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 the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.

Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.

Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.

Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.

The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.

All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).

NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.

What the key issues were

Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.

There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.

The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.

Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.

Recommendations were made to address these deficiencies.

This report provides Parliament and other users of the Planning and Environment 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 Planning and Environment 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 Planning and Environment 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

Appendix five – Councils received qualified audit opinions 

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 Regional NSW cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for Regional NSW cluster agencies. Two audits are ongoing.

What the key issues were

The Department of Regional NSW (the department) and Local Land Services (LLS) accepted changes to their office leasing arrangements managed by Property NSW.

These changes resulted in the collective derecognition of $100.6 million of rights-of-use-assets and $110.4 million of lease liabilities.

In 2021–22, the cluster agencies continued to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales.

The Northern Rivers Reconstruction Corporation was established in May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods.

The number of matters reported to management decreased from 36 in 2020–21 to 14 in 2021–22.

Five moderate risk issues were identified and 14% of reported issues were repeat issues.

One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.

This report provides Parliament and other users of the Regional NSW cluster 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 Regional NSW 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 Regional NSW 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

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

In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.

This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.

The report is framed by recognition that the past four years have seen significant challenges and emergency events.

The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.

The report is a resource to support public sector agencies and local government to improve future programs and activities.

What we found

Our analysis of findings and recommendations is structured around six key themes:

• Integrity and transparency
• Performance and monitoring
• Governance and oversight
• Cyber security and data
• System planning for disruption
• Resource management.

The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.

In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.

The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.

The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.

While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.

Margaret Crawford
Auditor-General for New South Wales

This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.

• Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
• Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
• Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.

This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.

The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.

This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.

Appendix one – Included reports, 2018–2022

Appendix two – About this report

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© 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

Results of the local government sector council financial statement audits for the year ended 30 June 2021.

What we found

Unqualified audit opinions were issued for 126 councils, 13 joint organisation audits and nine county councils in 2020–21. 

A qualified audit opinion was issued for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.

The audit of Kiama Municipal Council is still in progress as at the date of this report due to significant accounting issues not resolved resulting in corrections to the financial statements and prior period errors.

Forty-one councils and joint organisations (2020: 16) received extensions to submit audited financial statements to the Office of Local Government (OLG). 

Councils were impacted by recent emergency events, including bushfires, floods and the COVID-19 pandemic. The financial implications from these events varied across councils. Councils adapted systems, processes and controls to enable staff to work flexibly.

What the key issues were

There were 1,277 audit findings reported to councils in audit management letters.

Ninety-two high-risk matters were identified across the sector:

• 69 high-risk matters relating to asset management (see page 30)
• six high-risk matters relating to information technology (see page 39)
• six high-risk matters relating to financial reporting (see page 26)
• six high-risk matters to council governance procedures (see page 22)
• five high-risk matters relating to financial accounting (see page 28).

More needs to be done to reduce the number of errors identified in financial reports. Twenty-nine councils required material adjustments to correct errors in previous audited financial statements.

Rural firefighting equipment

Sixty-eight councils did not record rural firefighting equipment estimated to be $145 million in their financial statements.

The financial statements of the NSW Total State Sector and the NSW Rural Fire Service do not include these assets, as the State is of the view that rural firefighting equipment that has been vested to councils under the Rural Fires Act 1997 is not controlled by the State. In reaching this conclusion, the State argued that on balance it would appear the councils control rural firefighting equipment that has been vested to them.

The continued non-recording of rural firefighting equipment in financial management systems of some councils increases the risk that these assets are not properly maintained and managed.

What we recommended

Councils should perform a full asset stocktake of rural firefighting equipment, including a condition assessment for 30 June 2022 financial reporting purposes and recognise this equipment as assets in their financial statements. 

Consistent with OLG’s role to assess council’s compliance with legislative responsibilities, standards or guidelines, OLG should intervene where councils do not recognise rural firefighting equipment.

Early financial reporting procedures

Fifty-nine per cent of councils performed some early financial reporting procedures, less than the prior year.

What we recommended

OLG should require early financial reporting procedures across the local government sector by April 2023. Policy requirements should be discussed with key stakeholders to ensure benefits of the procedures are realised.

Asset valuations

Audit management letters reported 288 findings relating to asset management. Fifty-eight councils had deficiencies in their processes to revalue infrastructure assets.

Thirty-five councils corrected errors relating to revaluations amounting to $1 billion and 13 councils had prior period errors relating to asset revaluations that amounted to $253 million.

What we recommended

Councils should have all asset revaluations completed by April of the financial year subject to audit.

Integrity/completeness of asset records

Sixty-seven councils had weak processes over maintenance, completeness and security of fixed asset registers.

Thirty-five councils corrected errors to the financial statements relating to poor record keeping of asset data that amounted to $102.1 million. Nineteen councils had 27 prior period financial statement errors that amounted to $417.1 million relating to the quality of asset records such as found and duplicate assets.

What we recommended

Councils need to improve controls and processes to ensure integrity and completeness of asset source records.

Cybersecurity

Our audits found that cybersecurity frameworks and related controls were not in place at 65 councils.

These councils have yet to implement basic governance and internal controls to manage cybersecurity such as having a cybersecurity framework, policy and procedure, register of cyber incidents, system penetrations testing and training.

What we recommended

OLG needs to develop a cybersecurity policy to be applied by councils as a matter of high priority in order to ensure cybersecurity risks over key data and IT assets are appropriately managed across councils and key data is safeguarded.

Councils should monitor the implementation of recommendations

Fifty-three per cent of total findings reported in 2020–21 audit management letters were repeat or partial repeat findings from prior years.

What we recommended

Councils and those charged with governance should track the progress of implementing recommendations from financial audits, performance audits and public inquiries.

Pursuant to the Local Government Act 1993 I present my report Local Government 2021. My report provides the results of the 2020–21 financial audits of 127 councils, 13 joint organisations and nine county councils.

Unqualified audit opinions were issued for 126 councils, 13 joint organisation and nine county councils in 2020–21. My independent auditor’s opinion was qualified for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.

The 2020–21 year was challenging from many perspectives, not least being the continuing impact of and response to the recent emergency events, including bushfires, floods and the COVID-19 pandemic. We appreciate the efforts of council staff and management right across local government and they must be congratulated for their responsiveness and resilience in meeting their financial reporting obligations in such challenging circumstances.

This report makes a number of recommendations to councils and to the regulator, the Office of Local Government within the Department of Planning and Environment. These are intended to support councils to further improve the timeliness, accuracy and strength of financial reporting and their governance arrangements. Arguably, when faced with challenges, it is even more important to prioritise and invest in systems and processes to protect the integrity of councils' operations and promote accurate and transparent reporting.

I look forward to continuing engagement and constructive dialogue with councils in 2022–23 and beyond.

Margaret Crawford
Auditor-General for New South Wales

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

This chapter outlines audit observations related to the financial reporting of councils and joint organisations.

A strong system of internal controls enables councils to operate effectively and efficiently, produce reliable financial reports, comply with laws and regulations, and support ethical government.

This chapter outlines the overall trends in governance and internal control findings across councils, county councils and joint organisations in 2020–21.

Financial audits focus on key governance matters and internal controls supporting the preparation of councils' financial statements. Audit findings are reported to management and those charged with governance through audit management letters.

Total number of findings reported in audit management letters decreased

In 2020–21, 1,277 audit findings were reported in audit management letters (2019–20: 1,435 findings). No extreme audit risk findings were identified this year. The extreme risk relating to Central Coast Council's use of externally restricted funds in 2019–20 was partially addressed by management and has been rated as a high-risk for 2020–21. The total number of high-risk findings increased to 92 (2019–20: 53 high-risk findings).

Findings are classified as new, repeat or ongoing, based on:

• new findings were first reported in 2020–21 audits
• repeat findings were first reported in prior year audits, but remain unresolved in 2020–21
• ongoing findings were first reported in prior year audits, but the action due dates to address the findings are after 2020–21.

Findings are categorised as governance, financial reporting, financial accounting, asset management, purchases and payables, payroll, cash and banking, revenue and receivables, or information technology. The high-risk and common audit findings across these areas are explored further in this chapter.

Audit Office’s annual work program for 2021–22 onwards

Focus on integrity of systems, good governance and good advice

We have a fundamental role in helping the Parliament hold government accountable for the use of public resources. In doing so, we examine whether councils' systems and processes are effective in supporting integrity, accountability and transparency. Key aspects of integrity that we expect to through conduct of our financial and performance audits over the next three years include the integrity of systems, good governance and good advice. These focus areas have arisen from the collation of key findings and recommendations from our past reports.

Focus on local councils' continued response to recent emergencies

The COVID-19 pandemic continues to have a significant impact on the people and the public sector of New South Wales. Local councils are continuing to assist communities in their recovery from the 2019–20 bushfires and subsequent and recent flooding. The full extent of some of these events remain unclear and will likely continue to have an impact into the future.

The Office of Local Government within the Department of Planning and Environment continues to work with other state agencies to assist local councils and their communities to recover from these unprecedented events.

The increasing and changing risk environment presented by these events has meant that we have recalibrated and focused our efforts on providing assurance on how effectively aspects of responses to these emergencies have been delivered.

This includes financial and governance risks arising from the scale and complexity of government responses to these events.

We will take a phased approach to ensure our financial and performance audits address the following elements of the emergencies and the Local Government's responses:

• local councils' planning and preparedness for emergencies
• local councils' initial responses to support people and communities impacted by COVID-19 and the 2019–20 bushfires and recent floods
• governance and oversight risks that arise from the need for quick decision-making and responsiveness to emergencies
• effectiveness and robustness of processes to direct resources toward recovery efforts and ensure good governance and transparency in doing so
• the mid to long-term impact of government responses to the natural disasters and COVID-19
• whether government investment has achieved desired outcomes.

Focus on the effectiveness of cybersecurity in local government

The increasing global interconnectivity between computer networks has dramatically increased the risk of cybersecurity incidents. Such incidents can harm local government service delivery and may include theft of information, denial of access to critical technology, or even hijacking of systems for profit or malicious intent.

Outdated IT systems and capability present risks to government cybersecurity. Local councils need to be alert to the need to update and replace legacy systems, and regularly train and upskill staff in their use. To add to this, cybersecurity risks have been exacerbated by recent emergencies, which have resulted in greater and more diverse use of digital technology.

Our approach to auditing cybersecurity across in the sector involves:

• considering how local councils are responding to the risks associated with cybersecurity across our financial audits
• examining the effectiveness of cybersecurity planning and governance arrangements within local councils
• conducting deep-dive performance audits of the effectiveness of cybersecurity measures in selected councils.

Local government elections

Local government elections took place in 2021–22

The local government elections were deferred for one year due to the COVID-19 pandemic and were held on 4 December 2021.

As part of our audits, we will consider the impact of any significant change on key decisions and activities for councils, county councils and joint organisations following the local government elections.

New rate peg methodology to support growing councils

The Independent Pricing and Regulatory Tribunal (IPART) has completed its review of the local government rate peg methodology to include population growth.

On 10 September 2021, IPART provided the final report on this review to the Minister for Local Government.

The minister has endorsed the new rate peg methodology and has asked IPART to give effect to it in setting the rate peg from the 2022–23 financial year.

As part of our audits, we will consider the impact of these changes on the financial statements and on key decisions and activities for councils, county councils and joint organisations.

Appendix one – Response from the Office of Local Government within the Department of Planning and Environment

Appendix two – Status of previous recommendations

Appendix three – Status of audits

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

The ePlanning program is an initiative of the Department of Planning and Environment (the department) to deliver a digital planning service for New South Wales through the NSW planning portal (the portal).

Using the portal, relevant planning activities can be carried out online, including all stages of development applications.

The portal has been developed under three separate business cases in 2013, 2014 and 2020.

In late 2019, the government mandated the use of the portal for all development applications. This decision took effect across 2020–21.

This audit assessed the effectiveness of the department's implementation, governance and stakeholder engagement in delivering the NSW planning portal. 

What we found

Since implementation commenced in 2013, the NSW planning portal has progressively achieved its objectives to provide citizens with access to consolidated planning information, and allow them to prepare and submit development applications online.

Shortcomings in the department's initial planning and management of the program led to a significant time overrun. It has taken the department longer and cost significantly more to implement the portal than first anticipated. 

In recent years the department has improved the planning, implementation and governance of the ePlanning program, resulting in improved delivery of the portal’s core functions.

The department now has a clear view of the scope necessary to finalise the program, but has not yet published the services it plans to implement in 2022 and 2023.

Mandating the use of the portal for all development applications changed the program's strategic risk environment and required the department to work more closely with a cohort of stakeholders, many of whom did not want to adopt the portal.

Despite this change, the department kept its overall delivery approach the same.

While implementation of the portal has delivered financial benefits, the department has overestimated their value.

The Department has only reported benefits since 2019 and has not independently assured the calculation of benefits.

What we recommended

By December 2022, the department should:

• publish a roadmap of the services it expects to release on the portal across 2022 and 2023
• update its ePlanning program assumptions, benefits targets and change management approach to reflect the government's decision to mandate the use of the portal for all stages of a development application
• independently assure and report publicly the correct calculation of ePlanning program benefits.

The ePlanning program is an initiative of the Department of Planning and Environment (the department) to deliver a digital planning service for New South Wales through the NSW planning portal (the portal, or the planning portal). The department defines the portal as an online environment where community, industry and government can work together to better understand and meet their obligations under the Environmental Planning and Assessment Act 1979 (NSW). Using the portal, relevant planning activities can be carried out online throughout New South Wales. This includes, but is not limited to:

• applying for and gaining planning approval
• applying for and gaining approval for building works, sub-dividing land and similar activities
• issuing occupancy and other certificates.

The portal has been developed under three separate business cases. The first business case in 2013 led to the creation of a central portal, which made planning information available to view by planning applicants and allowed some planning applications to be lodged and tracked online.

Under a second business case prepared in 2014, the department set out to improve and widen the functions available via the portal. The department prepared a third business case in 2020 to fund further improvements to the portal over the period July 2020 to June 2023. The third business case also extended the portal's functions to support the building and occupation stages of the planning cycle.

In late 2019, the government mandated the use of the portal for all stages of development applications. This decision took effect across 2020–21 and applied to all councils as well as certifiers and others involved in the planning process.

The objective of this performance audit was to assess the effectiveness of the department's implementation, governance and stakeholder engagement in delivering the NSW planning portal. We investigated whether:

• delivery of the NSW planning portal was planned effectively
• sound governance arrangements are in place to ensure effective implementation of the program
• users of the NSW planning portal are supported effectively to adopt and use the system.

This part of the report sets out how:

• the ePlanning program has been planned and delivered
• users of the portal have been supported
• the program has been governed.

This part of the report sets out the ePlanning program's:

• expected and reported financial benefits
• calculation of financial benefits.

In 2019, the department increased its expectations for net financial benefits

The department's three ePlanning business cases each forecast substantial financial benefits from the implementation of the planning portal. The department expected that most financial benefits would flow to planning applicants due to a quicker and more consistent planning process. It also expected that government agencies and councils would benefit from the portal.

In 2019 the department commissioned a review to explore opportunities to better identify, monitor and realise the benefits of the ePlanning program. Using this work, the department updated the expected benefits for business cases 1 and 2 to take account of:

• errors and miscalculations in the original benefits calculations
• slower delivery of the portal and changes to the take-up of portal services by councils
• changes to the services supported by the portal.

Reported benefits significantly exceed the current targets

In September 2021, the department reported that the program had achieved $334 million of benefits over the three financial years up to June 2021 plus the first two months of 2021–22. These reported benefits were significantly higher than expected. 

The department attributes the higher-than-expected financial benefits to the following:

• benefit targets have not been updated to reflect the impact of the 2019 decision to mandate the use of the portal for all development applications. This decision brought forward the expected benefits as well as potential costs of the program. However, the department did not update its third business case which was draft at the time. The business case was subsequently approved in July 2020
• one-off cost savings for agencies not having to develop their own systems
• public exhibitions of planning proposals continuing to be available online during 2020 when some newspapers stopping printing due to COVID-19.

The calculation of benefits is overstated

The department reported $334 million of benefits in September 2021 due to the ePlanning program. This calculation is overstated because:

• a proportion of reported benefits is likely to be due to other planning reforms
• the calculation of the largest single benefit is incorrect
• the reported benefits may not fully account for dis-benefits reported by some stakeholders.

The program’s benefits are calculated primarily from changes in planning performance data, such as the time it takes to determine a planning development application. The department currently attributes the benefits from shorter planning cycles entirely to the effect of the ePlanning program. However, planning cycles are impacted by many other factors such as the complexity of planning regulations and the availability of planning professionals. Planning cycles may also be impacted by other departmental initiatives which are designed to improve the time that it takes for a planning application to be evaluated. The Introduction describes some of these initiatives.

The largest contribution to the department’s September 2021 benefit report was an estimated saving of $151 million for developers due to lower costs associated with holding their investment for a shorter time. However, the department’s calculation of this benefit assumes a high baseline for the time to determine a development application. It also assumes that all development applications except for additions or alterations to existing properties will incur financing costs. However, a small but material number of these applications will be self-financed. The calculation also includes several data errors in spreadsheets.

The calculation of some benefits relies upon an extrapolation of the benefits experienced by a small number of early-adopter councils, including lower printing and scanning costs, fewer forms and quicker processing times. However, some councils report that their costs have increased following the introduction of the portal, primarily because aspects of the portal duplicate work that they carry out in their own systems. The portal has also required some councils to re-engineer aspects of their own systems, such as the integration of their planning systems with other council systems such as finance or property and rating systems. It has also required councils to create new ways of integrating council information systems with the planning portal.

The department has published information to help councils and certifiers to automatically integrate their systems with the planning portal. This approach uses application programming interfaces (or APIs) which are an industry-standard way for systems to share information. In April and May 2021, the government granted $4.8 million to 96 regional councils to assist with the cost of developing, implementing and maintaining APIs. The maximum amount of funding for each council was $50,000. The department is closely monitoring the implementation of APIs by councils and other portal users. Once they are fully implemented the department expects APIs to reduce costs incurred by stakeholders.

The department has not yet measured stakeholder costs. It was beyond the scope of this audit to validate these costs.

The department has not independently assured the calculation of reported benefits

In 2020 the department appointed an external provider to calculate the benefits achieved by the ePlanning program. The department advised that it chose to outsource the calculation of benefits because the provider had the required expertise and because it wanted an independent calculation of the benefits. The process involves:

• extraction and verification of planning performance data by the department
• population of data input sheets by the department
• calculation of benefits by the external provider using the data input
• confirmation by the department that the calculation includes all expected benefit sources.

The department does not have access to the benefits calculation model which is owned and operated by the external provider. The department trusts that the provider correctly calculates the benefits and does not verify the reported benefit numbers. However, as the benefits model involves many linked spreadsheets and approximately 300 individual data points, there is a risk that the calculation model contains errors beyond those discussed in this audit.

The reported benefits have only been calculated since 2019

The department originally intended to track benefits from October 2014. However, it only started to track benefits in 2019 when it appointed an external provider to calculate the benefits achieved by the portal. Any benefits or dis-benefits between the introduction of the portal and 2019 are unknown and not included in the department’s calculation of benefits.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Copyright notice

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Parliamentary reference - Report number #366 - released 21 June 2022

The Auditor-General for New South Wales, Margaret Crawford, released her report today on the NSW Planning and Environment cluster. The report focuses on key observations and findings from the most recent financial audits of these agencies. Unqualified audit opinions were issued for all agencies' financial statements. However, some cultural institutions had challenges valuing collection assets in 2017–18. These issues were resolved before the financial statements were finalised.

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

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

• financial reporting
• audit observations
• service delivery.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster for 2018.

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

This chapter outlines our observations and insights from:

• our financial statement audits of agencies in the Planning and Environment cluster for 2018
• the areas of focus identified in the Audit Office work program.

The Audit Office annual work program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each of the NSW Government clusters.

This chapter outlines certain service delivery outcomes for 2017–18. The data on activity levels and performance is provided by cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited. 

We report this information on service delivery to provide additional context to understand the operations of the Planning and Environment cluster, and to collate and present service information for different segments of the cluster in one report. 

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

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three- Cluster agencies

Appendix four - Financial data

Appendix five - Timeliness of financial reporting

Appendix six - Management letter findings by risk rating

The Auditor-General for New South Wales Margaret Crawford found that as NSW state government agencies’ digital footprint increases they need to do more to address new and emerging information technology (IT) risks. This is one of the key findings to emerge from the second stand-alone report on internal controls and governance of the 40 largest NSW state government agencies.

This report analyses the internal controls and governance of the 40 largest agencies in the NSW public sector for the year ended 30 June 2018.

This report covers the findings and recommendations from our 2017–18 financial audits that relate to internal controls and governance at the 40 largest agencies (refer to Appendix three) in the NSW public sector.

This report offers insights into internal controls and governance in the NSW public sector

This is our second report dedicated to internal controls and governance at NSW State Government agencies. The report provides insights into the effectiveness of controls and governance processes in the NSW public sector by:

• highlighting the potential risks posed by weaknesses in controls and governance processes
• helping agencies benchmark the adequacy of their processes against their peers
• focusing on new and emerging risks, and the internal controls and governance processes that might address those risks.

Without strong governance systems and internal controls, agencies increase the risks associated with effectively managing their finances and delivering services to citizens. The way agencies deliver services increasingly relies on contracts and partnerships with the private sector. Many of these arrangements deliver front line services, but others provide less visible back office support. For example, an agency may rely on an IT service provider to manage a key system used to provide services to the community. The contract and service level agreements are only truly effective where they are actively managed to reduce risks to continuous quality service delivery, such as interruptions caused by system outages, cyber security attacks and data security breaches.

Our audits do not review all aspects of internal controls and governance every year. We select a range of measures, and report on those that present heightened risks for agencies to mitigate. This report divides these into the following five areas:

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

The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, controls and service delivery comments are included in the individual 2018 cluster financial audit reports, which will be tabled in Parliament from November to December 2018.

The focus of the report has changed since last year

Last year's report topics included asset management, ethics and conduct, and risk management. We are reporting on new topics this year. We plan to introduce new topics and re-visit our previous topics in subsequent reports on a cyclical basis. This will provide a baseline against which to measure the NSW public sectors’ progress in implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.

Agencies selected for the volume account for 95 per cent of the state's expenditure

While we have covered only 40 agencies in this report, those selected are a large enough group to identify common issues and insights. They represent about 95 per cent of total expenditure for all NSW public sector agencies.

Internal controls are processes, policies and procedures that help agencies to:

• operate effectively and efficiently
• produce reliable financial reports
• comply with laws and regulations
• support ethical government.

This chapter outlines the overall trends for agency controls and governance issues, including the number of findings, level of risk and the most common deficiencies we found across agencies. The rest of this volume presents this year’s controls and governance findings in more detail.

Government agencies’ financial reporting is now heavily reliant on information technology (IT). IT is also increasingly important to the delivery of agency services. These systems often provide the data to help monitor the efficiency and effectiveness of agency processes and services they deliver. Our audits reviewed whether agencies have effective controls in place to manage both key financial systems and IT service contracts.

This chapter outlines our audit observations, conclusions and recommendations from our review of how agencies reported their performance in their 2016–17 annual reports. The Annual Reports (Statutory Bodies) Regulation 2015 and Annual Reports (Departments) Regulation 2015 (annual reports regulation) currently prescribes the minimum requirements for agency annual reports.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency preventative and detective controls over purchasing card and taxi use for 2017–18.

Fraud and corruption control is one of the 17 key elements of our governance lighthouse. Recent reports from ICAC into state agencies and local government councils highlight the need for effective fraud control and ethical frameworks. Effective frameworks can help protect an agency from events that risk serious reputational damage and financial loss.

Our 2016 Fraud Survey found the NSW Government agencies we surveyed reported 1,077 frauds over the three year period to 30 June 2015. For those frauds where an estimate of losses was made, the reported value exceeded $10.0 million. The report also highlighted that the full extent of fraud in the NSW public sector could be higher than reported because:

• unreported frauds in organisations can be almost three times the number of reported frauds
• our 2015 survey did not include all NSW public sector agencies, nor did it include any NSW universities or local councils
• fraud committed by citizens such as fare evasion and fraudulent state tax self-assessments was not within the scope of our 2015 survey
• agencies did not estimate a value for 599 of the 1,077 (56 per cent) reported frauds.

Commissioning and outsourcing of services to the private sector and the advancement of digital technology are changing the fraud and corruption risks agencies face. Fraud risk assessments should be updated regularly and in particular where there are changes in agency business models. NSW Treasury Circular TC18-02 NSW Fraud and Corruption Control Policy now requires agencies develop, implement and maintain a fraud and corruption control framework, effective from 1 July 2018. 

Our Fraud Control Improvement Kit provides guidance and practical advice to help organisations implement an effective fraud control framework. The kit is divided into ten attributes. Three key attributes have been assessed below; prevention, detection and notification systems.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency fraud and corruption controls for 2017–18.

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three - Cluster agencies

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

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

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

This audit assessed:

• agency compliance with relevant procurement requirements for their use of consultants
• agency compliance with disclosure requirements about consultancy expenditure in their annual reports 
• the effectiveness of the NSW Procurement Board (the Board) in fulfilling its functions to oversee and support agency procurement of consultancy services. 

Appendix one - Response from agencies

Appendix two - List of selected agencies

Appendix three - Performance auditing