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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 Industry 2018

Industry 2018

Industry
Asset valuation
Cyber security
Financial reporting
Information technology
Internal controls and governance
Service delivery

The Auditor-General for New South Wales, Margaret Crawford, released her report today on the Industry cluster. The report focuses on key observations and findings from the most recent financial audits of agencies in the cluster. Cluster agencies received unqualified audit opinions for 41 out of the 47 financial statements presented for audit for 30 June 2018. Six audits remain incomplete. 'While it is pleasing to note that unqualified audit opinions have been issued, the timeliness of financial reporting needs to be improved through better oversight, prompt resolution of issues, and an increased focus on early close procedures', the Auditor-General said.

This report analyses the results of our audits of financial statements of the Industry cluster for the year ended 30 June 2018. The table below summarises our key observations.

This report provides parliament and other users of the Industry cluster agencies' financial statements with the results of our audits, including our observations, analysis, conclusions and recommendations in the following areas:

  • financial reporting
  • audit observations
  • service delivery.

The Department of Industry (the Department) is the lead agency in a cluster of 50 agencies. Other significant agencies in the cluster include Local Land Services, New South Wales Rural Assistance Authority, Technical and Further Education Commission (TAFE NSW), various sporting agencies, Forestry Corporation NSW and Water NSW.

The cluster:

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 Industry cluster for 2018.
 

Observation Conclusions and recommendations
2.1 Quality of financial reporting
Unqualified audit opinions were issued for 41 out of 47 financial statement audits. Six audits are continuing.

The number of misstatements identified in financial statements submitted for audit increased from 73 in 2016–17 to 92 in 2017–18.
Conclusion: Agencies continue to address financial reporting issues and ensure significant matters that may impact the audit opinion are appropriately dealt with. The increase in the number of misstatements indicates a renewed focus on quality is required.
2.2 Timeliness of financial reporting
Nineteen out of 37 audit opinions were issued within the statutory deadline. Delays occurred due to the time required to resolve issues identified during the audit, or to obtain appropriate evidence to support balances or disclosures in the financial statements. There were also delays in receiving the signed certification from the agency, required before we can issue an audit opinion.

We reviewed the conduct of early close procedures at 17 agencies. Fifteen of these agencies were assessed as not fully addressing mandatory early close procedures.
Recommendation: Timeliness of financial reporting should be improved through better oversight of the preparation of financial statements, prompt resolution of issues, and an increased focus on early close procedures.
2.3 Key financial reporting issues
Information system limitations continue at TAFE NSW. TAFE NSW implemented additional processes to verify the accuracy and completeness of revenue from student fees. Conclusion: Procedures to address system limitations are costly, causing delays in financial reporting and increased resource commitments for staff, contractors and audit.
Misstatements and internal control issues continue to be identified in accounting for Crown land. The information system used to record Crown land was not designed to facilitate efficient financial reporting. These limitations and other control weaknesses impacted the completeness and accuracy of the Department's financial statements.
Recommendation: The Department should address system limitations and control weaknesses to ensure complete and accurate reporting for Crown land.
Unprocessed Aboriginal land claims continue to increase. Recommendation (repeat issue): The Department should reduce unprocessed Aboriginal land claims.
2.4 Financial information and sustainability
Cluster agencies recorded a combined surplus of $58.0 million compared to a combined deficit of $86.0 million in the previous year.

 

We identified five agencies with potential sustainability issues such as low liquidity or negative net assets. Conclusion: Adequate arrangements are in place to mitigate potential sustainability issues. These arrangements include a commitment from the Department to provide financial support if required. 

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 Industry 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 control
Almost one in three internal control issues identified in 2017–18 were repeat issues. Recommendation (repeat issue): Recommendations to management to address internal control issues from prior years should be addressed promptly to reduce risks and improve processes.
3.2 Information technology controls
User access administration over financial systems remains an area of weakness. Two high risk and 18 moderate risk issues related to user access administration across nine agencies were identified. Recommendation (repeat issue): Agencies' controls over administration of user access to critical systems should:
  • retain documentation of approvals to create, modify and deactivate user access
  • allocate appropriate access rights
  • perform and document regular user access reviews
  • log and monitor privileged/super user account activity
  • deactivate terminated user access on a timely basis.
3.3 Annual work program
Errors continue to be identified in the Crown land database.

Instances were identified where Crown land was not recognised by the appropriate entity, or was recognised by more than one entity.
Recommendation: The Department should ensure the Crown land database is complete and accurate so state agencies and local government councils are better informed about the Crown land they control.
Approximately 700 managers of Crown land do not submit financial statements required by the Public Finance and Audit Act 1983. NSW Treasury and the Department are continuing work to clarify reporting arrangements for these entities.
3.4 Managing maintenance
Some cluster agencies do not monitor their backlog maintenance. Consequently, the total backlog maintenance in the Industry cluster is unknown. This impacts the reliability and consistency of information about assets and their condition. When backlog maintenance is unknown, it is difficult for agencies to develop an accurate and effective maintenance plan that focuses on areas of highest need. It also means agencies' maintenance plans are reactive rather than preventative.
Effective maintenance planning helps agencies to:
  • quantify and budget asset maintenance costs
  • support service delivery at the lowest possible long-term cost
  • reduce service disruptions and losses due to asset failure
  • identify and respond to risks posed by the age and condition of assets.
Recommendation: Cluster agencies should develop an asset maintenance plan and complete an assessment of the condition of their assets to identify any maintenance backlogs. 
Maintenance budgets in some cluster agencies are not set based on actual maintenance needs. Recommendation: Cluster agencies should set their maintenance budgets based on identified maintenance needs to more accurately budget and prioritise expenditure.

Agencies in the Industry cluster provide services across a wide variety of areas. This chapter outlines certain service delivery outcomes for 2017–18 for the Industry cluster. It provides important contextual information about the cluster's operation, but the data on activity levels and performance is provided by Cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited. 

In our recent performance audit, Progress and measurement of Premier's Priorities, we identified 12 limitations of performance measurement and performance data. We recommended that the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all agency data sources.

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 Universities 2017

Universities 2017

Universities
Asset valuation
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance

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

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

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.

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

Eighty-three internal control deficiencies were identified during our audits, of which 40 related to Information Technology (IT).
High risk
We identified a high risk finding in relation to storage of unencrypted username and password information on a database without appropriate access restrictions. We performed additional audit procedures to conclude that the control deficiency did not present a risk of material misstatement in the university's financial statements.
Moderate risk
Forty-three moderate risk control deficiencies were identified, of which 22 related to IT and 21 related to governance and financial reporting.

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:

  • procedures, protocols and supporting systems to effectively identify, report and respond to cyber security threats and incidents
     
  • staff awareness training and programs, including programs tailored for a range of audiences.

Use of credit card and work-related travel
All NSW universities had appropriate published policies on the use of credit cards, and have internal controls and processes to implement those policies.

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. 

Published

Actions for Volume Eight 2012 focusing on Transport and Ports

Volume Eight 2012 focusing on Transport and Ports

Transport
Industry
Compliance
Financial reporting
Fraud
Information technology
Infrastructure
Management and administration
Procurement
Project management
Regulation
Risk
Workforce and capability

We issued unqualified audit opinions on the transport entities’ 30 June 2012 financial statements.

Some of the findings of the report include:

  • government funding to the public transport operators totalled $4.4 billion in 2011-12 ($3.7 billion in 2010-11)

  • passenger services revenue only covered 20 per cent of RailCorp's operating costs

  • Transport for NSW has formalised a protocol to mitigate the risk of potential conflicts of interests

  • At present, no sustainability framework exists for the transport agencies around environment and sustainability. Transport for NSW should complete its Environment and Sustainability Policy Framework by June 2013 and should publicly report its results annually

  • Transport patronage continued to grow with 510 million journeys on train, bus and ferry services

  • CityRail had two peak hour periods where only 36 per cent and 39 per cent of services were on time

  • On-time running performance for Sydney Ferries was above the NSW 2021 plan target of 98.5 per cent for most routes in 2011-12

  • Customer surveys by transport agencies no longer specifically address crowding on public transport. Transport for NSW should observe and report on crowding on all transport modes

  • Over 2,500 transport staff, or 8.3 per cent of the workforce, have excessive leave balances. All transport entities should do more to reduce excessive annual leave balances to ensure they will comply with new targets set by the Premier.

 

Published

Actions for Volume One 2012 focusing on themes from 2011

Volume One 2012 focusing on themes from 2011

Health
Industry
Premier and Cabinet
Asset valuation
Compliance
Financial reporting
Fraud
Information technology
Infrastructure
Internal controls and governance
Management and administration
Procurement
Project management
Regulation
Risk
Shared services and collaboration

The following overview of audits from 2011 found agency restructures significantly impacted agency financial reporting processes, agencies are having difficulty establishing and enforcing compliance with their own policies and procedures, agencies experienced problems complying with regulations and providing adequate documentation to support their financial statements, the poor quality of some financial statements with 1,256 misstatements identified, 540 so significant they had to be corrected, deficiencies in information security exist across many agencies, computer system disaster recovery plans for financial systems not existing or outdated, do not align with agencies’ business recovery requirements, do not properly identify and assess critical systems and processes and testing is incomplete.