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.

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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.

Appendix one – Included reports 2018–2024 Regulation insights

Appendix two – About this report- Regulation insights

What this report is about

WestInvest is a $5 billion funding program announced in September 2021 to provide ‘local infrastructure to help communities hit hard by COVID-19’ in 15 local government areas (LGAs) selected by the government. It was divided into three parts: $3 billion for NSW government agency projects; $1.6 billion for competitive grants to councils and community groups; and $400 million for non-competitive grants to councils.

Following the change of government at the 2023 election, the program was renamed the Western Sydney Infrastructure Grants Program. Funding decisions made for the community and local government grants were retained, but multiple funding decisions for the NSW government projects were changed.

The audit objective was to assess the integrity of the design and implementation of the program and the award of program funding.

Findings

The design of the program lacked integrity because it was not informed by robust research or analysis to justify the commitment of public money to a program of this scale.

The then government did not have sufficient regard to the implications for the state's credit rating. A risk to the credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than pay down its debt.

Decisions about program design were made by the then Treasurer's office without consultation with affected communities. The rationale for these decisions was not documented or made public.

For the NSW government projects, funding allocations did not follow advice from departments. Many funded projects did not meet the objectives of the program.

The two other rounds of the program were administered effectively, except for some gaps in documentation and quality assurance. The program guidelines did not require an equitable or needs-based distribution of funding across LGAs and there was a significant imbalance in funding between the 15 LGAs.

Recommendations

Our recommendations for the administration of future funding programs included:

• considering whether competitive grants are the best way to achieve the program's purpose
• completing program design and guidelines before announcements
• ensuring adequate quality assurance.

We also recommended that when providing advice for submissions by Ministers to Cabinet, agencies should ensure that departmental advice is clearly identified and is distinct from other advice or political considerations. 

WestInvest is a $5 billion funding program that was announced in September 2021. The program was established with the stated aim of building ‘new and improved facilities and local infrastructure to help communities hit hard by COVID-19’.

WestInvest was divided into three funding streams:

• $3 billion NSW government projects round open to NSW government agencies
• $1.6 billion community projects competitive round administered as a competitive grant program that was open to local councils, non-government organisations, Local Aboriginal Land Councils, and educational institutions in the 15 eligible LGAs
• $400 million local government projects round administered as a non-competitive grant round only open to the 15 eligible councils, with each council receiving a pre-determined share of the $400 million.

The WestInvest program was administered by NSW Treasury and the Premier's Department (previously the Department of Premier and Cabinet). Decisions about funding allocations were made by the former Treasurer in his role as the statutory decision-maker and announced by the former government in the lead up to the March 2023 NSW State election, but no funding was paid prior to the election.

Following the change of government, the funding decisions for the community projects competitive round and local government projects round were confirmed and negotiation of funding deeds commenced. The current government reviewed the decisions for the NSW government projects round and made changes to multiple decisions as part of the 2023–24 NSW Budget process. The current government has also changed the name of the program to the Western Sydney Infrastructure Grants Program.

The objective of the audit was to assess the integrity of the design and administration of the WestInvest program. This included assessing the processes used in the design and implementation of the program and award of funding.

The audit did not re-assess the merits of individual projects that were submitted for funding consideration and did not examine the implementation of projects that were allocated funding.

Decisions about the objectives and focus areas for the program were made without advice or analysis from the agencies that administered the program

The WestInvest program involved the commitment of $5 billion as a stimulus measure linked to economic recovery from the COVID-19 pandemic. However, there was no business case or other economic analysis conducted to support consideration of the potential benefits and costs of the program. Media releases and the public guidelines for WestInvest stated that western Sydney was affected by the COVID-19 pandemic more severely than other parts of Sydney and regional NSW. These assertions were not supported by evidence or analysis.

Evidence from NSW Treasury provided for this audit indicates that it was asked to prepare the initial proposal for the WestInvest program within a very short timeframe. This limited its ability to conduct research, analysis and consultation that could have informed the development of the program. This is particularly important for the integrity of decisions involving large-scale spending. Staff from NSW Treasury and the Premier's Department advised the audit team that the areas of focus for WestInvest were decided by Ministers and their staff without advice from the audited agencies. There is no documented analysis justifying the decision to focus the program on community infrastructure, or the six ‘areas of focus’ that were selected. The Premier's Department commissioned research from Western Sydney University after the areas of focus for the program had been decided. This did not inform decisions about the program focus but aimed to provide baseline information about community infrastructure in the 15 eligible LGAs which could be used in program evaluation.

The rationale for making 15 LGAs eligible for the program was not clear

It is not clear how the government decided which LGAs would be eligible for WestInvest funding. Public communication about the program referred to the western Sydney region and commented on areas that had been ‘hit hard’ by the COVID-19 pandemic. The specific factors that were used to decide which LGAs were eligible were not explained publicly or documented.

In the 2019–20 NSW Budget papers, "western Sydney" was defined as 12 LGAs. All of these were included as eligible for the WestInvest program. The additional three LGAs that were made eligible for the WestInvest program (Burwood, Canterbury-Bankstown, and Strathfield) were not within the NSW Budget papers definition but were designated "areas of concern" during the COVID-19 pandemic, which meant they were subject to more restrictions than other LGAs at certain points.

Georges River and Bayside LGAs both made public statements that drew attention to the fact that they were not made eligible for the WestInvest program despite being designated areas of concern. Several of the 15 LGAs that were made eligible for WestInvest had not been designated areas of concern during the pandemic, including Penrith, The Hills, and Blue Mountains. 

There was no consultation with eligible councils or other key stakeholders before the program design was decide

The program design had not been subject to consultation with councils or other relevant organisations in western Sydney. This meant that the views of eligible councils and community organisations on strategic priorities in their respective communities were not considered before decisions on program design were made.

Staff from some councils interviewed by the audit team indicated that while funding for community infrastructure is welcome, some councils had other priority areas for infrastructure development that were at least as high as new community infrastructure. As independent entities, each council has its own strategic planning processes to identify and plan for infrastructure projects and other areas of need. These were not considered in the design of the WestInvest program.

Staff at several councils we spoke to highlighted delivery risks to the projects for which they had been allocated funding. These included:

• the short timetable set by the then government (considering the amount of funding available and the requirements for applications) meant that full project development and assurance processes were not completed for most applications when they were submitted
• difficulty complying with the government’s administrative and assurance requirements for funding recipients, such as detailed planning and reporting.

When early planning for WestInvest was being done, both NSW Treasury and the Premier's Department identified the risk that applicants may not be able to deliver funded projects on time or within budget. The absence of consultation, research and analysis before the program design was finalised meant that these factors were not considered before the government had committed to the program. We did not see evidence that the then government had considered the cumulative impact of an additional $5 billion in infrastructure projects on the costs of materials and skilled labour concentrated in the eligible LGAs.

The Premier's Department conducted an online survey (WestInvest 'Have Your Say'), between 23 February 2022 and 31 March 2022. This was open to the public and asked questions about which of the six ‘areas of focus’ were most important to them and what type of community infrastructure projects they would like to see. This found higher levels of community support for two of the six areas (community infrastructure and green and open space).

On 18 April 2022, the Premier's Department released a summary report on the findings of the WestInvest ‘Have Your Say’ Survey. The Premier's Department noted that the survey was for consultation purposes only and did not form part of the application process for the WestInvest program. The Premier's Department stated in its summary report that the survey results 'will feed into the assessment process across the WestInvest Program'.

However, the Premier's Department staff interviewed by the audit team told us that the survey results did not play any formal role in the assessment process or funding recommendations for projects. The survey did not provide data that could be used to inform assessment decisions because:

• responses could be submitted by any member of the public who accessed the survey, not just those living in the LGAs that were eligible for the program, so the data could not be taken as representative of the views of the residents of eligible LGAs
• many survey responses were ruled ineligible as they were deemed to be associated with a community campaign that related to projects outside the focus areas of WestInvest.

The government did not have sufficient regard to risks to the State's credit rating when establishing the WestInvest program

The NSW Government has a policy of maintaining a AAA credit rating for the State of New South Wales. This is codified in the Fiscal Responsibility Act 2012. The NSW Government did not have sufficient regard to the implications and risks of committing $5 billion of funding to the WestInvest program to its credit rating. A risk to the State's credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than paying down State debt.

The $3 billion NSW government projects round was open to NSW government agencies and administration of the round was led by NSW Treasury. Funding allocated through this round was not subject to the NSW Grants Administration Guide. This is because the funding was awarded to NSW government agencies rather than organisations external to government, so it did not meet the definition of a grant program. Projects were submitted by NSW government agencies to NSW Treasury and were assessed against program criteria by staff from NSW Treasury and the Premier's Department. Each project received a score and advice on whether it was suitable for funding or not. The WestInvest steering committee considered these and provided advice to the then Treasurer.

NSW Treasury prepared guidelines for the $3 billion NSW government projects round, but these were not approved by the then Treasurer until after the program assessment had commenced

NSW Treasury prepared guidelines for the NSW government projects round in September 2021. These were submitted to the then Treasurer for approval in December 2021 but were not approved. This meant that the process for assessing applications for NSW government projects was not agreed between government agencies and the then Treasurer, who was the statutory decision-maker of the allocations of funding. NSW Treasury subsequently prepared an assessment plan based on the unapproved guidelines, which set out more details about the process to be used for assessing applications for the NSW government projects round. The program guidelines were not published, which meant there was no public information about the process for assessing the largest component of the WestInvest program.

In May 2022, the then Treasurer’s Office requested that NSW Treasury make changes to the unapproved guidelines so that projects that delivered 'business as usual' state government infrastructure such as schools, roads, and health infrastructure were no longer considered ineligible for the program. These revised guidelines were approved in June 2022, but were not published. The changes were not consistent with the initial purpose of the WestInvest program which was to fund ‘transformational’ community infrastructure.

The funding advice from the WestInvest steering committee was not followed by the then Treasurer and the justifications for the funding allocation decisions were not documented

One-third of the projects that were allocated funding (9 out of 27) had been assessed by the WestInvest steering committee as having low or moderate merit. These projects were allocated combined funding of $1.1 billion. Reasons that the steering committee gave for assessing these projects as not suitable for funding through the WestInvest program included the absence of completed business cases, incomplete project development, and poor alignment to the objectives and criteria for the WestInvest program as outlined in the original program guidelines.

Staff from NSW Treasury and the Premier's Department put considerable resources into preparing guidelines and assessing and providing advice on the merits and eligibility of applications against these guidelines, but in most cases the advice was not followed by the then Treasurer. There was no documentation of reasons for the departures from steering committee advice. The NSW government projects round was not subject to the NSW Grants Administration Guide, so the requirement under those guidelines for documenting reasons for departures from advice on funding decisions did not apply. However, when the WestInvest program was established, it was noted that any departures from the funding advice from the steering committee would be documented by the then Treasurer. This applied to the entire WestInvest program. None of the projects that were allocated funding through the NSW government projects round were actually given funding, as only allocations of funding were approved by the then Treasurer.

Most of the funding was allocated to projects that did not align with the purpose of WestInvest or meet the assurance requirements of the program

Of the 27 projects that were allocated funding (Exhibit 3), 12 were from the Department of Education and seven from Transport for NSW. This resulted in over $2 billion, or 69% of the funding available through the NSW government projects round, being allocated to state school and road projects. Most of these projects were not aligned with any of the six focus areas of the WestInvest program. In addition, these projects were examples of ‘business as usual’ activities of NSW government agencies that did not clearly align with the initial purpose of the program to deliver transformational community infrastructure that would improve liveability in the 15 eligible LGAs.

Source: NSW Treasury documents.

Conditions were attached to the approval of funding allocations for 21 of the 27 projects. Most of these conditions related to the completion of a business case and other project assurance requirements, which were required under the program guidelines.

Projects approved through the WestInvest program were to receive funding from the Community Services and Facilities Fund (CSFF), which is a legislative fund created under the NSW Generations Funds Act 2018 (the Act). The Act states that the purpose of the CSFF is to provide funding for ‘cost-effective facilities and services’ (s.12(1)). The absence of business cases and other assurance requirements from most of the projects approved created the risk of legislative non-compliance, as many of the projects that had been allocated funding could not clearly demonstrate that they would be cost-effective.

NSW Treasury and the Premier's Department’s assessment of the first group of projects submitted for the NSW government projects round indicated that agencies applying for funding did not understand the purpose or requirements of the program. NSW Treasury and the Premier's Department received 153 applications after the first call for proposals. Most did not align with the stated purpose of WestInvest or meet the assurance requirements that had been set for the program. For example:

• 90 project proposals (59% of those submitted) were assessed as ineligible. Thirty-five of the 90 did not include any infrastructure, which was the main purpose of the WestInvest program. The other 55 proposed infrastructure projects were not consistent with any of six areas of focus for the program.
• 118 proposals (77% of proposals submitted) did not have a business case, which was a requirement of the WestInvest program guidelines.

As the first request for project proposals did not generate enough suitable applications, the then Treasurer made a second request to NSW government agencies in August 2022 seeking additional project proposals. This occurred after the guidelines for the NSW government projects round had been broadened to allow more projects to be considered for funding (discussed above).

Multiple state school projects were allocated funding after being assessed by the WestInvest steering committee as ineligible or unsuitable for funding

The Westmead Education Campus project, valued at $308 million, was rated as ineligible by NSW Treasury and the Premier's Department because it did not address any of the six specified focus areas for the WestInvest program. This meant it did not go through a full assessment against the program criteria and was not submitted to the then Treasurer for funding consideration.

The project was later re-submitted and the then Treasurer subsequently approved it for funding allocation. This occurred after the guidelines for the NSW government projects round had been broadened (discussed above). NSW Treasury's advice on this submission noted that the project had not been fully developed, with key decisions about the delivery model not made, and it did not have a final business case.

The Box Hill (Terry Road) new school project, valued at $112 million was rated as ‘moderate – not suitable for funding consideration at this time’ by the WestInvest steering committee. It was subsequently approved for funding by the then Treasurer.

Nine school upgrade projects with a total value of $478 million were allocated funding by the then Treasurer. Each of these had been assessed as ineligible by NSW Treasury and the Premier's Department against the original program guidelines because they did not meet any of the WestInvest focus areas and were not considered 'transformational'. There were a further 14 similar proposals for school upgrades that were also assessed as ineligible but were not allocated funding.

Funding allocations from the WestInvest program were changed after the 2023 NSW State election

Following the change of government at the 2023 NSW state election, most of the funding decisions announced by the former government were changed. The new government had announced during the election campaign that, if elected, it would redirect some WestInvest funding 'to rebuild Western Sydney schools and Western Sydney hospitals'. Eleven of the 27 projects that had been announced by the former government were not funded by the new government. The combined value of these projects was at around $1.5 billion (Exhibit 4). The seven roads projects that had been allocated funding through WestInvest, valued at $1 billion, were also removed from the WestInvest funding allocation but these still received funding from a different source.

Source: NSW Treasury documents.

The funding was reallocated to 17 projects that the new government had announced as election commitments during the 2023 State election campaign. This comprised ten school infrastructure projects, five health infrastructure projects, and two transport infrastructure projects. All of these projects had a cost of more than $10 million each, which means they are subject to NSW Government business case and gateway assurance requirements. Business cases had been completed for the two transport projects. The other 15 projects did not have business cases.

Source: NSW Treasury documents.

After these changes, the $3 billion NSW government projects round funding distribution was:

• Nine school upgrades, valued at $478 million, that had been allocated funding by the former government (see Exhibit 3).
• 17 new projects, with a total value of around $2.3 billion, that had been announced as election commitments by the new government (Exhibit 5). All of these are state school, health, or transport infrastructure.
• Three projects that covered administrative costs associated with the WestInvest program, with a total value of around $230 million (not previously announced).

The $1.6 billion community project grants - competitive round was open to local councils, NGOs, Local Aboriginal Land Councils, and educational institutions, across 15 eligible LGAs in western Sydney. Exhibit 6 shows a timeline of key dates for the community project grants - competitive round.

The $400 million local government projects round was administered as a non-competitive grant round that was only open to the 15 eligible councils. Each council was allocated a portion of the $400 million funding via a formula that provided a base allocation and an additional amount based on the population of each LGA. Each council received between $21 million and $35 million.

Applications for funding were submitted to the Premier's Department for assessment. Proposed projects were required to be eligible for the program and be rated as having merit against the published program criteria, which were the same as those for the competitive round. Exhibit 12 shows a timeline of key dates for the Local government projects competitive round.

Appendix one – Responses from audited agencies

Appendix two – About the audit

Appendix three – Performance auditing

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Parliamentary reference - Report number #391 - released 28 February 2024.

What this report is about

Results of the audit of the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023.

Findings

The audit opinion on the 2022–23 Consolidated State Financial Statements was qualified in relation to two issues and included an emphasis of matter.

The first qualification matter is a continuation of the prior year limitation of scope on the audit relating to the Catholic Metropolitan Cemeteries Trust (CMCT), a controlled state entity, who continued to deny access to its management, books and records for the purposes of a financial audit. As a result, the Audit Office was unable to obtain sufficient appropriate audit evidence to support the assets, liabilities, income and expenses relating to CMCT recorded in the TSS and the equity investment recognised in the GGS relating to the net assets of CMCT.

The second qualification matter relates to the limitations on the accuracy and reliability of financial information relating to Statutory Land Managers (SLMs) and Common Trust entities (CTs) controlled by the State and were either exempted from requirements to prepare financial reports, or who were required to submit financial reports and have not done so. The Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities, income and expenses that should be recognised in the 2022–23 Consolidated State Financial Statements and which have not been recorded in the Consolidated State Financial Statements.

The independent audit opinion also includes an emphasis of matter drawing attention to key decisions made by the NSW Government regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE).

Recommendations

The report includes recommendations for NSW Treasury to address several high-risk findings, including:

• ensuring accurate and reliable financial information is available to recognise the non-land balances of SLMs and CTs
• ensuring the CMCT, SLMs and CTs meet their statutory reporting obligations
• conducting a broader review of the financial reporting exemption framework
• continued monitoring of TAHE's control over its assets
• providing timely guidance to the sector relating to legislative or policy changes that impact financial reporting
• developing an accounting policy for the reimbursement of unsuccessful tender bid cost contributions.

Read the PDF report

What this report is about

This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, for the year ended 30 June 2023.

Findings

Internal control trends

The proportion of control deficiencies identified as high-risk this year decreased to 4.5% (8.2% in 2022).

Repeat findings of control deficiencies represent 38% of all findings (48% in 2022). 

Information technology

Over half of the agencies reviewed have deficiencies in managing user access to their information systems. Over a third of agencies had deficiencies in their controls over privileged user accounts within their information technology environments. 

Cyber security

Over 80% of assessments for maturity levels against the NSW Cyber Security Policy have reported one or more self-assessed Mandatory Requirements are not practiced on a consistent and regular basis.

Essential Eight cyber controls have not improved, and they need to. 

Governance framework

Deficiencies were noted in agencies' governance and risk management frameworks, namely: outdated risk management policies, lack of risk appetite statements, and internal audit functions not being externally evaluated.  

Payroll and work health and safety (WHS)

Overtime expenses increased by 40% between 2020 and 2023, compared to salaries and wages which increased by 16% over the same period.

Five agencies have WHS policies that do not reflect current WHS regulations.

Recommendations

Several important recommendations were made for agencies to prioritise efforts to improve cyber security controls and cyber resilience measures.

It was also recommended that agencies periodically review their risk management maturity and implement action plans, and ensure their WHS policies and procedures reflect current legislation requirements including the need to manage psychosocial risks.

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

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

This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies found across agencies.

For consistency and comparability, we have adjusted the 2022 results to incorporate additional audit findings that were reported after the date of the Internal controls and governance 2022 report. Therefore, the 2022 figures will not necessarily align with those reported in our 2022 report.

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

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security.

Governance in the context of the NSW public service refers to the structures, processes, and mechanisms by which government departments and agencies are held to account when they make decisions and implement policies and programs in the service of the public interest. It also includes the principles and practices that guide how these agencies work together.

This chapter outlines our audit observations, conclusions and recommendations from our review of agencies' governance frameworks and practices, with consideration of NSW Treasury issued policies and best practices. It focuses on two key areas: governance arrangements and risk management.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' payroll controls and management of work health and safety (WHS).

What this report is about

Result of the Treasury portfolio of agencies’ financial statement audits for the year ended 30 June 2023.

The results of the audit of the NSW Government’s consolidated Total State Sector Accounts (TSSA), which are prepared by NSW Treasury, will be reported separately in our report on ‘State Finances 2023’.

The audit found

Unqualified audit opinions were issued on all general purpose financial statement audits.

Qualified audit opinions were issued on two of the 24 other engagements prepared by portfolio agencies. These related to payments made from Special Deposit Accounts that did not comply with the relevant legislation.

The number of monetary misstatements identified in our audits increased from 29 in 2021–22 to 39 in 2022–23.

The new parental leave policy impacted agencies across all portfolios. NSW Treasury should perform annual assessments to identify changes in legislation and regulation and provide timely guidance to the sector.

Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders’ costs, clearer guidance on how to account for these costs in agencies’ financial statements is required.

The key audit issues were

Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account. Two repeat issues referred to the need to improve quality review processes over financial reporting and the timely approval of administration costs.

Portfolio agencies should prioritise and action recommendations to address internal control deficiencies.

This report provides Parliament and other users of the Treasury 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 Treasury portfolio of agencies (the portfolio) for 2023.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Treasury portfolio.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Appendix five – Acquittals and other opinions

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

What this report is about

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

The audit found

Unmodified audit opinions were issued for all Health portfolio agencies' financial statements. 

The number of monetary misstatements increased in 2022–23, driven by key accounting issues, including the first-time recognition of paid parental leave and plant and equipment fair value adjustments. 

The key audit issues were 

NSW Health identified errors regarding the recognition and calculation of long service leave entitlements for employees with ten or more years of service that had periods of part time service in the first ten years, resulting in prior period restatements. 

Comprehensive revaluation of buildings at the Graythwaite Charitable Trust found errors in the previous year's valuation, resulting in prior period restatements. 

New parental leave legislation increased employee liabilities for portfolio agencies. The Ministry of Health corrected the consolidated financial statements to record parental leave liabilities for all agencies within the Health portfolio.   

A repeat high-risk issue relates to processing time records by administrators that have not been reviewed prior to running the pay cycle.   

Thirty per cent of reported issues were repeat issues. 

The audit recommended 

Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards. 

Portfolio agencies should address deficiencies that resulted in qualified reports on:   

• the design and operation of shared service controls
• prudential non-compliance at residential aged care facilities.

This report provides Parliament and other users of the Health 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 Health portfolio of agencies (the portfolio) for 2023.

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

This chapter outlines observations and insights from our financial statement audits of agencies in the Health portfolio.  

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

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

What this report is about

Result of the Transport portfolio of agencies' financial statement audits for the year ended 30 June 2023.

The audit found

Unqualified audit opinions were issued for all Transport portfolio agencies.

An 'emphasis of matter' paragraph was included in the Transport Asset Holding Entity of New South Wales' (TAHE) independent auditor's report, which draws attention to management's disclosure regarding proposed changes to TAHE's operating model.

Government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE's assets.

Transport for NSW's valuation of roads and bridges resulted in a net increase to its asset value by $15.7 billion.

Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders' costs, clearer guidance on how to account for these costs in agency's financial statements is required.

The key audit issues were

The number of issues reported to management decreased from 53 in 2021–22 to 49 in 2022–23.

High-risk findings include:

• gaps in how Sydney Metro manages its contractors and how conflicts of interest are recorded and managed
• future financial reporting implications to account for government's proposed changes to TAHE's future operating model, including asset valuations and control assessments of assets and operations
• Parramatta Park Trust's tree assets' valuation methodology needs to be addressed.

Recommendations were made to address the identified deficiencies.

This report provides Parliament and other users of the Transport 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 Transport portfolio of agencies (the portfolio) for 2023.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport portfolio.

Appendix one – Misstatements in financial statements submitted for audit 

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting 

Appendix four – Financial data 

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

What this report is about

Results of the Regional NSW financial statements audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued on all completed audits in the Regional NSW portfolio agencies.

The number of monetary misstatements identified in our audits increased from 28 in 2021–22 to 30 in 2022–23.

What the key issues were

Effective 1 July 2023, staff employed in the Northern Rivers Reconstruction Corporation Division of the Department of Regional NSW transferred to the NSW Reconstruction Authority Staff Agency.

The Regional NSW portfolio agencies were migrated into a new government wide enterprise resourcing planning system.

The total number of audit management letter findings across the portfolio of agencies decreased from 36 to 23.

A high risk matter was raised for the NSW Food Authority to improve the internal controls in the information technology environment including monitoring and managing privilege user access.

What we recommended

Local Land Services should prioritise completing all mandatory early close procedures.

Portfolio agencies should:

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

This report provides Parliament and other users of the Regional NSW 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 Regional NSW portfolio of agencies (the portfolio) for 2023.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Regional NSW portfolio.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

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

What this report is about

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

What we found

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

What the key issues were

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

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

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

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

What we recommended

Portfolio agencies should:

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

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

• financial reporting
• audit observations.

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

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

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Premier and Cabinet portfolio.

Appendix one – Early close procedures

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

What this report is about

Results of the Stronger Communities financial statement audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued on all completed Stronger Communities portfolio agencies.

Machinery of government changes during the year returned the sports-related agencies to the Stronger Communities portfolio.

Resilience NSW was abolished on 16 December 2022 with most of its functions transferred to the newly created NSW Reconstruction Authority.

The Trustee for the First Australian Mortgage Acceptance Corporation (FANMAC) is a prescribed entity under the Government Sector Finance Regulation 2018. The Trustee should have presented the FANMAC's financial statements for audit after it became a GSF agency on 1 July 2020.

The number of monetary misstatements identified in our audits decreased from 42 in 2021–22 to 29 in 2022–23.

What the key issues were

In 2022–23, agencies in the portfolio recorded net revaluation uplifts to land and buildings totalling $643 million.

Out of home care and permanency support grant expenditure has increased by 27% since 2019–20. An upcoming performance audit report will focus on the timeliness and quality of the child protection services provided by the department and its non-government service providers.

A high-risk matter was raised for the department over segregation of duties deficiencies in the Justice Link system.

Four high-risk matters reported in 2021–22 have been resolved.

Thirty-three agencies were onboarded into a new government-wide enterprise resource planning system. Additional agencies will be onboarded in three tranches from April 2024 through to October 2024.

What we recommended

Portfolio agencies should:

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

This report provides Parliament and other users of the Stronger Communities 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 Stronger Communities portfolio of agencies (the portfolio) for 2023.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Stronger Communities portfolio.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

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