Reports
Education 2018
The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of agencies in the Education cluster. The report focuses on key observations and findings from the most recent financial audits of these agencies. 'I am pleased to report that unqualified audit opinions were issued on the financial statements of both agencies in the Education cluster', the Auditor-General said. Statements were submitted and audited within statutory deadlines.
This report analyses the results of our audits of financial statements of the Education cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides parliament and other users of the Education cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- service delivery.
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 for 2017–18.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued on the financial statements of both cluster agencies. | Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. |
| 2.2 Timeliness of financial reporting | |
| Both cluster agencies met the statutory deadlines for completing early close procedures and submitting financial statements. | Early close procedures continue to facilitate the timely preparation of cluster agencies’ financial statements and completion of audits, but scope exists to improve outcomes by resolving issues and supplying supporting documentation earlier. |
| 2.3 Key issues from financial audits | |
| Inconsistencies in the Department’s annual leave and long service leave data, identified over the past three audits, remain unresolved. This issue impacts the Department’s liability estimates for annual leave and long service leave, including associated on-costs. It also on-flows to the Crown Entity, which assumes the Department's liability for long service leave. | Recommendation: The Department should confirm leave data and review assumptions following deployment of the new HR/Payroll system to better estimate the liability for employee benefits and the amount to be assumed by the Crown Entity. |
| 2.4 Key financial information | |
| Cluster agencies recorded net deficits in 2017–18. |
The Department recorded a net deficit of $30.7 million in 2017–18 against a budgeted surplus of $122 million. The NSW Education Standards Authority recorded a net deficit of $4.1 million against a budgeted deficit of $4.7 million. |
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 for 2018
- the areas of focus identified in the Audit Office work program.
The Audit Office Annual Work Program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each of the NSW Government clusters.
| Observation | Conclusions and recommendations |
| 3.1 Internal controls | |
| Twenty internal control deficiencies were identified during our audits of cluster agencies. We assessed one as a high risk finding. | |
| Eight internal control weaknesses were repeat issues from previous financial audits that had not been fully addressed by management. | Recommendation: Management should prioritise and action recommendations to address internal control weaknesses. |
| 3.2 Information technology | |
| Delivery of the Learning Management and Business Reform (LMBR) program is complete. |
The LMBR program has been a major project for the Department since it was established in 2006. A staged approach was adopted for implementing the Department’s new HR/Payroll system to manage the risks associated with this large-scale roll-out. |
| 3.3 Valuation of the Department’s land and buildings | |
| The Department completed a revaluation of land and building assets during 2017–18. |
A market approach was used to revalue the Department’s land, resulting in a revaluation increment of $2.3 billion. A current replacement cost approach was used to revalue the Department’s school buildings, resulting in an increment of $6.2 billion. |
| 3.4 Maintenance of school facilities | |
| The Department regularly assesses the condition of school buildings and uses Life Cycle Costing to predict maintenance and capital renewal, and to prioritise maintenance activities. | The Life Cycle Costing assessment conducted by the Department in 2017–18 rated 70 per cent of school buildings as being in either as new or good condition. No school buildings were rated as being in end-of-life condition. |
| 3.4 School asset delivery | |
| The Department’s School Assets Strategic Plan is designed to ensure that there are sufficient fit-for-purpose places for students up to 2031. | The Department created a new division, School Infrastructure NSW, to oversee the planning, supply and maintenance of schools and implement major school infrastructure projects. |
This chapter provides service delivery outcomes for the Education cluster for 2017–18. It provides important contextual information about the cluster's operation, but the data on achievement of these outcomes is not audited. The Audit Office does not have a specific mandate to audit performance information.
Unsolicited proposal process for the lease of Ausgrid
In October 2016, the NSW Government accepted an unsolicited proposal from IFM Investors and AustralianSuper to lease 50.4 per cent of Ausgrid for 99 years. The deal followed the Federal Government’s rejection of two bids from foreign investors, for national security reasons.
A performance audit of the lease of Ausgrid has found shortcomings in the unsolicited proposal process. Releasing the audit findings today, the Auditor-General for New South Wales, Margaret Crawford said ‘this transaction involved a $20 billion asset owned by the people of New South Wales. As such, it warranted strict adherence to established guidelines’.
Ausgrid is a distributor of electricity to eastern parts of Sydney, the Central Coast, Newcastle and the Hunter Region.
In June 2014, the then government announced its commitment to lease components of the state's electricity network as part of the Rebuilding NSW plan. Implementation of the policy began after the government was re-elected in 2015. Between November 2015 and August 2016, the NSW Government held a competitive tender process to lease 50.4 per cent of Ausgrid for 99 years. The NSW Government abandoned the process on 19 August 2016 after the Australian Treasurer rejected two bids from foreign investors, for national security reasons. That day, the Premier and Treasurer released a media statement clarifying the government's objective to complete the transaction via a competitive process in time to include the proceeds in the 2017–18 budget.
On 31 August 2016, the state received an unsolicited proposal from IFM Investors and AustralianSuper to acquire an interest in Ausgrid under the same terms proposed by the state during the tender process. In October 2016, the government accepted the unsolicited proposal.
This audit examined whether the unsolicited proposal process for the partial long-term lease of Ausgrid was effectively conducted and in compliance with the government’s 2014 Unsolicited Proposals: Guide for Submission and Assessment (Unsolicited Proposals Guide or the Guide).
The audit focused on how the government-appointed Assessment Panel and Proposal Specific Steering Committee assessed key requirements in the Guide that unsolicited proposals must be demonstrably unique and represent value for money.
The evidence available does not conclusively demonstrate the unsolicited proposal was unique, and there were some shortcomings in the negotiation process, documentation and segregation of duties. That said, before the final commitment to proceed with the lease, the state obtained assurance that the proposal delivered value for money.
It is particularly important to demonstrate unsolicited proposals are unique, in order to justify the departure from other transaction processes that offer greater competition, transparency and certainty about value for money.
The Assessment Panel and the Proposal Specific Steering Committee determined the Ausgrid unsolicited proposal was unique, primarily on the basis that the proponent did not require foreign investment approval from the Australian Treasurer, and the lease transaction could be concluded earlier than through a second tender process. However, the evidence that persuaded the Panel and Committee did not demonstrate that no other proponent could conclude the transaction in time to meet the government’s deadline.
It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.
The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. It also does not demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.
The Panel, Committee and financial advisers determined that the final price represented value for money, and that retendering offered a material risk of a worse financial outcome. However, an acceptable price was revealed early in the negotiation process, and doing so made it highly unlikely that the proponent would offer a higher price than that disclosed. The Department of Premier and Cabinet (DPC) and NSW Treasury were not able to provide a documented reserve price, bargaining strategy or similar which put the negotiations in context. It is not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance.
Key aspects of governance recommended by the Guide were in place. Some shortcomings relating to role segregation, record keeping and probity assurance weakened the effectiveness of the unsolicited proposal process adopted for Ausgrid.
The reasons for accepting that the proposal and proponent were unique are not compelling.
The Unsolicited Proposals Guide says the 'unique benefits of the proposal and the unique ability of the proponent to deliver the proposal' must be demonstrated.
The conclusion reached by the Panel and Committee that the proposal offered a ‘unique ability to deliver (a) strategic outcome’ was primarily based on the proponent not requiring foreign investment approval from the Australian Treasurer, and allowing the government to complete the lease transaction earlier than by going through a second tender process.
It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.
The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. Nor does it demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.
That said, the Australian Treasurer’s decision to reject the two bids from the previous tender process created uncertainty about the conditions under which he would approve international bids. The financial advisers engaged for the Ausgrid transaction informed the Panel and Committee that:
- it was not likely another viable proponent would emerge soon enough to meet the government’s transaction deadline
- the market would be unlikely to deliver a better result than offered by the proponent
- going to tender presented a material risk of a worse financial result.
The Unsolicited Proposals Guide says that a proposal to directly purchase or acquire a government-owned entity or property will generally not be unique. The Ausgrid unsolicited proposal fell into this category.
Recommendations:
DPC should ensure future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:
- recognise that when considering uniqueness they should:
- require very strong evidence to decide that both the proponent and proposal are the only ones of their kind that could meet the government’s objectives
- give thorough consideration to any reasonable counter-arguments against uniqueness.
- rigorously consider all elements of the Unsolicited Proposals Guide when determining whether a proposal should be dealt with as an unsolicited proposal, and document these deliberations and all relevant evidence
- do not use speed of transaction compared to a market process as justification for uniqueness.
The Panel and Committee concluded the price represented value for money, based on peer-reviewed advice from their financial advisers and knowledge acquired from previous tenders. The financial advisers also told the Panel and Committee that there was a material risk the state would receive a lower price than offered by the unsolicited proposal if it immediately proceeded with a second market transaction.
The state commenced negotiations on price earlier than the Guide says they should have. Early disclosure of a price that the state would accept reduced the likelihood of achieving a price greater than this. DPC says the intent of this meeting was to quickly establish whether the proponents could meet the state’s benchmark rather than spending more time and resources on a proposal which had no prospect of proceeding.
DPC and NSW Treasury were not able to provide a documented reserve price, negotiation strategy or similar which put the negotiations and price achieved in context. It was not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance. However, the Panel and Committee endorsed the outcomes of the negotiations.
The negotiations were informed by the range of prices achieved for similar assets and the specific bids for Ausgrid from the earlier market process.
Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:
- document a minimum acceptable price, and a negotiating strategy designed to maximise price, before commencing negotiations
- do not communicate an acceptable price to the proponent, before the negotiation stage of the process, and then only as part of a documented bargaining strategy.
The state established a governance structure in accordance with the Unsolicited Proposals Guide, including an Assessment Panel and Proposal Specific Steering Committee. The members of the Panel and Steering Committee were senior and experienced officers, as befitted the size and nature of the unsolicited proposal.
The separation of negotiation, assessment and review envisaged by the Guide was not maintained fully. The Chair of the Assessment Panel and a member of the Steering Committee were involved in negotiations with the proponent.
DPC could not provide comprehensive records of some key interactions with the proponent or a documented negotiation strategy. The absence of such records means the Department cannot demonstrate engagement and negotiation processes were authorised and rigorous.
The probity adviser reported there were no material probity issues with the transaction. The probity adviser also provided audit services. This is not good practice. The same party should not provide both advisory and audit services on the same transaction.
Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government entity or asset:
• maintain separation between negotiation, assessment and review in line with the Unsolicited Proposals Guide
• keep an auditable trail of documentation relating to the negotiation process
• maintain separation between any probity audit services engaged and the probity advisory and reporting services recommended in the current Guide.
Appendix one - Response from agency
Appendix two - NSW Government’s summary of assessment of the Ausgrid unsolicited proposal
Appendix three - The definition and nature of unsolicited proposals
Appendix four - Ausgrid unsolicited proposal process
Appendix five - About the audit
Appendix six - Performance auditing
Parliamentary reference - Report number #309 - released 11 December 2018
Family and Community Services 2018
The Auditor-General for New South Wales, Margaret Crawford released her report today on the Family and Community Services cluster. The report focuses on key observations and findings from the most recent financial audits of agencies in the cluster. Cluster entities received unqualified audit opinions for their 30 June 2018 financial statements. Opportunities to improve the quality of financial reporting were identified and reported to management.
This report analyses the results of our audits of financial statements of the Family and Community Services cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides NSW Parliament and other users of the financial statements of Family and Community Services' agencies with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- service delivery.
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 Family and Community Services cluster for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all cluster agencies' financial statements. | Conclusion: Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. |
| Agencies complied with NSW Treasury’s mandatory early close requirements. Completing other early close procedures was inconsistent and not always supported by adequate evidence. |
Conclusion: There are opportunities for agencies to improve the quality of financial reporting by:
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| 2.2 Timeliness of financial reporting | |
| Agencies completed revaluations of property, plant and equipment and submitted 31 March 2018 financial statements by the due date as required by NSW Treasury. Agencies submitted year-end financial statements by the statutory deadline. |
Conclusion: Early revaluations of property, plant and equipment contributes to agencies meeting the year-end statutory reporting deadline. |
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 Family and Community Services cluster for 2018
- the areas of focus identified in the Audit Office annual work program.
The Audit Office Annual Work Program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each NSW Government cluster.
| Observation | Conclusions and recommendations |
| 3.1 Internal controls | |
| The 2017–18 audits reported 47 internal control weaknesses. While none were high risk, there were 15 repeat issues. |
Conclusion: Management accepted audit findings and advised they are actioning recommendations. Timely action is important to ensure internal controls operate effectively. |
| Twenty-two of these internal control weaknesses related to information technology processes and control environment. | Conclusion: Control weaknesses in information systems may compromise the integrity and security of financial data used for decision making and financial reporting. Recommendation: Agencies should strengthen user access administration to prevent inappropriate access to key IT systems by:
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| The Department, NSW Land and Housing Corporation (LAHC) and three other cluster agencies’ contract registers are incomplete and/or inaccurate. | Recommendation: Agencies should ensure their contract registers are complete and accurate so they can more effectively govern contracts and manage compliance obligations. |
| 3.2 Audit Office annual work program | |
| Financial impact of the commissioning approach. The transfer of disability services to the National Disability Insurance Scheme and other commissioning of service delivery has contributed to a 36 per cent decrease in frontline employee numbers since 2015–16. Similarly, corporate services’ employee numbers reduced by 34 per cent. The Department’s salary costs have reduced by $232 million or 18 per cent from 2016–17. |
Conclusion: The ratio of corporate services employee numbers to support frontline and support services has remained at 1:10 since 2015–16, which indicates restructures have been planned to align with the transfer of disability services. |
| Impact of the new social housing maintenance contract Maintenance expenses have increased by about 40 per cent since the new maintenance contract commenced in April 2016. LAHC measures the benefits of the new maintenance contract such as improved tenant satisfaction. |
Conclusion: The new maintenance contract has contributed to some positive social outcomes such as tenants being employed by the contractors to conduct maintenance, as call centre operators and in administration. However, more can be done to ensure value for money is being achieved. |
| ChildStory IT Project Whilst phase one of the ChildStory IT project went 'live' in 2017–18, the planned timetable has not been met and the revised date for full implementation is end of 2018. According to the 2014–15 NSW Budget, the budget for ChildStory was $100 million over a four-year period. During the design and implementation stage, this amount was revised to $128 million, with approval of the Expenditure Review Committee. The actual cost incurred over the four years until 30 June 2018, is approximately $131 million. We identified issues with the data migration from the legacy systems to ChildStory. |
Conclusion: To inform future IT projects, we understand the Department is capturing our findings, along with the findings from the Department of Finance, Services and Innovation’s ‘Healthchecks’. |
This chapter outlines certain service delivery outcomes for 2017–18. The data on activity levels and performance is provided by Cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited.
In our recent performance audit, Progress and measurement of Premier's Priorities, we identified 12 limitations of performance measurement and performance data. We recommended that the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all agency data sources.
Progress and measurement of the Premier's Priorities
The Premier’s Implementation Unit uses a systematic approach to measuring and reporting progress towards the Premier’s Priorities performance targets, but public reporting needed to improve, according to a report released today by the Auditor-General of NSW, Margaret Crawford.
The Premier of New South Wales has established 12 Premier’s Priorities. These are key performance targets for government.
| The 12 Premier's Priorities | |
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Source: Department of Premier and Cabinet, Premier’s Priorities website.
Each Premier’s Priority has a lead agency and minister responsible for achieving the performance target.
The Premier’s Implementation Unit (PIU) was established within the Department of Premier and Cabinet (DPC) in 2015. The PIU is a delivery unit that supports agencies to measure and monitor performance, make progress toward the Premier’s Priorities targets, and report progress to the Premier, key ministers and the public.
This audit assessed how effectively the NSW Government is progressing and reporting on the Premier's Priorities.
The Premier’s Implementation Unit (PIU) is effective in assisting agencies to make progress against the Premier’s Priorities targets. Progress reporting is regular but transparency to the public is weakened by the lack of information about specific measurement limitations and lack of clarity about the relationship of the targets to broader government objectives.The PIU promotes a systematic approach to measuring performance and reporting progress towards the Premier’s Priorities’ performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives.
The PIU provides a systematic approach to measuring performance and reporting progress towards the Premier's Priorities performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives. The data used to measure the Premier’s Priorities comes from a variety of government and external datasets, some of which have known limitations. These limitations are not revealed in public reporting, and only some are revealed in progress reported to the Premier and ministers. This limits the transparency of reporting.
The PIU assists agencies to avoid unintended outcomes that can arise from prioritising particular performance measures over other areas of activity. The PIU has adopted a collaborative approach to assisting agencies to analyse performance using data, and helping them work across organisational silos to achieve the Premier’s Priorities targets.
Data used to measure progress for some of the Premier’s Priorities has limitations which are not made clear when progress is reported. This reduces transparency about the reported progress. Public reporting would also be improved with additional information about the relationship between specific performance measures and broader government objectives.
The PIU is responsible for reporting progress to the Premier, key ministers and the public. Agencies provide performance data and some play a role in preparing progress reports for the Premier and ministers. For 11 of the Premier's Priorities, progress is reported against measurable and time-related performance targets. For the infrastructure priority, progress is reported against project milestones.
Progress of some Priorities is measured using data that has known limitations, which should be noted wherever progress is reported. For example, the data used to report on housing completions does not take housing demolitions into account, and is therefore overstating the contribution of this performance measure to housing supply. This known limitation is not explained in progress reports or on the public website.
Data used to measure progress is sourced from a mix of government and external datasets. Updated progress data for most Premier’s Priorities is published on the Premier’s Priorities website annually, although reported to the Premier and key ministers more frequently. The PIU reviews the data and validates it through fieldwork with front line agencies. The PIU also assists agencies to avoid unintended outcomes that can arise from prioritising single performance measures. Most, but not all, agencies use additional indicators to check for misuse of data or perverse outcomes.
We examined the reporting processes and controls for five of the Premier’s Priorities. We found that there is insufficient assurance over the accuracy of the data on housing approvals.
The relationships between performance measures and broader government objectives is not always clearly explained on the Premier’s Priority website, which is the key source of public information about the Premier’s Priorities. For example, the Premier’s Priority to reduce litter volumes is communicated as “Keeping our Environment Clean.” While the website explains why reducing litter is important, it does not clearly explain why that particular target has been chosen to measure progress in keeping the environment clean.
By December 2018, the Department of Premier and Cabinet should:
- improve transparency of public reporting by:
- providing information about limitations of reported data and associated performance
- clarifying the relationship between the Premier’s Priorities performance targets and broader government objectives.
- ensure that processes to check and verify data are in place for all agency data sources
- encourage agencies to develop and implement additional supporting indicators for all Premier’s Priority performance measures to prevent and detect unintended consequences or misuse of data.
The Premier's Implementation Unit is effective in supporting agencies to deliver progress towards the Premier’s Priority targets.
The PIU promotes a systematic approach to monitoring and reporting progress against a target, based on a methodology used in delivery units elsewhere in the world. The PIU undertakes internal self-evaluation, and commissions regular reviews of methodology implementation from the consultancy that owns the methodology and helped to establish the PIU. However, the unit lacks periodic independent reviews of their overall effectiveness. The PIU has adopted a collaborative approach and assists agencies to analyse performance using data, and work across organisational silos to achieve the Premier’s Priorities targets.
Agency representatives recognise the benefits of being responsible for a Premier's Priority and speak of the value of being held to account and having the attention of the Premier and senior ministers.
By June 2019, the Department of Premier and Cabinet should:
- establish routine collection of feedback about PIU performance including:
- independent assurance of PIU performance
- opportunity for agencies to provide confidential feedback.
Appendix one: Response from agency
Appendix three: About the audit
Appendix four: Performance auditing
Parliamentary reference - Report number #307 - released 13 September 2018
Managing Antisocial behaviour in public housing
The Department of Family and Community Services (FACS) has not adequately supported or resourced its staff to manage antisocial behaviour in public housing according to a report released today by the Deputy Auditor-General for New South Wales, Ian Goodwin.
In recent decades, policy makers and legislators in Australian states and territories have developed and implemented initiatives to manage antisocial behaviour in public housing environments. All jurisdictions now have some form of legislation or policy to encourage public housing tenants to comply with rules and obligations of ‘good neighbourliness’. In November 2015, the NSW Parliament changed legislation to introduce a new approach to manage antisocial behaviour in public housing. This approach is commonly described as the ‘strikes’ approach.
When introduced in the NSW Parliament, the ‘strikes’ approach was described as a means to:
- improve the behaviour of a minority of tenants engaging in antisocial behaviour
- create better, safer communities for law abiding tenants, including those who are ageing and vulnerable.
FACS has a number of tasks as a landlord, including a responsibility to collect rent and organise housing maintenance. FACS also has a role to support tenants with complex needs and manage antisocial behaviour. These roles have some inherent tensions. The FACS antisocial behaviour management policy aims are:
to balance the responsibilities of tenants, the rights of their neighbours in social housing, private residents and the broader community with the need to support tenants to sustain their public housing tenancies.
This audit assessed the efficiency and effectiveness of the ‘strikes’ approach to managing antisocial behaviour in public housing environments.
We examined whether:
- the approach is being implemented as intended and leading to improved safety and security in social housing environments
- FACS and its partner agencies have the capability and capacity to implement the approach
- there are effective mechanisms to monitor, report and progressively improve the approach.
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Conclusion
FACS has not adequately supported or resourced its staff to implement the antisocial behaviour policy. FACS antisocial behaviour data is incomplete and unreliable. Accordingly, there is insufficient data to determine the nature and extent of the problem and whether the implementation of the policy is leading to improved safety and security. FACS management of minor and moderate incidents of antisocial behaviour is poor. FACS has not dedicated sufficient training to equip frontline housing staff with the relevant skills to apply the antisocial behaviour management policy. At more than half of the housing offices we visited, staff had not been trained to:
When frontline housing staff are informed about serious and severe illegal antisocial behaviour incidents, they generally refer them to the FACS Legal Division. Staff in the Legal Division are trained and proficient in managing antisocial behaviour in compliance with the policy and therefore, the more serious incidents are managed effectively using HOMES ASB.
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Parliamentary reference - Report number #306 - released 10 August 2018
Shared services in local government
Local councils need to properly assess the performance of their current services before considering whether to enter into arrangements with other councils to jointly manage back-office functions or services for their communities. This is one of the recommended practices for councils in a report released today by the Auditor-General for New South Wales, Margaret Crawford. ‘When councils have decided to jointly provide services, they do not always have a strong business case, which clearly identifies the expected costs, benefits and risks of shared service arrangements’, said the Auditor-General.
Councils provide a range of services to meet the needs of their communities. It is important that they consider the most effective and efficient way to deliver them. Many councils work together to share knowledge, resources and services. When done well, councils can save money and improve access to services. This audit assessed how efficiently and effectively councils engage in shared service arrangements. We define ‘shared services’ as two or more councils jointly managing activities to deliver services to communities or perform back-office functions.
The information we gathered for this audit included a survey of all general-purpose councils in NSW. In total 67 councils (52 per cent) responded to the survey from 128 invited to participate. Appendix two outlines in more detail some of the results from our survey.
First, not all surveyed councils are assessing the performance of their current services before deciding on the best service delivery model. Where they have decided that sharing services is the best way to deliver services, they do not always build a business case which outlines the costs, benefits and risks of the proposed shared service arrangement before entering into it.
The Office of Local Government should, by April 2019:
Develop guidance which outlines the risks and opportunities of governance models that councils can use to share services. This should include advice on legal requirements, transparency in decisions, and accountability for effective use of public resources.
Appendix one – Response from agency
Appendix two – Survey findings
Appendix three – About the audit
Appendix four – Performance auditing
Parliamentary reference - Report number #302 - released 21 June 2018
Managing risks in the NSW public sector: risk culture and capability
The Ministry of Health, NSW Fair Trading, NSW Police Force, and NSW Treasury Corporation are taking steps to strengthen their risk culture, according to a report released today by the Auditor-General, Margaret Crawford. 'Senior management communicates the importance of managing risk to their staff, and there are many examples of risk management being integrated into daily activities', the Auditor-General said.
We did find that three of the agencies we examined could strengthen their culture so that all employees feel comfortable speaking openly about risks. To support innovation, senior management could also do better at communicating to their staff the levels of risk they are willing to accept.
Effective risk management is essential to good governance, and supports staff at all levels to make informed judgements and decisions. At a time when government is encouraging innovation and exploring new service delivery models, effective risk management is about seizing opportunities as well as managing threats.
Over the past decade, governments and regulators around the world have increasingly turned their attention to risk culture. It is now widely accepted that organisational culture is a key element of risk management because it influences how people recognise and engage with risk. Neglecting this ‘soft’ side of risk management can prevent institutions from managing risks that threaten their success and lead to missed opportunities for change, improvement or innovation.
This audit assessed how effectively NSW Government agencies are building risk management capabilities and embedding a sound risk culture throughout their organisations. To do this we examined whether:
- agencies can demonstrate that senior management is committed to risk management
- information about risk is communicated effectively throughout agencies
- agencies are building risk management capabilities.
The audit examined four agencies: the Ministry of Health, the NSW Fair Trading function within the Department of Finance, Services and Innovation, NSW Police Force and NSW Treasury Corporation (TCorp). NSW Treasury was also included as the agency responsible for the NSW Government's risk management framework.
In assessing an agency’s risk culture, we focused on four key areas:
Executive sponsorship (tone at the top)
In the four agencies we reviewed, senior management is communicating the importance of managing risk. They have endorsed risk management frameworks and funded central functions tasked with overseeing risk management within their agencies.
That said, we found that three case study agencies do not measure their existing risk culture. Without clear measures of how employees identify and engage with risk, it is difficult for agencies to tell whether employee's behaviours are aligned with the 'tone' set by the executive and management.
For example, in some agencies we examined we found a disconnect between risk tolerances espoused by senior management and how these concepts were understood by staff.
Employee perceptions of risk management
Our survey of staff indicated that while senior leaders have communicated the importance of managing risk, more could be done to strengthen a culture of open communication so that all employees feel comfortable speaking openly about risks. We found that senior management could better communicate to their staff the levels of risk they should be willing to accept.
Integration of risk management into daily activities and links to decision-making
We found examples of risk management being integrated into daily activities. On the other hand, we also identified areas where risk management deviated from good practice. For example, we found that corporate risk registers are not consistently used as a tool to support decision-making.
Support and guidance to help staff manage risks
Most case study agencies are monitoring risk-related skills and knowledge of their workforce, but only one agency has addressed the gaps it identified. While agencies are providing risk management training, surveyed staff in three case study agencies reported that risk management training is not adequate.
NSW Treasury provides agencies with direction and guidance on risk management through policy and guidelines. In line with better practice, NSW Treasury's principles-based policy acknowledges that individual agencies are in a better position to understand their own risks and design risk management frameworks that address those risks. Nevertheless, there is scope for NSW Treasury to refine its guidance material to support a better risk culture in the NSW public sector.
Recommendation
By May 2019, NSW Treasury should:
- Review the scope of its risk management guidance, and identify additional guidance, training or activities to improve risk culture across the NSW public sector. This should focus on encouraging agency heads to form a view on the current risk culture in their agencies, identify desirable changes to that risk culture, and take steps to address those changes.
Appendix one - Response from agencies
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #298 - released 23 April 2018
Detecting and responding to cyber security incidents
A report released today by the Auditor-General for New South Wales, Margaret Crawford, found there is no whole-of-government capability to detect and respond effectively to cyber security incidents. There is very limited sharing of information on incidents amongst agencies, and some agencies have poor detection and response practices and procedures.
The NSW Government relies on digital technology to deliver services, organise and store information, manage business processes, and control critical infrastructure. The increasing global interconnectivity between computer networks has dramatically increased the risk of cyber security incidents. Such incidents can harm government service delivery and may include the theft of information, denial of access to critical technology, or even the hijacking of systems for profit or malicious intent.
This audit examined cyber security incident detection and response in the NSW public sector. It focused on the role of the Department of Finance, Services and Innovation (DFSI), which oversees the Information Security Community of Practice, the Information Security Event Reporting Protocol, and the Digital Information Security Policy (the Policy).
The audit also examined ten case study agencies to develop a perspective on how they detect and respond to incidents. We chose agencies that are collectively responsible for personal data, critical infrastructure, financial information and intellectual property.
Some of our case study agencies had strong processes for detection and response to cyber security incidents but others had a low capability to detect and respond in a timely way.
Most agencies have access to an automated tool for analysing logs generated by their IT systems. However, coverage of these tools varies. Some agencies do not have an automated tool and only review logs periodically or on an ad hoc basis, meaning they are less likely to detect incidents.
Few agencies have contractual arrangements in place for IT service providers to report incidents to them. If a service provider elects to not report an incident, it will delay the agency’s response and may result in increased damage.
Most case study agencies had procedures for responding to incidents, although some lack guidance on who to notify and when. Some agencies do not have response procedures, limiting their ability to minimise the business damage that may flow from a cyber security incident. Few agencies could demonstrate that they have trained their staff on either incident detection or response procedures and could provide little information on the role requirements and responsibilities of their staff in doing so.
Most agencies’ incident procedures contain limited information on how to report an incident, who to report it to, when this should occur and what information should be provided. None of our case study agencies’ procedures mentioned reporting to DFSI, highlighting that even though reporting is mandatory for most agencies their procedures do not require it.
Case study agencies provided little evidence to indicate they are learning from incidents, meaning that opportunities to better manage future incidents may be lost.
Recommendations
The Department of Finance, Services and Innovation should:
- assist agencies by providing:
- better practice guidelines for incident detection, response and reporting to help agencies develop their own practices and procedures
- training and awareness programs, including tailored programs for a range of audiences such as cyber professionals, finance staff, and audit and risk committees
- role requirements and responsibilities for cyber security across government, relevant to size and complexity of each agency
- a support model for agencies that have limited detection and response capabilities
- revise the Digital Information Security Policy and Information Security Event Reporting Protocol by
- clarifying what security incidents must be reported to DFSI and when
- extending mandatory reporting requirements to those NSW Government agencies not currently covered by the policy and protocol, including State owned corporations.
DFSI lacks a clear mandate or capability to provide effective detection and response support to agencies, and there is limited sharing of information on cyber security incidents.
DFSI does not currently have a clear mandate and the necessary resources and systems to detect, receive, share and respond to cyber security incidents across the NSW public sector. It does not have a clear mandate to assess whether agencies have an acceptable detection and response capability. It is aware of deficiencies in agencies and across whole‑of‑government, and has begun to conduct research into this capability.
Intelligence gathering across the public sector is also limited, meaning agencies may not respond to threats in a timely manner. DFSI has not allocated resources for gathering of threat intelligence and communicating it across government, although it has begun to build this capacity.
Incident reporting to DFSI is mandatory for most agencies, however, most of our case study agencies do not report incidents to DFSI, reducing the likelihood of containing an incident if it spreads to other agencies. When incidents have been reported, DFSI has not provided dedicated resources to assess them and coordinate the public sector’s response. There are currently no formal requirements for DFSI to respond to incidents and no guidance on what it is meant to do if an incident is reported. The lack of central coordination in incident response risks delays and increased damage to multiple agencies.
DFSI's reporting protocol is weak and does not clearly specify what agencies should report and when. This makes agencies less likely to report incidents. The lack of a standard format for incident reporting and a consistent method for assessing an incident, including the level of risk associated with it, also make it difficult for DFSI to determine an appropriate response.
There are limited avenues for sharing information amongst agencies after incidents have been resolved, meaning the public sector may be losing valuable opportunities to improve its protection and response.
Recommendations
The Department of Finance, Services and Innovation should:
- develop whole‑of‑government procedure, protocol and supporting systems to effectively share reported threats and respond to cyber security incidents impacting multiple agencies, including follow-up and communicating lessons learnt
- develop a means by which agencies can report incidents in a more effective manner, such as a secure online template, that allows for early warnings and standardised details of incidents and remedial advice
- enhance NSW public sector threat intelligence gathering and sharing including formal links with Australian Government security agencies, other states and the private sector
- direct agencies to include standard clauses in contracts requiring IT service providers report all cyber security incidents within a reasonable timeframe
- provide assurance that agencies have appropriate reporting procedures and report to DFSI as required by the policy and protocol by:
- extending the attestation requirement within the DISP to cover procedures and reporting
- reviewing a sample of agencies' incident reporting procedures each year.
Appendix one - Response from agency
Appendix two - ISMS maturity model
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #297 - released 2 March 2018
Report on Education 2017
The Auditor-General, Margaret Crawford released her report on the results of the financial audits of agencies in the Education cluster. The report focuses on key observations and findings from the most recent audits of these agencies.
'I am pleased to report that unqualified audit opinions were issued on the financial statements for all agencies in the Education cluster', the Auditor-General said. 'The quality and timeliness of financial reporting remains strong'.
Sharing school and community facilities
Schools and the community would benefit if school facilities were shared more often.
The Department of Education’s ‘Community Use of School Facilities Policy’ encourages but does not require schools to share facilities. Sharing depends heavily on the willingness of school principals and there are few incentives. There are many challenges in developing agreements with community users and there is only limited support available from the Department.
There are strategies and plans to support the sharing of facilities between schools and the wider community, but none are backed up with budgets, specific plans or timeframes.
Governments should strive for the best use of assets. This is particularly important in the context of a growing New South Wales population, fiscal constraints and increasing demand for services.
Lack of available land, rising land costs and population growth highlighted in our April 2017 'Planning for school infrastructure' performance audit report mean that new and existing schools will need to share their facilities with communities more than is currently the case.
This audit assessed how effectively schools share facilities with each other, local councils and community groups. In making this assessment, the audit examined whether the Department of Education (Department):
- has a clear policy to encourage and support facilities sharing
- is implementing evidence-based strategies and procedures for facilities sharing
- can show it is realising an increasing proportion of sharing opportunities.
Facilities sharing is the use of a physical asset, such as a building, rooms, or open spaces, by more than one group for a range of activities at the same time or at different times. For the purposes of this audit, we have divided sharing arrangements into two types: shared use and joint use.
Shared use refers to arrangements where existing school assets are hired out for non-school purposes, usually for a limited time. The assets remain under the control of the school. Generally, there is little alteration or enhancement to the asset required to enable shared use. Shared use can also refer to schools using external facilities, such as council pools, but these arrangements are not included within the scope of this audit.
Joint use refers to arrangements where new or upgraded school and non-school facilities or community hubs are planned, funded, built and jointly shared between a school and other parties, usually involving significant investment.
Both shared use and joint use agreements are governed by contractual obligations.
The sharing of school facilities with the community is not fully effective. The Department of Education is implementing strategies to increase shared and joint use but several barriers, some outside the Department’s direct control, must be addressed to fully realise benefits to students and the community of sharing school facilities. In addition, the Department needs to do more to encourage individual schools to share facilities with the community.
A collaborative, multi-agency approach is needed to overcome barriers to the joint use of facilities, otherwise, the Department may need significantly more funds than planned to deliver sufficient fit-for-purpose school facilities where and when needed.
Since the early 2000’s, several reviews in NSW and other jurisdictions have commented on the benefits of and need to increase the sharing of school facilities.
Several NSW Government strategies and plans support shared and joint use of facilities between schools and the wider community, but none are backed up with financial incentives, or specific plans with implementation timeframes. In Victoria and Queensland whole-of-government processes are in place to support a more coordinated approach to planning, building and sharing community facilities. For example, Victoria has a comprehensive policy framework encompassing both existing and future use of community facilities and a $50 million program to seed the development of community facilities on school sites over the next four years.
There are examples of successful shared use, but more can be done. Information about the available facilities is not readily available to potential community users. Schools should work more closely with councils and other stakeholders to leverage shared use.
Currently, the administrative burden, costs and risks associated with shared use can exceed the perceived benefits to schools, leading to reluctance amongst some Principals to share. In addition, a substantial backlog of school-initiated infrastructure proposals awaiting Departmental approval means that schools that raise money from sharing their facilities find it difficult to use the funds they raise on improved infrastructure. Some of these proposals have been waiting for approval for more than 12 months.
The Department could do more to support Principals by ensuring the fees charged for facilities cover the costs incurred by schools, that Principals can access help with negotiating and managing contracts, and that infrastructure proposals initiated and funded by schools are approved in a timely manner.
The Department is not monitoring shared use across the State, and does not evaluate different approaches as evidence to influence policies and procedures.
Recommendations
By December, 2018, the Department should:
- increase incentives and reduce impediments for school Principals to share school facilities, including:
- review the methodology for calculating fees charged for facilities to ensure that shared use of school facilities does not result in a financial burden to schools or the Department
- improve support provided to Principals by School Infrastructure NSW, including reducing the backlog of school-initiated infrastructure proposals awaiting approval
- develop service standards, including timeframes, for assessing and approving school-initiated infrastructure proposals.
- provide readily-accessible information about available school facilities to community groups and local councils
- implement processes to monitor and regularly evaluate the implementation of the shared use policy and promote better practice to drive improvements.
As discussed in our 2017 audit report on ‘Planning for school infrastructure’, joint use agreements are a key direction of the School Assets Strategic Plan. Joint use of school facilities will be necessary to ensure that there will be enough fit-for-purpose learning spaces for students when and where needed. Under the ‘Community Use of School Facilities Policy’ Principals play the leading role in identifying opportunities, and developing and managing agreements for sharing school facilities. This is impractical for joint use projects which involve substantial investment in new or refurbished assets, in particular for joint use projects in schools that are yet to be built. In addition, the policy does not address joint-use facilities built on land not owned by the Department. For these reasons, the Department is developing a new policy.
The Department is planning to develop joint use agreements in a more systematic way as part of school community planning, previously known as cluster planning, with a special focus on local councils. Several agreements are currently being piloted, and will be evaluated to provide an evidence-based foundation for this new approach.
To develop or refurbish school facilities for joint use, the Department, councils and other key stakeholders must work together and prioritise joint use from the earliest stages of any project. A collaborative, multi-agency approach is needed to ensure sufficient fit-for-purpose facilities are available for school students within the funding framework proposed in the School Assets Strategic Plan.
To increase shared and joint use, the Department is recruiting specialist staff in its Asset Division to assist with the brokerage, community engagement and development of agreements, but these staff are not dedicated to joint use projects and their available time may not be sufficient to provide the necessary support in the timeframes required.
Recommendations
By December, 2018, the Department of Education should:
- ensure that the implementation of the new ‘Joint Use of School Facilities and Land Policy’ is adequately resourced, and has the support of Principals
- implement processes to monitor and regularly evaluate the implementation of joint use policy and promote better practice to drive improvements.
Appendix one - Response from agency
Appendix two - About the audit
Appendix three - Victoria's 30-Year Infrastructure Strategy
Appendix four - Not-for-profit hire changes
Appendix five - Performance Auditing
Parliamentary reference - Report number #293 - released 1 November 2017
