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.
Planning and Environment 2018
The Auditor-General for New South Wales, Margaret Crawford, released her report today on the NSW Planning and Environment cluster. The report focuses on key observations and findings from the most recent financial audits of these agencies. Unqualified audit opinions were issued for all agencies' financial statements. However, some cultural institutions had challenges valuing collection assets in 2017–18. These issues were resolved before the financial statements were finalised.
This report analyses the results of our audits of financial statements of the Planning and Environment cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides parliament and other users of the Planning and Environment cluster agencies' 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 is 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 for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all agencies' financial statements. | The quality of financial reporting remains high across the cluster. |
| 2.2 Key accounting issues | |
| There were errors in some cultural institutions' collection asset valuations. | Recommendation: Collection asset valuations could be improved by:
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| 2.3 Timeliness of financial reporting | |
| Except for two agencies, the audits of cluster agencies’ financial statements were completed within the statutory timeframe. | Issues with asset revaluations delayed the finalisation of two environment and heritage agencies' financial statement audits. |
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 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 | |
| One in five internal control weaknesses reported in 2017–18 were repeat issues. | Delays in implementing audit recommendations can prolong the risk of fraud and error. Recommendation (repeat issue): Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing repeat issues. |
| One extreme risk was identified relating to the National Art School. The School does not have an occupancy agreement for the Darlinghurst campus. | Lack of formal agreement creates uncertainty over the School's continued occupancy of the Darlinghurst site. The School should continue to liaise with stakeholders to formalise the occupancy arrangement. |
| 3.2 Information technology controls | |
| The controls and governance arrangements when migrating payroll data from the Aurion system to SAP HR system were effective. | Data migration from the Aurion system to SAP HR system had no significant issues. |
| The Department can improve controls over user access to SAP system. | The Department needs to ensure the SAP user access controls are appropriate, including investigation of excess access rights and resolving segregation of duties issues. |
| 3.3 Annual work program | |
| Agencies used different benchmarks to monitor their maintenance expenditure. | The cluster agencies under review operate in different industries. As a result, they do not use the same benchmarks to assess the adequacy of their maintenance spend. |
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.
We report this information on service delivery to provide additional context to understand the operations of the Planning and Environment cluster, and to collate and present service information for different segments of the cluster in one report.
In our recent performance audit, ‘Progress and measurement of Premier's Priorities’, we identified 12 limitations of performance measurement and performance data. We recommended the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all relevant agency data sources.
Central Agencies 2018
The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of NSW Government central agencies. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Treasury, Premier and Cabinet, and Finance, Services and Innovation clusters. While clear audit opinions were issued on all agency financial statements, the report notes that some complex accounting requirements caused significant errors in agency financial statements submitted for audit, which were corrected before the financial statements were approved.
This report analyses the results of our audits of the Treasury, Premier and Cabinet and Finance, Services and Innovation cluster agencies for the year ended 30 June 2018. The table below summarises our key observations.
This report provides parliament and other users of the NSW Government's central agencies and their cluster agencies financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- liquidity risk management
- government financial services.
The central agencies and their key responsibilities are set out below.
| Central agencies | Key central agency responsibilities | Cluster responsibilities |
| The Treasury |
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The cluster:
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| Department of Premier and Cabinet |
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The cluster:
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| Department of Finance, Services and Innovation |
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The cluster:
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| Public Service Commission |
|
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A full list of agencies that this report covers by relevant cluster is included in Appendix three.
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, Premier and Cabinet and Finance, Services and Innovation clusters for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified opinions were issued for all agencies' financial statements submitted to the Audit Office. Complex accounting requirements caused significant errors in some agency financial statements, which were corrected before the financial statements were approved. |
Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. Recommendation: Agencies should respond to key accounting issues when they are identified by preparing accounting papers and engaging with Treasury, the Audit Office and their Audit and Risk Committee when these matters are identified. |
| 2.2 Timeliness of financial reporting | |
| Most agencies complied with the statutory timeframe for completion of early close procedures, 48 agencies in the Treasury cluster did not comply with the statutory requirement to prepare financial statements, and the audits of nine agencies in the Treasury cluster were not completed within the statutory timeframe. All financial statement information of the 48 agencies that did not prepare financial statements has been captured in the consolidated financial statements of their parent entity, which was subject to audit. |
Early close procedures allow financial reporting issues and risks to be addressed early in the audit process. The timeliness of financial reporting can be improved by performing more robust early close procedures. |
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, Premier and Cabinet and Finance, Services and Innovation cluster for 2018
- the areas of focus identified in the Audit Office work program.
The Audit Office 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 | |
| The 2017–18 audits found one high risk issue and 83 moderate risk issues across the agencies. Nineteen per cent of all issues were repeat issues. | Agencies should focus on rectifying repeat issues. |
| The high risk issue at Service NSW related to several deficiencies in procurement and contract management processes. | Service NSW may not be achieving value-for-money from their procurement and contract management activities. The high risk issue should be rectified as a matter of priority. This includes updating and implementing its procurement, vendor and contract management frameworks and delivering training to key staff involved in procurement and contract management activities. |
| Property NSW has implemented several controls during the year to rectify the high risk issue identified last year related to its transition to a new property and facility management service provider. However, the service providers performance remains below expectations and there are further opportunities to improve oversight and lift performance. | Property NSW can better define roles and accountabilities with the service provider and formalise policies and processes associated with its monitoring and oversight of the service provider. Implementing relevant KPIs, receiving timely reports and providing timely review and feedback to the service provider may help to lift performance. |
| GovConnect received unqualified opinions from their service auditor on all business process controls, except for information technology controls provided by Unisys, where a qualified opinion was received from the service auditor. A qualified opinion was received because of several deficiencies in user access controls. | These internal control deficiencies increase the risk of unauthorised access to key business systems, and increase audit effort and costs associated with addressing the risks arising from the deficiencies. |
| 3.2 Audit Office annual work program | |
|
Remediation of the Barangaroo site is now estimated to cost the Barangaroo Delivery Authority in excess of net $400 million. |
Measuring the remaining costs to remediate requires the use of estimation techniques and judgements, making the actual outcome inherently uncertain. We reviewed evidence to support the provision for remediation, including future costs estimates and this evidence supported management’s estimate. |
| The State Insurance Regulatory Authority have administered the refund of $138 million in Green slip refunds to policy holders through Service NSW during 2017–18. At 30 June 2018, $112 million in refunds are yet to be claimed. We reviewed the systems and processes supporting the refund process. While we found that this supports the disbursement of refunds to policyholders there were some deficiencies in Service NSW’s project controls when the program was being developed. |
Service NSW should apply the lessons learnt from this program to other programs it is delivering or will be delivering for agencies. |
| Revenue NSW recorded $30.4 billion from taxes, fines and fees in 2017–18 ($30.0 billion in 2016–17) to support the State’s finances. |
Crown revenue has steadily increased over the last five years predominately driven by rises in payroll tax and land tax and responsibility for collection of the Emergency Services Levy transferring to Revenue NSW under the Emergency Services Levy Act 2017 effective from July 2017. |
| 3.3 Managing maintenance | |
| Place Management NSW manages significant commercial and retail leases and maintains public domain spaces and other assets around the harbour foreshore. It has consistently underspent its asset maintenance budget. In 2017–18, asset maintenance expenses were only 34 per cent of budgeted maintenance expense. Currently, Place Management NSW does not use any ratios or benchmarks to determine the adequacy of its maintenance spend or to monitor whether it is achieving its budgeted maintenance program. |
This may be contributing to a high proportion of unplanned maintenance, which Place Management NSW reports was 38 per cent of total maintenance expense in 2017–18. Place Management NSW is outsourcing its property and facilities management function from 1 December 2018 to an external service provider. |
This chapter outlines our audit observations, conclusions and recommendations specific to NSW Government agencies providing financial services.
| Observation | Conclusions and recommendation |
| 5.1 Superannuation funds | |
| The SAS Trustee Corporation (STC) Pooled Fund and the Parliamentary Contributory Superannuation (PCS) Fund are not required to comply with the prudential and reporting standards issued by the Australian Prudential Regulation Authority (APRA). However, legislation allows the responsible Minister to prescribe prudential standards, reporting and audit requirements. |
Structured and comprehensive prudential oversight of these Funds is important as they operate in a volatile financial sector, have 103,000 members and manage investments of $43.3 billion. Recommendation: Treasury should consult with the Trustees of the STC Pooled Fund and PCS Fund to prescribe appropriate prudential standards and requirements, including oversight arrangements. |
| 5.2 Insurance and compensation | |
| Nominal Insurer and NSW Self Insurance Corporation investment performance marginally exceeded benchmark over the past five years. | Investment returns can impact on the premiums required to maintain an adequate funding ratio in addition to other factors such as claims experience and discount rates. |
| The Workers Compensation Nominal Insurer (Nominal Insurer) and NSW Self Insurance Corporation's net collected premiums and contributions decreased over the past five years. | The insurance schemes' investment performance and stable claim payments have enabled less reliance on net collected premiums and contributions as a source of funding, over the past five years. |
| Reforms were introduced to manage the Home Warranty Scheme's financial sustainability risks. | The Home Warranty Scheme has not collected sufficient premiums to fund expected claims costs, since commencing operations in 2011. In 2017–18, the Crown contributed $181 million for historical shortfalls. New reforms started on 1 January 2018 enabling the Scheme to price premiums based on risk. |
Transport 2018
The Auditor-General for New South Wales, Margaret Crawford released her report today on key observations and findings from the 30 June 2018 financial statement audits of agencies in the Transport cluster. Unqualified audit opinions were issued for all agencies' financial statements. However, assessing the fair value of the broad range of transport related assets creates challenges.
This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides Parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all agencies' financial statements | Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. |
| 2.2 Key accounting issues | |
| Valuation of assets continues to create challenges. Although agencies complied with the requirements of the accounting standards and Treasury policies on valuations, we identified some opportunities for improvements at RMS. |
RMS incorporated data from its asset condition assessments for the first time in the valuation methodology which improved the valuation outcome. Overall, we were satisfied with the valuation methodology and key assumptions, but we noted some deficiencies in the asset data in relation to asset component unit rates and old condition data for some components of assets. Also, a bypass and tunnel were incorrectly excluded from RMS records and valuation process since 2013. This resulted in an increase for these assets’ value by $133 million. The valuation inputs for Wetlands and Moorings were revised this year to better reflect the assets' characteristics resulting in a $98.0 million increase. |
| 2.3 Timeliness of financial reporting | |
| Residual Transport Corporation did not submit its financial statements by the statutory reporting deadline. | Residual Transport Corporation remained a dormant entity with no transactions for the year ended 30 June 2018. |
| With the exception of Residual Transport Corporation, all agencies completed early close procedures and submitted financial statements within statutory timeframes. | Early close procedures allow financial reporting issues and risks to be addressed early in the reporting and audit process. |
| 2.4 Financial sustainability | |
| NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations reported negative net assets of $75.7 million and $89,000 respectively at 30 June 2018. | NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations continue to require letters of financial support to confirm their ability to pay liabilities as they fall due. |
| 2.5 Passenger revenue and patronage | |
| Transport agencies revenue growth increased at a higher rate than patronage. | Public transport passenger revenue increased by $114 million (8.3 per cent) in 2017–18, and patronage increased by 37.1 million (5.1 per cent) across all modes of transport based on data provided by TfNSW. |
| Negative balance Opal Cards resulted in $3.8 million in revenue not collected in 2017–18 and $7.8 million since the introduction of Opal. A total of 1.1 million Opal cards issued since its introduction have negative balances. | Transport for NSW advised it is liaising with the ticketing vendor to implement system changes and are investigating other ways to reduce the occurrences. |
| 2.6 Cost recovery from public transport users | |
| Overall cost recovery from users has decreased. | Overall cost recovery from public transport users (on rail and bus services by STA) decreased from 23.2 per cent to 22.4 per cent between 2016–17 and 2017–18. The main reason for the decrease is due to expenditure increasing at a faster rate than revenue in 2017–18. |
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 Transport 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 of the NSW Government clusters.
| Observation | Conclusions and recommendations |
| 3.1 Internal controls | |
| There was an increase in findings on internal controls across the Transport cluster. | Key themes related to information technology, employee leave entitlements and asset management. Eighteen per cent of all issues were repeat issues. |
| 3.2 Audit Office Annual work program | |
| The Transport cluster wrote-off over $200 million of assets which were replaced by new assets or technology. |
Majority of this write-off was recognised by RMS, with $199 million relating to the write-off of existing assets which have been replaced during the year. |
| RailCorp is expected to convert to TAHE from 1 July 2019. | Several working groups are considering different aspects of the TAHE transition including its status as a for-profit Public Trading Enterprise and which assets to transfer to TAHE. We will continue to monitor developments on TAHE for any impact to the financial statements. |
| RMS' estimated maintenance backlog at 30 June 2018 of $3.4 billion is lower than last year. Sydney Trains' estimated maintenance backlog at 30 June 2018 increased by 20.6 per cent to $434 million. TfNSW does not quantify its backlog maintenance. | TfNSW advised it is liaising with Infrastructure NSW to develop a consistent definition of maintenance backlog across all transport service providers. |
| Not all agencies monitor unplanned maintenance across the Transport cluster. | Unplanned maintenance can be more expensive than planned maintenance. TfNSW should develop a consistent approach to define, monitor and track unplanned maintenance across the cluster. |
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.
We report this information on service delivery to provide additional context to understand the operations of the Transport cluster and to collate and present service information for different modes of transport in one report.
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.
Internal Controls and Governance 2018
The Auditor-General for New South Wales Margaret Crawford found that as NSW state government agencies’ digital footprint increases they need to do more to address new and emerging information technology (IT) risks. This is one of the key findings to emerge from the second stand-alone report on internal controls and governance of the 40 largest NSW state government agencies.
This report analyses the internal controls and governance of the 40 largest agencies in the NSW public sector for the year ended 30 June 2018.
This report covers the findings and recommendations from our 2017–18 financial audits that relate to internal controls and governance at the 40 largest agencies (refer to Appendix three) in the NSW public sector.
This report offers insights into internal controls and governance in the NSW public sector
This is our second report dedicated to internal controls and governance at NSW State Government agencies. The report provides insights into the effectiveness of controls and governance processes in the NSW public sector by:
- highlighting the potential risks posed by weaknesses in controls and governance processes
- helping agencies benchmark the adequacy of their processes against their peers
- focusing on new and emerging risks, and the internal controls and governance processes that might address those risks.
Without strong governance systems and internal controls, agencies increase the risks associated with effectively managing their finances and delivering services to citizens. The way agencies deliver services increasingly relies on contracts and partnerships with the private sector. Many of these arrangements deliver front line services, but others provide less visible back office support. For example, an agency may rely on an IT service provider to manage a key system used to provide services to the community. The contract and service level agreements are only truly effective where they are actively managed to reduce risks to continuous quality service delivery, such as interruptions caused by system outages, cyber security attacks and data security breaches.
Our audits do not review all aspects of internal controls and governance every year. We select a range of measures, and report on those that present heightened risks for agencies to mitigate. This report divides these into the following five areas:
- Internal control trends
- Information technology (IT), including IT vendor management
- Transparency and performance reporting
- Management of purchasing cards and taxis
- Fraud and corruption control.
The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, controls and service delivery comments are included in the individual 2018 cluster financial audit reports, which will be tabled in Parliament from November to December 2018.
The focus of the report has changed since last year
Last year's report topics included asset management, ethics and conduct, and risk management. We are reporting on new topics this year. We plan to introduce new topics and re-visit our previous topics in subsequent reports on a cyclical basis. This will provide a baseline against which to measure the NSW public sectors’ progress in implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.
Agencies selected for the volume account for 95 per cent of the state's expenditure
While we have covered only 40 agencies in this report, those selected are a large enough group to identify common issues and insights. They represent about 95 per cent of total expenditure for all NSW public sector agencies.
Internal controls are processes, policies and procedures that help agencies to:
- operate effectively and efficiently
- produce reliable financial reports
- comply with laws and regulations
- support ethical government.
This chapter outlines the overall trends for agency controls and governance issues, including the number of findings, level of risk and the most common deficiencies we found across agencies. The rest of this volume presents this year’s controls and governance findings in more detail.
| Observation | Conclusions and recommendations |
|---|---|
| 2.1 High risk findings | |
| We found six high risk findings (seven in 2016–17), one of which was repeated from both last year and 2015–16. | Recommendation: Agencies should reduce risk by addressing high risk internal control deficiencies as a priority. |
| 2.2 Common findings | |
| We found several internal controls and governance findings common to multiple agencies. | Conclusion: Central agencies or the lead agency in a cluster can play a lead role in helping ensure agency responses to common findings are consistent, timely, efficient and effective. |
| 2.3 New and repeat findings | |
| Although internal control deficiencies decreased over the last four years, this year has seen a 42 per cent increase in internal control deficiencies. | The increase in new IT control deficiencies and repeat IT control deficiencies signifies an emerging risk for agencies. |
| IT control deficiencies feature in this increase, having risen by 63 per cent since last year. The number of repeat IT control deficiencies has doubled and is driven by the increasing digital footprint left by agencies as government prioritises on-line interfaces with citizens, and the number of transactions conducted through digital channels increases |
Recommendation: Agencies should reduce IT risks by:
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Government agencies’ financial reporting is now heavily reliant on information technology (IT). IT is also increasingly important to the delivery of agency services. These systems often provide the data to help monitor the efficiency and effectiveness of agency processes and services they deliver. Our audits reviewed whether agencies have effective controls in place to manage both key financial systems and IT service contracts.
| Observation | Conclusions and recommendations |
|---|---|
| 3.1 Management of IT vendors | |
| Contract management framework Although 87 per cent of agencies have a contract management policy to manage IT vendors, one fifth require review. |
Conclusion: Agencies can more effectively manage IT vendor contracts by developing policies and procedures to ensure vendor management frameworks are kept up to date, plans are in place to manage vendor performance and risk, and compliance with the framework is monitored by:
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| Contract risk management Forty-one per cent of agencies are not using contract management plans and do not assess contract risks. Half of the agencies that did assess contract risks, had not updated the risk assessments since the commencement of the contract. |
Conclusion: Instead of applying a 'set and forget' approach in relation to management of contract risks, agencies should assess risk regularly and develop a plan to actively manage identified risks throughout the contract lifecycle - from negotiation and commencement, to termination. |
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Performance management Only 24 per cent of agencies sought assurance about the accuracy of vendor reporting against KPIs, yet sixty-seven per cent of the IT contracts allow agencies to determine performance based payments and/or penalise underperformance. |
Conclusion: Agencies are monitoring IT vendor performance, but could improve outcomes and more effectively manage under-performance by:
|
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Transitioning services Where IT vendor contracts do make provision for transitioning-out, only 28 per cent of agencies have developed a transitioning-out plan with their IT vendor. |
Conclusion: Contract transition/phase out clauses and plans can mitigate risks to service disruption, ensure internal controls remain in place, avoid unnecessary costs and reduce the risk of 'vendor lock-in'. |
| Contract Registers Eleven out of forty agencies did not have a contract register, or have registers that are not accurate and/or complete. |
Conclusion: A contract register helps to manage an agency’s compliance obligations under the Government Information (Public Access) Act 2009 (the GIPA Act). However, it also helps agencies more effectively manage IT vendors by:
Recommendation: Agencies should ensure their contract registers are complete and accurate so they can more effectively govern contracts and manage compliance obligations. |
| 3.2 IT general controls | |
| Governance Ninety-five per cent of agencies have established policies to manage key IT processes and functions within the agency, with ten per cent of those due for review. |
Conclusion: Regular review of IT policies ensures risks are considered and appropriate strategies and procedures are implemented to manage these risks on a consistent basis. An absence of policies can lead to ad-hoc responses to risks, and failure to consider emerging IT risks and changes to agency IT environments. |
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User access administration
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Recommendation: Agencies should strengthen the administration of user access to prevent inappropriate access to key systems. |
| Privileged access Forty per cent of agencies do not periodically review logs of the activities of privileged users to identify suspicious or unauthorised activities. |
Recommendation: Agencies should:
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| Password controls Twenty-three per cent of agencies did not comply with their own policy on password parameters. |
Recommendation: Agencies should ensure IT password settings comply with their password policies. |
| Program changes Fifteen per cent of agencies had deficient IT program change controls mainly related to segregation of duties and authorisation and testing of IT program changes prior to deployment. |
Recommendation: Agencies should maintain appropriate segregation of duties in their IT functions and test system changes before they are deployed. |
This chapter outlines our audit observations, conclusions and recommendations from our review of how agencies reported their performance in their 2016–17 annual reports. The Annual Reports (Statutory Bodies) Regulation 2015 and Annual Reports (Departments) Regulation 2015 (annual reports regulation) currently prescribes the minimum requirements for agency annual reports.
| Observation | Conclusion or recommendation |
| 4.1 Reporting on performance | |
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Only 57 per cent of agencies linked reporting on performance to their strategic objectives. The use of targets and reporting performance over time was limited and applied inconsistently. |
Conclusion: There is significant disparity in the quality and consistency of how agencies report on their performance in their annual reports. This limits the reliability and transparency of reported performance information. Agencies could improve performance reporting by clearly linking strategic objectives to reported outcomes, and reporting on performance against targets over time. NSW Treasury may need to provide more guidance to agencies to support consistent and high-quality performance reporting in annual reports. |
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There is no independent assurance that the performance metrics agencies report in their annual reports are accurate. Prior performance audits have noted issues related to the collection of performance information. For example, our 2016 Report on Red Tape Reduction highlighted inaccuracies in how the dollar-value of red tape reduction had been reported. |
Conclusion: The ability of Parliament and the public to rely on reported information as a relevant and accurate reflection of an agency's performance is limited. The relevance and accuracy of performance information is enhanced when:
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| 4.2 Reporting on reports | |
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Agency reporting on major projects does not meet the requirements of the annual reports regulation. Forty-seven per cent of agencies did not report on costs to date and estimated completion dates for major works in progress. Of the 47 per cent of agencies that reported on major works, only one agency reported detail about significant cost overruns, delays, amendments, deferments or cancellations. |
NSW Treasury produce an annual report checklist to help agencies comply with their annual report obligations. Recommendation: Agencies should comply with the annual reports regulation and report on all mandatory fields, including significant cost overruns and delays, for their major works in progress. |
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The information the annual reports regulation requires agencies to report deals only with major works in progress. There is no requirement to report on completed works. Sixteen of 30 agencies reported some information on completed major works. |
Conclusion: Agencies could improve their transparency if they reported, or were required to report:
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This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency preventative and detective controls over purchasing card and taxi use for 2017–18.
| Observation | Conclusion or recommendation |
| 5.1 Management of purchasing cards | |
| Volume of credit card spend Purchasing card expenditure has increased by 76 per cent over the last four years in response to a government review into the cost savings possible from using purchasing cards for low value, high volume procurement. |
Conclusion: The increasing use of purchasing cards highlights the importance of an effective framework for the use and management of purchasing cards. |
| Policy framework We found all agencies that held purchasing cards had a policy in place, but 26 per cent of agencies have not reviewed their purchasing card policy by the scheduled date, or do not have a scheduled revision date stated within their policy. |
Recommendation: Agencies should mitigate the risks associated with increased purchasing card use by ensuring policies and purchasing card frameworks remain current and compliant with the core requirements of TPP 17–09 'Use and Management of NSW Government Purchasing Cards'. |
| Preventative controls We found that:
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Agencies have designed and implemented preventative controls aimed at deterring the potential misuse of purchasing cards. Conclusion: Further opportunities exist for agencies to better control the use of purchasing cards, such as:
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Detective controls Major reviews, such as data analytics (29 per cent of agencies) and independent spot checks (49 per cent of agencies) are not widely used. |
Agencies have designed and implemented detective controls aimed at identifying potential misuse of purchasing cards. Conclusion: More effective monitoring using purchasing card data can provide better visibility over spending activity and can be used to:
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| 5.2 Management of taxis | |
| Policy framework Thirteen per cent of agencies have not developed and implemented a policy to manage taxi use. In addition:
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Conclusion: Agencies can promote savings and provide more options to staff where their taxi use policies:
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| Detective controls All agencies approve taxi expenditure by expense reimbursement, purchasing card and Cabcharge, and have implemented controls around this approval process. However, beyond this there is minimal monitoring and review activity, such as data monitoring, independent spot checks or internal audit reviews. |
Conclusion: Taxi spend at agencies is not significant in terms of its dollar value, but it is significant from a probity perspective. Agencies can better address the probity risk by incorporating taxi use into a broader purchasing card or fraud monitoring program. |
Fraud and corruption control is one of the 17 key elements of our governance lighthouse. Recent reports from ICAC into state agencies and local government councils highlight the need for effective fraud control and ethical frameworks. Effective frameworks can help protect an agency from events that risk serious reputational damage and financial loss.
Our 2016 Fraud Survey found the NSW Government agencies we surveyed reported 1,077 frauds over the three year period to 30 June 2015. For those frauds where an estimate of losses was made, the reported value exceeded $10.0 million. The report also highlighted that the full extent of fraud in the NSW public sector could be higher than reported because:
- unreported frauds in organisations can be almost three times the number of reported frauds
- our 2015 survey did not include all NSW public sector agencies, nor did it include any NSW universities or local councils
- fraud committed by citizens such as fare evasion and fraudulent state tax self-assessments was not within the scope of our 2015 survey
- agencies did not estimate a value for 599 of the 1,077 (56 per cent) reported frauds.
Commissioning and outsourcing of services to the private sector and the advancement of digital technology are changing the fraud and corruption risks agencies face. Fraud risk assessments should be updated regularly and in particular where there are changes in agency business models. NSW Treasury Circular TC18-02 NSW Fraud and Corruption Control Policy now requires agencies develop, implement and maintain a fraud and corruption control framework, effective from 1 July 2018.
Our Fraud Control Improvement Kit provides guidance and practical advice to help organisations implement an effective fraud control framework. The kit is divided into ten attributes. Three key attributes have been assessed below; prevention, detection and notification systems.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency fraud and corruption controls for 2017–18.
| Observation | Conclusion or recommendation |
| 6.1 Prevention systems | |
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Prevention systems Only 54 per cent of agencies have an employment screening policy and all agencies have IT security policies, but gaps in IT security controls could undermine their policies. |
Conclusion: Most agencies have implemented fraud prevention systems to reduce the risk of fraud. However poor IT security along with other gaps in agency prevention systems, such as employment screening practices heightens the risk of fraud and inappropriate use of data. Agencies can improve their fraud prevention systems by:
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| Twenty-three per cent of agencies were not performing fraud risk assessments and some agency fraud risk assessments may not be as robust as they could be. | Conclusion: Agencies' systems of internal controls may be less effective where new and emerging fraud risks have been overlooked, or known weaknesses have not been rectified. |
| 6.2 Detection systems | |
| Detection systems Several agencies reported they were developing a data monitoring program, but only 38 per cent of agencies had already implemented a program. |
Studies have shown data monitoring, whereby entire populations of transactional data are analysed for indicators of fraudulent activity, is one of the most effective methods of early detection. Early detection decreases the duration a fraud remains undetected thereby limiting the extent of losses. Conclusion: Data monitoring is an effective tool for early detection of fraud and is more effective when informed by a comprehensive fraud risk assessment. |
| 6.3 Notification systems | |
| Notification system All agencies have notification systems for reporting actual or suspected fraud and corruption. Most agencies provide multiple reporting lines, provide training and publicise options for staff to report actual or suspected fraud and corruption. |
Conclusion: Training staff about their obligations and the use of fraud notification systems promotes a fraud-aware culture |
Mobile speed cameras
The primary goal of speed cameras is to reduce speeding and make the roads safer. Our 2011 performance audit on speed cameras found that, in general, speed cameras change driver behaviour and have a positive impact on road safety.
Transport for NSW published the NSW Speed Camera Strategy in June 2012 in response to our audit. According to the Strategy, the main purpose of mobile speed cameras is to reduce speeding across the road network by providing a general deterrence through anywhere, anytime enforcement and by creating a perceived risk of detection across the road network. Fixed and red-light speed cameras aim to reduce speeding at specific locations.
Roads and Maritime Services and Transport for NSW deploy mobile speed cameras (MSCs) in consultation with NSW Police. The cameras are operated by contractors authorised by Roads and Maritime Services. MSC locations are stretches of road that can be more than 20 kilometres long. MSC sites are specific places within these locations that meet the requirements for a MSC vehicle to be able to operate there.
This audit assessed whether the mobile speed camera program is effectively managed to maximise road safety benefits across the NSW road network.
The mobile speed camera program requires improvements to key aspects of its management to maximise road safety benefits. While camera locations have been selected based on crash history, the limited number of locations restricts network coverage. It also makes enforcement more predictable, reducing the ability to provide a general deterrence. Implementation of the program has been consistent with government decisions to limit its hours of operation and use multiple warning signs. These factors limit the ability of the mobile speed camera program to effectively deliver a broad general network deterrence from speeding.
Many locations are needed to enable network-wide coverage and ensure MSC sessions are randomised and not predictable. However, there are insufficient locations available to operate MSCs that meet strict criteria for crash history, operator safety, signage and technical requirements. MSC performance would be improved if there were more locations.
A scheduling system is meant to randomise MSC location visits to ensure they are not predictable. However, a relatively small number of locations have been visited many times making their deployment more predictable in these places. The allocation of MSCs across the time of day, day of week and across regions is prioritised based on crash history but the frequency of location visits does not correspond with the crash risk for each location.
There is evidence of a reduction in fatal and serious crashes at the 30 best-performing MSC locations. However, there is limited evidence that the current MSC program in NSW has led to a behavioural change in drivers by creating a general network deterrence. While the overall reduction in serious injuries on roads has continued, fatalities have started to climb again. Compliance with speed limits has improved at the sites and locations that MSCs operate, but the results of overall network speed surveys vary, with recent improvements in some speed zones but not others.
There is no supporting justification for the number of hours of operation for the program. The rate of MSC enforcement (hours per capita) in NSW is less than Queensland and Victoria. The government decision to use multiple warning signs has made it harder to identify and maintain suitable MSC locations, and impeded their use for enforcement in both traffic directions and in school zones.
Appendix one - Response from agency
Appendix two - About the audit
Appendix three - Performance auditing
Parliamentary reference - Report number #308 - released 18 October 2018
Assessment of the use of a training program
The Department of Finance, Services and Innovation (DFSI) and Service NSW's use of Franklin Covey's '7 Habits' program (the Program) met identified business needs according to a report released today by the Auditor-General for New South Wales Margaret Crawford.
This audit assesses the effectiveness and economy of the Department of Finance, Services and Innovation's, including Service NSW's, use of the Franklin Covey ‘7 Habits’ program (the Program). On 15 March 2018, the Hon. Victor Dominello MP, Minister for Finance, Services and Property, requested the Auditor General conduct this audit under section 27(B)(3)(c) of the Public Finance and Audit Act 1983 (the Act).
About the agencies
The Department of Finance, Services and Innovation (the Department) is the lead agency of the Finance, Services and Innovation cluster. The Department has a number of divisions and business units, including: ICT and Digital Government, Property and Advisory Group, Better Regulation, NSW Fair Trading, Government and Corporate Services, and Revenue NSW. At 30 June 2017, the Department (excluding Service NSW) had 5,239 full-time equivalent staff.
Service NSW is a central point of contact for customers accessing NSW Government Services. It is a Division of the Finance, Services and Innovation cluster and operates as an executive agency. As an executive agency, Service NSW is led by a Chief Executive Officer, who is responsible to the Minister for Finance, Services and Property but appointed by the Secretary of the Department of Finance, Services and Innovation. Service NSW was established in 2013 and has operated under the Finance, Services and Innovation cluster since July 2015. At 30 June 2017, Service NSW had 1,989 full-time equivalent staff.
About the Program
The Program that the Department and Service NSW are implementing, and which is the subject of this audit, is a professional development training course which focusses on organisational culture emphasising personal effectiveness, leadership development and change management. All staff in the Department and Service NSW will receive the training, which involves:
- a 360-degree assessment where every staff member receives feedback from their manager, direct reports, and peers
- a two-day training workshop, which will be delivered face to face by accredited facilitators
- 2 years of online access to all training materials created by the provider of the Program.
As part of the licensing arrangement purchased by the agencies, the Program also provides access (at no extra cost) to the full range of the provider's training and development courses that might be useful for other learning and development activities. This includes courses to improve staff capability in communication skills, leadership, productivity and customer engagement. The Department is considering using one of these courses to develop leadership capabilities. Service NSW has integrated three of these courses into its people development curriculum.
Service NSW commenced the first sessions of the Program in May 2017. At 24 April 2018, around 1,000 staff had undertaken the training. Service NSW expects all staff to complete the Program by June 2019.
The Department of Finance, Services and Innovation commenced the first sessions of the Program in August 2017. At 18 April 2018, around 175 staff had undertaken the training. The Department expects all staff to complete the Program by December 2019.
Audit objective and criteria
The audit sought to assess the effectiveness and economy of the Finance, Services and Innovation cluster’s use of the Program. In making this assessment, we considered whether:
- the Program is being used effectively, including whether
- there is an identified need for the Program
- the use of the Program meets the identified need
- Finance, Services and Innovation cluster agencies evaluate the effectiveness of the Program
- the Program is economical, including whether:
- the procurement complies with all relevant policies and processes
- funding and resources allocated to the Program are reasonable.
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Sector-wide learnings Implementing robust learning and development frameworks
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Universities 2017
The Auditor-General, Margaret Crawford released her report today on the results of financial audits of NSW universities for the year ended 31 December 2017. No qualified audit opinions were issued for any university and the quality and timeliness of financial reporting continues to improve.
This report analyses the results of our audits of financial statements of the ten NSW universities and their controlled entities for the year ended 31 December 2017. The table below summarises our key observations.
This report focuses on our observations on the common issues identified in our audits of the financial statements of the ten NSW universities and their controlled entities in 2017. The universities and controlled entities are listed in Appendix three and four respectively.
The report provides our analysis of universities’ results and findings in the following areas:
- Financial reporting and performance
- Teaching and research
- Financial controls and governance.
Accurate and timely financial reporting is important for universities to make efficient and effective economic decisions. Sound financial performance provides the platform for universities to deliver high quality teaching and research outcomes.
This chapter outlines our audit observations on the financial reporting and performance of NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 3.1 Financial reporting | |
| Audit results | |
| The financial statements of all ten NSW universities and 66 out of 69 of their controlled entities received unmodified audit opinions. | Two controlled entities did not fully comply with the financial reporting and audit requirements of the Public Finance and Audit Act 1983 as they did not submit their financial statements to the Auditor-General. One of these entities was audited under the requirements applicable in its foreign jurisdiction. A third controlled entity submitted financial statements, but only after the statutory due date. |
| Quality and timeliness of financial reporting | |
| The number of uncorrected misstatements continues to decrease. | The quality of financial statements of the universities improved in 2017. |
| Two universities simplified disclosures in their financial statements. | The financial statements of the University of Sydney and Macquarie University are more concise, readable and understandable than those of other universities. |
| Six universities finalised their financial statements earlier than in previous years. | Universities that performed aspects of early close procedures improved the timeliness of their financial reporting and helped us conclude our audits earlier. |
| Eight universities are yet to quantify the impact of new accounting standards applicable in future years. | The two universities that have assessed the impact of the new accounting standards believe the impact will be material. |
| An accounting issue was identified relating to the recognition and measurement of payroll tax liabilities on employees' defined benefit superannuation contributions payable to the superannuation funds. | Recommendation: NSW universities should clarify the recognition and measurement of their liability for payroll tax on their defined benefit superannuation obligations before 31 December 2018. |
| 3.2 Financial performance | |
| Sources of revenue from operations | |
| Government grants as a proportion of total revenue decreased over the past five years by 6.4 per cent. |
The Australian Government announced funding freezes to Australian Government grants revenue for the next two years. Universities are expanding other revenue streams to decrease their reliance on grant funding. The revenue stream that has increased the most significantly over the past five years is overseas student revenue. |
| Revenue from overseas student course fees increased by 23 per cent in the last year and contributed $2.8 billion to the NSW university sector in 2017. | Overseas student revenue exceeded domestic student revenue by 37 per cent, and comprised over a quarter of NSW universities' total revenues in 2017. The growth in overseas student revenue has not been shared equally in the sector. Some universities are more dependent on overseas student revenue than others. |
| Revenue from overseas students from four countries comprised 37 per cent of total student revenues for all NSW universities. | Recommendation: NSW universities should assess their student market concentration risk where they rely heavily on students from a single country of origin. This increases their sensitivity to economic or political changes in that country. Universities' data shows as much as 71 per cent of their overseas student revenue comes from a single country of origin. |
| Research income of NSW universities was $1.1 billion in 2016 and has grown by 9.8 per cent between 2012 and 2016. | Two universities attracted 65.2 per cent of the total research income received by all NSW universities. |
| Other revenues | |
| Total philanthropic revenue increased by 1.0 per cent to $151 million in 2017. |
Philanthropic revenue has been increasing for the past five years. Two universities attracted 76.8 per cent of the total philanthropic dollars received by all NSW universities. |
| Average investment returns fell from 7.0 per cent in 2013 to 5.8 per cent in 2017, while total investments grew to $5.4 billion in 2017 from $3.5 billion in 2013. |
Universities have structured their investment portfolios between fixed and non-fixed income assets, seeking to optimise their returns in a low interest rate environment within the limits of their risk management strategies. Investment income is a significant source of revenue for some, but not all universities. Two universities' investment funds represented 52.3 per cent of the total investment funds of all NSW universities combined. |
| Low interest rates have made investment in fixed income assets less attractive for universities. Over the last five years universities have increased their investment in non-fixed income (or market based) assets by 67.1 per cent. | |
| Most NSW universities have established investment governance frameworks. | |
| Financial sustainability indicators | |
| Operating expenditure per equivalent full-time student load (EFTSL) increased by 3.0 per cent in 2017. | The universities that have been able to attract international students to grow their operational revenues have been able to leverage economies of scale to maximise their average margin per EFTSL. Other universities have had to rely on containing costs to achieve higher EFTSL margins. |
| For six universities, the growth in operating expenditure has exceeded the growth in operating revenue, reducing operating margins. The risk associated with narrowing margins is compounded where universities have a high reliance on student revenues from a single source. Sudden changes in demand can challenge the ability of those universities to adjust their cost structures. |
As the margin between operating revenue and operating expenditure decreases, operational results are more at risk from unexpected fluctuations, such as Australian Government higher education reforms and reduced overseas student enrolments. Smaller operating margins reduce the funds available to invest in upgrading infrastructure and implement corporate strategies to meet future challenges. |
| Eight universities have current ratios greater than one in 2017. | |
| Controlled entities | |
| Sixteen of the universities' 58 controlled entities that operate business activities reported losses in 2017 (15 in 2016). | Overall, the financial performance of controlled entities operating business activities was positive, but results in 2017 were lower than in 2016. |
| The total profit of controlled entities operating business activities decreased 5.5 per cent to $77.5 million in 2017 ($82.6 million in 2016). | Universities may be able to improve their overall performance by reassessing the viability of business ventures that continue to make losses and/or rely on them for financial support. |
| Eighteen controlled entities relied on guarantees of financial support from their parent entity in 2017 (19 in 2016). | |
Teaching and research are key objectives of universities and they invest most of their resources in achieving high quality academic and research outcomes to maintain or advance their reputations and rankings in Australia and abroad. Universities have also committed to achieving certain government objectives.
This chapter outlines teaching and research outcomes for NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 4.1 Teaching outcomes | |
| Achieving Australian Government target | |
| NSW universities met the Australian Government target of having 40 per cent of 25 to 34 year-olds with bachelor degrees ten years earlier than the original target date of 2025. |
The proportion of 25 to 34 year-olds in NSW holding a bachelor degree increased to 43.4 per cent in 2017. In 2009, when the target was originally set, only 35.5 per cent of 25 to 34 year-olds held a bachelor degree. |
| Graduate employment rates | |
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Seven universities exceeded the national average of 71.8 per cent for the proportion of their undergraduates who obtain full-time employment. Four universities achieved better than the national average of 86.1 per cent for the proportion of their postgraduates who obtain full-time employment. |
Most NSW universities' employment outcomes are better than the national average. |
| Student enrolments by field of education | |
| NSW universities have increased enrolments in fields of study that align with known skills shortages in NSW identified by the Australian Government for 2016 and 2017. | Alignment of student intake with identified shortages helps ensure graduates secure timely employment on completion of their studies. |
| Achieving diversity outcomes | |
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NSW universities agreed to targets set by the Australian Government for enrolments of students from low socio economic status (SES) and Aboriginal or Torres Strait Islander backgrounds. |
NSW universities can improve outcomes for these students by implementing policies to increase enrolments and support students to graduation. |
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Three universities exceeded the target of 20 per cent of low SES student enrolments in 2017. Six universities met their Indigenous student enrolment target in 2017. The target is having a growth rate in the enrolment of Indigenous students that is more than 50 per cent higher than the growth rate of non-Indigenous student enrolments. |
At the current rate, it is unlikely most universities will reach the agreed low SES target by 2020. |
Appropriate financial controls help ensure efficient and effective use of resources, and the implementation and monitoring of university policies. Governance consists of frameworks, processes and behaviours that enable the universities to operate effectively and comply with relevant laws and policies.
This chapter outlines our audit observations on the financial control and governance of NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 5.1 Internal controls | |
| Internal control findings | |
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Eighty-three internal control deficiencies were identified during our audits, of which 40 related to Information Technology (IT). |
Recommendation: NSW universities should ensure controls, including information technology controls, are properly designed and operate effectively to protect intellectual property, staff and student data, and assets. Universities should rectify identified deficiencies in a timely manner. |
| Repeat findings Twenty-four findings were repeat internal control deficiencies, of which 18 related to IT. |
IT issues can take some time to rectify because specialist skill and/or partnering with software suppliers is often required to implement new controls. However, until rectified, the vulnerabilities those control deficiencies present can be significant. |
| Cyber security Our audits identified opportunities to improve cyber security controls and processes to reduce risks, including risks relating to financial loss, reputational damage and breaches of privacy laws. |
Recommendation: NSW universities should strengthen their cyber security frameworks to manage cyber security risks. This includes developing:
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Use of credit card and work-related travel The risks of unauthorised use can be mitigated by regular monitoring, and reporting breaches for investigation and disciplinary action. |
Appropriately designed and implemented preventive and detective controls are most effective when enforcement and disciplinary activities are oversighted by university audit and risk committees. |
Grants to non-government schools
The NSW Department of Education could strengthen its management of the $1.2 billion provided to non-government schools annually. This would provide greater accountability for the use of public funds, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.
Non‑government schools educate 418,000 school children each year, representing 35 per cent of all students in NSW. The NSW Department of Education administers several grant schemes to support these schools, with the aim of improving student learning outcomes and supporting parent choice. To be eligible for NSW Government funding, non‑government schools must be registered with the NSW Education Standards Authority (NESA) and not operate 'for profit' as per section 83C of the NSW Education Act 1990 (the Act). Non‑government schools can either be registered as independent or part of a System Authority.
In 2017–18, non‑government schools in NSW will receive over $1.2 billion from the NSW Government, as well as $3.4 billion from the Australian Government. Recently, the Australian Government has changed the way it funds schools. The NSW Government is assessing how these changes will impact State funding for non‑government schools.
This audit assessed how effectively and efficiently NSW Government grants to non‑government schools are allocated and managed. This audit did not assess the use of NSW Government grants by individual non‑government schools or System Authorities because the Auditor‑General of New South Wales does not have the mandate to assess how government funds are spent by non‑government entities.
Conclusion
The Department of Education effectively and efficiently allocates grants to non‑government schools. Clarifying the objectives of grants, monitoring progress towards these objectives, and improving oversight, would strengthen accountability for the use of public funds by non‑government schools.
We tested a sample of grants provided to non‑government schools under all major schemes, and found that the Department of Education consistently allocates and distributes grants in line with its methodology. The Department has clear processes and procedures to efficiently collect data from schools, calculate the level of funding each school or System should receive, obtain appropriate approvals, and make payments.
We identified three areas where the Department could strengthen its management of grants to provide greater accountability for the use of public funds. First, the Department’s objectives for providing grants to non‑government schools are covered by legislation, intergovernmental agreements and grant guidelines. The Department could consolidate these objectives to allow for more consistent monitoring. Second, the Department relies on schools or System Authorities to engage a registered auditor to certify the accuracy of information on their enrolments and usage of grants. Greater scrutiny of the registration and independence of the auditors would increase confidence in the accuracy of this information. Third, the Department does not monitor how System Authorities reallocate grant funding to their member schools. Further oversight in this area would increase accountability for the use of public funds.
The Department effectively and efficiently allocates grants to non‑government schools. Strengthening its processes would provide greater assurance that the information it collects is accurate.
The Department provides clear guidelines to assist schools to provide the necessary census information to calculate per capita grants. Schools must get an independent external auditor, registered with ASIC, to certify their enrolment figures. The Department checks a sample of the auditors to ensure that they are registered with ASIC. Some other jurisdictions perform additional procedures to increase confidence in the accuracy of the census (for example, independently checking a sample of schools’ census data).
The Department accurately calculates and distributes per capita grants in accordance with its methodology. The previous methodology, used prior to 2018, was not updated frequently enough to reflect changes in schools' circumstances. Over 2014 to 2017, the Department provided additional grants to non‑government schools under the National Education Reform Agreement (NERA), to bring funding more closely in line with the Australian Department of Education and Training's Schooling Resource Standard (SRS). From 2018, the Department has changed the way it calculates per capita grants to more closely align with the Australian Department of Education and Training's approach.
The Department determines eligibility for grants by checking a school's registration status with NESA. However, NESA's approach to monitoring compliance with the registration requirements prioritises student learning and wellbeing requirements over the requirement for policies and procedures for proper governance. Given their importance to the appropriate use of government funding, NESA could increase its monitoring of policies and procedures for proper governance through its program of random inspections. Further, the Department and NESA should enter into a formal agreement to share information to more accurately determine the level of risk of non‑compliance at each school. This may help both agencies more effectively target their monitoring to higher‑risk schools.
By December 2018, the NSW Department of Education should:
- Strengthen its processes to provide greater assurance that the enrolment and expenditure information it collects from non‑government schools is accurate. This should build on the work the Australian Government already does in this area.
- Establish formal information‑sharing arrangements with the NSW Education Standards Authority to more effectively monitor schools' eligibility to receive funding.
By December 2018, the NSW Education Standards Authority should:
- Extend its inspection practices to increase coverage of the registration requirement for policies and procedures for the proper governance of schools.
- Establish formal information‑sharing arrangements with the NSW Department of Education to more effectively monitor schools' continued compliance with the registration requirements.
The Department’s current approach to managing grants to non‑government schools could be improved to provide greater confidence that funds are being spent in line with the objectives of the grant schemes.
The NSW Government provides funding to non‑government schools to improve student learning outcomes, and to support schooling choices by parents, but does not monitor whether these grants are achieving this. In addition, each grant program has specific objectives. The main objectives for the per capita grant program is to increase the rate of students completing Year 12 (or equivalent), and to improve education outcomes for students. While non‑government schools publicly report on some educational measures via the MySchool website, these measures do not address all the objectives. Strengthened monitoring and reporting of progress towards objectives, at a school level, would increase accountability for public funding. This may require the Department to formalise its access to student level information.
The Department has listed five broad categories of acceptable use for per capita grants, however, provides no further guidance on what expenditure would fit into these categories. Clarifying the appropriate use of grants would increase confidence that funding is being used as intended. Schools must engage an independent auditor, registered with ASIC, to certify that the funding has been spent. The Department could strengthen this approach by improving its processes to check the registration of the auditor, and to verify their independence.
The Department has limited oversight of funding provided to System Authorities (Systems). The Department provides grants to Systems for all their member schools. The Systems can distribute the grants to their schools according to their own methodology. Systems are not required to report to the Department how much of their grant was retained for administrative or centralised expenses. Increased oversight over how the Systems distribute this grant could provide increased transparency for the use of public funds by systems.
By December 2018, the NSW Department of Education should:
- Establish and communicate funding conditions that require funded schools to:
- adhere to conditions of funding, such as the acceptable use of grants, and accounting requirements to demonstrate compliance
- report their progress towards the objectives of the scheme or wider Government initiatives
- allow the Department to conduct investigations to verify enrolment and expenditure of funds
- provide the Department with access to existing student level data to inform policy development and analysis.
- Increase its oversight of System Authorities by requiring them to:
- re‑allocate funds across their system on a needs basis, and report to the Department on this
- provide a yearly submission with enough detail to demonstrate that each System school has spent their State funding in line with the Department's requirements.
Appendix one - Response from agencies
Appendix two - NESA's risk-based compliance monitoring
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #299 - released 3 May 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
