What this report is about

WestInvest is a $5 billion funding program announced in September 2021 to provide ‘local infrastructure to help communities hit hard by COVID-19’ in 15 local government areas (LGAs) selected by the government. It was divided into three parts: $3 billion for NSW government agency projects; $1.6 billion for competitive grants to councils and community groups; and $400 million for non-competitive grants to councils.

Following the change of government at the 2023 election, the program was renamed the Western Sydney Infrastructure Grants Program. Funding decisions made for the community and local government grants were retained, but multiple funding decisions for the NSW government projects were changed.

The audit objective was to assess the integrity of the design and implementation of the program and the award of program funding.

Findings

The design of the program lacked integrity because it was not informed by robust research or analysis to justify the commitment of public money to a program of this scale.

The then government did not have sufficient regard to the implications for the state's credit rating. A risk to the credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than pay down its debt.

Decisions about program design were made by the then Treasurer's office without consultation with affected communities. The rationale for these decisions was not documented or made public.

For the NSW government projects, funding allocations did not follow advice from departments. Many funded projects did not meet the objectives of the program.

The two other rounds of the program were administered effectively, except for some gaps in documentation and quality assurance. The program guidelines did not require an equitable or needs-based distribution of funding across LGAs and there was a significant imbalance in funding between the 15 LGAs.

Recommendations

Our recommendations for the administration of future funding programs included:

• considering whether competitive grants are the best way to achieve the program's purpose
• completing program design and guidelines before announcements
• ensuring adequate quality assurance.

We also recommended that when providing advice for submissions by Ministers to Cabinet, agencies should ensure that departmental advice is clearly identified and is distinct from other advice or political considerations.

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Parliamentary reference - Report number #391 - released 28 February 2024

What this report is about

Transport for NSW (TfNSW) uses the Driver vehicle System (DRIVES) to support its regulatory functions. The system covers over 6.2 million driver licences and over seven million vehicle registrations.

DRIVES first went live in 1991 and has been significantly extended and updated since, though is still based around the same core system. The system is at end of life but has become an important service for Service NSW and the NSW Police Force.

DRIVES now includes some services to other parts of government and non-government entities which have little or no connection to transport. There are 141 users of DRIVES in total, including commercial insurers, national regulators, and individual citizens.

This audit assessed whether TfNSW is effectively managing DRIVES and planning to transition it to a modernised system.

Audit findings

TfNSW has not effectively planned the replacement of DRIVES.

It is now working on its third business case for a replacement system but has failed to learn lessons from its past attempts.

In the meantime, TfNSW has not taken a strategic approach to managing DRIVES’ growth.

TfNSW has been slow to reduce the risk of misuse of personal information held in DRIVES. With its delivery partner Service NSW, TfNSW has also been slow to develop and implement automatic monitoring of access.

TfNSW uses recognised processes for managing most aspects of DRIVES, but has not kept the system consistently available for users. TfNSW has lacked accurate service availability information since June 2022, when it changed its technology support provider.

TfNSW needs to significantly prioritise cyber security improvements to DRIVES. TfNSW is seeking to lift DRIVES’ cyber defences, but it will not achieve its stated target safeguard level until December 2025.

Even then, one of the target safeguards will not be achieved in full until DRIVES is modernised.

Audit recommendations

TfNSW should:

• implement a service management framework including insight into the views of DRIVES users, and ensuring users can influence the service
• ensure it can accurately and cost effectively calculate when DRIVES is unavailable due to unplanned downtime
• ensure implementation of a capability to automatically detect anomalous patterns of access to DRIVES
• ensure that DRIVES has appropriate cyber security and resilience safeguards in place as a matter of priority
• develop a clear statement of the future role in whole of government service delivery for the system
• resolve key issues currently faced by the DRIVES replacement program including by:
  • clearly setting out a strategy and design for the replacement
  • preparing a specific business case for replacement.

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Parliamentary reference - Report number #388 - released 20 February 2024

What this report is about

Around one-third of the state’s population lives in regional NSW, but deaths on regional roads make up around two-thirds of the state’s road toll.

Transport for NSW (TfNSW) is responsible for managing road safety outcomes across the NSW road network. This audit assessed the effectiveness of TfNSW’s delivery of road safety strategies, plans and policies in regional areas.

The NSW Road Safety Action Plan 2022–2026 has the stated goal of ‘no death or serious injury occurring on the road transport network’ by 2050.

What we found

There is a disproportionate amount of trauma on regional roads, but there are no specific road safety plans or trauma reduction targets for regional NSW.

TfNSW advises that the setting of state-wide road safety targets is consistent with other jurisdictions and international best practice. However, the proportion of road fatalities and serious injuries in regional NSW is almost the same as ten years ago.

There is no regional implementation plan to assist TfNSW to target the Road Safety Action Plan 2026 to regional areas.

TfNSW considers that local road safety outcomes should be managed by councils, but only 52% of regional councils participated in its Local Government Road Safety Program (LGRSP) in 2022–23. This program has not been updated since 2014, despite commitments to do so in 2021 and 2022.

TfNSW has not undertaken a systematic and integrated analysis of the combined impact of its road safety strategies and plans in regional NSW since 2012.

TfNSW reports against the Community Road Safety Fund (CRSF) annually but there is no consolidated, public reporting on total road safety funding allocated to regional NSW. The Fund underspend increased from 12% in 2019–20 to 20% in 2022–23.

What we recommended

We recommended TfNSW:

• develop a regional implementation plan to support the NSW Road Safety Action Plan, including a framework to annually measure, analyse and publicly report on progress
• develop a plan to measure and mitigate risks causing underspend in the CRSF
• expedite the review of the LGRSP including recommendations to increase involvement of regional councils.

Disclosure of confidential information

Under the Government Sector Audit Act 1983 (the Act), the Auditor-General may disclose confidential information if, in the Auditor-General’s opinion, the disclosure is in the public interest, and that disclosure is necessary for the exercise of the Auditor-General’s functions.

Confidential information in the Act means Cabinet information or information subject to legal privilege. This performance audit report contained confidential information.

The NSW Premier has certified that in his opinion the disclosure of the confidential information was not in the public interest.

The confidential information has been redacted from this report.

Under section 36A(2) of the Government Sector Audit Act 1983, the Auditor-General may authorise the disclosure of confidential information if, in the Auditor-General’s opinion, the disclosure is in the public interest and necessary for the exercise of the Auditor-General’s functions. Confidential information under the Government Sector Audit Act 1983 means Cabinet information, or information that could be subject to a claim of privilege by the State or a public official in a court of law. This performance audit report contained confidential information which, in the opinion of the Auditor-General, is in the public interest to disclose and that disclosure is necessary for the exercise of the Auditor-General’s functions.

On 26 October 2023, pursuant to section 36A(2)(b) of the Government Sector Audit Act 1983, the Auditor-General notified the NSW Premier of the intention to include this information in the published report, having formed the opinion that its disclosure is in the public interest and is necessary for the exercise of the Auditor-General’s functions.

On 23 November 2023, pursuant to section 36A(2)(c) of the Government Sector Audit Act 1983, the NSW Premier certified that, in his opinion, the proposed disclosure of the confidential information contained in this report was not in the public interest. The Premier’s certificate follows. Section 36A(4) states that a certificate of the Premier that it is not in the public interest to disclose confidential information is conclusive evidence of that fact.

The issuance of the certificate by the NSW Premier prevents the publication of this information. The relevant sections of the report containing confidential information have been redacted.

One-third of the New South Wales population resides in regional areas, but two-thirds of the state’s road crash fatalities take place on regional roads.

Between 2017 and 2021, the average number of fatalities for every 100,000 of the population living in regional New South Wales was 8.33 — approximately four times higher than the equivalent measure for Greater Sydney. Similarly, the average number of serious injuries in regional New South Wales over the same period was 75.24 per 100,000 of the population, compared with 50.53 in Greater Sydney. Further, more than 70% of people who lose their lives in accidents on regional roads are residents of regional areas.

Residents of regional areas face particular transport challenges. They often need to travel longer distances for work, health care, or recreation purposes, yet their public transport options are more limited than metropolitan residents. Vehicle safety is also an issue. According to the NSW Road Safety Progress Report 2021, of the light vehicles registered in New South Wales that were manufactured in or after 2000, 48.4% of light vehicles in regional areas had a five-star Australasian New Car Assessment Program (ANCAP) rating, compared to 54.8% in metropolitan areas. Road conditions in regional areas can also be more challenging for drivers.

Regional New South Wales covers 98.5% of the total area of the state. The road network in New South Wales is vast — spanning approximately 200,000 kilometres.

The road network includes major highways, state roads and local roads. Speed limits range from 10 km/hr in high pedestrian shared zones, up to 110 km/hr on high volume and critical road corridors. Eighty per cent of the network has a 100 km/h speed limit, which is mostly applied as a default speed limit, regardless of the presence of safety features and treatments.

Speed is the primary causal factor in more crashes in New South Wales than any other factor, and car crashes in regional areas are more likely to be fatal because of the higher average speeds involved.

The responsibility for managing road safety outcomes across the entire New South Wales road network lies with Transport for NSW (TfNSW), pursuant to Schedule 1 of the Transport Administration Act 1988.

While its safety responsibilities are state-wide, TfNSW does not own or directly manage all of the road network in regional New South Wales, which spans approximately 200,000 kilometres. Approximately 80% of the roads are classified as Local Roads and are administered and managed by local councils. Local councils also maintain Regional Roads that run through their local government areas. TfNSW is responsible for managing State Roads (approximately 20% of roads), which are major arterial roads. It also provides funding for councils to manage over 18,000 km (approximately 10%) of state-significant Regional Roads.

According to TfNSW, between 2016 and 2020, there were 9,776 people killed or seriously injured on roads in regional New South Wales. Adding to the tragic loss of life, according to TfNSW, the estimated cost to the community between 2016 and 2020 resulting from regional road trauma and fatalities was around $13.7 billion.

TfNSW also noted that the ‘risk of road trauma is pervasive, and a combination of effective road safety measures is required to systematically reduce this risk’.

TfNSW released its first long-term road-safety strategy in December 2012, which introduced the goal of ‘Vision Zero’ — a long-term goal of zero deaths or serious injuries on NSW roads. The terminology was changed to ‘Towards Zero’ in the 2021 Road Safety Plan and has been retained in the NSW Road Safety Action Plan 2022–2026. Towards Zero has the stated goal of ‘no death or serious injury occurring on the road transport network’ by 2050.

The objective of this audit is to assess the effectiveness of TfNSW’s delivery of ‘Towards Zero’ in regional areas.

In making this assessment, the audit examined whether TfNSW:

• is effectively reducing the number of fatalities and serious injuries on regional roads
• has an effective framework, including governance arrangements, for designing and refreshing the NSW Road Safety Strategy 2012–2021 and the NSW Road Safety Action Plan 2022–2026
• effectively makes use of whole-of-government and other relevant sources of data to support decision-making, and to evaluate progress and outcomes
• effectively manages accountabilities, including roles and responsibilities, with respect to road safety outcomes and the use of data.

This audit focused on the policies and strategies used by TfNSW for managing road safety outcomes in regional areas. We did not evaluate individual road safety projects, programs and initiatives as part of this audit.

Whilst Regional Roads and Local Roads (as defined by the Road Network Classifications) are owned and maintained by local councils, we included these roads in this audit as TfNSW may advise and assist councils to promote and improve road safety, as well as manage grant programs that focus on improving road safety outcomes on these roads. Hereafter, unless otherwise stated, references to ‘regional roads’ refer to all classifications of roads in the state which are in regional New South Wales, irrespective of their ownership.

Local councils in regional areas are key stakeholders for the purposes of this audit, and we interviewed eight as part of the audit process (noting that this was not intended to be a representative sample). Road asset management by local councils is also out of scope for this audit as it is the focus of a subsequent performance audit by the Audit Office of New South Wales.b

The Audit Office of New South Wales has undertaken several performance audits relating to road safety since 2009 and these have been referenced while undertaking this audit. They include:

• Condition of State Roads (August 2006)
• Improving Road Safety: Heavy Vehicles (May 2009)
• Improving Road Safety: School Zones (March 2010)
• Improving Road Safety: Speed Cameras (July 2011)
• Regional Assistance Programs (May 2018)
• Mobile speed cameras (October 2018)
• Rail freight and Greater Sydney (October 2021).

Appendix one – Response from Transport for NSW

Appendix two – The Safe Systems framework and NSW road safety strategies and plans

Appendix three – About the audit

Appendix four – Performance auditing

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

Parliamentary reference - Report number #386 - released 30 November 2023

What the report is about

This audit assessed how effectively NSW government agencies procure and manage consultants. It examined the role of the NSW Procurement Board and NSW Procurement (a unit within NSW Treasury) in supporting and monitoring agency procurement and management of consultants.

The audit used four sources of data that contain information about spending on consultants by NSW government agencies, including annual report disclosures and the State's financial consolidation system (Prime). It also reviewed a sample of consulting engagements from ten NSW government agencies.

What we found

Our review of a selection of consulting engagements indicates that agencies do not procure and manage consultants effectively.

We found most agencies do not use consultants strategically and do not have systems for managing or evaluating consultant performance. We also found examples of non-compliance with procurement rules, including contract variations that exceeded procurement thresholds.

NSW Procurement has made improvements to the information available about spending on consultants, including additional analysis and reporting. However, there is no single data source that accurately captures spending on consultants.

Our analysis of data on whole-of-government spending on consultants, drawn from agency annual reports, indicates that four large professional services firms accounted for about a quarter of consultancy expenditure from 2017–18 to 2021–22. This concentration increases strategic risks, including over-reliance on a limited number of providers and potential reduction in the independence of advice.

It is also highly unlikely that NSW government agencies will meet the government's 2019 policy commitment to reduce consultancy expenses by 20% each year, over four years, from 2019–20. NSW Treasury advised that to implement this commitment, agency budgets were reduced in Prime in line with the savings targets. However, actual spending on consulting in NSW Treasury's Reports on State Finances 2020–21 and 2021–22 was almost $100 million higher than the savings targets over the first three years since 2019–20.

What we recommended

The report made seven recommendations which aim to improve:

• the quality and transparency of data on spending on consultants
• monitoring of strategic risks and agency compliance with procurement and recordkeeping rules
• agencies' strategic use of consultants, including evaluation and knowledge retention.

Between 2017–18 and 2021–22, NSW government agency annual reports disclosed total spending of around $1 billion on consultants across more than 10,000 engagements. More than 1,000 consulting firms provided services to NSW government agencies during this period. Consulting is a classification of professional services that is characterised by giving advice or recommendations on a specific issue. The NSW Procurement Board Direction PBD-2021-03 defines a consultant as a person or organisation that provides 'recommendations or professional advice to assist decision-making by management'. PBD-2021-03 notes that the advisory nature of the work of consultants is the main factor that distinguishes them from other providers of professional services.

The NSW Procurement Board is responsible for setting procurement policy, issuing directions to support policies, and monitoring and reporting on agency compliance with policies and directions. NSW Procurement, a division within NSW Treasury, supports agencies to comply with the NSW Procurement Board’s policies and directions. A 'devolved governance model' is used for procurement in New South Wales. This means the heads of government entities that are covered by the NSW Procurement Board’s directions are responsible for managing the entity's procurement, including managing risks, reporting and ensuring compliance, in line with procurement laws and policies.

This audit assessed how effectively NSW government agencies procure and manage consultants. It assessed the role of the NSW Procurement Board and NSW Procurement in supporting and monitoring agency procurement and management of consultants. It also reviewed a sample of consulting engagements from ten NSW government agencies to examine how agencies procured, managed and reported on their use of consultants. The ten NSW government agencies were:

• NSW Treasury
• Department of Communities and Justice
• Department of Customer Service
• Department of Education
• Department of Planning and Environment
• Department of Premier and Cabinet
• Department of Regional NSW
• Infrastructure NSW
• Sydney Metro
• Transport for NSW

There are four different sources of data that contain information about spending on consultants by NSW government agencies: the State's financial consolidation system (Prime), disclosures of spending on consultants in agency annual reports, and two systems operated by NSW Procurement (the Business Advisory Services (BAS) dashboard and Spend Cube). Each of these data sources serves a different purpose, and collects and categorises information differently. None of these provide a complete source of data on spending on consultants, either in their own right or collectively.

NSW Treasury considers Prime to be the 'source of truth' on consulting expenditure across the NSW public sector. An account within Prime records recurrent spending on consultants, but this account does not include capital expenditure (that is, spending on consultants that has from a financial reporting perspective been 'capitalised' to a project on the balance sheet). As the State's financial consolidation system, Prime captures all financial information. However, capitalised consulting expenditure is recorded within various capital accounts, and is not identifiable within these accounts. While this is appropriate for accounting purposes, it means that the Prime account that records recurrent consulting expenditure does not reflect total spending on consultants by NSW government agencies. We used the data in Prime to assess whether NSW government agencies met the NSW Government's policy commitment—stated before the 2019 election and costed by the Parliamentary Budget Office—to reduce recurrent expenditure on consulting by 20% each year, over four years, from 2019–20. We did this because, while the Prime account for recurrent consulting expenditure does not reflect all spending on consultants, it does capture the recurrent spending that was subject to the policy commitment.

Most NSW government agencies are required by legislation to disclose spending on consultants (as defined in PBD-2021-03) in their annual reports. These disclosures include both recurrent and capital expenditure. For consulting engagements that cost more than $50,000, the disclosures also provide itemised information, including the names of the individual projects and the consultants used. While this data is more complete than Prime because it includes capital expenditure, it also has some gaps. Some entities are excluded from public reporting requirements on consultant use. For example, NSW Local Health Districts (LHD) are not required to produce annual reports, and the Ministry of Health does not include LHD consulting expenditure in its annual report.¹ We used annual report disclosure data to report on total expenditure on consultants, and the concentration of suppliers of consulting services to NSW government agencies.

The BAS dashboard and Spend Cube are systems created by NSW Procurement to collect information about spending on suppliers of professional services. This includes consultants, but also includes other professional services providers. The systems were not designed for reporting on spending on consulting as defined in PBD-2021-03. However, we have used this data to assess specific aspects of NSW Procurement's monitoring of the use of consultants by NSW government agencies.

In 2018, we conducted an audit titled 'Procurement and reporting of consultancy services'. This assessed how 12 NSW government agencies complied with procurement requirements and how NSW Procurement supported the functions of the NSW Procurement Board. The 2018 audit found that none of the 12 agencies fully complied with NSW Procurement Board Directions on the use of consultants and that the NSW Procurement Board was not fully effective in overseeing and supporting agencies’ procurement of consultants. Specific findings from the 2018 audit included: 

• Agencies applied the definition of consultant inconsistently, which affected the accuracy of reporting on consultancy expenditure.
• There was inadequate guidance from NSW Procurement for agencies implementing the procurement framework, with a need for additional tools, automated processes, and other internal controls to improve compliance.
• NSW Procurement had insufficient data for effective oversight of procurement and did not publish any data on the procurement of consultancy services by NSW government agencies.

This chapter outlines our findings on the role of NSW Procurement in overseeing the use of consultants by NSW government agencies.

This chapter outlines our findings on the use of consultants by the ten NSW government agencies that were included in this audit.

Appendix one – Responses from auditees

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 #378 - released 2 March 2023

What the report is about

The Government Advertising Act 2011 requires the Auditor-General to undertake a performance audit on government advertising activities each financial year.

This audit examined whether TAFE NSW's annual advertising campaign in 2021–22:

1. was carried out effectively, economically, and efficiently
2. complied with regulatory requirements and the Government Advertising Guidelines.

What we found

TAFE NSW complied with Section 6 of the Act, prohibiting political content.

It also complied with most other advertising requirements.
 
An important exception was that the Managing Director certified that the campaign complied with regulatory requirements and was an efficient and cost-effective means of achieving its public purpose, before a cost-benefit analysis (CBA) was completed.

We have found issues with agencies complying with CBA requirements in previous government advertising audits. This includes the failure to complete them before signing compliance certificates.

The policy owner, the Department of Customer Service (DCS), does not consider oversight of CBAs to be within the scope of their peer review process.  

TAFE NSW evaluated this advertising campaign by surveying a population significantly broader than the target audience. As such, survey results may not accurately reflect the views of the intended audience.

What we recommended

By 30 June 2023, TAFE NSW should:

1. implement processes that ensure:
   1. CBAs are completed before the launch of campaigns over $1 million
   2. compliance certificates are completed only after all regulatory requirements are met
2. consider adding to its current evaluation methods by surveying a population which closely reflects the age profile of its intended target audience.

By June 2023, DCS should:

3. improve whole‑of‑government reporting and monitoring processes to provide the NSW Government with a central view of compliance, including the completion of CBAs by agencies.

The Government Advertising Act 2011 (the Act) sets out requirements that must be followed by a government agency when it carries out a government advertising campaign. The requirements include an explicit prohibition on political advertising, as well as a need to complete a peer review and cost-benefit analysis before the campaign commences. The accompanying Government Advertising Regulation 2018 (the Regulation) and Government Advertising Guidelines (the Guidelines) address further matters of detail.

The Act also requires the Auditor-General to conduct a performance audit on the activities of one or more government agencies in relation to government advertising campaigns in each financial year. The performance audit must assess whether a government agency (or agencies) has carried out activities in relation to government advertising campaigns in an effective, economical and efficient manner. It also assesses compliance with the Act, the Regulation, other laws and the Guidelines.

This audit examined TAFE NSW's advertising campaign for the 2021–22 financial year. TAFE NSW is the NSW Government's public provider of vocational education and training. TAFE NSW carries out an advertising campaign every year. In 2021–22, it spent $15.16 million on developing and implementing advertising. TAFE NSW used channels such as television, radio, internet and social media, press, and out of home advertising in public settings such as bus stops. The advertising aimed to increase the percentage of people considering TAFE NSW for training or education, grow the percentage of people who consider TAFE NSW to be the preferred education provider in NSW, and maintain the proportion of people who are aware of TAFE NSW more generally.

There are a range of private service providers helping to deliver vocational education and training in NSW.

This part of the report sets out key aspects of TAFE NSW's compliance with the government advertising regulatory framework. It considers whether TAFE NSW complied with the:

• Government Advertising Act 2011
• Government Advertising Regulation 2018
• NSW Government Advertising Guidelines 2012 and other relevant policy.

This part of the report considers whether TAFE NSW's advertising program for 2021–22 was carried out in an effective, efficient, and economical manner.

Appendix one – Responses from agencies

Appendix two – About the campaign

Appendix three – About the audit

Appendix four – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #377 - released 28 February 2023

What the report is about

Sydney Metro is Australia’s largest public transport project. It requires the acquisition of many private properties, including residential and business properties.

This audit assessed the effectiveness of the acquisition of private properties for the Sydney Metro project. The audited agencies were Sydney Metro, the Department of Planning and Environment (Valuer General NSW) and Transport for NSW (the Centre for Property Acquisition).

The audit assessed agencies against the framework for property acquisitions in New South Wales. It did not re-perform the valuations done for individual properties that were acquired by Sydney Metro.

What we found

Acquisitions of private property for the Sydney Metro project were mostly effective in the sample of acquisitions we assessed. We found Sydney Metro:

• complied with legislative and policy requirements for compensation and communication with people subject to property acquisitions
• kept accurate records of its acquisitions and applied probity controls consistently
• did not complete detailed plans or negotiation strategies for the high-risk and high-value acquisitions we reviewed
• did not comply with legislative timelines for most compulsory acquisitions because of delays in receiving the required information from the Valuer General in these cases.

The Centre for Property Acquisition has overseen the implementation of reforms to residential acquisition processes, but its assessment of the effectiveness of these reforms has not been comprehensive.

What we recommended

The audit made four recommendations to the audited agencies to improve:

• plans and strategies for the acquisition of high-risk and high-value properties
• timeliness of issuing compensation determinations for compulsory acquisitions
• data quality on the experience of people subject to property acquisitions.

The NSW Government has the power to acquire land that is owned or leased by individuals or businesses, if it is needed for a public purpose. The power arises from the Land Acquisition (Just Terms Compensation) Act 1991 (the Just Terms Act). Government agencies that have the power to compulsorily acquire private property are referred to as ‘acquiring authorities’. People who are subject to acquisitions are referred to as ‘affected parties’ and include property owners (business or residential), businesses with a commercial lease on a property, or individuals with residential tenancy leases. In recent years, the vast majority of acquisitions by the NSW Government have been for public transport or road projects.

Sydney Metro is a NSW Government agency with responsibility for building the Sydney Metro railway project. Sydney Metro is Australia’s largest public transport project. The project requires the acquisition of a large number of private properties. Sydney Metro has been one of the largest acquirers of private property in recent years, completing over 500 acquisitions between 2020 and mid-2022, with a total acquisition value of over $2 billion. Other agencies and statutory officers involved in the acquisition of property for the Sydney Metro project include:

• the Department of Planning and Environment (DPE), which supports the minister responsible for the Just Terms Act. DPE also provides staff to the Valuer General of NSW
• the Valuer General of NSW, an independent statutory officer that determines compensation in cases where the acquiring authority and the affected party cannot agree on compensation for property that has been acquired
• Transport for NSW, which includes the Centre for Property Acquisition (CPA). The CPA does not have a direct role in acquiring properties, but its responsibilities include developing guidance for acquiring agencies and monitoring and reporting on their activities.

About this audit

The objective of this audit was to assess the effectiveness of acquisitions of private properties for Sydney Metro projects. The audit assessed agencies against the legislative and policy requirements in place for government acquisitions of private property in New South Wales. In line with the Audit Office's legislative mandate, the audit does not comment on the merits of the policy objectives reflected in the Just Terms Act.

The audit examined a sample of 20 property acquisitions. This was not a statistically representative sample. While our report provides comments on Sydney Metro’s overall acquisition processes, it does not provide assurance regarding the acquisitions that were not examined for this audit.

The audit did not re-perform the valuations done for individual properties that were acquired by Sydney Metro. Affected parties who disagree with the valuation of their property have the right to seek independent assessment of this via the Valuer General and the Land and Environment Court.

This chapter presents our findings on Sydney Metro's acquisition of industrial and commercial properties. Industrial properties include construction businesses and manufacturing facilities. Commercial properties were mostly properties such as shopping centres and office towers. Many of these acquisitions involve businesses and properties that are relatively complex and have high values. This means the valuation process can require multiple experts and can be lengthy and contested. Adherence to governance and probity requirements is important for these acquisitions in order to demonstrate that the acquiring authority has achieved value for money.

This chapter presents our findings on Sydney Metro's acquisition of residential properties, which include apartments and houses, and small business leases, which mostly affected businesses in small shopping centres or arcades. Most of these acquisitions were lower value compared to industrial and commercial property acquisitions and did not require as much expert advice on complex technical issues. However, residential property acquisitions can be personally distressing for the affected parties and require staff from the acquiring authority to provide support and show empathy while ensuring legislative compliance and value for money.

Appendix one – Responses from agencies

Appendix two – About the audit 

Appendix three – Performance auditing 

Copyright notice

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

Parliamentary reference - Report number #375 - released 9 February 2023

What the report is about

The Transport Asset Holding Entity (TAHE) is the State's custodian of rail assets. It is a state owned corporation and commenced operating on 1 July 2020.

This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. We audited TAHE, Transport for NSW (TfNSW) and NSW Treasury.

Separate and related audits on TAHE are reported in 'State Finances 2022', 'State Finances 2021' and 'Transport and Infrastructure 2022' reports.

What we found

The design and implementation of TAHE, which spanned seven years, was not effective.

The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.

The benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose.

Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed.

Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.

What we recommended

We recommended that the audited agencies should:

• improve accountability and transparency for major new fiscal transformation initiatives
• ensure entities do not reflect the financial impact of significant initiatives in the Budget when there is uncertainty, or it creates perverse incentives
• review record keeping practices, systems and policies to ensure compliance with the State Records Act 1998, and the NSW Government Information Classification, Labelling and Handling Guidelines
• review procurement policies to ensure that consultant use complies with all NSW Government policy requirements.

The NSW Government established the Transport Asset Holding Entity (TAHE), a statutory State Owned Corporation (SOC), on 1 July 2020 to replace the former rail infrastructure owner – RailCorp. It is the State's custodian of rail network assets, including rail tracks and other infrastructure, rolling stock, land, train stations and facilities, retail space, and signal and power systems, within metropolitan and regional New South Wales. It is responsible for $2.8 billion of major capital projects in 2022–23.

TAHE was established under Part 2 of the Transport Administration Act 1988 and is governed by a decision-making board. The Treasurer and the Minister for Finance and Employee Relations are the Shareholding Ministers of TAHE, and they annually agree performance expectations articulated in a Statement of Corporate Intent.

Whereas TAHE is the custodian of rail assets, Sydney Trains and NSW Trains operate public rail services. TAHE does not have responsibility for the operation of the heavy rail network or train services, nor does it have network control functions. TAHE, Sydney Trains and NSW Trains are in the Transport and Infrastructure cluster in the public sector (formerly the Transport cluster and renamed in April 2022), which also includes Sydney Metro and Transport for NSW (TfNSW).

TfNSW leads the Transport and Infrastructure cluster. Its role is to set the strategic direction for transport across the State. This involves the shaping of planning, policy, strategy, regulation, resource allocation and other service and non-service delivery functions for all modes of transport.

TAHE's Operating Licence is granted by the Portfolio Minister and authorises the entity to perform the functions required to acquire, develop, finance, divest and hold assets, pursuant to the Transport Administration Act 1988. The Portfolio Minister also issues a Statement of Expectations which outlines the government’s expectation for the business for the next three to five years.

TAHE's original Portfolio Minister was the Minister for Transport who approved, on 30 June 2020, the issuing of an interim 12-month Operating Licence to enable TAHE to commence operating on 1 July 2020. The Portfolio Minister then granted TAHE's current Operating Licence in 2021. After TAHE requested a 12-month extension to its current Operating Licence, its next Operating Licence is due on 1 July 2024. The current Portfolio Minister is the Minister for Infrastructure, Cities and Active Transport.

About this audit

This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. In making this assessment, we considered whether: 

• the process of designing and implementing TAHE was cohesive and transparent, and delivered an effective outcome
• agencies' roles and responsibilities were clear in the planning of TAHE
• agencies effectively identified and managed certain risks.

Appendix one – Responses from audited agencies, and Audit Office clarification of matters raised in the TAHE formal response 

Appendix two – Classification of government entities 

Appendix three – About the audit 

Appendix four – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #372 - released 24 January 2023

What the report is about

The movement of freight contributes $66 billion annually to the NSW economy. Two thirds of all freight in NSW moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036.

This audit assessed the effectiveness of transport agencies in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

What we found

Transport agencies do not have strategies or targets in place to improve the efficiency or capacity of the metropolitan shared rail network for freight.

The transport agencies acknowledge that they do not have sufficient information to achieve the most efficient freight outcomes and they do not know how to use the shared rail network to maximise freight capacity without compromising passenger rail services.

The Freight and Ports Plan 2018-2023 contains one target for rail freight - to increase the use of rail at Port Botany to 28 per cent by 2021. However, Transport for NSW (TfNSW)'s data indicates this target will not be met.

Sydney Trains records data on train movements and collects some data on delays and incidents. TfNSW collects data for the construction of the Standard Working Timetable and third-party contracts.

However, a lack of clarity around what data is gathered and who has ownership of the data makes data sharing difficult and limits its analysis and reporting.

The Freight and Ports Plan 2018-2023 includes the goal of 'Reducing avoidable rail freight delays', but the transport agencies do not have any definition for an avoidable delay and, as a result, do not measure or report them.

TfNSW and Sydney Trains are appointed to manage and deliver the Transport Asset Holding Entity of New South Wales (TAHE)'s obligations to allow rail freight operators to use the shared rail network. There are no performance measures in rail freight operator contracts or inter-agency agreements. This limits transport agencies' ability to improve performance.

TfNSW’s Freight Branch is working on four freight-specific strategies; a review of the Plan, a freight rail strategy, a port efficiency strategy and a freight data strategy.

TfNSW has not yet determined the timeframes or intended outcomes of these strategies.

What we recommended

Transport agencies should:

• commit, as part of the review of Future Transport 2056, to delivering the freight-specific strategies currently in development and develop whole-of-cluster accountability for this work including timeframes, specific targets and clear roles and responsibilities 
• improve the collection and sharing of freight data
• develop a plan to reduce avoidable freight delays
• systematically collect data on the management of all delays involving and/or impacting rail-freight
• develop and implement key performance indicators for the agreements between the transport agencies.

The movement of freight contributes $66.0 billion annually to the New South Wales economy — or 13 per cent of the Gross State Product. Two thirds of all freight in New South Wales moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036. This increasing demand is driven by increasing population and economic growth.

The sequence of activities required to move goods from their point of origin to the eventual consumer (the supply chain) is what matters most to shippers and consumers. Road can provide a single-mode door-to-door service, whereas conveying goods by rail typically involves moving freight onto road at some point. In Greater Sydney, 80 per cent of all freight is moved on road. Freight often passes through intermodal terminals (IMTs) as it transitions from one mode of transport to the next.

In 2016, Transport for NSW (TfNSW) released Future Transport 2056 - the NSW Government's 40-year vision for transport in New South Wales, which is intended to guide investment over the longer term. In Future Transport 2056, TfNSW noted that New South Wales will struggle to meet increasing demand for freight movements unless rail plays a larger role in the movement of freight.

Sydney Trains manages the metropolitan shared rail network, which is made up of rail lines that are used by both passenger and freight trains. The Transport Administration Act 1988 requires that, for the purposes of network control and timetabling, NSW Government transport agencies give ‘reasonable priority’ to passenger trains on shared lines. As the Greater Sydney population and rail patronage continue to grow, so too will competition for access to the shared rail network. See Appendix two for details of the area encompassed by Greater Sydney.

Freight operators can also use dedicated rail freight lines operated by the Australian Rail Track Corporation (ARTC - an Australian Government statutory-owned corporation). As the metropolitan shared rail network connects with dedicated freight lines, freight operators often use both to complete a journey.

TfNSW, Sydney Trains and the Transport Asset Holding Entity (TAHE) work in conjunction with other rail infrastructure owners and private sector entities, including port operators, privately operated IMTs and freight-shipping companies. TfNSW and Sydney Trains are responsible for managing the movement of freight across the metropolitan shared rail network. TAHE is the owner of the rail infrastructure that makes up the metropolitan shared rail network. The NSW Government established TAHE, a NSW Government state-owned corporation, on 1 July 2020 to replace the former rail infrastructure owner - RailCorp. The Auditor-General for New South Wales has commenced a performance audit on TAHE which is expected to table in 2022.

On 1 July 2021, TAHE entered into new agreements with TfNSW and Sydney Trains to operate, manage and maintain the metropolitan shared rail network. Until 30 June 2021, and in accordance with TAHE's Implementation Deed, TAHE operated under the terms of RailCorp's existing arrangements and agreements.

This audit assessed the effectiveness of TfNSW, Sydney Trains and TAHE in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

The audit focused on:

• the monitoring of access to shared rail lines
• the management of avoidable delays of rail freight movements
• steps to increase the use of rail freight capacity in Greater Sydney.

Appendix one - Response from agencies

Appendix two - The Greater Sydney region

Appendix three - TfNSW strategic projects 

Appendix four - Sydney Trains path priority principles 

Appendix five - Sydney Trains delay management

Appendix six - About the audit 

Appendix seven - 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 #357 - released (19 October 2021).

What the report is about

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and NSW Treasury have supported state agencies to manage climate risks to their assets and services.

Climate risks that can impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. Impacts can include damage to transport, communications and energy infrastructure, increases in hospital admissions, and making social housing or school buildings unsuitable.

NSW Treasury estimates these risks could have significant costs.

What we found

DPIE and NSW Treasury’s support to agencies to manage climate risks to their assets and services has been insufficient.

In 2021, key agencies with critical assets and services have not conducted climate risk assessments, and most lack adaptation plans.

DPIE has not delivered on the NSW Government commitment to develop a state-wide climate change adaptation action plan. This was to be complete in 2017.

There is also no adaptation strategy for the state. These have been released in all other Australian jurisdictions. The NSW Government’s draft strategic plan for its Climate Change Fund was also never finalised.

DPIE’s approach to developing climate projections is robust, but it hasn’t effectively educated agencies in how to use this information to assess climate risk.

NSW Treasury did not consistently apply dedicated resourcing to support agencies' climate risk management until late 2019.

In March 2021, DPIE and NSW Treasury released the Climate Risk Ready NSW Guide and Course. These are designed to improve support to agencies.

What we recommended

DPIE and NSW Treasury should, in partnership:

• enhance the coordination of climate risk management across agencies
• implement climate risk management across their clusters.

DPIE should:

• update information and strengthen education to agencies, and monitor progress
• review relevant land-use planning, development and building guidance
• deliver a climate change adaptation action plan for the state.

NSW Treasury should:

• strengthen climate risk-related guidance to agencies
• coordinate guidance on resilience in infrastructure planning
• review how climate risks have been assured in agencies’ asset management plans.

According to the Intergovernmental Panel on Climate Change in 2021, each of the last four decades has been successively warmer and surface temperatures will continue to increase until at least the mid-century. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Bureau of Meteorology (BoM) have reported that extreme weather across Australia is more frequent and intense, and there have been longer-term changes to weather patterns. They also report sea levels are rising around Australia increasing the risk of inundation and damage to coastal infrastructure and communities.

According to the Department of Planning, Industry and Environment (the department), in New South Wales the impacts of a changing climate, and the risks associated with it, will be felt differently across regions, populations and economic sectors. The department's climate projections indicate the number of hot days will increase, rainfall will vary across the state, and the number of severe fire days will increase.

The NSW Government is a provider of essential services, such as health care, education and public transport. It also owns and manages around $365 billion in physical assets (as at June 2020). More than $180 billion of its assets are in major infrastructure such as roads and railway lines.

In NSW, climate risks that could directly impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. In recent years, natural hazards exacerbated by climate change have damaged and disrupted government transport, communications and energy infrastructure. As climate risks eventuate, they can also increase hospital admissions when people are affected by poorer air quality, and make social housing dwellings or schools unsafe and unusable during heatwaves. The physical impacts of a changing climate also have significant financial costs. Taking into account projected economic growth, NSW Treasury has estimated that the fiscal and economic costs associated with natural disasters due to climate change will more than triple per year by 2061.

The department and NSW Treasury advise that leading practice in climate risk management includes a process that explicitly identifies climate risks and integrates these into existing risk management, monitoring and reporting systems. This is in line with international risk management and climate adaptation standards. For agencies to manage the physical risks of climate change to their assets and services, leading practice identified by the department means that they need to:

• use robust climate projection information to understand the potential climate impacts
• undertake sound climate risk assessments, within an enterprise risk management framework
• implement adaptation plans that reduce these risks, and harness opportunities.

Adaptation responses that could be planned for include: controlling development in flood-prone locations; ensuring demand for health services can be met during heatwaves; improving thermal comfort in schools to support student engagement; proactive asset maintenance to reduce disruption of essential services, and safeguarding infrastructure from more frequent and intense natural disasters.

According to NSW Treasury policy, agencies are individually responsible for risk management systems appropriate to their context. The department and NSW Treasury have key roles in ensuring that agencies are supported with robust information and timely, relevant guidance to help manage risks to assets and services effectively, especially for emerging risks that require coordinated responses, such as those posed by climate change.

This audit assessed whether the department and NSW Treasury are effectively supporting NSW Government agencies to manage climate risks to their assets and services. It focused on the management of physical risks to assets and services associated with climate change.

Appendix one – Response from agencies

Appendix two – Timeline of key activities 

Appendix three – About the audit 

Appendix four – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #355 - released (7 September 2021).

What the report is about

This audit assessed how effectively Transport for NSW (TfNSW) and Sydney Trains identify and manage their cyber security risks.

The NSW Cyber Security Policy (CSP) sets out 25 mandatory requirements for agencies, including implementing the Australian Cyber Security Centre’s Essential 8 strategies to mitigate cyber security incidents, and identifying the agency’s most vital systems, their ‘crown jewels’. 

The audited agencies have requested that we do not disclose detail of the significant vulnerabilities detected during the audit, as these vulnerabilities are not yet remediated. We provided a detailed report to the agencies in December 2020 outlining significant issues identified in the audit. We have conceded to the agencies' request but it is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

What we found

TfNSW and Sydney Trains are not effectively managing their cyber security risks.

Both agencies have assessed their cyber security risks as unacceptably high and both agencies had not identified all of the risks we detected during this audit – some of which are significant.

Both agencies have cyber security plans in place that aim to address cyber security risks. TfNSW and Sydney Trains have combined this into the Transport Cyber Defence Rolling Program, part of the Cyber Defence Portfolio (CDP). 

However, neither agency has reached its target ratings for the CSP and the Essential 8 and maturity is low in relation to significant risks and vulnerabilities exposed.

Further, neither agency is fostering a culture where cyber security risk management is an important and valued aspect of decision-making.

TfNSW is not implementing cyber security training effectively across the cluster with only 7.2% of staff having completed basic cyber security training.

What we recommended

TfNSW and Sydney Trains should:

• develop and implement a plan to uplift the Essential 8 controls to the agency's target state
• as a matter of priority, address the vulnerabilities identified as part of this audit and previously described in a detailed Audit Office report provided to both agencies
• ensure cyber security risk reporting to executives and the Audit and Risk Committee
• collect supporting information for the CSP self assessments 
• classify all information and systems according to importance and integrate this with the crown jewels identification process
• require more rigorous analysis to re-prioritise CDP funding 
• increase uptake of cyber security training.

TfNSW should assess the appropriateness of its target rating for each of the CSP mandatory requirements.

Department of Customer Service should:

• clarify the requirement for the CSP reporting to apply to all systems
• require agencies to report the target level of maturity for each mandatory requirement.

Response to requests by audited agencies to remove information from this report

In preparing this audit report, I have considered how best to balance the need to support public accountability and transparency with the need to avoid revealing information that could pose additional risk to agencies’ systems. This has involved an assessment of the appropriate level of detail to include in the report about the cyber security vulnerabilities identified in this audit.

In making this assessment, the audit team consulted with Transport for NSW (TfNSW), Sydney Trains, and Cyber Security NSW to identify content which could potentially pose a threat to the agencies’ cyber security.

In December 2020, my office also provided TfNSW and Sydney Trains with a detailed report of many of the significant vulnerabilities identified in this audit, to enable the agencies to address the cyber security risks identified. The detailed report was produced as a result of a 'red team' exercise, which was conducted with both agencies' knowledge and consent. The scope of this exercise reflected the significant input provided by both agencies. More information on this exercise is at page 12 of this report.

TfNSW and Sydney Trains have advised that in the six months from December 2020 and at the time of tabling this audit report, they have not yet remediated all the vulnerabilities identified. As a result, they, along with Cyber Security NSW, have requested that we not disclose all information contained in this audit report to reduce the likelihood of an attack on their systems and resulting harm to the community. I have conceded to this request because the vulnerabilities identified have not yet been remediated and leave the agencies exposed to significant risk.

It should be stressed that the risks identified in the detailed report exist due to the continued presence of these previously identified vulnerabilities, rather than due to their potential publication. The audited agencies, alone, are accountable for remediating these vulnerabilities and addressing the risks they pose.

It is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

That said, the conclusions drawn in this report are significant in terms of risk and remain valid, and the recommendations should be acted upon with urgency.

Cyber security risk is an increasing area of concern for governments in Australia and around the world. In recent years, there have been a number of high-profile cyber security attacks on government entities in Australia, including in New South Wales. Malicious cyber activity in Australia is increasing in frequency, scale, and sophistication. The Audit Office of New South Wales is responding to these risks with a program of audits in this area, which aim to identify the effectiveness of particular agencies in managing cyber risks, as well as their compliance with relevant policy.

Cyber Security NSW, part of the Department of Customer Service (DCS) releases and manages the NSW Cyber Security Policy (CSP). The CSP sets out 25 mandatory requirements for agencies, including making it mandatory for agencies to implement the Australian Cyber Security Centre Essential 8 Strategies to Mitigate Cyber Security Incidents (the Essential 8). The Essential 8 are key controls which serve as a baseline set of protections which agencies can put in place to make it more difficult for adversaries to compromise a system. Agencies are required to self-assess their maturity against the CSP and the Essential 8, and report that assessment to Cyber Security NSW annually.

The CSP makes agencies responsible for identifying and managing their cyber security risks. The CSP sets out responsibilities and governance regarding risk identification, including making agencies responsible for identifying their 'crown jewels', the agency's most valuable and operationally vital systems. Once these risks are identified, agencies are responsible for developing a cyber security plan to mitigate those risks.

This audit focussed on two agencies: Transport for NSW (TfNSW) and Sydney Trains. TfNSW is the lead agency for the Transport cluster and provides a number of IT services to the entire cluster, including Sydney Trains. This audit focussed on the activities of TfNSW's Transport IT function, which is responsible for providing cyber security across the cluster, as well as directly overseeing four of TfNSW's crown jewels. Sydney Trains is one of the agencies in the Transport cluster. While it receives some services from TfNSW, it is also responsible for implementing its own IT controls, as well as controls to protect its Operational Technology (OT) environment. This OT environment includes systems which are necessary for the operation and safety of the train network.

To test the mitigations in place and the effectiveness of controls, this audit involved a 'red team' simulated exercise. A red team involves authorised attackers seeking to achieve certain objectives within the target's environment. The red team simulated a determined external cyber threat actor seeking to gain access to TfNSW's systems. The red team also sought to test the physical security of some Sydney Trains' sites relevant to the agency's cyber security. The red team exercise was conducted with the knowledge of TfNSW and Sydney Trains.

This audit included the Department of Customer Service as an auditee, as they have ownership of the CSP through Cyber Security NSW. This audit did not examine the management of cyber risk in the Department of Customer Service.

This audit assessed how effectively selected agencies identify and manage their cyber security risks. The audit assessed this with the following criteria:

• Are agencies effectively identifying and planning for their cyber security risks?
• Are agencies effectively managing their cyber security risks?

Following this in-depth portfolio assessment, the Auditor-General for NSW will also table a report on NSW agencies' compliance with the CSP in the first quarter of 2021–22.

Agencies have assessed their cyber risks as being above acceptable levels

An agency's risk tolerance is the amount of risk which the agency will accept or tolerate without developing further strategies to modify the level of risk. Risks that are within an agency's risk tolerance may not require further mitigation and may be deemed acceptable, while risks which are above the agency's risk tolerance likely require further mitigation before they become acceptable to the agency.

Both agencies have defined their risk tolerance and have identified risks which are above this level, indicating that they are unacceptable to the agency. TfNSW has defined 'very high' risks as generally intolerable and 'high' risks as undesirable. Its risk tolerance is 'medium'. Sydney Trains has four classifications of risk: A, B, C and D. A and B risks are deemed 'unacceptable' and 'undesirable' respectively, while C risks are considered 'tolerable'. This aligns with the TfNSW definition of a medium risk tolerance.

Transport IT reported five enterprise-level cyber security risks through its enterprise risk reporting tool in September 2020, all of which relate to cyber security or have causes relating to cyber security. These risks are in aggregate form, rather than relating to specific vulnerabilities. At the time of the audit, one of these risks was rated as very high and the other four rated as high. At this time, Transport IT had identified a further seven divisional-level risks which were above the agency’s risk tolerance.

Similarly, Sydney Trains has identified one main cyber security risk in its IT enterprise-level risk register and another with a potential cyber cause. Both of these IT risks are deemed to have a residual risk of ‘unacceptable’.

Similarly, two cyber-related OT risks have been determined to be above the agency's risk tolerance. One risk is rated as 'unacceptable'. Another risk, while not entirely cyber rated, is rated 'undesirable' and is deemed to have some causes which may stem from a cyber-attack.

Agencies have assessed their current cyber risk mitigations as requiring improvement

In addition to the risk ratings stated above, at the time of the audit neither agency believed that its controls were operating effectively. Transport IT had rated the control environments for its cyber security enterprise risks as 'requires improvement'. Mitigations were listed in the risk register for these risks but, in some cases, they were unlikely to reduce the risk to the target state or by the target date. For example, one risk had actions listed as 'under review' and no further treatment actions listed, but a due date of July 2021, while another risk was being treated by the CDP with a due date of July 2021. The CDP identified in May 2020 that while the average risk identified as part of that program will be reduced to a medium level by this date, ten high risks will still remain. Given the delays in the program, this number may be higher. As such, it seems unlikely that the enterprise risk will be reduced to below a 'high' level by July 2021.

Sydney Trains’ IT and OT risk registers cross-reference controls and mitigations against the causes and consequences. The IT cyber security risk identified in the register had causes with no mitigations designed for them. Further, some of these causes did not have future mitigations designed for them. This risk also had controls in place which are identified as partially effective. For the unacceptable OT risk noted above, while there was a control designed for each of the potential causes, Sydney Trains had identified all of the controls in place as either partially effective or ineffective. This indicates that Sydney Trains was not effectively mitigating the causes of its cyber risks and, even where it had designed controls or mitigations, these were not always implemented to fully mitigate the cause of the risk.

Additional information on gaps in cyber mitigations which were exposed in the course of this audit has been detailed to both agencies. The Foreword of this report provides information about why this detail is not included here.

Essential 8 maturity is low across TfNSW and Sydney Trains and little progress was made in 2020

CSP mandatory requirement 3.2 states that agencies must implement the ACSC Essential 8. Agencies must also rate themselves against each of the Essential 8 on a maturity scale from zero to three and report this to Cyber Security NSW. A full list of the Essential 8 can be found in Exhibit 1. Both agencies have a low level of maturity against the Essential 8 not just in comparison to the targets they have set, but also in relation to the risks and vulnerabilities exposed. Both agencies have set target maturity ratings for the Essential 8 but none of the Essential 8 ratings across either agency are currently implemented to this level. Having a low level of Essential 8 maturity exposes both agencies to significant risks and vulnerabilities. Little progress was made between the 2019 and 2020 attestation periods.

Transport IT has set a target rating of three across all of the Essential 8. Sydney Trains has set a target rating of three for its IT systems. Sydney Trains had an interim target of two for its OT systems in 2020 and advised that this has since increased to three. It should be noted that not all the Essential 8 are applicable to OT systems.

None of the Essential 8 ratings across either agency are currently implemented to the target levels. Given that the Essential 8 provide the controls which are most commonly able to deter cyber-attacks, having maturity at a low level potentially exposes agencies to a cyber security attack.

Some work is underway across both TfNSW and Sydney Trains to improve the Essential 8 control ratings. The CDP provided some resources to the Essential 8 over 2019–20, with uplift focusing on specific systems. The CDP work in 2019 and 2020 relevant to the Essential 8 largely focussed on determining the current state of the Essential 8 and creating a target state roadmap. As a result, there was little improvement between the 2019 and 2020 attestation periods. The CDP has a workstream for the Essential 8 in its FY 2020–21 funding allocation, however as noted above in Exhibit 6 this was delayed as resources were redeployed to Project La Brea. Regardless, work on some specific aspects of the Essential 8 remain part of the 2020–21 CDP allocation, with workstreams allocated to improving three of the Essential 8. In addition, some work from Project La Brea should lead to an improvement in the Essential 8.

Sydney Trains' Cyber Uplift Program included a workstream which had in scope the uplift in the Essential 8 in IT. There were also other workstreams which aimed to improve some of the Essential 8 for OT systems. Work is also ongoing as part of the CDP to uplift these scores in Sydney Trains.

TfNSW and Sydney Trains have not reached their target maturity across the CSP mandatory requirements and TfNSW has not evaluated its cluster-wide target to ensure it is appropriate

Cyber Security NSW allows each agency to determine its target level of maturity for the first 20 CSP mandatory requirements. Agencies can tailor their target levels to their risk profile. Not reaching the target rating of the CSP mandatory requirements risks information and systems being managed inconsistently or not in alignment with good governance principles.

Sydney Trains has set its target level of maturity for IT and OT. All of Sydney Trains' target maturity levels are at least a three (defined), with a target of four (quantitatively managed) for many of the mandatory requirements. While Cyber Security NSW does not currently mandate a minimum level of maturity, in 2019 there was a requirement for each agency to target a minimum level of three.

Sydney Trains has not met its target ratings across the mandatory requirements.

The Transport Cyber Defence Rolling Program has a program KPI to ensure that the entire cluster reaches a minimum maturity level of three against all the CSP requirements by 2023. TfNSW has not reviewed its CSP mandatory requirement targets to determine if a three is desirable for all requirements or if a higher target level may be more appropriate. It is important for senior management to set cyber security objectives as a demonstration of leadership and a commitment to cyber security.

TfNSW has not met its target ratings across the mandatory requirements for its Group IT ISMS, which was the focus of this audit.

Both agencies claimed progress in their implementation of the mandatory requirements between 2019 and 2020. The audit did not seek to verify the self-assessed results from either agency.

Both agencies operate ISMS in line with the CSP

CSP mandatory requirement 3.1 requires agencies to implement an Information Security Management System (ISMS) or Cyber Security Framework (CSF), with scope at least covering systems identified as the agency's ‘crown jewels’. The ISMS or CSF should be compliant with, or modelled on, one or more recognised IT or OT standard. As noted in the introduction, an ISMS ‘consists of the policies, procedures, guidelines, and associated resources and activities, collectively managed by an organisation, in the pursuit of protecting its information assets.’ Both agencies operate an ISMS compliant with the CSP requirement.

As noted in the introduction, TfNSW operates four ISMS. The Transport IT ISMS is certified against ISO27001, the most common standard for ISMS certification. Three of TfNSW’s six crown jewels are managed within this ISMS. The other ISMS are not certified to relevant standards, though TfNSW claims that they align with relevant controls. This is sufficient for the purposes of the CSP.

Sydney Trains operates two ISMS, one for IT and another for OT. Neither of these are certified to relevant ISMS Standards, however there have been conformance reviews of both IT and OT with relevant standards. These ISMS cover all crown jewels in the agency.

There are currently 11 ISMS in operation across the Transport cluster. TfNSW has proposed moving towards a holistic approach to these ISMS, with the CDP Board responsible for governing the available security controls and directing agency IT and OT teams to implement these.

Agencies are not routinely conducting audits of third-party suppliers to ensure compliance with contractual obligations

CSP mandatory requirement 1.5 makes agencies accountable for the cyber risks of their ICT service providers and ensuring that providers comply with the CSP and any other relevant agency security policies. The ACSC has provided advice on what organisations should do when managing third party suppliers of ICT. The ACSC advises that organisations should use contracts to define cyber security expectations and seek assurance to ensure that these contract expectations are being met. While both agencies usually include specific cyber security expectations in contracts, neither is routinely seeking assurance that these expectations are being met.

The NSW Government has mandated the use of the 'Core& One' contract template for low-value IT procurements and the Procure IT contract template for high-value IT procurements. Both of these contracts contain space for the procuring agency to include cyber security controls for the contractor to implement. The Procure IT contract template also includes a right-to-audit clause which allows agencies to receive assurance around the implementation of these controls. TfNSW and Sydney Trains used the mandated contracts for relevant contracts examined as part of this audit.

TfNSW included security controls in all the contracts examined as part of this audit. Compliance with ISO27001 was the most commonly stated security expectation. Of the contracts examined as part of this audit, only one contract did not have a right-to-audit clause. This contract was signed in October 2016. While these clauses are in place, TfNSW rarely conducted these audits on its third-party providers. Of the eight TfNSW contracts examined in detail, only two of these had been audited to confirm compliance with the stated security controls.

Sydney Trains included security controls in all but one of the contracts examined as part of this audit. Sydney Trains did not require contractors to be compliant with ISO27001, but only required compliance with whole-of-government policies. Sydney Trains does not routinely conduct audits of its third-party suppliers, however it did conduct deep-dive risk analyses of its top ten highest risk IT suppliers. This involved a detailed review of both the suppliers' security posture and also the contract underpinning the relationship with the supplier.

The CDP funding for 2020–21 includes a workstream for strategic third-party contract remediation. This funding is to conduct some foundational work which will allow the CDP to make further improvements in future years. While this funding will not address gaps in contract requirements or management across all contracts, this workstream aims to reduce the risks posed by strategic suppliers covering critical assets. Similarly, work is currently underway as part of the CDP to conduct OT risk assessments for key suppliers to Sydney Trains in a similar way to the work undertaken for IT suppliers.

Sydney Trains has risk assessed its third-party suppliers but TfNSW has not done so

It is important to conduct a risk assessment of suppliers to identify high-risk contractors. This allows agencies to identify those contractors who may require additional controls stated in the contract, those who require additional oversight, and also where auditing resources are best targeted.

Sydney Trains has risk assessed all its IT suppliers and, as noted above, has conducted a deep-dive risk analysis of its top ten highest risk suppliers. TfNSW has not undertaken similar analysis of its key suppliers, however it has identified risks attached to each of its strategic suppliers and has documented these. As a result of not risk assessing its suppliers, TfNSW cannot take a targeted approach to its contract management.

TfNSW demonstrated poor records handling relating to the contracts examined as part of this audit

TfNSW was not able to locate one of the contracts requested as part of the audit's sample. Other documentation, such as contract management plans, could not be located for many of the other contracts requested as part of this audit. These poor document handling practices limits TfNSW's ability to effectively oversee service providers and ensure that they are implementing agreed controls. It also limits public transparency on the effectiveness of these controls.

The Transport cluster is not effectively implementing cyber security awareness training

Agencies are responsible for implementing regular cyber security education for all employees and contractors under mandatory requirement 2.1 in the CSP. TfNSW is responsible for delivering this training to the whole Transport cluster, including Sydney Trains. The Transport cluster has basic cyber awareness training available for all staff. TfNSW also offers additional training provided by Cyber Security NSW targeted at executives and executive assistants. While TfNSW has training available to staff, it is not delivering this effectively. TfNSW does not make training mandatory for most staff nor does it require staff to repeat training regularly. Even among those staff who have been assigned the training, completion rates are low, meaning that delivery is not effectively monitored. Cyber security training is important for building and supporting a cyber security culture.

TfNSW is responsible for creating and rolling out all forms of training to agencies within the Transport cluster. Both TfNSW and Sydney Trains have the same mandatory cyber awareness training that is automatically assigned to new starters. At the time of the audit, this training was not mandatory for ongoing staff. TfNSW does make additional cyber security training available to staff who can choose to undertake the training themselves, or can be assigned the training by their manager. All TfNSW cyber security training is delivered via online modules and it is the responsibility of managers to ensure that it is completed.

Cyber security training completion rates for both TfNSW and Sydney Trains are low. Only 13.5 per cent of staff across the Transport cluster had been assigned the Cyber Safety for New Starters training as of January 2021. Although this course is mandatory for new starters, only 53 per cent of staff assigned the Cyber Safety for New Starters training module had completed the course by January 2021. As a result, only 7.2 per cent of staff across the entire Transport cluster had completed this training at that time. In Sydney Trains, less than one per cent of staff had completed this training as at January 2021 and a further 7.6 per cent of staff have completed the 'Cyber Security: Beyond the Basics' training. These low completion rates indicate that TfNSW is not effectively rolling out cyber security training across the cluster.

In October 2020, the Department of Customer Service released 'DCS-2020-05 Cyber Security NSW Directive - Practice Requirement for NSW Government', which made annual cyber security training mandatory for all staff from 2021. In line with this requirement, TfNSW has advised that it will be gradually implementing mandatory annual training from July 2021 for all staff.

The Transport cluster undertakes activities to build a cyber-aware culture in accordance with the CSP, but awareness remains low

Increasing staff awareness of cyber security risks and maintaining a cyber secure culture are both mandatory requirements of the CSP. While TfNSW does undertake some activities to build a cyber aware culture, awareness of cyber security risks remains low. This can be demonstrated by the low training rates outlined above, and the 'Spot the Scammer' exercise, described in Exhibit 7. TfNSW is responsible for delivering these awareness raising activities across the cluster.

TfNSW frequently communicates with staff across the Transport cluster about various cyber security risks through multiple avenues. Both agencies use the intranet, emails and other awareness raising activities to highlight the importance for staff to be aware of the seriousness of cyber risks. Advice given on the intranet includes tips for spotting scammers on mobile phones, promoting the cluster-wide training courses, as well as various advice that staff could use when dealing with cyber risks in the workplace.

In addition to these awareness raising activities, TfNSW has also undertaken a cluster-wide phishing email exercise called 'Spot the Scammer'. This is outlined in Exhibit 7. This exercise was carried out in 2019 and 2020 and allowed the Transport cluster to measure the degree to which staff were able to identify phishing emails. As can be seen in Exhibit 7, the results of this exercise indicate that staff awareness of phishing emails remains low.

Appendix one – Response from agencies

Appendix two – Cyber Security Policy mandatory requirements

Appendix three – About the audit

Appendix four – Performance auditing

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Parliamentary reference - Report number #353 - released (13 July 2021).