff, system and process changes.

In April 2020, the Department of Regional NSW was created in a separate machinery of government change. This involved moving functions and agencies related to regional policy and service delivery from the Department of Planning, Industry and Environment into a standalone department.

This audit assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet and NSW Treasury in overseeing machinery of government changes. The audit investigated whether:

• DPIE and DRNSW have integrated new responsibilities and functions in an effective and timely manner
• DPIE and DRNSW can demonstrate the costs of the machinery of government changes
• The machinery of government changes have achieved or are achieving intended outcomes and benefits.

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – Performance auditing

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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.

Parliamentary reference - Report number #359 - released (17 December 2021).

This report analyses the results of our audits of the Premier and Cabinet 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 Premier and Cabinet 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 Premier and Cabinet cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all Premier and Cabinet cluster agencies.

The number of monetary misstatements decreased from 49 in 2019–20 to 38 in 2020–21.

The Library Council of New South Wales corrected a prior period error of $325 million. In 2017, the council split its collection assets into six asset classes, but not the related asset revaluation reserves. To correct this error, some revaluation decrements previously recognised in asset revaluation reserves were reclassified to accumulated funds.

Eight agencies did not complete all of the mandatory early close procedures.

What the key issues were

The Premier and Cabinet cluster was impacted by three Machinery of Government (MoG) changes during 2020–21.

The changes resulted in the transfer of activities and functions in and out of the cluster and the creation of a new entity - Investment NSW.

The transferor entities continued to provide services to Investment NSW subsequent to 30 June 2021. There were no formal service level agreements in place for the provision of these services.

The New South Wales Electoral Commission (the Commission) and Sydney Opera House Trust obtained letters of financial support from their relevant Minister and/or NSW Treasury in 2020–21. The postponement of local government elections impacted the Commission's operations due to increased planned expenditure to support a COVID-safe election. Sydney Opera House Trust's ability to generate revenue was impacted due to the closure of the Concert Hall partly due to COVID-19 and planned renovations.

The number of repeated audit issues raised with management and those charged with governance increased from 22 in 2019–20 to 24 in 2020–21.

There were 47 moderate risk and 28 low risk findings identified. Of the total findings there were 24 repeat issues.

What we recommended

Investment NSW should ensure services received from other agencies are governed by service level agreements.

This report provides Parliament and other users of the Premier and Cabinet’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 Premier and Cabinet 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 Premier and Cabinet cluster.

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.