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Published

Actions for Education 2018

Education 2018

Education
Asset valuation
Financial reporting
Information technology
Infrastructure
Service delivery
Shared services and collaboration
Workforce and capability

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.

Published

Actions for Planning and Environment 2018

Planning and Environment 2018

Planning
Environment
Asset valuation
Financial reporting
Information technology
Infrastructure
Internal controls and governance
Service delivery

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:
  • early engagement with key stakeholders regarding the valuation method and approach
  • completing revaluations, including quality review processes earlier 
  • improving the quality of asset data by registering all items in an electronic database. 
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.

Published

Actions for Internal Controls and Governance 2018

Internal Controls and Governance 2018

Education
Community Services
Finance
Health
Industry
Justice
Planning
Premier and Cabinet
Transport
Treasury
Whole of Government
Environment
Compliance
Cyber security
Financial reporting
Fraud
Information technology
Internal controls and governance
Management and administration
Procurement
Project management

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:

  1. Internal control trends
  2. Information technology (IT), including IT vendor management
  3. Transparency and performance reporting
  4. Management of purchasing cards and taxis
  5. 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:

  • assigning ownership of recommendations to address IT control deficiencies, with timeframes and actions plans for implementation
  • ensuring audit and risk committees and agency management regularly monitor the implementation status of recommendations.

 

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:

  • internal audit focusing on key contracting activities
  • experienced officers who are independent of contract administration performing spot checks or peer reviews
  • targeted analysis of data in contract registers.
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.

Performance management
Eighty-six per cent of agencies meet with vendors to discuss performance. 

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:

  • a more active, rigorous approach to both risk and performance management
  • checking the accuracy of vendor reporting against those KPIs and where appropriate seeking assurance over their accuracy
  • invoking performance based payments clauses in contracts when performance falls below agreed standards.

Transitioning services
Forty-three per cent of the IT vendor contracts did not contain transitioning-out provisions.

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:

  • monitoring contract end dates and contract extensions, and commence new procurements through their central procurement teams in a timely manner
  • managing their contractual commitments, budgeting and cash flow requirements.

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. 

User access administration
Seventy-two deficiencies were identified related to user access administration, including:

  • thirty issues related to granting user access across 43 per cent of agencies
  • sixteen issues related to removing user access across 30 per cent of agencies
  • twenty-six issues related to periodic reviews of user access across 50 per cent of agencies.
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:

  • review the number of, and access granted to privileged users, and assess and document the risks associated with their activities
  • monitor user access to address risks from unauthorised activity.
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

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.

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:

  • policies and guidance support the consistent and accurate collection of data
  • internal review processes and management oversight are effective
  • independent review processes are established to provide effective challenge to the assumptions, judgements and methodology used to collect the reported performance information.
4.2 Reporting on reports

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.

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:

  • on both works in progress and projects completed during the year
  • actual costs and completion dates, and forecast completion dates for major works, against original and revised budgets and original expected completion dates
  • explanations for significant cost overruns, delays and key project performance metrics.

 

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:
  • all agencies maintained purchasing card registers
  • seventy-six per cent provided training to cardholders prior to being issued with a card
  • eighty-nine per cent appointed a program administrator, but only half of these had clearly defined roles and responsibilities
  • thirty-two per cent of agencies place merchant blocks on purchasing cards
  • forty-seven per cent of agencies place geographic restrictions on purchasing cards.

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:

  • updating purchasing card registers to contain all mandatory fields required by TPP17–09
  • appointing a program administrator for the agency's purchasing card framework and defining their role and responsibility for the function
  • strengthening preventive controls to prevent misuse.

Detective controls
Ninety-two per cent of agencies have designed and implemented at least one control to monitor purchasing card activity.

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:

  • detect misuse and investigate exceptions
  • analyse trends to highlight cost saving opportunities.
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:
  • a further 41 per cent of agencies have not reviewed their policies by the scheduled revision date, or do not have a scheduled revision date
  • more than half of all agencies’ policies do not offer alternative travel options. For example, only 36 per cent of policies promoted the use of general Opal cards.
Conclusion: Agencies can promote savings and provide more options to staff where their taxi use policies:
  • limit the circumstances where taxi use is appropriate
  • offer alternate, lower cost options to using taxis, such as general Opal cards and rideshare.
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

Prevention systems
Ninety-two per cent of agencies have a fraud control plan in place, 81 per cent maintain a fraud database and 79 per cent report fraud and corruption matters as a standing item on audit and risk committee agendas.

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:

  • completing regular fraud risk assessments, embedding fraud risk assessment into their enterprise risk management process and reporting the results of the assessment to the audit and risk committee
  • maintaining a fraud database and reviewing it regularly for systemic issues and reporting a redacted version of the database on the agency's website to inform corruption prevention networks
  • developing policies and procedures for employee screening and benchmarking their current processes against ICAC's publication ‘Strengthening Employment Screening Practices in the NSW Public Sector’
  • developing and maintaining up to date IT security policies and monitoring compliance with the policy.
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

 

Published

Actions for Procurement and reporting of consultancy services

Procurement and reporting of consultancy services

Finance
Education
Community Services
Industry
Justice
Planning
Premier and Cabinet
Health
Treasury
Transport
Environment
Information technology

Agencies need to improve their compliance with requirements governing the procurement of consultancy services. These requirements help agencies access procurement savings. Also, some agencies have under-reported consultancy fees in their annual reports for the 2016-17 financial year, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. The report examined twelve agencies' compliance with procurement and reporting obligations for consultancy services. It notes that it is difficult to quantify total government expenditure on consultants as agencies define ‘consultants’ differently.

NSW Government agencies engage consultants to provide professional advice to inform their decision‑making. The spend on consultants is measured and reported in different ways for different purposes and the absence of a consistently applied definition makes quantification difficult.

The NSW Government’s procurement principles aim to help agencies obtain value for money and be fair, ethical and transparent in their procurement activities. All NSW Government agencies, with the exception of State Owned Corporations, must comply with the NSW Procurement Board’s Direction when engaging suppliers of business advisory services. Business advisory services include consultancy services. NSW Government agencies must disclose certain information about their use of consultants in their annual reports. The table below illustrates the detailed procurement and reporting requirements.

  Relevant guidance Requirements
Procurement of consultancy services PBD 2015 04 Engagement of major suppliers of consultancy and other services (the Direction) including the Standard Commercial Framework
(revised on 31 January 2018, shortly before it was superseded by 'PBD 2018 01')
 
Required agencies to seek the Agency Head or Chief Financial Officer's approval for engagements over $50,000 and report the engagements in the Major Suppliers' Portal (the Portal). 
  PBD 2018 01 Engagement of professional services suppliers
(replaced 'PBD 2015 04' in May 2018)
Requires agencies to seek the Agency Head or Chief Financial Officer's approval for engagements that depart from the Standard Commercial Framework and report the engagements in the Portal. Exhibit 3 in the report includes the key requirements of these three Directions.
 
Reporting of consultancy expenditure Annual Reports (Departments) Regulation 2015 and Annual Reports (Statutory Bodies) Regulation 2015 Requires agencies to disclose, in their annual reports, details of consultants engaged in a reporting year.
  Premier's Memorandum 
'M2002 07 Engagement and Use of Consultants'
 
Outlines additional reporting requirements for agencies to describe the nature and purpose of consultancies in their annual reports.

We examined how 12 agencies complied with their procurement and reporting obligations for consultancy services between 1 July 2016 and 31 March 2018. Participating agencies are listed in Appendix two. We also examined how NSW Procurement supports the functions of the NSW Procurement Board within the Department of Finance, Services and Innovation.

This audit assessed:

  • agency compliance with relevant procurement requirements for their use of consultants
  • agency compliance with disclosure requirements about consultancy expenditure in their annual reports 
  • the effectiveness of the NSW Procurement Board (the Board) in fulfilling its functions to oversee and support agency procurement of consultancy services. 
Conclusion
No participating agency materially complied with procurement requirements when engaging consultancy services. Eight participating agencies under reported consultant fees in their annual reports. The NSW Procurement Board is not fully effective in overseeing and supporting agencies' procurement of consultancy services.
All 12 agencies that we examined did not materially comply with the NSW Procurement Board Direction for the use of consultants between 1 July 2016 and 31 March 2018. 
Eight agencies did not comply with annual reporting requirements in the 2016–17 financial reporting year. Three agencies did not report expenditure on consultants that had been capitalised as part of asset costs, and one agency did not disclose consultancy fees incurred by its subsidiaries. Agencies also defined ‘consultants’ inconsistently.
The NSW Procurement Board's Direction was revised in January 2018, and mandates the use of the Standard Commercial Framework. The Direction aims to drive value for money, reduce administrative costs and simplify the procurement process. In practice, agencies found the Framework challenging to use. To better achieve the Direction’s intent, the Board needs to simplify procurement and compliance processes. 
The Board is yet to publish any statistics or analysis of agencies’ procurement of business advisory services due to issues with the quality of data and systems limitations. Also, the Board’s oversight of agency and supplier compliance with the Framework is limited as it relies on self reporting, and the information provided is insufficient to properly monitor compliance. NSW Procurement is yet to develop an effective procurement and business intelligence system for use by government agencies. Better procurement support, benefit realisation monitoring and reporting by NSW Procurement will help promote value for money in the engagement of consultants.

Published

Actions for Detecting and responding to cyber security incidents

Detecting and responding to cyber security incidents

Finance
Cyber security
Information technology
Internal controls and governance
Management and administration
Workforce and capability

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.

Conclusion
There is no whole‑of‑government capability to detect and respond effectively to cyber security incidents. There is limited sharing of information on incidents amongst agencies, and some of the agencies we reviewed have poor detection and response practices and procedures. There is a risk that incidents will go undetected longer than they should, and opportunities to contain and restrict the damage may be lost.
Given current weaknesses, the NSW public sector’s ability to detect and respond to incidents needs to improve significantly and quickly. DFSI has started to address this by appointing a Government Chief Information Security Officer (GCISO) to improve cyber security capability across the public sector. Her role includes coordinating efforts to increase the NSW Government’s ability to respond to and recover from whole‑of‑government threats and attacks.

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.

Published

Actions for Volume Five 2012 focusing on superannuation, compensation and housing

Volume Five 2012 focusing on superannuation, compensation and housing

Finance
Treasury
Premier and Cabinet
Community Services
Asset valuation
Compliance
Financial reporting
Information technology
Internal controls and governance
Procurement
Regulation

The NSW Government’s defined benefit superannuation funds have had positive returns for the last three years. However, the returns fell significantly in 2011-12. Global economic conditions led to substantial volatility and uncertainty in markets creating challenges for superannuation funds’ trustees.

Published

Actions for Managing IT Services Contracts

Managing IT Services Contracts

Finance
Health
Justice
Compliance
Information technology
Internal controls and governance
Procurement
Project management
Risk

Neither agency (NSW Ministry of Health and NSW Police Force) demonstrated that they continued to get value for money over the life of these long term contracts or that they had effectively managed all critical elements of the three contracts we reviewed post award. This is because both agencies treated contract extensions or renewals as simply continuing previous contractual arrangements, rather than as establishing a new contract and financial commitment. Consequently, there was not a robust analysis of the continuing need for the mix and quantity of services being provided or an assessment of value for money in terms of the prices being paid.

 

Parliamentary reference - Report number #220 - released 1 February 2012