Reports
Actions for Treasury 2022
Treasury 2022
What the report is about
Results of the Treasury cluster agencies' financial statement audits for the year ended 30 June 2022.
The results of the audit of the NSW Government's consolidated Total State Sector Accounts (TSSA), which is prepared by NSW Treasury, are reported separately in our report on 'State Finances 2022'.
What we found
Unmodified audit opinions were issued on all 30 June 2022 general purpose financial statement audits.
Qualified audit opinions were issued on three of the 25 other engagements prepared by cluster agencies. These related to payments made from Special Deposit Accounts (SDA) that did not comply with the relevant legislation.
What the key issues were
Commercial agreements were signed between TAHE, the operators and Transport for NSW in June 2022, which reflected an expected rate of return of 2.5% on contributed equity. However, it remains critical that the government continue to provide sufficient funding to the operators so they can pay for access and use TAHE assets. These findings are reported in our report on 'State Finances 2022'.
Eight high-risk issues were raised in 2021–22, of which five relate to NSW Treasury.
A number of previously reported audit findings and recommendations with respect to icare continue to be ongoing issues. This includes the Workers Compensation Nominal Insurer continuing to hold less assets than the estimated present value of its future payment obligations, when measured in accordance with the accounting framework.
What we recommended
Our report on 'State Finances 2022' made several recommendations to improve NSW Treasury's processes.
In this report, we recommended icare should ensure:
- it has sufficient controls in place over claim payments, including an effective quality assurance program, to minimise claim payment errors
- that documentation to support PIAWE calculations is appropriately maintained, and that the minimum documentation requirements are set out in a policy.
This report provides Parliament and other users of the Treasury cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Treasury cluster (the cluster) for 2022.
Section highlights
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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 Treasury cluster.
Section highlights
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Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Appendix five – Acquittals and other opinions
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Enterprise, Investment and Trade 2022
Enterprise, Investment and Trade 2022
What the report is about
Result of the Enterprise, Investment and Trade cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
The Machinery of Government changes within the Enterprise, Investment and Trade cluster resulted in the creation of the Department of Enterprise, Investment and Trade and the transfer of $1.0 billion of net assets into the new department.
Unmodified audit opinions were issued for all completed cluster agencies' 2021–22 financial statements audits. Two audits are ongoing.
An 'Other Matter' paragraph was included in the audit opinion for the Jobs for NSW Fund's 30 June 2021 financial report to reflect the non-compliance with the Jobs for NSW Act 2015 (the Act) and Government Sector Finance Act 2018. The Act requires the board to consist of seven members that include the Secretary of the Treasury, the Secretary of the Department of Premier and Cabinet, and five ministerial appointments. The board has consisted of two secretaries since 24 May 2019 when the independent members resigned. The remaining five members have not been appointed by the ministers as required by section 5(2) of the Act.
Three cluster agencies accepted changes to their office leasing arrangements managed by Property NSW. This has resulted in the collective derecognition of $24.8 million of right-of-use assets and $26.7 million in lease liabilities, and recognition of $1.9 million of other gains.
What the key issues were
The number of issues we reported to management decreased from 108 in 2020–21 to 103 in 2021–22. Thirty per cent of issues were repeated from the prior year.
Six high-risk issues were identified across the cluster related to the quality and timeliness of financial reporting, governance processes and internal controls.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Enterprise, Investment and Trade cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Enterprise, Investment and Trade cluster (the cluster) for 2022.
Section highlights
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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 Enterprise, Investment and Trade cluster.
Section highlights
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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.
Actions for Planning and Environment 2022
Planning and Environment 2022
What the report is about
Result of the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.
Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.
Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.
Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.
The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.
All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).
NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.
What the key issues were
Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.
There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.
The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.
Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Planning and Environment cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster (the cluster) for 2022.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Planning and Environment cluster.
Section highlights
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Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Appendix five – Councils received qualified audit opinions
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Stronger Communities 2022
Stronger Communities 2022
What the report is about
Results of the Stronger Communities cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unqualified audit opinions were issued on all completed 30 June 2022 financial statement audits. One audit is ongoing.
All 13 cluster agencies that have accommodation arrangements with Property NSW derecognised right-of-use assets and lease liabilities of $917 million and $1 billion respectively. The agencies also collectively recorded a gain on derecognition of $136 million.
The Department of Communities and Justice (the department) assumed the responsibility for delivery of the Process and Technology Harmonisation program from the Department of Customer Service. In 2021–22, the department incurred costs of $42.8 million in relation to the project, which remains ongoing.
The number of monetary misstatements identified during the audits decreased from 50 in 2020–21 to 48 in 2021–22.
What the key issues were
Six of the 15 cluster agencies required to submit 2021–22 mandatory early close procedures did not meet the statutory deadlines. One agency did not complete all mandatory procedures.
Five high-risk findings were identified in 2021–22. They related to deficiencies in:
- user access administration at the department, NSW Rural Fire Service and New South Wales Aboriginal Land Council (NSWALC)
- segregation of duties at the NSW Trustee and Guardian and NSWALC.
Recommendations were made to those agencies to address these control deficiencies.
This report provides Parliament and other users of the Stronger Communities cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Stronger Communities cluster (the cluster) for 2022.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Stronger Communities cluster.
Section highlights
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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.
Actions for Regional NSW 2022
Regional NSW 2022
What the report is about
Result of the Regional NSW cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Regional NSW cluster agencies. Two audits are ongoing.
What the key issues were
The Department of Regional NSW (the department) and Local Land Services (LLS) accepted changes to their office leasing arrangements managed by Property NSW.
These changes resulted in the collective derecognition of $100.6 million of rights-of-use-assets and $110.4 million of lease liabilities.
In 2021–22, the cluster agencies continued to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales.
The Northern Rivers Reconstruction Corporation was established in May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods.
The number of matters reported to management decreased from 36 in 2020–21 to 14 in 2021–22.
Five moderate risk issues were identified and 14% of reported issues were repeat issues.
One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.
This report provides Parliament and other users of the Regional NSW cluster financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW cluster (the cluster) for 2022.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Regional NSW cluster.
Section highlights
|
Actions for Health 2022
Health 2022
What the report is about
Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for the financial statements for all Health cluster agencies.
The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).
A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.
What the key issues were
The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.
Three unresolved high-risk issues were:
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COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.
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Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.
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Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.
What we recommended
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COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.
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Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.
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Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.
This report provides Parliament and other users of Health cluster (the cluster) agencies' financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
-
financial reporting
-
audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Health cluster (the cluster) for 2022.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Education 2022
Education 2022
What the report is about
Result of the Education cluster financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Education cluster agencies.
An 'other matter' paragraph was included in the TAFE Commission's independent auditor's report as it did not have a delegation or sub-delegation from the Minister for Education and Early Learning to incur expenditure from cluster grants.
What the key issues were
Annual fair value assessments of land and buildings showed material differences in their carrying values. As a result, the Department of Education and the TAFE Commission completed desktop revaluations of land and buildings, collectively increasing the value of these assets by $1.2 billion and $4.7 billion respectively.
The Department of Education and the NSW Education Standards Authority accepted changes to their office leasing arrangements managed by Property NSW. These changes resulted in the collective derecognition of $270.6 million of right-of-use assets and $382.9 million in lease liabilities.
What we recommended
A high-risk matter was reported in the management letter for the TAFE Commission highlighting non-compliance with policies and procedures guiding appropriate use of purchasing cards.
We recommended cluster agencies prioritise and address internal control deficiencies.
This report provides Parliament and other users of the Education cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Education cluster (the cluster) for 2022.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Education cluster.
Section highlights
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The number of findings reported to management has increased, and 31% were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2021–22, there were 29 findings raised across the cluster (28 in 2020–21). Thirty-one per cent of all issues were repeat issues (50% in 2020–21).
The most common new and repeat issues related to internal control deficiencies in agencies’ information technology general controls, application controls, and procurement and payroll practices.
A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.
A high-risk matter was reported at the TAFE Commission highlighting instances of non-compliance with policies and procedures guiding appropriate purchasing card use
As part of our audit of the TAFE Commission, we integrated the use of data analytics into the audit approach. We performed data analytics over aspects of payroll, procurement and accounts payable activities. This helped us to highlight anomalies or risks in those data sets that are relevant to the audit of the TAFE Commission and plan testing procedures to address those risks. Data analytics also assisted us in providing an insight into the internal control environment of the TAFE Commission, highlighting areas where key controls are not in place or are not operating as management intended.
Our analysis over purchasing card data supplied by the TAFE Commission for the period July 2021 to March 2022 found deficiencies in the provisioning, use and cancellation of purchasing cards. This included identified instances of:
- controls effectively bypassed when a purchasing card surrendered by a former employee had been used by another employee
- split payments, circumventing delegation / cardholder limits
- delays in the submission and approval of purchasing card transactions.
The table below describes the common issues identified across the cluster by category and risk rating:
Risk rating | Issue |
Information technology | |
High: 0 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 2 new, 1 repeat 3 |
The financial audits identified areas for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of note were deficiencies identified in:
|
Internal control deficiencies or improvements | |
High: 1 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 4 new, 1 repeat 3 |
The financial audits identified internal control weaknesses across key business processes relevant to financial reporting. Of note were deficiencies identified in:
|
Financial reporting | |
High: 0 new, 0 repeat 1 Moderate: 1 new, 1 repeat 2 Low: 2 new, 0 repeat 3 |
The financial audits identified:
|
2 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
3 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Recommendation
We recommend cluster agencies prioritise and action recommendations to address the internal control deficiencies outlined above.
Actions for Customer Service 2022
Customer Service 2022
What the report is about
Result of the Customer Service cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Customer Service cluster agencies.
What the key issues were
The number and size of Service NSW's administered grant programs have increased significantly in response to emergency events. Improvements are required to address gaps in Service NSW's policies, systems and processes in administering and financial reporting of grant programs.
The Department of Customer Service (the department) reported a retrospective correction of a prior period error of $33.3 million understatement of the land titling database, which is a service concession asset managed by a private operator.
The 2021–22 audits identified five high-risk issues across the cluster:
- the department:
- control weaknesses in user access to GovConnect systems
- significant control deficiencies in information technology change management controls
- Rental Bond Board:
- legislation amendment required to better support the accounting treatment of rental bonds
- no delegation instrument to government officers authorising them to approve expenditures
- Service NSW:
- improvements required in the timeliness and quality of grant administration revenue assessment and controls over the recovery of grant administration costs.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Customer Service cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Customer Service cluster (the cluster) for 2022.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Customer Service cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Audit Insights 2018-2022
Audit Insights 2018-2022
What the report is about
In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.
This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.
The report is framed by recognition that the past four years have seen significant challenges and emergency events.
The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.
The report is a resource to support public sector agencies and local government to improve future programs and activities.
What we found
Our analysis of findings and recommendations is structured around six key themes:
- Integrity and transparency
- Performance and monitoring
- Governance and oversight
- Cyber security and data
- System planning for disruption
- Resource management.
The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.
In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.
The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
Fast facts
- 72 audits included in the Audit Insights 2018–2022 analysis
- 4 years of audits tabled by the Auditor-General for New South Wales
- 6 key themes for Audit Insights 2018–2022.
I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.
The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.
While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.
Margaret Crawford
Auditor-General for New South Wales
Integrity and transparency | Performance and monitoring | Governance and oversight | Cyber security and data | System planning | Resource management |
Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. | Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. | The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. | Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. | Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. | Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest. |
Government entities should report to the public at both system and project level for transparency and accountability. | Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. | Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. | In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. | Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. | Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds. |
Entities must provide balanced advice to decision-makers on the benefits and risks of investments. | Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. | Active review of policies and procedures in line with current business activities supports more effective risk management. | Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. | Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. | Transformation programs can be improved by resourcing a program management office. |
Clear guidelines and transparency of decisions are critical in distributing grant funding. | Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. | Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues. | Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need. | ||
Governments must ensure timely and complete provision of information to support governance, integrity and audit processes. | |||||
Read more | Read more | Read more | Read more | Read more | Read more |
This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.
- Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
- Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
- Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.
This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.
The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.
This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.
Appendix one – Included reports, 2018–2022
Appendix two – About this report
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Local Government 2021
Local Government 2021
What the report is about
Results of the local government sector council financial statement audits for the year ended 30 June 2021.
What we found
Unqualified audit opinions were issued for 126 councils, 13 joint organisation audits and nine county councils in 2020–21.
A qualified audit opinion was issued for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.
The audit of Kiama Municipal Council is still in progress as at the date of this report due to significant accounting issues not resolved resulting in corrections to the financial statements and prior period errors.
Forty-one councils and joint organisations (2020: 16) received extensions to submit audited financial statements to the Office of Local Government (OLG).
Councils were impacted by recent emergency events, including bushfires, floods and the COVID-19 pandemic. The financial implications from these events varied across councils. Councils adapted systems, processes and controls to enable staff to work flexibly.
What the key issues were
There were 1,277 audit findings reported to councils in audit management letters.
Ninety-two high-risk matters were identified across the sector:
- 69 high-risk matters relating to asset management (see page 30)
- six high-risk matters relating to information technology (see page 39)
- six high-risk matters relating to financial reporting (see page 26)
- six high-risk matters to council governance procedures (see page 22)
- five high-risk matters relating to financial accounting (see page 28).
More needs to be done to reduce the number of errors identified in financial reports. Twenty-nine councils required material adjustments to correct errors in previous audited financial statements.
Rural firefighting equipment
Sixty-eight councils did not record rural firefighting equipment estimated to be $145 million in their financial statements.
The financial statements of the NSW Total State Sector and the NSW Rural Fire Service do not include these assets, as the State is of the view that rural firefighting equipment that has been vested to councils under the Rural Fires Act 1997 is not controlled by the State. In reaching this conclusion, the State argued that on balance it would appear the councils control rural firefighting equipment that has been vested to them.
The continued non-recording of rural firefighting equipment in financial management systems of some councils increases the risk that these assets are not properly maintained and managed.
What we recommended
Councils should perform a full asset stocktake of rural firefighting equipment, including a condition assessment for 30 June 2022 financial reporting purposes and recognise this equipment as assets in their financial statements.
Consistent with OLG’s role to assess council’s compliance with legislative responsibilities, standards or guidelines, OLG should intervene where councils do not recognise rural firefighting equipment.
Fast facts
- 150 councils and joint organisations in the sector
- 99% unqualified audit opinions issued for the 30 June 2021 financial statements
- 489 monetary misstatements reported in 2020–21
- 54 prior period errors reported
- 92 high-risk management letter findings identified
- 53% of reported issues were repeat issues.
Early financial reporting procedures
Fifty-nine per cent of councils performed some early financial reporting procedures, less than the prior year.
What we recommended
OLG should require early financial reporting procedures across the local government sector by April 2023. Policy requirements should be discussed with key stakeholders to ensure benefits of the procedures are realised.
Asset valuations
Audit management letters reported 288 findings relating to asset management. Fifty-eight councils had deficiencies in their processes to revalue infrastructure assets.
Thirty-five councils corrected errors relating to revaluations amounting to $1 billion and 13 councils had prior period errors relating to asset revaluations that amounted to $253 million.
What we recommended
Councils should have all asset revaluations completed by April of the financial year subject to audit.
Integrity/completeness of asset records
Sixty-seven councils had weak processes over maintenance, completeness and security of fixed asset registers.
Thirty-five councils corrected errors to the financial statements relating to poor record keeping of asset data that amounted to $102.1 million. Nineteen councils had 27 prior period financial statement errors that amounted to $417.1 million relating to the quality of asset records such as found and duplicate assets.
What we recommended
Councils need to improve controls and processes to ensure integrity and completeness of asset source records.
Cybersecurity
Our audits found that cybersecurity frameworks and related controls were not in place at 65 councils.
These councils have yet to implement basic governance and internal controls to manage cybersecurity such as having a cybersecurity framework, policy and procedure, register of cyber incidents, system penetrations testing and training.
What we recommended
OLG needs to develop a cybersecurity policy to be applied by councils as a matter of high priority in order to ensure cybersecurity risks over key data and IT assets are appropriately managed across councils and key data is safeguarded.
Councils should monitor the implementation of recommendations
Fifty-three per cent of total findings reported in 2020–21 audit management letters were repeat or partial repeat findings from prior years.
What we recommended
Councils and those charged with governance should track the progress of implementing recommendations from financial audits, performance audits and public inquiries.
Key financial information
In 2020–21, councils:
- collected $7.6b in rates and annual charges
- received $5.1b in grants and contributions
- incurred $4.8b of employee benefits and on costs
- held $15.3b of cash and investments
- managed $161.7b of infrastructure, property, plant and equipment
- entered into $3.4b of borrowings.
Pursuant to the Local Government Act 1993 I present my report Local Government 2021. My report provides the results of the 2020–21 financial audits of 127 councils, 13 joint organisations and nine county councils.
Unqualified audit opinions were issued for 126 councils, 13 joint organisation and nine county councils in 2020–21. My independent auditor’s opinion was qualified for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.
The 2020–21 year was challenging from many perspectives, not least being the continuing impact of and response to the recent emergency events, including bushfires, floods and the COVID-19 pandemic. We appreciate the efforts of council staff and management right across local government and they must be congratulated for their responsiveness and resilience in meeting their financial reporting obligations in such challenging circumstances.
This report makes a number of recommendations to councils and to the regulator, the Office of Local Government within the Department of Planning and Environment. These are intended to support councils to further improve the timeliness, accuracy and strength of financial reporting and their governance arrangements. Arguably, when faced with challenges, it is even more important to prioritise and invest in systems and processes to protect the integrity of councils' operations and promote accurate and transparent reporting.
I look forward to continuing engagement and constructive dialogue with councils in 2022–23 and beyond.
Margaret Crawford
Auditor-General for New South Wales
Financial reporting is an important element of good governance. Confidence in and transparency of public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines audit observations related to the financial reporting of councils and joint organisations.
Highlights
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A strong system of internal controls enables councils to operate effectively and efficiently, produce reliable financial reports, comply with laws and regulations, and support ethical government.
This chapter outlines the overall trends in governance and internal control findings across councils, county councils and joint organisations in 2020–21.
Financial audits focus on key governance matters and internal controls supporting the preparation of councils' financial statements. Audit findings are reported to management and those charged with governance through audit management letters.
Highlights
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Total number of findings reported in audit management letters decreased
In 2020–21, 1,277 audit findings were reported in audit management letters (2019–20: 1,435 findings). No extreme audit risk findings were identified this year. The extreme risk relating to Central Coast Council's use of externally restricted funds in 2019–20 was partially addressed by management and has been rated as a high-risk for 2020–21. The total number of high-risk findings increased to 92 (2019–20: 53 high-risk findings).
Findings are classified as new, repeat or ongoing, based on:
- new findings were first reported in 2020–21 audits
- repeat findings were first reported in prior year audits, but remain unresolved in 2020–21
- ongoing findings were first reported in prior year audits, but the action due dates to address the findings are after 2020–21.
Findings are categorised as governance, financial reporting, financial accounting, asset management, purchases and payables, payroll, cash and banking, revenue and receivables, or information technology. The high-risk and common audit findings across these areas are explored further in this chapter.
Audit Office’s annual work program for 2021–22 onwards
Focus on integrity of systems, good governance and good advice
We have a fundamental role in helping the Parliament hold government accountable for the use of public resources. In doing so, we examine whether councils' systems and processes are effective in supporting integrity, accountability and transparency. Key aspects of integrity that we expect to through conduct of our financial and performance audits over the next three years include the integrity of systems, good governance and good advice. These focus areas have arisen from the collation of key findings and recommendations from our past reports.
Focus on local councils' continued response to recent emergencies
The COVID-19 pandemic continues to have a significant impact on the people and the public sector of New South Wales. Local councils are continuing to assist communities in their recovery from the 2019–20 bushfires and subsequent and recent flooding. The full extent of some of these events remain unclear and will likely continue to have an impact into the future.
The Office of Local Government within the Department of Planning and Environment continues to work with other state agencies to assist local councils and their communities to recover from these unprecedented events.
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 responses to these emergencies have been delivered.
This includes financial and governance risks arising from the scale and complexity of government responses to these events.
We will take a phased approach to ensure our financial and performance audits address the following elements of the emergencies and the Local Government's responses:
- local councils' planning and preparedness for emergencies
- local councils' initial responses to support people and communities impacted by COVID-19 and the 2019–20 bushfires and recent floods
- governance and oversight risks that arise from the need for quick decision-making and responsiveness to emergencies
- effectiveness and robustness of processes to direct resources toward recovery efforts and ensure good governance and transparency in doing so
- the mid to long-term impact of government responses to the natural disasters and COVID-19
- whether government investment has achieved desired outcomes.
Focus on the effectiveness of cybersecurity in local government
The increasing global interconnectivity between computer networks has dramatically increased the risk of cybersecurity incidents. Such incidents can harm local government service delivery and may include theft of information, denial of access to critical technology, or even hijacking of systems for profit or malicious intent.
Outdated IT systems and capability present risks to government cybersecurity. Local councils need to be alert to the need to update and replace legacy systems, and regularly train and upskill staff in their use. To add to this, cybersecurity risks have been exacerbated by recent emergencies, which have resulted in greater and more diverse use of digital technology.
Our approach to auditing cybersecurity across in the sector involves:
- considering how local councils are responding to the risks associated with cybersecurity across our financial audits
- examining the effectiveness of cybersecurity planning and governance arrangements within local councils
- conducting deep-dive performance audits of the effectiveness of cybersecurity measures in selected councils.
Local government elections
Local government elections took place in 2021–22
The local government elections were deferred for one year due to the COVID-19 pandemic and were held on 4 December 2021.
As part of our audits, we will consider the impact of any significant change on key decisions and activities for councils, county councils and joint organisations following the local government elections.
New rate peg methodology to support growing councils
The Independent Pricing and Regulatory Tribunal (IPART) has completed its review of the local government rate peg methodology to include population growth.
On 10 September 2021, IPART provided the final report on this review to the Minister for Local Government.
The minister has endorsed the new rate peg methodology and has asked IPART to give effect to it in setting the rate peg from the 2022–23 financial year.
As part of our audits, we will consider the impact of these changes on the financial statements and on key decisions and activities for councils, county councils and joint organisations.
Appendix two – Status of previous recommendations
Appendix three – Status of audits
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.