What this report is about

Results of the Enterprise, Investment and Trade portfolio of financial statement audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued for all completed Enterprise, Investment and Trade portfolio agencies.

An 'other matter' paragraph was included in the Jobs for NSW Fund's 30 June 2022 independent auditor's report to reflect the non-compliance with the Jobs for NSW Act 2015 (the Act). The Act requires the board to consist of seven members that include the Secretary of the Treasury, the Secretary of the Premier's Department, and five ministerial appointments. The board has consisted of two secretaries since 24 May 2019 when the independent members resigned. The remaining five members have not been appointed by the ministers as required by section 5(2) of the Act.

Financial statements were not prepared for the Responsible Gambling Fund, a special deposit account. Financial statements should be prepared unless NSW Treasury releases a Treasurer's Direction under section 7.8 of the GSF Act that will exempt the SDA from financial reporting requirements.

What the key issues were

The number of issues reported to management decreased from 65 in 2021–22 to 44 in 2022–23. Forty-six per cent of issues were repeated from the prior year.

Two high-risk issues were identified across the portfolio. One was a repeat issue where the Jobs for NSW Fund did not comply with legislation. The other high-risk issue was first identified in 2022–23 when the Department for Enterprise, Investment and Trade incorrectly recorded grants that did not meet the requirements of Australian Accounting Standards.

What we recommended

The Department should develop a robust model to ensure it only provides for grants that meet the eligibility criteria.

This report provides Parliament and other users of the Enterprise, Investment and Trade portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Enterprise, Investment and Trade portfolio of agencies (the portfolio) for 2023.

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 Enterprise, Investment and Trade portfolio.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

What this report is about

Results of the Premier and Cabinet portfolio of agencies' financial statement audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued for all Premier and Cabinet portfolio agencies.

What the key issues were

The Administrative Arrangements Orders, effective 1 July 2023, changed the name of the Department of Premier and Cabinet to the Premier's Department and transferred parts of Department of Premier and Cabinet to The Cabinet Office.

The number of monetary misstatements identified in our audits decreased from 15 in 2021–22 to 12 in 2022–23.

The total number of management letter findings across the portfolio of agencies increased from ten in 2021–22 to 20 in 2022–23.

Thirty per cent of all issues were repeat issues. The most common repeat issues related to deficiencies in controls over financial reporting.

What we recommended

Portfolio agencies should:

• ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards
• prioritise and address internal control deficiencies identified in Audit Office management letters.

This report provides Parliament and other users of the Premier and Cabinet portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Premier and Cabinet portfolio of agencies (the portfolio) for 2023.

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 Premier and Cabinet portfolio.

Appendix one – Early close procedures

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

What the report is about

Result of the Enterprise, Investment and Trade cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

The Machinery of Government changes within the Enterprise, Investment and Trade cluster resulted in the creation of the Department of Enterprise, Investment and Trade and the transfer of $1.0 billion of net assets into the new department.

Unmodified audit opinions were issued for all completed cluster agencies' 2021–22 financial statements audits. Two audits are ongoing.

An 'Other Matter' paragraph was included in the audit opinion for the Jobs for NSW Fund's 30 June 2021 financial report to reflect the non-compliance with the Jobs for NSW Act 2015 (the Act) and Government Sector Finance Act 2018. The Act requires the board to consist of seven members that include the Secretary of the Treasury, the Secretary of the Department of Premier and Cabinet, and five ministerial appointments. The board has consisted of two secretaries since 24 May 2019 when the independent members resigned. The remaining five members have not been appointed by the ministers as required by section 5(2) of the Act.

Three cluster agencies accepted changes to their office leasing arrangements managed by Property NSW. This has resulted in the collective derecognition of $24.8 million of right-of-use assets and $26.7 million in lease liabilities, and recognition of $1.9 million of other gains.

What the key issues were

The number of issues we reported to management decreased from 108 in 2020–21 to 103 in 2021–22. Thirty per cent of issues were repeated from the prior year.

Six high-risk issues were identified across the cluster related to the quality and timeliness of financial reporting, governance processes and internal controls.

Recommendations were made to address these deficiencies.

This report provides Parliament and other users of the Enterprise, Investment and Trade cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Enterprise, Investment and Trade cluster (the cluster) for 2022.

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 Enterprise, Investment and Trade cluster.

Appendix one – Misstatements in financial statements submitted for audit 

Appendix two – Early close procedures 

Appendix three – Timeliness of financial reporting 

Appendix four – Financial data 

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

What the report is about

Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for the financial statements for all Health cluster agencies.

The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).

A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.

What the key issues were

The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.

Three unresolved high-risk issues were:

• COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.

• Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.

• Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.

What we recommended

• COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.

• Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.

• Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.

This report provides Parliament and other users of Health cluster (the cluster) agencies' financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting

• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Health cluster (the cluster) for 2022.

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 cluster.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

What the report is about

Result of the Customer Service cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for Customer Service cluster agencies.

What the key issues were

The number and size of Service NSW's administered grant programs have increased significantly in response to emergency events. Improvements are required to address gaps in Service NSW's policies, systems and processes in administering and financial reporting of grant programs.

The Department of Customer Service (the department) reported a retrospective correction of a prior period error of $33.3 million understatement of the land titling database, which is a service concession asset managed by a private operator.

The 2021–22 audits identified five high-risk issues across the cluster:

• the department:
  • control weaknesses in user access to GovConnect systems
  • significant control deficiencies in information technology change management controls
• Rental Bond Board:
  • legislation amendment required to better support the accounting treatment of rental bonds
  • no delegation instrument to government officers authorising them to approve expenditures
• Service NSW:
  • improvements required in the timeliness and quality of grant administration revenue assessment and controls over the recovery of grant administration costs.

Recommendations were made to address these deficiencies.

This report provides Parliament and other users of the Customer Service cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Customer Service cluster (the cluster) for 2022.

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 Customer Service cluster.

Appendix one – Misstatements in financial statements submitted for audit 

Appendix two – Early close procedures 

Appendix three – Timeliness of financial reporting 

Appendix four – Financial data

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

What the report is about

Result of the Premier and Cabinet cluster financial statement audits for the year ended 30 June 2022. 

What we found

Unmodified audit opinions were issued for all Premier and Cabinet cluster agencies.

The machinery of government changes within the Premier and Cabinet cluster resulted in the transfer of net assets of $1 billion from the Department of Premier and Cabinet.

The Department of Premier and Cabinet, Public Service Commission and Parliamentary Counsel's Office accepted changes to their office leasing arrangements managed by Property NSW. These changes resulted in the collective de-recognition of $167.3 million of right-of-use assets, $225.1 million in lease liabilities and recognition of $47.8 million of other gains/losses. 

What the key issues were

The number of issues we reported to management decreased. 

Forty per cent of issues were repeated from the prior year.

Four moderate risk issues were reported in the management letters for Department of Premier and Cabinet and New South Wales Electoral Commission. Three out of the four moderate risk issues were repeat issues. 

The repeat issues related to internal control deficiencies in agencies' including lack of updated procurement policies and procedures and information technology general controls.

This report provides Parliament and other users of the Premier and Cabinet’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Premier and Cabinet cluster for 2022.

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 Premier and Cabinet cluster.

Appendix one – Early close procedures

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

This report analyses the results of our audits of the Customer Service cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the ‘Report on State Finances’ focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the ‘Report on State Finances’ has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Customer Service cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of Customer Service cluster agencies' financial statement audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all Customer Service cluster agencies.

The number of monetary misstatements decreased from 48 in 2019–20 to 46 in 2020–21.

Seven out of eight agencies did not complete all mandatory early close procedures.

What the key issues were

Upon the implementation of AASB 1059 'Service Concession Arrangements: Grantors', the Department of Customer Service (the department) recognised a service concession asset, the land titling database, totalling $845 million for the first time at 1 July 2019.

The department reported several retrospective corrections of prior period errors.

The 2020–21 audits identified three high-risk and 59 moderate risk issues across the cluster. The high-risk issues were related to:

• the Department of Customer Service – internal control qualifications and control deviations in GovConnect service providers
• the Department of Customer Service – significant control deficiencies in information technology change management controls
• Rental Bond Board – uncertainties in the accounting treatment of rental bonds.

The percentage of repeat issues we report to management and those charged with governance in management letters increased from 29 per cent in prior year to 42 per cent in 2020–21 while the number of items decreased from 94 to 93.

The magnitude and number of internal control exceptions in GovConnect service providers increased resulting in additional audit procedures to address the risks of fraud and errors in the financial statements.

What we recommended

The department should improve the validation process of key valuation assumptions and inputs provided by the private operator NSW Land Registry Services. It should revisit its accounting treatment of new land titling records.

The department should ensure GovConnect service providers prioritise the remediation of control deficiencies in information technology services.

The department should continue to improve controls in cyber security management.

Cyber Security NSW and NSW Government agencies need to prioritise improvements to their cyber security resilience as a matter of urgency.

The New South Wales Government Telecommunications Authority should improve its fixed assets management and financial reporting process to accommodate its growing fixed assets profile.

This report provides Parliament and other users of the Customer Service cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Customer Service cluster (the cluster) for 2021.

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 Customer Service.

Findings reported to management

Forty-two per cent of findings reported to management were repeat issues

Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.

In 2020–21, there were 93 findings raised across the cluster (94 in 2019–20). Forty-two per cent of all issues were repeat issues (29 per cent in 2019–20).

The most common repeat issues related to weaknesses in controls over information technology user access administration.

A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.

The table below describes the common issues identified across the cluster by category and risk rating. 

2020–21 audits identified three high-risk findings

High-risk findings, including repeat findings, were reported at the following cluster agencies. One of the 2019–20 high-risk findings were not resolved.

The number of moderate risk findings increased from prior year

Fifty-nine moderate risk findings were reported in 2020–21, which was a 11.3 per cent increase from 2019–20. Of these, 26 were repeat findings, and 33 were new issues.

Moderate risk findings include:

• weaknesses in user access management, such as untimely access removal for terminated staff, and a lack of periodic user access review
• accounting for leases such as the review of extension options, assessing indicators of impairment and reviewing the lease reports for completeness and accuracy
• formalising arrangements between agencies including corporate service arrangements, funding arrangements, leases, use of SAP system and computer assets
• use of purchasing cards where our data analytics performed indicated potential gaps and controls and non-compliance with government policies.

The magnitude and number of internal control exceptions in GovConnect service providers have increased

In 2015, the NSW Government selected Unisys Australia Pty Limited’s (Unisys) as an information technology (IT) outsourced service provider and Infosys Limited (Infosys) as a business process outsourced service provider. The outsourced services arrangement was branded GovConnect NSW (GovConnect). The Department of Customer Service (the department) is the contract authority for the NSW Government. In 2019, the NSW Government transitioned a number of Unisys’ IT services progressively to the department and ceased all Unisys's IT services in May 2021. In 2020-21, Infosys, Unisys and the Department were co-providers of business processes and information technology services that constitute the GovConnect environment.

The role of the department has changed significantly from a coordinating agency on behalf of GovConnect customers to a GovConnect IT service provider. The department is responsible for the remediation of control deficiencies and continuous improvement in GovConnect internal control environment.

The department leads the project management of GovConnect services, including the arrangement to provide internal control assurance reports to customers in 2020–21. It engages an independent service auditor (service auditor) from the private sector to perform annual assurance reviews of controls at GovConnect service providers in accordance with Australian Standard on Assurance Engagements 3402 'Assurance Reports on Controls at a Service Organisation' (ASAE 3402). The service auditor reports on the internal controls at a service organisation, which are relevant to a user entity's internal control environment.

The service auditor issued eight ASAE 3402 reports covering business processes controls and information technology general controls (ITGC) provided by the service providers. Four out of eight reports were qualified, a significant increase from previous years.

The table below shows the service auditor's ASAE 3402 opinions issued in various business processes and information technology services provided by service providers for the last five years.

In 2020–21, the information technology services controls reports issued to the department, Infosys and Unisys were qualified. Infosys' accounts receivable business process controls report was also qualified. The audit qualifications were because:

• the service auditor did not get access to the complete set of records processed during the financial year for several ITGC controls. The system that stored these records was hosted at Unisys. From December 2019 to 28 May 2021, the services at Unisys were progressively migrated to the department's IT environment but this system could not be migrated to the department in the required format, resulting in audit scope limitation for service auditors
• of the deviations identified during sample testing of ITGC controls
• the monthly follow up of outstanding receivables was not performed regularly, which was the only key control to address the timely collection of accounts receivable.

Internal control exceptions in GovConnect information and technology services require urgent remediations

The relevant controls over user access, system changes and password controls failed in all three ASAE 3402 GovConnect ITGC reports. These control failures can lead to unauthorised system access, system and configuration changes (workflow approvals, three-way match, etc.) and modifications to key reports. It increases the risk of:

• fraud and error in the financial statements
• ineffective segregation of duties controls
• accuracy and completeness of system generated reports for the agencies using the SAPConnect system.

The table shows the number of ITGC control deviations compared to prior year:

Most of these deviations were not mitigated or sufficiently mitigated to address the risk of unauthorised user access.

The service auditor identified significant areas for remediation:

• governance arrangement of the IT services
• user access management controls
• SAP database controls
• logical access
• incident management.

In response to the internal control qualifications, the audit teams performed data analytics over payroll and accounts payable. The data analytics identified several terminated employees that were paid long after their termination dates which resulted in salary overpayments during 2020–21. While management had put processes in place to recover these overpayments, the payroll processing controls need to be improved to prevent such overpayments.

The Department of Customer Service advised that it established a ‘Control Reframe Project’ (the project) to address the internal control exceptions at GovConnect service providers. The objective of the project is to ensure the GovConnect assurance model is aligned with clear lines of responsibility and remediation actions are in place to support the delivery of services and achieve an improved outcome for future years.

The NSW Public Sector's cyber security resilience needs urgent attention

The 2020 'Central Agencies' Report to Parliament highlighted the need for Cyber Security NSW, a business unit within the Department of Customer Service, and NSW Government agencies to prioritise improvements to their cyber security resilience as a matter of urgency. A status update of the 2020 recommendation is included in Appendix five of this report.

The Audit Office's Annual Work Program identifies cyber security as a focus area for the Audit Office in 2021–24. It outlines a three-pronged approach to auditing cyber security in this period:

• considering how agencies are responding to the risks associated with cyber security across our financial audits across the NSW public sector
• examining the effectiveness of cyber security planning and governance arrangements for large NSW state government agencies for our Internal Controls and Governance report
• conducting deep-dive performance audits of the effectiveness of specific agency activities in preparing for, and responding to cyber security risks.

A performance audit 'Managing cyber risks' was tabled in Parliament in July 2021. The audit made several recommendations to audited agencies to uplift their cyber security management. It also recommended the Department of Customer Service to:

• clarify the requirement of the NSW Cyber Security Policy (CSP) reporting to all systems
• require agencies to report the target level of maturity for each mandatory requirement.

A compliance audit 'Compliance with the NSW Cyber Security Policy' was tabled in October 2021. The audit examined whether agencies are complying with the NSW Cyber Security Policy to ensure all NSW Government departments and public service agencies are managing cyber security risks to their information and systems.

The report found that key elements to strengthen cyber security governance, controls and culture are not sufficiently robust and not consistently applied. There has been insufficient progress to improve cyber security safeguards across NSW Government agencies. The poor levels of cyber security maturity are a significant concern. Improvement requires dedicated leadership and resourcing. To comply with some elements of the government’s policy agencies will have to invest in technical uplift and some measures may take time to implement. However, other elements of the policy do not require any investment in technology. They simply require leadership and management commitment to improve cyber literacy and culture. And they require accountability and transparency. Transparent reporting of performance is a key means to improve performance.

The report noted that the CSP was not achieving the objective of improved cyber governance, controls and culture. The compliance audit made several recommendations to Cyber Security NSW and other NSW Government agencies.

The 2021 maturity self-assessment results against the Australian Cyber Security Centre Essential 8 for the 25 largest NSW State Government agencies are reported in the 2021 'Internal Control and Governance' Report to Parliament.

Management of cyber security risk

Our 2020-21 financial audit assessed whether cyber security risks represent a risk of material misstatement to the department's own financial statements. A request performance audit 'Service NSW's handling of personal information' was tabled on 18 December 2020. The audit followed two cyber security incidents that resulted in data breaches of customer information. As part of our audit procedures, we obtained an understanding of the controls the department has in place to address the risk of cyber security incidents and respond to any incidences which may have occurred during the year, including its impact on the audit.

Our assessment of the department’s own cyber risk management shows that:

• an approved security incident response plan was not in place during the reporting period. There was a lack of testing over incident detection and monitoring process
• a formal process over patch management that includes assessment, determining relevance and priority, timely rollout and escalation and reporting of long outstanding patches to senior management is being established.

The department provides information security services including cyber security management to cluster agencies. We found that there were insufficient communications within the Customer Service cluster over the controls and assurance over cyber security risk management. Some cluster agencies had put in place limited controls over cyber security risk management.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Appendix five – Status of 2020 recommendations

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

This report analyses the results of our audits of the Health cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Health cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of Health cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for the financial statements of all Health cluster agencies.

The COVID-19 pandemic increased the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2020–21 was $250.2 million, of which $226.0 million were pandemic related.

A qualified audit opinion was issued on the Annual Prudential Compliance Statement. The basis of the qualification related to 19 instances (18 in 2018–19) of non-compliance relating to three of the 20 prudential requirements across five aged care facilities.

What the key issues were

The total number of matters we reported to management across the cluster increased from 112 in 2019–20 to 116 in 2020–21. Of the 116 issues raised in 2020–21, three were high risk (one in 2019–20) and 57 were moderate risk (47 in 2019–20). Nearly one half of the issues were repeat issues.

The three new high-risk issues identified were:

Hotel Quarantine (HQ) fees

The absence of a tailored debt recovery strategy, data integrity issues and uncertainties around future HQ arrangements increased risks around the recoverability of HQ fees from travellers.

COVID-19 inventories

Data errors and anomalies in the impairment model and difficulties forecasting key factors impacting the management of Personal Protective Equipment (PPE) increased uncertainty associated with the valuation and impairment of COVID-19 inventories.

COVID-19 vaccines

The Commonwealth did not provide information about the cost of vaccines provided to NSW free of charge, which required the performance of internal valuations to reflect the consumption of vaccines in the financial statements.

What we recommended

Hotel Quarantine (HQ) fees

Develop a tailored assessment methodology to estimate recoverability of HQ fees and work with Revenue NSW to develop a tailored debt recovery strategy.

COVID-19 inventories

Review the current stocktaking and impairment methodology to incorporate validation of data key to the management of COVID-19 related PPE.

COVID-19 vaccines

Work with the Commonwealth to obtain primary price information on COVID-19 vaccines.

This report provides Parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely. This chapter outlines our audit observations related to the financial reporting of agencies in the Health cluster (the cluster) for 2021.

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 Health cluster.

Findings reported to management

The number of findings reported to management has increased, with 47.4 per cent of all issues being repeat issues

Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of cluster agencies. The Audit Office does this through our management letters, which include observations, implications, recommendations and risk ratings.

In 2020–21, there were 116 findings raised across the cluster (112 in 2019–20). 47.4 per cent of all issues were repeat issues (38.4 per cent in 2019–20).

A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.

The table below describes the common issues identified across the cluster by category and risk rating.

Complexities arising from the COVID-19 response

The 2020–21 audit identified three new high-risk findings

COVID-19 has presented the cluster with several new accounting challenges. New and evolving matters arose from changes to operating conditions, which characterised the 2020–21 financial reporting period. Issues with a high degree of estimation uncertainty will require ongoing attention as the strategies employed to deal with the COVID-19 pandemic evolve.

Expected rate of recovery of outstanding Hotel Quarantine invoices

The estimation of the amount likely to be recovered is complicated not only by the uncertainties that exist regarding the assumptions those estimations rely upon, but also the debt collection processes and strategies put into place to manage the accumulated debtors' balance. Debt collection is not administered by the cluster, but rather Revenue NSW. We observed an absence of a methodology to assess the likelihood of recovery. Instead, Sydney Local Health District was relying on Revenue NSW to develop and execute on a collection strategy. Sydney Local Health District was using the same approach to hotel quarantine debts as it did to other Health receivables. As the approach to managing international borders evolves over time, so too will the cluster's need to develop robust estimation models to assess the likely collectability of debtors. 

Procurement, management and impairment of COVID-19 inventories

$656.2 million of COVID-19 inventories were procured in 2020–21, with $220.2 million consumed; $558.7 million impaired and a further $217.1 million written off. Estimates of the degree to which inventories are expired, not fit for purpose or are faulty is often based on management judgement at all stages in the procurement cycle.

With respect to the stocktaking methodology applied, the following issues were identified:

• discrepancies noted in the stock bin listing provided for audit
• discrepancies in the recount sheet generated
• inconsistent application of the stocktake methodology
• inconsistent labelling of quarantined stock
• a lack of an approach for validating stock expiry dates, which is a key input to the impairment calculations.

Although management had developed processes and a methodology to count as well as to assess the level of inventory that was not fit for purpose, ongoing attention to the operating environment that emerges post pandemic will be important in assessing the degree to which existing COVID-19 inventories can be integrated into a ‘business as usual’ model going forward. Further refinement of the key elements of the stocktaking methodology will also be required to ensure that key inputs upon which management relies to calculate the year-end inventory impairment provision can be appropriately validated.

Valuation and recognition of COVID-19 vaccines received from the Commonwealth Government

The 2020–21 financial reporting period saw the Commonwealth acquire COVID-19 vaccines and provide these to state jurisdictions to dispense to their communities. The vaccines, although provided free of charge require recognition. However, Health entities were not responsible for acquiring the vaccines and data on the vaccines' cost was not shared by the Commonwealth. Management undertook a valuation using publicly available data to estimate the value to attribute to the vaccine inventory; developed new systems and leveraged existing pharmacy systems to track physical quantities received from the Commonwealth and ultimately distributed to NSW citizens. As the response to the pandemic evolves, larger quantities, and new lines of vaccine stock will be dealt with, and policy settings will need to adapt when patterns of distribution of those vaccines (e.g., timing of third booster shots) emerge. The Ministry of Health will need to ensure that the valuations applied to the prices of inventory distributed and held in stock are as accurate as possible. This can be done through further refinement of the existing valuation methodology, obtaining price information from the Commonwealth and engaging specialist pharmaceutical valuers.

Emerging trends

Recognition of provisions without sufficient support

Several NSW Health entities raised accruals and provisions in 2020–21, which did not have an appropriate basis for recognition. Liabilities can only be recognised where there is a present obligation to make a payment arising from a past event. A number of these errors remain uncorrected in the financial statements of those entities as they are not material, individually or in aggregate to the financial statements as a whole. Increased training and guidance are required to ensure that treatment within the cluster is consistent and reflects events that have occurred and give rise to obligations.

Treatment of Commonwealth funding

In the 2020–21 and 2019–20 financial reporting periods, we observed prior period errors arising from the treatment of Commonwealth funding. These errors related to recognising revenue under funding agreements entered into with the Commonwealth in the incorrect period. The conditions of these funding arrangements, the transactional information requiring validation and the circumstances when revenue should be recognised are not always clear and can be complex. Early and continuous engagement with the Commonwealth is required to ensure that revenue recognition principles are consistently applied across the cluster.

Key repeat issues

Management of excessive annual leave

NSW Treasury guidelines stipulate annual leave balances exceeding 30 days are considered excess annual leave balances. Managing excess annual leave balances has been reported as an issue for the cluster for more than five years, with the average percentage of employees with excessive leave balances over the last five years being 36.1 per cent (35.5 per cent over five years covering 2015–16 to 2019–20).

The operational demands required to manage the COVID-19 pandemic have presented new challenges for the cluster in trying to manage its excessive leave balances. 39.2 per cent of employees now have excess leave balances at 30 June 2021 (35.4 per cent at 30 June 2020).

The state's leave policy C2020-12 Managing Accrued Recreation Leave Balances requires agencies to manage excessive leave balances to 30 days or less to maintain their workforces physical and mental health.

Accurate time recording

Forced-finalisation of time records by system administrators within HealthRoster remains an issue and we continue to observe time records forced-finalised by system administrators so pay runs can be finalised on a timely basis. During 2020–21, a total of two million (2.2 million in 2019–20) time records were force approved, which represents 5.7 per cent of total time records (6.9 per cent in 2019–20).

Existence, completeness and accuracy of key agreements

Delivery of major capital projects

Health Infrastructure (a division of the Health Administration Corporation) is responsible for the delivery of major capital projects with a budgeted spend of more than $10.0 million. Health Infrastructure oversee the planning, design, procurement, and construction phases. Capital works in progress are recognised in the financial statements of the health entity that intends to use those assets upon completion. The health entities recognise both the capital work in progress and the revenue associated with the capital funding from the Ministry for the construction of the assets. Capital funding is currently agreed with health entities as part of the annual Service Agreement. The assumption that the health entities control the assets during their construction is consistent with Health Infrastructure's role as an agent for the health entity and the Ministry's policy directive PD2020-033 'Management and control of Health Administration Corporation owned Real Property'.

We continued to observe a lack of clarity regarding agreements between Health Infrastructure, the Ministry and the cluster agency that will eventually receive the completed asset. This can lead to confusion and uncertainty around the rights and obligations of each party to the transaction.

Cross border patient funding arrangements

When patients require medical care in a jurisdiction where they are not generally domiciled, there are arrangements in place to provide funding to support cross border patient treatments. We have previously observed that agreements between NSW and other jurisdictions have not been finalised, and this continues to be the case. In the case of Victoria, no agreement has been finalised for the past seven years.

We continue to note that the cluster has long outstanding receivables and payables with other states. The absence of formal agreements between the states hampers the settlement of the debts relating to the treatment of cross border patients. The following table shows the status of Cross Border Agreements between NSW and other jurisdictions:

Albury Base Hospital

Albury Base hospital is located on the border of NSW and Victoria and services residents of both states. Documentation supporting the extension of the expired Intergovernmental Agreement 2009–2017 between NSW and Victoria in relation to the integration of health services in Wodonga and Albury could not be located.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• the impact of emergencies and the pandemic.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2020, including any financial implications from the recent emergency events.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.

This chapter outlines our:

• observations and insights from our financial statement audits of agencies in the Transport cluster
• assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019, 2018 and 2017 recommendations

Appendix three – Management letter findings

Appendix four – Financial data

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.

The Auditor-General for New South Wales, Margaret Crawford today released her report on the findings and recommendations from the 2019–20 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector.

The bushfire and flood emergencies and the COVID‑19 pandemic continue to have a significant impact on the people and public sector of New South Wales. The scale of the government response to these events has been significant. The report focuses on the effectiveness of internal controls and governance processes, including relevant agencies’ response to the emergencies. In particular, the report focuses on:

• financial and information technology controls
• business continuity and disaster recovery planning arrangements
• procurement, including emergency procurement
• delegations that support timely and effective decision-making.

Due to the ongoing impact of COVID‑19 agencies have not yet returned to a business‑as‑usual environment. ‘Agencies will need to assess their response to the recent emergencies and update their business continuity, disaster recovery and other business resilience frameworks to reflect the lessons learnt from these events’ the Auditor-General said.

The report noted that special procurement provisions were put in place to allow agencies to better respond to the COVID-19 pandemic. The Auditor-General recommended agencies update their procurement policies to reflect the current requirements of the NSW Procurement Framework and the emergency procurement requirements.

Read the PDF report

This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2020. These 40 agencies constitute an estimated 85 per cent of total expenditure for all NSW public sector agencies.

1. Internal control trends

2. Information technology controls

3. Business continuity and disaster recovery planning

4. Procurement, including emergency procurement

5. Delegations

6. Status of 2019 recommendations

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 audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage key financial systems.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency business continuity and disaster recovery planning arrangements.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of procurement agency procurement policies and procurement activity.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency compliance with financial and human resources delegations.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations

Appendix three – Cluster agencies

Copyright notice

© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.