Reports
Actions for Workers compensation claims management
Workers compensation claims management
What this report is about
Workers compensation schemes in NSW provide compulsory workplace injury insurance. The effective management of workers compensation is important to ensure injured workers are provided with prompt support to ensure timely, safe and sustainable return to work.
Insurance and Care NSW (icare) manages workers compensation insurance. The State Insurance Regulatory Authority (SIRA) regulates workers compensation schemes. NSW Treasury has a stewardship role but does not directly manage the schemes.
This audit assessed the effectiveness and economy of icare’s management of workers compensation claims, and the effectiveness of SIRA’s oversight of workers compensation claims.
Findings
icare is implementing major reforms to its approach to workers compensation claims management - but it is yet to demonstrate if these changes are the most effective or economical way to improve outcomes.
icare’s planning and assurance processes for its reforms have not adequately assessed existing claims models or analysed other reform options.
icare's activities have not focused enough on its core responsibilities of improving return to work and maintaining financial sustainability.
SIRA has improved the effectiveness of its workers compensation regulatory activities in recent years. Prior to 2019, SIRA was mostly focussed on developing regulatory frameworks and was less active in its supervision of workers compensation schemes.
NSW Treasury's role in relation to workers compensation has been unclear, which has limited its support for performance improvements.
Recommendations
icare should:
- Ensure that its annual Statement of Business Intent clearly sets out its approach to achieving its legislative objectives.
- Monitor and evaluate its workers compensation scheme reforms.
- Develop a quality assurance program to ensure insurance claim payments are accurate.
NSW Treasury should:
- Work with relevant agencies to improve public sector workers compensation scheme outcomes.
- Engage with the icare Board to ensure icare's management is in line with relevant NSW Treasury policies.
SIRA should:
- Address identified gaps in its fraud investigation.
- Develop a co-ordinated research strategy.
Read the PDF report
Parliamentary reference - Report number #393 - released 2 April 2024
Actions for Regulation insights
Regulation insights
What this report is about
In this report, we present findings and recommendations relevant to regulation from selected reports between 2018 and 2024.
This analysis includes performance audits, compliance audits and the outcomes of financial audits.
Effective regulation is necessary to ensure compliance with the law as well as to promote positive social and economic outcomes and minimise risks with certain activities.
The report is a resource for public sector leaders. It provides insights into the challenges and opportunities for more effective regulation.
Audit findings
The analysis of findings and recommendations is structured around four key themes related to effective regulation:
- governance and accountability
- processes and procedures
- data and information management
- support and guidance.
The report draws from this analysis to present insights for agencies to promote effective regulation. It also includes relevant examples from recent audit reports.
In this report, we also draw out insights for agencies that provide a public sector stewardship role.
The report highlights the need for agencies to communicate a clear regulatory approach. It also emphasises the need to have a consistent regulatory approach, supported by robust information about risks and accompanied with timely and proportionate responses.
The report highlights the need to provide relevant support to regulated parties to facilitate compliance and the importance of transparency through reporting of meaningful regulatory information.
I am pleased to present this report, Regulation insights. This report highlights themes and generates insights about effective regulation from the last six years of audit.
Effective regulation is necessary to ensure compliance with the law. Effective regulation also promotes social, economic, and environmental outcomes, and minimises risks or negative impacts associated with certain activities. But regulation can be challenging and costly for governments to implement. It can also involve costs and impact on the regulated parties, including other public sector and private entities, and individuals. As such, effective regulation needs to be administered efficiently, and with integrity.
Having a clearly articulated and communicated regulatory approach is essential to achieving this outcome, particularly when this promotes voluntary compliance and sets performance standards that are informed by community expectations. A consistent approach to exercising regulatory powers is important: it should be supported by robust information about regulatory risks and issues, and accompanied with timely, proportionate responses. Providing relevant support to the regulated parties and coordinating activities to facilitate compliance and performance can generate efficiencies.
Finally, transparency matters. It matters so that government has oversight of and can be held accountable for its leadership of public sector compliance, and in regulating the activities of third parties. Transparency also matters because it can provide insights into the effective exercise of government power. To achieve this, meaningful regulatory information needs to be reported.
While these issues are most pertinent for government agencies that exercise traditional regulatory functions, they are also relevant to lead government agencies that provide a stewardship role in promoting compliance and performance by other government agencies in relation to particular areas of risk.
Over the past six years, our audit work has found many common and repeat performance gaps, creating risks, inefficiencies, and limiting outcomes of regulatory activities. In considering these gaps, this report provides public sector leaders with insights into the challenges and opportunities they may encounter when aiming for more effective regulation, including the good governance of regulatory activities. This includes insights for lead agencies that provide a public sector stewardship role. Through applying these insights and maximising regulatory effectiveness, unintended impacts on the people and sectors government serves and protects can be avoided or at the very least minimised.
Margaret Crawford PSM
Auditor-General for NSW
This report brings together key findings and recommendations relevant to regulation from selected performance and compliance audits between 2018 and early 2024 (19 in total), and from two reports that summarise results of financial audits during the same period. It aims to provide insights into the challenges and opportunities the public sector may encounter when aiming to enhance regulatory effectiveness.
The report is structured in two sections, each setting out insights from relevant audits and providing summaries as illustrative examples.
Section 3 is focused on insights from audits of agencies that administer regulatory powers and functions over other entities or activities (typically known as 'regulators'). The powers and functions of regulators are defined in law, and often relate to issuing approvals (e.g., licensing) for certain activities, and/or monitoring allowable activities within certain limits. Regulators often have compliance and enforcement powers that can be exercised in particular circumstances, such as when a regulated entity has not complied with relevant requirements.
Agencies may be primarily established as regulators or perform regulatory activities alongside other functions. Depending on the context, the regulated activity may relate to other state agencies, local government entities, non-government entities or individuals.
Section 4 summarises insights from a selection of audits of agencies that provide a stewardship role in promoting compliance by and performance of other state agencies and local government entities in relation to specific regulations or policies. These policies may or may not be mandatory and, unlike a more traditional regulator, the coordinating agency may not have enforcement powers to ensure compliance.
These policies, and accompanying guidelines and frameworks, are typically issued by ‘central agencies’ such as the Premier's Department that have a public sector stewardship role. They can also be issued by agencies with a leadership role in particular policy areas ('lead agencies'). While individual agencies and local government entities implementing these policies are responsible for their own compliance and performance, lead and central agencies have an oversight role including by promoting accountability and coordinating activities towards achieving compliance and performance outcomes across the public sector.
Readers are encouraged to view the full reports for further information. Links to versions published on our website are provided throughout this document, and a full list is in Appendix one. An overview of the rationale for selecting these audits and the approach to developing this report is in Appendix two.
The status of agencies' responses to audit recommendations
Findings from the audits referred to in this report were current at the time each respective report was published. In many cases, agencies accepted audit recommendations, as reflected in the letters from agency heads that are included in the appendix of each audit report.
The Public Accounts Committee of the NSW Parliament has a role in reporting on and ensuring that agencies respond appropriately to audit recommendations. Readers are encouraged to review the Public Accounts Committee's inquiries on agencies' implementation of audit recommendations, which can be found on the Committee's website.
Actions for Effectiveness of SafeWork NSW in exercising its compliance functions
Effectiveness of SafeWork NSW in exercising its compliance functions
What this report is about
This report assesses how effectively SafeWork NSW, a part of the Department of Customer Service (DCS), has performed its regulatory compliance functions for work health and safety in New South Wales.
The report includes a case study examining SafeWork NSW's management of a project to develop a realtime monitoring device for airborne silica in workplaces.
Findings
There is limited transparency about SafeWork NSW's effectiveness as a regulator. The limited performance information that is available is either subsumed within DCS reporting (or other sources) and is focused on activity, not outcomes.
As a work health and safety (WHS) regulator, SafeWork NSW lacks an effective strategic and data-driven approach to respond to emerging WHS risks.
It was slow to respond to the risk of respirable crystalline silica in manufactured stone.
SafeWork NSW is constrained by an information management system that is over 20 years old and has passed its effective useful life.
While it has invested effort into ensuring consistent regulatory decisions, SafeWork NSW needs to maintain a focus on this objective, including by ensuring that there is a comprehensive approach to quality assurance.
SafeWork NSW's engagement of a commercial partner to develop a real-time silica monitoring device did not comply with key procurement obligations.
There was ineffective governance and process to address important concerns about the accuracy of the real-time silica monitoring device.
As such, SafeWork NSW did not adequately manage potential WHS risks.
Recommendations
The report recommended that DCS should:
- ensure there is an independent investigation into the procurement of the research partner for the real-time silica detector
- embed a formal process to review and set its annual regulatory priorities
- publish a consolidated performance report
- set long-term priorities, including for workforce planning and technology uplift
- improve its use of data, and start work to replace its existing complaints handling system
- review its risk culture and its risk management framework
- review the quality assurance measures that support consistent regulatory decisions
Read the PDF report.
Parliamentary reference - Report number #390 - released 27 February 2024
Actions for Enterprise, Investment and Trade 2023
Enterprise, Investment and Trade 2023
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.
Section highlights
- Unqualified audit opinions were issued on all completed portfolio agencies’ 2022–23 financial statements.
- An ‘other matter’ paragraph was included for the Jobs for NSW Fund’s 30 June 2022 financial report to reflect non-compliance with the Jobs for NSW Act 2015.
- 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 (or their nominees) and five ministerial appointments, one of whom is to be appointed as Chair of the board. The board has consisted of the 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.
- An ‘emphasis of matter’ paragraph was included in the Jobs for NSW Fund’s 30 June 2022 financial report to draw attention to the financial report being prepared for the purpose of fulfilling the Jobs for NSW Fund’s financial reporting responsibilities as requested by the Treasurer’s delegate.
- The total number of errors (including corrected and uncorrected) in the financial statements increased by 12% compared to the prior year.
- The Responsible Gambling Fund (Special Deposit Account) did not prepare financial statements for the year ended 30 June 2023. 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 Fund from financial reporting requirements.
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.
Section highlights
- The audits identified two high-risk and 20 moderate risk issues across the portfolio. Of these, one was a high-risk repeat issue and ten were moderate-risk repeat issues.
- One of the high-risk matters related to the Jobs for NSW Fund audit for the year ended 30 June 2022.
- The other high-risk matter related to overstating grants relating to the Jobs Plus Program as the criteria to pay the grant was not met at 30 June 2023.
- The total number of findings decreased from 65 to 44 with 2022–23 findings mainly related to deficiencies in accounting for property, plant and equipment and agencies having outdated policies.
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.
Actions for Customer Service 2023
Customer Service 2023
What this report is about
Result of the Customer Service portfolio agencies' financial statement audits for the year ended 30 June 2023.
What we found
Unmodified audit opinions were issued for all completed 30 June 2023 financial statements audits of Customer Service portfolio agencies. Two audits are ongoing.
What the key issues were
The total number of misstatements in the financial statements and findings reported to management decreased compared to the prior year.
For the first time since its establishment in 2015, GovConnect NSW received unqualified audit opinions for business process internal controls and information technology general controls managed by service providers.
The department controls Finance Co Trust (Fin Co), a special purpose trust created as part of its project to replace flammable cladding for eligible residential apartment buildings. Fin Co did not prepare financial statements which is a breach of the Government Sector Finance Act 2018 (GSF Act).
The department's land titling database was overstated by $42.5 million due to errors in the valuation model.
The New South Wales Government Telecommunications Authority corrected a prior period error of $10.2 million overstatement of property, plant and equipment.
A high-risk finding was reported to Service NSW regarding gaps in policies, systems and processes for administering and financial reporting on grant programs.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Customer Service 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 Customer Service portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of the portfolio agencies. Two audits are ongoing.
- The total number of errors (including corrected and uncorrected) in the financial statements decreased compared to the prior year.
- Financial statements were not prepared for Finance Co Trust (Fin Co), a special purpose trust created by the department as part of its project to replace flammable cladding for eligible residential apartment buildings. This is a breach of the Government Sector Finance Act 2018 (GSF Act).
- The department overstated the value of its land titling database, a service concession asset by $42.5 million. This was due to errors in the valuation data and calculation errors in the valuation model.
- Service NSW’s late resolution of the accounting assessment of grant programs funding resulted in delays to financial reporting and audit.
- The New South Wales Government Telecommunications Authority (the authority) corrected a prior period error retrospectively to write off assets that could not be physically verified.
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 portfolio.
Section highlights
- The 2022–23 audits identified one high risk and 26 moderate risk issues across the portfolio.
- The high-risk matter was related to Service NSW’s revenue assessment of its grant programs.
- The total number of findings decreased from 64 to 41, which mainly related to deficiencies in financial reporting, information technology, payroll and purchasing controls.
- Fifty-one per cent of the issues were repeat issues. Many repeat issues related to weakness in information technology (IT) controls around access to systems and data and disaster recovery testing.
- For the first time since its establishment in 2015, GovConnect NSW received unqualified audit opinions for business processes internal controls and information technology general controls managed by service providers.
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.
Actions for Natural disasters
Natural disasters
What this report is about
This report draws together the financial impact of natural disasters on agencies integral to the response and impact of natural disasters during 2021–22.
What we found
Over the 2021–22 financial year $1.4 billion from a budget of $1.9 billion was spent by the NSW Government in response to natural disasters.
Total expenses were less than the budget due to underspend in the following areas:
- clean-up assistance, including council grants
- anticipated temporary accommodation support
- payments relating to the Northern Rivers Business Support scheme for small businesses.
Natural disaster events damaged council assets such as roads, bridges, waste collection centres and other facilities used to provide essential services. Additional staff, contractors and experts were engaged to restore and repair damaged assets and minimise disruption to service delivery.
At 30 June 2022, the estimated damage to council infrastructure assets totalled $349 million.
Over the first half of the 2022–23 financial year, councils experienced further damage to infrastructure assets due to natural disasters. NSW Government spending on natural disasters continued with a further $1.1 billion spent over this period.
Thirty-six councils did not identify climate change or natural disaster as a strategic risk despite 22 of these having at least one natural disaster during 2021–22.
Section highlights
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Section highlights
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Actions for Enterprise, Investment and Trade 2022
Enterprise, Investment and Trade 2022
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.
Section highlights
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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.
Section highlights
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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.
Actions for Customer Service 2022
Customer Service 2022
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.
Section highlights
|
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.
Section highlights
|
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.
Actions for Audit Insights 2018-2022
Audit Insights 2018-2022
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.
Fast facts
- 72 audits included in the Audit Insights 2018–2022 analysis
- 4 years of audits tabled by the Auditor-General for New South Wales
- 6 key themes for Audit Insights 2018–2022.
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
Integrity and transparency | Performance and monitoring | Governance and oversight | Cyber security and data | System planning | Resource management |
Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. | Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. | The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. | Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. | Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. | Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest. |
Government entities should report to the public at both system and project level for transparency and accountability. | Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. | Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. | In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. | Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. | Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds. |
Entities must provide balanced advice to decision-makers on the benefits and risks of investments. | Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. | Active review of policies and procedures in line with current business activities supports more effective risk management. | Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. | Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. | Transformation programs can be improved by resourcing a program management office. |
Clear guidelines and transparency of decisions are critical in distributing grant funding. | Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. | Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues. | Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need. | ||
Governments must ensure timely and complete provision of information to support governance, integrity and audit processes. | |||||
Read more | Read more | Read more | Read more | Read more | Read more |
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
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.
Actions for Treasury 2021
Treasury 2021
What the report is about
The results of Treasury cluster agencies' financial statement audits for the year ended 30 June 2021. The results of the audit of the NSW Government's consolidated Total State Sector Accounts (TSSA), which are prepared by NSW Treasury, are reported separately in our report on State Finances 2021.
What we found
Unmodified audit opinions were issued for all Treasury cluster agencies.
The number of identified monetary misstatements increased from 16 in 2019–20 to 24 in 2020–21.
Reported corrected monetary misstatements decreased from 15 in 2019–20 to seven with a gross value of $1.1 billion in 2020–21.
The largest corrected misstatement was in NSW Treasury's financial statements and was a $1 billion correction to administered borrowings.
Reported uncorrected monetary misstatements increased from one in 2019–20 to 17 with a gross value of $168 million in 2020–21.
Seven of the 2020–21 uncorrected misstatements related to one common decision relating to investment management funds terminated during the year by the NSW Treasury Corporation (TCorp).
All agencies submitted their 2020–21 financial statements within NSW Treasury's reporting deadlines.
What the key issues were
Significant audit findings were identified with respect to NSW Treasury's processes to prepare the NSW Government's consolidated TSSA (whole of government accounts). This included one extreme finding and several high-risk findings related to NSW Treasury processes. These are reported in our report on State Finances 2021.
Two high-risk issues raised in 2019–20 were also not addressed by NSW Treasury during the year and were repeat issues reported to management. These related to the appropriations framework and resolution of cross cluster payments, and instances where some agencies spent deemed appropriations money without an authorised delegation.
A number of previously reported audit findings and recommendations with respect to icare continue to be ongoing issues, namely:
- The Workers Compensation Nominal Insurer continues to hold less assets than the estimated present value of its future payment obligations.
- The Workers Compensation Nominal Insurer's four week return-to-work rate fell from 68% to 64%. This is below icare's 70% target. Contributing factors include COVID-19 lockdowns which have impacted claims handling processes, and increased barriers to claimants returning to work.
- Instances were noted where inadequate documentation was kept on file to support claims, including pre-injury average weekly earnings (PIAWE) calculations.
The Workers Compensation (Dust Diseases) Authority increased its outstanding claims liability by $93.9 million, which included $39.3 million to remediate historical underpayments, resulting from workers not being paid the rate required by existing legislation.
The icare Board approved a new approach for remediating PIAWE underpayments on 24 September 2021, the date the Workers Compensation Nominal Insurer’s financial statements were approved for issue. The impact of the decision on the financial statements was not discussed with the Audit Office and assessed as an ‘after balance date event’.
What we recommended
Our report on State Finances 2021 made several recommendations to improve NSW Treasury processes. These included:
- improve processes to ensure information is shared with audit on a timely basis
- seek legislative amendments to resolve statutory inconsistencies relating to statutory reporting time frames
- implement effective quality review processes over key accounting information
- establish a policy to determine the minimum expected rate of return on equity injections in other public sector entities
- prepare robust financial projections to support accounting decisions
- re-confirm sector classifications of TAHE, Sydney Trains and NSW Trains
- ensure sufficient oversight of its use of consultants and assess the risk of an overdependence on consultants at the cost of internal capability
- improve disclosures of equity injections invested in other public sector entities
- determine a state-wide policy on when borrowings are recognised in agency financial statements
- make legislative amendments to ensure expenditure incurred across financial years does not exceed the appropriation authority and assess the financial reporting impact
- improve the guidance provided to agencies to ensure expenditure of public money is properly supported by authorised delegations.
We also recommended icare should ensure:
- it has sufficient controls over claim payments including an effective quality assurance program, to minimise claim payment errors
- that documentation to support injured worker benefit calculations is appropriately maintained, and the documentation requirements are set out in a policy
- the impact of ‘after balance date events’ on financial statements is appropriately assessed
- its operational practices are improved to ensure the correct payment of claims in compliance with legislative requirements. icare also needs to act on a timely basis on received legal advice and amend operational practices to ensure correct payments are made.
Fast factsNSW Treasury notes that it is the Government's principal financial and economic adviser to guide the State’s growth for the benefit of the people who live, work and study in NSW.
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This report focuses on agencies within the Treasury cluster and provides parliament and other users of the Treasury cluster's financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
NSW Treasury also prepares the consolidated NSW whole of government financial statements (the Total State Sector Accounts), which is reported in the report on State Finances 2021.
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 Treasury cluster (the cluster) for 2021.
Section highlights
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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 Treasury cluster.
Section highlights
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Findings reported to management
The number of findings reported to management has decreased, but 30% of all issues were repeat issues and these need greater focus and prioritisation
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 57 findings raised across the cluster (71 in 2019–20), 30% of which were repeat issues (32% in 2019–20).
The most common repeat issues related to claims processing and 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.
Risk rating | Issue | |
Information technology | ||
Moderate2 Low1 |
The financial audits identified the need for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of particular concern are issues associated with:
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Internal control deficiencies or improvements | ||
High3 Moderate2 Low1
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The financial audits identified internal control weaknesses across key business processes, including:
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Financial reporting | ||
High3 Moderate2 Low1 |
The financial audits identified opportunities for agencies to strengthen financial reporting, including:
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Governance and oversight | ||
Extreme4 High3 Low1 |
The financial audits identified the need for agencies to improve governance and oversight processes, including:
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Non-compliance with key legislation and/or central agency policies | ||
High3 Low1 |
The financial audits identified the need for agencies to improve its compliance with key legislation and central agency policies, including:
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4 Extreme risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
3 High risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
2 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
1 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
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The number of moderate risk findings decreased from prior year
There were 21 moderate risk findings reported in 2020–21, representing a 30% decrease from 2019–20. Of these, ten were repeat findings, and 11 were new issues.
Moderate risk repeat findings include:
- claims processing weaknesses including claim payment errors, and inadequate documentation to support calculations and evidence claims were reviewed by someone with appropriate delegation
- inadequate review of user access and higher risks of unintended or unauthorised system access
- controls assurance reports from an outsourced service provider did not cover the services it provided to the government agency
- failure to review procurement contracts register to ensure it is accurate and complete
- ongoing control deficiencies with grant application and approval processes
- key policies including delegations not being reviewed in a number of years and do not incorporate new requirements from more recent legislation
- quality review processes failing to identify material classification errors associated with grant funding.
NSW Treasury related matters
Accounting for the Government's investment in Transport Asset Holding Entity
A total of seven recommendations were made with respect to NSW Treasury's processes to prepare the NSW Government's consolidated whole of government accounts (the TSSA). This included one extreme risk finding and six high risk findings. The extreme finding related to NSW Treasury needing to significantly improve its processes to ensure all key information is identified and shared with the Audit Office on a timely basis. Other high-risk findings were identified which resulted in the following recommendations for NSW Treasury:
- establishing a policy to determine the minimum expected rate of return on the GGS equity injections in other public sectors entities and report on the performance of these GGS investments in the TSSA, including how much and what type of returns the government is obtaining from its investments compared to its targeted return
- facilitate revised commercial agreements to reflect access and license fees that were agreed in the 18 December 2021 Heads of Agreement between Transport for NSW, TAHE and the operators Sydney Trains and NSW Trains
- with TAHE, prepare robust projections and business plans to support GGS investment returns beyond FY2031.
- liaising with the ABS to re-confirm the classification of TAHE, NSW Trains and Sydney Trains as entities within the PNFC sector
- monitoring the risk that control of TAHE assets could change in future reporting periods and the implications on the TSSA
- consider whether there is sufficient competent oversight of its use of consultants and assess the risk of an over dependence on consultants at the cost of internal capability.
More details on the recommendations to NSW Treasury relating to its accounting for the GGS investment in TAHE are included on pages 7 to 24 of the State Finances 2021 NSW Auditor-General’s Report to Parliament.
Borrowings of $1 billion were understated by NSW Treasury
NSW Treasury, a GGS agency, made agreements to borrow $1 billion from New South Wales Treasury Corporation (TCorp), a PFC sector agency. Some of these agreements were entered as early as 17 May 2021 and all agreements for borrowings were entered into before 30 June 2021. However, NSW Treasury requested that settlement of those additional borrowings be deferred until 1 July 2021.
As TCorp raised the funds before 30 June 2021, it recognised a financial asset and liability to NSW Treasury on 30 June 2021. Despite TCorp having raised the funds by 30 June 2021 under the mutually agreed trade deal, NSW Treasury did not recognise any borrowings at year end on the basis that it requested the settlement date and receipt of cash to be deferred to past the balance sheet date. This led to an understatement of debt liabilities of $1 billion by NSW Treasury, and an inconsistent accounting treatment between the two agencies. NSW Treasury subsequently corrected the misstatement after the matter was raised by the audit, resulting in the GGS recognising $1 billion in financial assets and borrowings at 30 June 2021.
More detail on these inconsistencies is on page 37 of the State Finances 2021 NSW Auditor-General’s Report to Parliament. We recommended NSW Treasury seek develop a state-wide accounting policy for borrowings which ensure correct and consistent accounting treatment between agencies and sectors.
Inconsistencies exist in the GSF Act and GSA Act related to key statutory timeframes
There are inconsistencies between key statutory reporting timeframes imposed on the Treasurer and Auditor-General for the Consolidated State Financial Statements (the Statements) in the Government Sector Finance Act 2018 (GSF Act) and Government Sector Audit Act 1983 (GSA Act). Ambiguity in the statutory reporting timeframes could impact on the future timely provision of this information to Parliament. More detail on these inconsistencies is on page 54 of the State Finances 2021 NSW Auditor-General’s Report to Parliament. We recommended NSW Treasury seek legislative amendments in Parliament to resolve these inconsistencies.
NSW Treasury lacks a framework to monitor and provide assurance to ministers that they are in compliance with their appropriation authority
In July 2021, NSW Treasury highlighted a potential issue associated with certain cross-cluster payments which was based on advice received from the Crown Solicitor in January 2021. After being made aware of the issue, the Audit Office obtained its own advice on matters related to the appropriations framework under relevant state legislation. In the advice to the Audit Office, the Crown Solicitor advised that an agency is not subject to its own legally appropriated expenditure limit (assuming it is not subject to any annual spending limit imposed through an instrument of delegation or a budget control authority issued by the Treasurer under section 5.1 of the GSF Act). In effect, because responsible ministers are given appropriations, these legal expenditure limits, rest in aggregate, with the principal department and agencies the minister is responsible for. It is not possible for an individual agency to monitor or determine at what ‘point in time’ expenditure has been incurred in excess of the minister’s appropriation authority and there is currently no framework to monitor this.
Further detail on this matter is on pages 54 to 56 of the State Finances 2021 NSW Auditor-General’s Report to Parliament. In this report, we recommended that NSW Treasury:
- ensure a framework exists to monitor and provide assurance to ministers that expenditure incurred across a financial year by agencies under the relevant minister's coordination does not exceed the appropriation authority conferred by the annual Appropriations Act and the GSF Act
- assess how the requirement to prepare a Summary of Compliance under Australian Accounting Standards impacts relevant principal departments and cluster agencies financial statement disclosures.
Agencies have again spent monies without an authorised delegation
In the State Finances NSW Auditor-General's Report to Parliament for 2020 and 2021 we reported instances where agencies spent money received from an annual appropriation and/or deemed appropriation money without an authorised delegation from the relevant minister(s) as required by sections 4.6(1) and 5.5(3) of the GSF Act. Further detail on this matter is on pages 56 to 57 of the State Finances 2021 NSW Auditor-General’s Report to Parliament. In this report, we recommended NSW Treasury promptly improve the guidance it provides agencies to ensure that expenditure of public monies is properly supported by authorised delegations.
Control deficiencies at NSW Treasury's service providers
NSW Treasury's business processes and information technology services were provided by Infosys, Unisys and the Department of Customer Service during 2020–21. Together this constitutes the GovConnect environment.
The GovConnect information technology general controls (ITGC) were qualified in 2020–21. The key controls over user access, system changes and batch process failed in all ITGC reports. Most of these deviations were not mitigated or sufficiently mitigated to address the risk of unauthorised user access.
In response to the internal control qualifications, the audit teams performed data analytics over payroll and accounts payable to obtain reasonable assurance that these control deficiencies did not materially impact on relevant agencies' financial statements.
Refer to the Customer Service 2021 NSW Auditor-General’s Report to Parliament for further details.
Insurance related matters
icare is in the process of implementing organisational reform in response to findings in recent external reviews. These reviews have identified 151 recommendations for icare to improve in the areas of risk and governance, performance, and culture and accountability. The reviews include the April 2021 McDougall Review, and the February 2021 ‘Independent Review of icare governance, accountability and culture’ which was recommended by SIRA in the Dore Report.
All of these recommendations were accepted by icare and are expected to be addressed through their ‘Improvement Program’. As at February 2022, icare report that 21 have been addressed, 139 are in progress, and 15 still to commence.
A number of the observations referred to in this report were also identified in the above reviews and are expected to be actioned as part of the improvement program.
Workers Compensation Nominal Insurer (the Nominal Insurer)
The Nominal Insurer’s net asset deficiency at 30 June 2021
Last year's Central Agencies Report to Parliament reported that the Workers Compensation Nominal Insurer (the Nominal Insurer), the NSW Self Insurance Corporation and the Lifetime Care and Support Authority of New South Wales all had negative net assets at 30 June 2020. After strong investment returns in 2020–21, only the Nominal Insurer continued to have negative net assets at 30 June 2021.
The Nominal Insurer's negative net assets of $252.9 million at 30 June 2021 ($316.2 million at 30 June 2020) means that it still does not hold sufficient capital to meet the estimated present value of its future payment obligations, when measured in accordance with the accounting framework. The financial statements continued to be prepared on a going concern basis because the future payment obligations are not all due for settlement within the next 12 months.
As noted in section 2.4 ‘Key accounting issues’, icare changed from an 'Accounting Ratio', to an 'Insurance Ratio', to assess the Nominal Insurer’s capital position from 2020–21. The insurance ratio uses a (higher) discount rate based on the expected earnings rate on the Nominal Insurer’s assets, rather the ‘risk free’ rate which is used for financial reporting.
Last year's Report to Parliament also noted that the deterioration in the value of the Nominal Insurer’s net assets has resulted in its funding ratio at 30 June 2020 being outside of the ‘target operating zone’ set by the Board of icare. The Insurance Ratio at 30 June 2021 is 122%, which is less than icare's target operating zone of over 130%.
icare is assessing how it can increase the Nominal Insurer’s funding ratio, and advises that actions taken to date include the execution of the Nominal Insurer Improvement Program (the Improvement Program) and an increase in premium rates.
icare were given approval by the State Insurance Regulatory Authority (SIRA) to increase workers compensation premium rates from 1.4% to 1.44% of wages (2.9%) for the 2021–22 policy year. icare advises that their pricing strategy for workers compensation premiums is for ‘modest increases over the medium term’.
Return-to-work rates have worsened
Last year's Central Agencies Report to Parliament noted that the Nominal Insurer has experienced deteriorating return-to-work rates since late 2017. According to data published by SIRA, the Nominal Insurer’s monthly four week return-to-work rate has continued to decline, falling from 68% at 30 June 2020 to 64% at 30 June 2021, and down to 63% at 30 September 2021.
A key assumption when measuring the Nominal Insurer’s outstanding claims liability, is the amount of time that injured workers will remain on benefits (i.e. continuance rates). This assumption is significantly aligned with return-to-work rate measures. At 30 June 2021, the liability was increased by $296 million due to changes in continuance rate assumptions, with workers expected to remain on benefits longer. This change is consistent with the fall in four week return-to-work rates.
The four week return-to-work rate trend since August 2017 is shown in the graph below.
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 – Acquittals and other opinions
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