Section highlights

• The 2022 financial statements of all ten universities received unmodified audit opinions.
• Wage remediation provisions across the NSW universities increased by 116% to $110 million at 31 December 2022.
• Nine universities reported net deficits in 2022, and all showed a decline from 2021 results.
• Revenue from overseas students decreased by 0.5% in 2022, as overseas student enrolments decreased by 1.2%. Almost 42% of universities' fees and charges revenue in 2022 came from overseas students from three countries (down from 43% in 2021).
• Revenue from domestic students decreased by 0.7% in 2022, as domestic student enrolments decreased by 5.3%.
• Combined expenditure for universities increased by 6.6% to $11.2 billion in 2022. Most of this was attributed to employee related expenses, which increased by 4.9%. 

Section highlights

• The 2022 audits identified six high risk and 36 moderate risk issues across NSW universities. Sixteen of the moderate risk issues were repeat issues. Many repeat issues related to information technology controls around user access management.
• The number of repeat deficiencies has decreased with 41 reported in 2022 compared to 45 in 2021.
• Two out of 13 entities reported financial losses from cyber incidents during 2022.
• Retention policies on personally identifiable information (PII) vary across entities and opportunities exist for entities to further limit their PII exposure risk from cyber attack.

Section highlights

• Seven universities were reported as having full-time employment rates of their domestic undergraduates in 2022 that were greater than the national average.
• Enrolments at NSW universities decreased the most in Science related courses in 2022. The largest increase in enrolments was in Health courses.
• On average, universities delivered 21% of their courses primarily through online means in 2022, a decrease from 59% in 2021.
• Five universities in 2021 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.
• Seven universities reported increased enrolments of Aboriginal and Torres Strait Islander students in 2021.

Section highlights

• Unqualified audit opinions were issued on all completed 30 June 2022 financial statement audits of cluster agencies, including the acquittal and compliance audits for the Legal Aid Commission of New South Wales and Crown Solicitor's Office. One audit is ongoing.

• Reported corrected misstatements decreased from 30 in 2020–21 to 23 with a gross value of $187 million in 2021–22 ($101 million in 2020–21). Reported uncorrected misstatements increased from 20 in 2020–21 to 25 with a gross value of $92.3 million in 2021–22 ($107 million in 2020–21).

• Six of the 15 cluster agencies required to submit 2021–22 early close financial statements and all other mandatory procedures did not meet the statutory deadlines. One agency did not complete all mandatory procedures.

• All 13 cluster agencies that have accommodation arrangements with Property NSW accepted the changes in the Client Acceptance Letters, resulting in the derecognition of right-of-use assets and lease liabilities of $917 million and $1 billion respectively. The agencies also collectively recorded a gain on derecognition of $136 million.

• The Department of Communities and Justice (the department) assumed the responsibility to deliver the Process and Technology Harmonisation program from the Department of Customer Service. In 2021–22, the department incurred costs of $42.8 million in relation to the project.

• In 2021–22, the department continued to implement the International Financial Reporting Standards Interpretations Committee's agenda decision on 'Configuration or customisation costs in a cloud computing arrangement'. The department's review of the remaining arrangements, with a net book value of $233 million at 30 June 2021, resulted in the recognition as an expense (through accumulated funds at 1 July 2020) of previously capitalised intangible assets totalling $106 million.

Section highlights

• The number of issues reported to management has decreased from 130 in 2020–21, to 110 in 2021–22, and 43% were repeat issues (51% in 2020–21). Many repeat issues related to information technology, governance and oversight controls, and non-compliance with key legislation and/or agency policies.

• Five high-risk issues were identified in 2021–22, all of which are repeat issues and related to user access administration and segregation of duties.

• Of the 24 newly identified moderate risk issues, 11 related to information technology. The rest related to governance and oversight controls and internal control deficiencies or improvements in payroll, asset management and other processes.

Section highlights

• The 2021 financial statements of all ten universities received unmodified audit opinions.
• All universities reported positive net results in 2021 and all showed improvement from 2020 results.
• The change in universities' investments in Education Australia Limited resulted in a combined increase of $515 million in investment revenue. However, it affected each university's net result differently depending on elections made in their historical accounting treatment.
• Forty-three per cent of universities' course fees revenue comes from three countries (up from 39% in 2020). Students from China now represent over half of all overseas student enrolments.

Section highlights

• The total number of internal control findings decreased from 110 in 2020 to 105 in 2021.
• Four high-risk findings were identified in 2021 (three in 2020).
• The number of repeat deficiencies remained the same with 45 reported in 2021 and 2020.
• All entities have drafted or implemented a cybersecurity policy/framework and established a governance committee accountable for cybersecurity.
• Four out of 13 entities experienced a significant cyber incident during 2021.

Section highlights

• Seven universities were reported as having full-time employment rates of their undergraduates in 2021 that were greater than the national average.
• Enrolments at universities in NSW decreased the most in Management and Commerce courses. The largest increase in enrolments was in Science courses.
• On average, universities delivered 59% of their courses primarily through online means in 2021.
• Five universities in 2020 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.

Two universities reported retrospective corrections of prior period errors. The University of Sydney reported errors relating to the underpayment of staff entitlements and the fair value of buildings. Charles Sturt University reported an error relating to how it had calculated right‑of‑use assets and lease liabilities on initial application of the new leasing standard in the previous year.

Student enrolments decreased in 2020 compared to 2019 by 10,032 (3.3 per cent). Of this decrease, 8,310 students were from overseas.

The ongoing impact of COVID‑19 in the short‑term, on semester one enrolments for 2021 compared to semester one of 2020, has been mixed:

• all universities in NSW experienced a growth in their domestic student enrolments
• eight universities experienced decreases in overseas student enrolments.

During 2020, universities provided welfare support to students, created student hardship funds, provided accommodation, and flexibility on payment of course fees.

State and Commonwealth governments provided additional support to the sector:

• those university controlled entities eligible to receive JobKeeper payments received a combined amount under the Commonwealth scheme totalling $47.6 million in 2020
• the NSW Government launched a University Loan Guarantee scheme.

Six universities recorded negative net operating results in 2020 (two in 2019). While most universities experienced decreased revenue in 2020, only four had reduced their expenses to a level that was less than revenue.

Universities' revenue streams were impacted in 2020 by the COVID‑19 pandemic, with fees and charges decreasing by $361 million (5.8 per cent).

Government grants as a proportion of total revenue increased for the first time in five years to 34 per cent in 2020.

Nearly 40 per cent of universities' total revenue from course fees in 2020 (40.9 per cent in 2019) came from overseas students from three countries: China, India and Nepal (same in 2019). Students from these countries of origin contributed $2.2 billion ($2.4 billion in 2019) in fees. Some universities continue to be dependent on revenues from students from these destinations and their results are more sensitive to fluctuations in demand as a result.

Overall philanthropic contributions to universities increased by 32.2 per cent in 2020 to $222 million ($167.9 million in 2019). The University of Sydney and the University of New South Wales attracted 75.2 per cent of the total philanthropic contributions in 2020 (69.5 per cent in 2019).

Total research income for universities was $1.4 billion in 2019¹, with the University of Sydney and the University of New South Wales attracting 66.5 per cent of the total research income of all universities in NSW (65.2 per cent in 2018).

Recommendation: Universities should prioritise actions to address repeat findings on internal control deficiencies in a timely manner. Risks associated with unmitigated control deficiencies may increase over time.

Three high risk internal control deficiencies were identified, namely:

• The University of New South Wales should continue work to assess its liability for the underpayment of casual staff entitlements. This issue was also reported last year.
• Two high risk deficiencies were identified at Charles Sturt University. One related to misunderstanding the requirements of the new accounting standard in relation to recognising grant funding revenue for construction work. The second related to resolving issues identified by an ongoing internal review of its employment contracts to enable a reliable quantification as to the university's liability to its employees.

Gaps in information technology (IT) controls comprised the majority of the remaining deficiencies. Deficiencies included a lack of sufficient privileged user access reviews and monitoring, payment files being held in editable formats and accessible by unauthorised persons, and password settings not aligning with the requirements of information security policies.

Except for Macquarie University, all other universities had disaster recovery plans prepared for all of the IT systems that support critical business functions. Macquarie University’s disaster recovery plans were still in progress at 31 December 2020.

Only half of the universities' policies require regular testing of their business continuity plans and six universities' plans do not specify staff must capture, asses and report disruptive incidents.

Six universities were reported as having full‑time employment rates of their postgraduates in 2020 that were greater than the national average.

Seven universities were reported to have increased their enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2019. The target growth rate for increases in enrolments of Aboriginal and Torres Strait Islander students (to exceed the growth rate of enrolments of non‑indigenous students by at least 50 per cent) was achieved in 2019.

Internal control deficiencies increased by 13 per cent compared to last year. This is predominately due to a seven per cent increase in new internal control deficiencies and 24 per cent increase in repeat internal control deficiencies. There were ten high risk findings compared to four last year.

The recent emergencies have consumed agency time and resources and may have contributed to the increase in internal control deficiencies, particularly repeat deficiencies.

Agencies should:

• prioritise addressing high-risk findings
• address repeat internal control deficiencies by re-setting action plans and timeframes and monitoring the implementation status of recommendations.

A number of findings remain common across multiple agencies over the last four years, including:

• out of date or missing policies to guide appropriate decisions
• poor record keeping and document retention
• incomplete or inaccurate centralised registers or gaps in these registers.

We found deficiencies in information security controls over key financial systems including:

• user access administration deficiencies relating to inadequate oversight of the granting, review and removal of user access at 53 per cent of agencies
• privileged users were not appropriately monitored at 43 per cent of agencies
• deficient password controls that did not align to the agency's own password policies at 25 per cent of agencies.

The deficiencies above increase the risk of non-compliance with the NSW Cyber Security Policy, which requires agencies to have processes in place to manage user access, including privileged user access to sensitive information or systems and remove that access once it is not required or employment is terminated.

The response to the recent emergencies and the COVID-19 pandemic has encompassed a wide range of activities, including policy setting, on-going service delivery, safety and availability of staff, availability of IT and other systems and financial management. Agencies were required to activate their business continuity plans in response, and with the continued impact of COVID-19 have not yet returned to a business-as-usual environment.

Our audits focused on the preparedness of agency business continuity and disaster recovery planning arrangements prior to the onset of the COVID-19 pandemic.

We identified deficiencies in agency business continuity and disaster recovery planning arrangements. Twenty-three per cent of agencies had not conducted a business impact analysis (BIA) to identify critical business functions and determine business continuity priorities. Agencies can also improve the content of their BIA. For example, ten per cent of agencies' BIAs did not include recovery time objectives and six per cent of agencies did not identify key IT systems that support critical business functions. Scenario testing improves the effectiveness with which a live crisis is handled, but 40 per cent of agencies had not conducted a business continuity scenario testing exercise in the period from 1 January 2019 to 31 December 2019. There were also opportunities to improve the effectiveness of scenario testing exercises by:

• involving key dependent or inter-dependent third parties who support or deliver critical business functions
• testing one or more high impact scenarios identified in their business continuity plan
• preparing a formalpost-exercise report documenting the outcome of their scenario testing.

Agencies have responded to the recent emergencies but addressing deficiencies will ensure agencies have adequate safeguards in their processes to again respond in the future, if required.

During 2020–21 we plan to conduct a performance audit on 'Business continuity and disaster recovery planning'. This audit will consider the effectiveness of agency business continuity planning arrangements to maintain business continuity through the recent emergencies and/or COVID-19 pandemic and return to a business-as-usual environment. We also plan to conduct a performance audit on whole-of-government 'Coordination of emergency responses'.

We found agencies' governance functions could have been better informed about responses to disruptive incidents that had activated a business continuity or disaster recovery response between 1 January 2019 to 31 December 2019. For instance:

in 89 per cent of instances where a business continuity response was activated, a post-incident review had been performed. In 82 per cent of these instances, the outcomes were reported to a relevant governance or executive management committee

in 95 per cent of instances where a disaster recovery response was activated, a post incident review had been performed. In 86 per cent of these instances, the outcomes were reported to a relevant governance committee or executive management committee.

Examples of recorded incidents included extensive air quality issues and power outages due to bushfires, system and network outages, and infected and hijacked servers.

Agencies should assess their response to the recent emergencies and the COVID-19 pandemic and update business continuity, disaster recovery and other business resilience frameworks to incorporate lessons learned. Agencies should report to those charged with governance on the results and planned actions.

Agency procurement policies did not capture the requirements of several key NSW Procurement Board Directions (the Directions), increasing the risk of non-compliance with the Directions. We noted: 

• 67 per cent of agencies did specify that procurement above $650,000 must be open to market unless exempt or procured through an existing Whole of Government Scheme or contract
• 36 per cent of agencies did specify that procurements above $500,000 payable in foreign currencies must be hedged
• 69 per cent of agencies' policies did specify that the agency head or cluster CFO must authorise the engagement of consultants where the engagement of the supplier does not comply with the standard commercial framework.

Recommendation: Agencies should review their procurement policies and guidelines to ensure they capture the key requirements of the NSW Government Procurement Policy Framework, including NSW Procurement Board Directions.

Eighty-eight per cent of agencies maintain a central contract register to record all details of contracts above $150,000, which is a requirement of GIPA legislation. Of the agencies that maintained registers, 13 per cent did not capture all contracts and eight per cent did not include all relevant contract details.

Sixteen per cent of agencies did not periodically review their contract register. Timely review increases compliance with GIPA legislation, and enhances the effectiveness with which procurement business units monitor contract end dates, contract extensions and commence new procurement.

Ninety-three per cent of agencies provide training to staff involved in procurement processes, and a further 77 per cent of agencies provide this training on an on-going basis. Of the seven per cent of agencies that had not provided training to staff, we noted gaps in aspects of their procurement activity, including:

• not conducting value for money assessments prior to renewing or extending the contract with their existing supplier
• not obtaining approval from a delegated authority to commence the procurement process
• procurement documentation not specifying certain key details such as the conditions for participation including any financial guarantees and dates for the delivery of goods or supply of services.

Training on procurement activities ensures there is effective management of procurement processes to support operational requirements, and compliance with procurement directions.

As at 30 June 2020, agencies within the scope of this report reported conducting 32,239 emergency procurements with a total contract value of $316,908,485. Emergency procurement activities included the purchase of COVID-19 cleaning and hygiene supplies.

The government, through NSW Procurement released the 'COVID-19 Emergency procurement procedure', which relaxed procurement requirements to allow agencies to make COVID-19 emergency procurements. Our review against the emergency procurement measures found most agencies complied with requirements. For example:

• 95 per cent of agencies documented an assessment of the need for the emergency procurement for the good and/or service
• 86 per cent of agencies obtained authorisation of the emergency procurement by the agency head or the nominated employee under Public Works and Procurement Regulation 2019
• 76 per cent of agencies reported the emergency procurement to the NSW Procurement Board.

Complying with the procedure helps to ensure government resources are being efficiently, effectively, economically and in accordance with the law.

Recommendation: Agency procurement frameworks should be reviewed and updated so they can respond effectively to emergency situations that may arise in the future. This includes:

• updating procurement policies and guidelines to define an emergency situation, specify who can approve emergency procurement and capture other key requirements
• using standard templates and documentation to prompt users to capture key requirements, such as needs analysis, supplier selection criteria, price assessment criteria, licence and insurance checks
• having processes for reporting on emergency procurements to those charged with governance and NSW Procurement.

We found that agencies have established financial and human resources delegations, but some had not revisited their delegation manuals following the legislative and machinery of government changes. For those agencies impacted by machinery of government changes we noted:

• 16 per cent of agencies had not updated their financial delegations to reflect the changes
• 16 per cent of agencies did not update their human resources delegations to reflect the changes.

Delegations manuals are not always complete; 16 per cent of agencies had no delegation for writing off bad debts and 26 per cent of agencies had no delegation for writing off capital assets.

Recommendation: Agencies should ensure their financial and human resources delegation manuals contain regular set review dates and are updated to reflect the Government Sector Finance Act 2018, machinery of government changes and their current organisational structure and roles and responsibilities.

Agencies did not understand or correctly apply the requirements of the Government Sector Finance Act 2018 (GSF Act), resulting in non-compliance with the Act. We found that 18 per cent of agencies spent deemed appropriations without obtaining an authorised delegation from the relevant Minister(s), as required by sections 4.6(1) and 5.5(3) of the GSF Act.

Further detail on this issue will be included in our Auditor-General's Reports to Parliament on Central Agencies, Education, Health and Stronger Communities, which will be tabled throughout December 2020.

Recommendation: Agencies should review financial and human resources delegations to ensure they capture all key functions of laws and regulations, and clearly specify the relevant power or function being conferred on the officer.

Recommendations were made last year to improve transparency over reporting on gifts and benefits and improve the visibility management and those charged with governance had over actions taken to address conflicts of interest that may arise. This year, we continue to note:

• 38 per cent of agencies have not updated their gifts and benefits register to include all the key fields required under the minimum standards set by the Public Service Commission
• 56 per cent of agencies have not provided training to staff and 63 per cent of agencies have not implemented an annual attestation process for senior management
• 97 per cent of agencies have not published their gifts and benefits register on their website and 41 per cent of agencies are not reporting on trends in the gifts and benefits register to those charged with governance.

While we acknowledge the significance of the recent emergencies, which have consumed agency time and resources, we note limited progress has been made implementing these recommendations. Further detail on the status of implementing all recommendations is in Appendix 2.

Recommendation: Agencies should re-visit the recommendations made in last year's report on internal controls and governance and action these recommendations.

Section highlights

We identified ten high risk findings, compared to four last year with two findings repeated from the previous year. There was an overall increase of 13 per cent in the number of internal control deficiencies compared to last year due to a seven per cent increase in new internal control deficiencies, and a 24 per cent increase in repeat internal control deficiencies. The recent emergencies have consumed agency time and resources and may have contributed to the increase in internal control deficiencies, particularly repeat deficiencies.

We identified a number of findings that remain common across multiple agencies over the last four years. Some of these findings related to areas that are fundamental to good internal control environments and effective organisational governance. Examples include:

• out of date or missing policies to guide appropriate decisions
• poor record keeping and document retention
• incomplete or inaccurate centralised registers, or gaps in these registers.

Policies, procedures and internal controls should be properly designed, be appropriate for the current organisational structure and its business activities, and work effectively.

Section highlights

Government agencies’ financial reporting is heavily reliant on information technology (IT). We continue to see a high number of deficiencies related to IT general controls, particularly those related to user access administration. These controls are key in adequately protecting IT systems from inappropriate access and misuse.

IT is also 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 financial audits do not review all agency IT systems. For example, IT systems used to support agency service delivery are generally outside the scope of our financial audit. However, agencies should also consider the relevance of our findings to these systems.

Agencies need to continue to focus on assessing the risks of inappropriate access and misuse and the implementation of controls to adequately protect their systems, focussing on the processes in place to grant, remove and monitor user access, particularly privileged user access.

Section highlights

We identified deficiencies in agency business continuity and disaster recovery planning arrangements and opportunities for agencies to enhance their business continuity management and disaster recovery planning arrangements. This will better prepare them to respond to a disruption to their critical functions, resulting from an emergency or other serious event. Twenty-three per cent of agencies had not conducted a business impact analysis (BIA) to identify critical business functions and determine business continuity priorities and 40 per cent of agencies had not conducted a business continuity scenario testing exercise in the period from 1 January 2019 to 31 December 2019. Scenario testing improves the effectiveness with which a live crisis is handled.

This section focusses on the preparedness of agency business continuity and disaster recovery planning arrangements prior to the onset of the COVID-19 pandemic. While agencies have responded to the recent emergencies, proactively addressing deficiencies will ensure agencies have adequate safeguards in their processes to again respond in the future, if required.

During 2020–21 we plan to conduct a performance audit on 'Business continuity and disaster recovery planning'. This audit will consider the effectiveness of agency business continuity planning arrangements to maintain business continuity through the recent emergencies and/or COVID-19 pandemic and return to a business-as-usual environment. We also plan to conduct a performance audit on whole-of-government 'Coordination of emergency responses'.

Section highlights

We found agencies have procurement policies in place to manage procurement activity, but the content of these policies was not sufficiently detailed to ensure compliance with NSW Procurement Board Directions (the Directions). The Directions aim to ensure procurement activity achieves value for money and meets the principles of probity and fairness.

Agencies have generally implemented controls over their procurement process. In relation to emergency procurement activity, agencies reported conducting 32,239 emergency procurements with a total contract value of $316,908,485 up to 30 June 2020. Our review of emergency procurement activity conducted during 2019–20 identified areas where some agencies did not fully comply with the 'COVID-19 Emergency procurement procedure'.

We also found not all agencies are maintaining complete and accurate contract registers. This not only increases the risk of non-compliance with GIPA legislation, but also limits the effectiveness of procurement business units to monitor contract end dates, contract extensions and commence new procurement in a timely manner. We noted instances where agencies renewed or extended contracts without going through a competitive tender process during the year.

The 2019 financial statements of all ten NSW universities received unmodified audit opinions.

One controlled entity of the Western Sydney University received a qualified audit opinion.

Five NSW universities finalised their audited financial statements this year on or before the date they did last year.

New accounting standards, which changed how universities report income and treat operating leases, became effective from 1 January 2019.

Government grants as a proportion of the total income of NSW universities continued to decrease.

Fee revenue from overseas students continued to grow faster than fees from domestic students. Forty-one per cent of NSW universities' total student revenue came from overseas students from three countries.

Five NSW universities increased the proportion of revenue they receive from overseas students from a single country. Two universities sourced over 73 per cent of their total overseas student revenue from students from a single country of origin in 2019.

All six NSW universities with overseas controlled entities have devolved responsibility for governance and legislative compliance to their overseas controlled entities.

Recommendation (repeat issue): NSW universities should strengthen their governance arrangements to oversight their overseas controlled entities' legal and policy compliance functions.

The 2019 financial results for universities are reported as at 31 December. Consequently, the results for the 2019 year were unaffected by the impact of the COVID-19 pandemic.

NSW universities provided data on the COVID-19 impacted student enrolments for semester one 2020. Overall numbers of student enrolments were 5.8 per cent beneath projections. Overseas student enrolments were 13.8 per cent beneath expectations and domestic student enrolments were 2.4 per cent beneath expectations.

NSW universities are responding to the challenges presented by COVID-19 by moving course delivery online, expanding student support and introducing cost saving measures.

Our audits identified 108 internal control deficiencies in 2019 (99 in 2018).

Gaps in information technology (IT) controls comprised the majority of these deficiencies. Deficiencies included a lack of sufficient user access reviews, inadequate review and approval of change management processes, and issues with password settings.

We identified one high risk financial control deficiency at the University of New South Wales, which resulted in the University providing for a potential underpayment of casual staff salaries.

NSW universities continue to implement recommendations arising from 35 findings raised in previous years.

Five NSW universities still do not have formal processes to internally review and validate performance information published in their annual reports.

Recommendation (repeat issue): NSW universities should strengthen processes to review and validate published performance information.

Two universities have not yet implemented a cyber risk policy and three universities have not formally trained staff in cyber awareness.

Recommendation (repeat issue): NSW universities should strengthen cyber security frameworks and controls to protect sensitive data and prevent financial and reputational losses.

All universities have a procurement policy. Most universities have a documented procurement manual and contact management policy.

Recommendation: NSW universities should review their procurement and contract management policies and procedures to ensure that they are relevant and effective in reducing risk and improving purchasing outcomes.

Five universities in 2018 (five in 2017) met the target enrolment rate for students from low socio-economic status (SES) backgrounds.

Eight universities increased enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2018.

There was an increase in internal control deficiencies of 12 per cent compared to last year. The increase is predominately due to a 100 per cent increase in repeat financial and IT control deficiencies.

Some agencies attributed the delay in actioning repeat findings to the diversion of staff from their regular activities to implement and operationalise the recent Machinery of Government changes. As a result, actions to address audit recommendations have been deferred or re prioritised, as the changes are implemented.

Agencies need to ensure they are actively managing the risks associated with having these vulnerabilities in internal control systems unaddressed for extended periods of time.

A number of findings were common to multiple agencies. These findings often related to areas that are fundamental to good internal control environments and effective organisational governance, such as:

• out of date policies or an absence of policies to guide appropriate decisions
• poor record keeping and document retention
• incomplete or inaccurate centralised registers or gaps in these registers
• policies, procedures or controls no longer suited to the current organisational structure or business activities.

We examined information security controls over key financial systems that support the preparation of agency financial statements. We found:

• user access administration deficiencies at 58 per cent of agencies related to granting, review and removal of user access
• an absence of privileged user activity reviews at 35 per cent of agencies
• password controls that did not align to password policies at 20 per cent of agencies.

We also found 20 per cent of agencies had deficient IT program change controls, mainly related to segregation of duties in approval and authorisation processes, and user acceptance testing of program changes prior to deployment into production environments. User acceptance testing helps identify potential issues with software incompatibility, operational workflows, absent controls and software issues, as well as areas where training or user support may be required.

All agencies had a gifts and benefits policy and 90 per cent of agencies maintain a gifts and benefits register. However, 51 per cent of the gifts and benefits registers we examined contained incomplete declarations, such as missing details for the approving officer, value of the gift and/or benefit offered and reasons supporting the decision.

In some cases, gaps in recorded information meant the basis for decisions around gifts and benefits was not always clear, making it difficult to determine whether decisions in those instances were appropriate, compliant with policy and were not direct or indirect inducements to the recipients to favour suppliers or service providers.

Agencies should ensure their gifts and benefits register includes all key fields specified in the Public Service Commission's minimum standards for gifts and benefits. Agencies should also perform regular reviews of the register to ensure completeness and ensure any gift or benefit accepted by a staff member meets the public's expectations for ethical behaviour.

We found opportunities to improve gifts and benefits processes and enhance transparency. For example, only three per cent of agencies publish their gifts and benefits registers on their websites.

Agencies can improve management of gifts and benefits by:

• ensuring agency policies comprehensively cover the elements necessary to make it effective in an operational environment, such as identifying risks specific to the agency and actions that will be taken in the event of a policy breach
• establishing and publishing a statement of business ethics on the agency's website to clearly communicate expected behaviours to clients, customers, suppliers and contractors
• providing on-going training, awareness activities and support to employees, not just at induction
• publishing their gifts and benefits registers on their websites to demonstrate a commitment to a transparently ethical environment.

Only 35 per cent of agencies reported trends in the number and nature of gifts and benefits recorded in their registers to the agency's senior executive management and/or a governance committee.

Agencies should regularly report to the agency executive or other governance committee on trends in the offer and acceptance of gifts and benefits.

Agencies have established and maintained internal audit functions to provide assurance on the effectiveness of agency controls and governance systems. However, we identified areas where agencies' internal audit functions could improve their processes to add greater value. For example, only 73 per cent of CAEs regularly attend meetings of the agency board or executive management committee.

Internal audit functions can add greater value by involving the CAE more extensively in executive forums as an observer.

Internal audit functions should also consider producing an annual report on internal audit. An annual report allows the internal audit function to report on their performance and add value by drawing to the attention of audit and risk committees and senior management strategic issues, thematic trends and emerging risks.

Forty-five per cent of agencies assigned responsibilities to the Chief Audit Executive (CAE) that were broader than internal audit, but 17 per cent of these had not documented safeguards to protect the independence of the CAE.

The reporting lines and status of the CAE at some agencies also needs review. At two agencies, the CAE reported to the CFO.

Agencies should ensure:

• the reporting lines for the CAE comply with the NSW Treasury policy, and the CAE does not report functionally or administratively to the finance function or other significant recipients of internal audit services
• the CAE's duties are compatible with preserving their independence and where threats to independence exist, safeguards are documented and approved.

Thirty-five per cent of agencies did not have a documented quality assurance and improvement program for its internal audit function.

The policy and the International Standards for the Professional Practice of Internal Auditing require agencies to have a documented quality assurance and improvement program. The results of this program should be reported annually.

Agencies should ensure there is a documented and operational Quality Assurance and Improvement Program for the internal audit function that covers both internal and external assessments.

According to NSW Procurement data, spend on contingent labour has increased by 75 per cent over the last five years, to $1.5 billion in 2018–19. Improvements in internal processes and a renewed focus on agency monitoring and oversight of contingent labour can help ensure agencies get the best value for money from their contingent workforces.

Agencies can improve their management of contingent labour by:

• preparing workforce plans to inform their resourcing strategy and ensure that engaging contingent labour aligns with the strategy and best meets business needs
• involving agency human resources units in decisions about engaging contingent labour
• regularly reporting on contingent labour use and tenure to agency executive teams
• strengthening on-boarding and off-boarding processes.

We also found 57 per cent of the 23 agencies we examined with contingent labour spend of more than $5 million in 2018–19 have implemented the government's vendor management system and service provider 'Contractor Central'.

Sixty-eight per cent of agencies maintain an inventory of their sensitive data and where it resides. However, these inventories are not always complete and risks may be overlooked.

Agencies can improve processes to manage sensitive data by:

• identifying and maintaining an inventory of sensitive data through a comprehensive and structured process
• assessing the criticality and sensitivity of the data so that protection of high risk data can be prioritised.

Eighty-eight per cent of agencies have established policies to respond to potential data breaches when they are identified and 70 per cent of agencies maintain a register to record key information in relation to identified data breach incidents.

Agencies should maintain a data breach register to effectively manage the actions undertaken to contain, evaluate and remediate each data breach.