The Department of Planning and Environment (Department) administers five energy rebate schemes targeted to low-income households. The five rebates are of two key types:

1. Ongoing support to pay energy bills
2. Crisis Support  

More than one million rebates are paid each year to over 800,000, or around 27 per cent, of NSW households. Households learn about rebates from a variety of sources including: Service NSW, government and energy retailer websites, energy retailer welcome packs, Department marketing efforts, information on energy bills, and Centrelink.  

The budget for energy rebates is increasing every year and in 2017–18 is more than $245 million. The Department delivers most rebates through a network of partnership arrangements with:

• energy retailers, who apply rebates directly onto energy bills
• more than 340 charities and other NGOs who assess households' eligibility for crisis support and distribute support through the Energy Accounts Payment Assistance scheme (EAPA)
• Service NSW, who informs NSW households about rebates through their call centre.

The energy rebates budget is substantial and the distribution arrangements are complex. The objective of the audit was to assess whether the current design and distribution of energy rebates schemes is effective.

The Department and partner organisations administer the rebate schemes as designed

The Department oversees a complex package of rebate schemes in partnership with 25 retailers and around 340 charities and NGOs. The partnership arrangements ensure that funds are distributed directly to energy bills as intended. The schemes provide support to recipients and are administered in line with government decisions about eligibility.  

Communication about rebates does not reach all eligible households

Households learn about rebate schemes through a mix of communication channels including retailer websites and call centres, Department websites, Centrelink, financial counsellors, EAPA Providers, the Energy and Water Ombudsman and Service NSW. Some low-income groups, such as those with poor English language skills, do not find out about energy rebates.

Scheme objectives are not measurable

Rebate schemes that provide ongoing support do not have measurable objectives or outcome measures. Without clear and measurable objectives, the Department cannot report to government on whether the schemes are achieving the intended policy outcomes, nor recommend improvements to ensure the schemes deliver the greatest benefit to the most financially vulnerable households.

The EAPA crisis support scheme has a clearer objective in that it aims to keep households experiencing financial crisis connected to energy services. However, the Department does not measure outcomes from providing this type of support, and does not know if the crisis support achieves this objective.  

The structure of rebate schemes for ongoing support is complex

The Low Income Household Rebate accounts for 80 per cent of the budget for ongoing support rebates. The remaining 20 per cent of the budget is administered through four separate schemes: Gas Rebate, Medical Energy Rebate, Family Energy Rebate and Life Support Rebate.

Each of these rebates has its own eligibility criteria and some require separate application processes. The Family Energy Rebate is complex to access and apply for, and around one third of households do not reapply each year. Eligible households that receive energy through embedded networks apply directly to the Department for rebates, which are paid by the Department into bank accounts. Embedded networks are energy supply arrangements where the manager of a residential facility such as a caravan park, retirement village or apartment block, buys energy in bulk and then on-sells it to residents. The Department is yet to develop strategies to address a forecast increase in such households.

The design of the rebate schemes creates some inequities

Households in similar circumstances can receive different levels of assistance depending on which adult in the house is the energy account holder, the mix of energy types used in the home, or the EAPA Provider they turn to when in financial crisis.

Households with both gas and electricity connections receive more assistance than those with only electricity. Households in rural and regional areas receive the same value rebate as households closer to Sydney, despite higher distribution charges. Family Energy Rebate is a two-tier payment, with a higher amount available to families with greater means. Lower-income families receive a much smaller Family Energy Rebate on the assumption that they already receive Low Income Household Rebate. Charities and NGOs distributing EAPA crisis support apply inconsistent standards when assessing household need, which leads to inequitable levels of assistance.

Departmental oversight of energy retailers and EAPA Providers is not strong enough

While partnering with energy retailers and EAPA Providers delivers advantages, stronger management is needed to ensure that partners follow Departmental guidelines and to minimise the potential for fraud. The Department's accreditation process for potential EAPA Providers does not consider the applicant's financial governance standards and the most recent audit of EAPA Providers was 2013.

Appendix one - Response from the Agency

Appendix two - About the audit

The total value of security deposits held has increased from $500 million in 2005 to around $2.2 billion in 2016, covering around 450 mine sites in New South Wales.

While there have been substantial increases in total deposits held, mine rehabilitation security deposits are still not likely to be sufficient to cover the full costs of each mine's rehabilitation in the event of a default.

This audit was undertaken when the Department of Industry, Skills and Regional Development was responsible for ensuring land disturbed by mining activities is rehabilitated in accordance with the relevant development approval, including the administration of mining rehabilitation security deposits. On 1 April 2017, this responsibility was transferred to the Department of Planning and Environment (the Department).  

This audit assessed whether the Department maintains adequate security deposits to cover the liabilities associated with mine closures, including rehabilitation. Companies authorised by the Department to undertake mining activities must provide a security deposit to cover the full costs of rehabilitation in the event of default by the company. Rehabilitation is the treatment of disturbed land or water to establish a safe, stable, non-polluting and sustainable environment.

Mining companies must provide an estimate of rehabilitation costs for each site. The Department provides a Rehabilitation Cost Calculation tool to assist companies calculate the deposit amount. Companies are also required to ensure that the cost estimate is in accordance with the approved Mining Operations Plan (MOP). The MOP is intended to be a mine rehabilitation and closure plan, and forms the basis for the estimation of the security deposit. The Department reviews the estimates and determines the deposit for each site.  

Security deposits are an option of last resort. The Department has other legislative and regulatory tools which it normally uses to promote compliance with rehabilitation requirements before accessing a security deposit. It can direct action by the mining company, issue fines and even have the Minister revoke a mining lease. To date, the Department has never had to access a security deposit for a state significant development mine site.

Security deposits are close to calculated value and should be accessible if needed

The value of securities held by the Department aligns with the latest approved rehabilitation cost estimates. This contrasts with the situation found by investigations in Victoria and Queensland, where deposit amounts held fell below the calculated costs.

The security deposits are usually in the form of a bank guarantee or cash. The Department has obtained legal advice indicating that it should be able to claim on these bank guarantees if the need arises. As the guarantee is between the financial institution and the Department, if a mining company goes into liquidation the Department should still be able to access the funds.  

When the latest estimate of rehabilitation costs is higher than the existing deposit, the Department will request additional security. It has experienced extensive delays in obtaining additional security for some sites, increasing the risk that available funds will be insufficient if needed.

Rehabilitation cost estimates are not yet adequate, but improvements are planned

The Department’s policy is for security deposits to cover the full cost of rehabilitation. No discounts are provided to mining companies for past good behaviour or low likelihood of default, unlike in some other states. Discounting could undermine the policy position.  

Current security deposits are unlikely to cover the full cost of rehabilitation on each mine site. The Department provides a rehabilitation cost calculation tool to help mining companies calculate the cost of rehabilitation and the required deposit amount, but:

• several activities required to effect closure are not included and others underestimated
• it does not make provision for industry cost changes over time
• the rates used in the tool have not been updated since 2013
• it was not able to provide the basis for the rates and allowances in the tool.

The Department reviews cost estimates provided by mining companies, but its verification of the extent of rehabilitation work on which these estimates are based is limited. It relies instead on section 387C of the Mining Act 1992 which makes it an offence for mining companies to provide false or misleading information. It is not evident how the Department would establish that information provided was false or misleading without more verification work, and six of the 14 cost estimates we reviewed were not signed by the mine manager, making enforcement more difficult.  

The Department has developed a new calculation tool, and recently released it for industry consultation. The new tool should improve rehabilitation estimates. It updates rates and allowances, and includes additional items to better cover required rehabilitation tasks. While a substantial improvement, the new tool could be further improved by providing additional coverage for stakeholder engagement, additional planning approvals, insurance costs, and any additional design, research and verification work required for successful closure.

There is no financial assurance over long-term environmental risks

The Department does not hold any financial assurance to cover the costs associated with mitigating any future environmental degradation once a mine closes and the security deposit is relinquished to the mining company. Security deposits are probably not the appropriate mechanism to cover these long-term risks but the risk of potential post-closure environmental degradation still needs to be costed and covered. A fund to cover the state-wide risk, to which all mines would contribute, is a possible mechanism.

Rehabilitation and closure outcomes are vague, particularly for unplanned closure

Rehabilitation outcomes in the MOPs we reviewed were generally not specific. Any lack of specificity in MOPs translates into uncertainty about rehabilitation work required if a mining company defaults. Part of the problem is that rehabilitation outcomes established in planning approvals are usually not specific and may not address all closure requirements. The Department has recognised there is scope to improve the clarity and specificity of rehabilitation requirements in planning approvals, and has started a review focusing on open-cut mines.

Rehabilitation outcomes are even less specific in the event of an unexpected early closure because they will probably be different from that achievable from a planned closure.  

MOP guidelines do not cover management of some key closure matters, such as the requirements of environment protection licences issued by the Environment Protection Authority and the management of heritage sites during closure.

There were significant variations in quality of MOPs we reviewed and the way closure risks and uncertainties were identified and addressed. The Department plans to improve the quality of rehabilitation programs through enhanced guidance and oversight.

Monitoring is not adequate to effectively gauge rehabilitation progress

The Department was not able to show it has been monitoring operational mine sites effectively to gauge the progress of ongoing site rehabilitation and the management of closure risks. There was no protocol for site inspections and limited evidence of inspections for the sites we reviewed.

The Department receives annual environmental management reports from mining companies, with most describing the areas of disturbance and rehabilitation occurring at each mine site. The Department recently established procedures for reviewing these annual reports, and has developed a risk-based process for prioritising reviews.

Most annual reports we reviewed did not explain environmental changes over time, nor the risks to mine closure and the measures required to mitigate them. For example, analysis of changes to surface water and groundwater quality was limited despite its relevance for assessing future contamination risks.

The Department does not currently have adequate processes in place to effectively verify the reported areas of disturbance and rehabilitation. It is developing geographic information system-based tools to better measure areas of disturbance and rehabilitation, new rehabilitation guidelines, and a procedure for determining whether rehabilitation has been successful. These initiatives should improve the monitoring and reporting of rehabilitation progress at mine sites.

There is no mechanism to prevent a mine being in ‘care and maintenance’ indefinitely

The Department does not have a clear policy on the length of time and circumstances under which a mine can remain in ‘care and maintenance’. Indefinite postponement of rehabilitation and closure is therefore possible. 'Care and maintenance' is the period following temporary cessation of operations when infrastructure remains largely intact and the site continues to be managed. There are a range of valid reasons for a mining company to put a mine in ‘care and maintenance’, but it is also reasonable for the community to expect a limit to how long it has to wait for proper rehabilitation.

Mining operations make a significant contribution to the NSW economy, including over $1.3 billion in royalties each year. Around 400 mine sites throughout NSW provide over 40,000 jobs and are a major source of economic activity for many communities. Despite these benefits, it is important to ensure that mining companies fulfil their obligations to rehabilitate land disturbed as a result of mining activity.

We recommend that the Department should, by January 2018:

1. Improve the quality of rehabilitation and closure plans by:

• ensuring plans submitted by mining companies include robust mine rehabilitation and closure risk assessments
• clarifying the level of detail required in plans at each stage of a mine’s operation
• specifying how requirements set under other legislative instruments (e.g. environment protection licences, heritage assets) should be addressed.

2. Improve assurance that security deposits are sufficient by:

• ensuring its new cost calculation tool adequately covers all works needed for rehabilitation and closure
• increasing the contingency for uncertainties associated with mine rehabilitation and closure, at least until the mining company provides a detailed closure plan
• verifying the cost estimates for a sample of high risk sites annually
• ensuring that when mining companies are required to provide increased security deposits, they do so with minimal delay.

3. Enhance oversight of mine rehabilitation by:

• developing a protocol to ensure sufficient and adequate site inspections
• ensuring mining companies report performance against rehabilitation targets and environmental changes clearly, including an analysis of long-term surface water and groundwater trends in terms of levels, flow and quality
• improving how it determines the progress and success of mine rehabilitation
• developing clear policy and procedures for ensuring a mine cannot be put into ‘care and maintenance’ indefinitely.

4. Collaborate with relevant agencies to establish a financial assurance mechanism, such as a sinking fund, to cover the risk of long-term environmental degradation after mines are closed and security deposits returned.

Appendix One - Response from the Department

Appendix Two - About the audit

NSW Government agencies use contingent labour to help deliver services to the community. The NSW Public Service Commission (PSC) defines contingent labour as people employed by a recruitment agency and hired by government agencies to provide labour or services. Agencies use contingent labour to fill a gap in skills or capability, for example, to fill a position while a staff member is on leave or where specialist knowledge may be needed on a short-term basis. The PSC estimated that in 2016 the contingent workforce represented 2.3 per cent of the public sector workforce, equivalent to 7,571 full-time employees.

The PSC recommends that contingent labour only be used when it is the most efficient and effective option available to respond to an agency’s business needs. It also recommends that agencies’ use of contingent labour be informed by workforce planning. 

Government spending on contingent labour has increased significantly over the last five years, from $503 million in 2011–12 to $1.1 billion in 2015–16. To reduce spend in this area, the NSW Government has introduced the Contingent Workforce Renewal Strategy, overseen by NSW Procurement. The Strategy aims to achieve greater efficiency and effectiveness in the use of contingent labour. It has four pillars:

• prequalification scheme – a list of approved contingent labour suppliers
• vendor management system – an information system to manage contingent workers
• managed service provider – a recruitment agency broker
• contractor management organisations – organisations that manage a contingent labour database, which agencies can source labour from.

The prequalification scheme is mandatory for public sector agencies. Agencies are progressively rolling out the other pillars. The vendor management system and managed service provider are together called ‘Contractor Central’.

Within the context of sector reform aimed at promoting efficiency and effectiveness, the objective of this audit is to assess whether agencies’ approach to purchasing and managing their contingent workforce meets business needs and delivers value for money. In making this assessment, we reviewed three agencies each at a different stage of the reform:

• Department of Education (Education) – Contractor Central introduced in August 2015
• Department of Industry (Industry) – Contractor Central introduced in November 2016, after our review
• Transport for NSW (Transport) – Contractor Central not in place.

The use of contingent labour neither informs nor is informed by agency level workforce plans

None of the three agencies we reviewed had an agency level workforce plan in place. Agencies could not demonstrate that they had analysed their use of contingent labour at an agency level, including how it is being used to address any skills gaps. An agency’s executive is responsible for ensuring that an agency level workforce plan is in place. An agency level workforce plan helps hiring managers to make decisions on the best resource strategy to meet their business needs. This is important because contingent labour should only be engaged after considering all other recruitment options and the agency’s workforce plan.

Contingent workforce data is not always reliable or accurate

The accuracy and reliability of contingent workforce data varied significantly across the three agencies we reviewed. In Industry and Transport, information on contingent labour is difficult to obtain because it must be drawn from different data sources, affecting its accuracy, reliability and timeliness. This information is also incomplete, with these agencies not having a full picture of their contingent workforce. Quality data is important because it improves an agency’s capacity to plan and monitor its use of contingent labour to ensure it meets business needs.

At the time of our review, only Education, through Contractor Central, was able to obtain timely and accurate data on its use of contingent labour. Contractor Central has also improved its reporting capability, with the agency’s executive now receiving quarterly reports on its contingent workforce. In contrast, executives in Industry and Transport received ad-hoc reports on the use of contingent labour that only gave them limited oversight of their contingent workforce.

Long tenure of contingent workers is an issue in agencies

We found that the maximum tenure of contingent labour varied across agencies from nine to more than 20 years. In Education and Transport, staff reported that hiring managers assume contingent workers are automatically renewed at the end of their contract, with no formal consideration about whether contingent labour is still needed. Also, contingent labour is used for significant capital projects in the information technology and infrastructure areas where a project may run for several years.

None of the agencies reviewed undertook an analysis to determine how to reduce tenure while ensuring business needs are met. This is particularly important for long-term use of contingent labour for large capital projects. Understanding whether contingent labour represents best value compared to other recruitment options, such as secondments or temporary employment, is essential. Contingent workers are engaged under different working conditions to employees. Long tenure can pose an industrial relations risk to agencies because contingent workers may believe they are entitled to the same working conditions as employees.

On and off-boarding processes could be strengthened

Agencies have processes to engage and release contingent labour, also called on boarding and off-boarding. This includes access to IT systems, building access, and the return of property. However, not all agencies had on boarding or off-boarding checklists with specific requirements for engaging or releasing contingent labour. In addition, agencies’ off boarding guidelines did not always provide for knowledge transfer. This was identified as a key risk by staff because it is important to ensure that critical skills and knowledge are retained.

Risk that agencies are being overcharged when engaging contingent labour

We found that in agencies without Contractor Central, there is limited assurance that recruitment agencies charge in line with the prequalification scheme fees. NSW Procurement estimates that the government was overcharged $1.3 million in 2015–16. In addition, there is a risk that hiring managers do not have sufficient information to benchmark pay rates when negotiating contingent labour engagements. Agencies with Contractor Central may be more likely to get reasonable rates by using a recruitment broker who has specialised market knowledge.

No system in place to monitor the performance of contingent workers

None of the agencies we reviewed had a system in place to monitor the performance of their contingent workforce at an agency level to ensure it delivers value for money. Hiring managers are not required to evaluate whether contingent labour delivers the services for which they are hired. For example, hiring managers do not routinely assess and centrally document the quality of services provided, including whether services are delivered on time and within budget. This means contingent workers who are not performing may be re-hired by other managers or agencies. With the implementation of Contractor Central, there is the means to capture agency-wide information on the performance of contingent workers.

Contractor Central has the potential to improve value for money

Contractor Central has the potential to improve value for money. This is because the recruitment broker has specialised market knowledge and is able to promote competition, and benchmark and negotiate pay rates. In addition, the new software can streamline invoice processing and ensure correct supplier rates are charged. Education reports that it achieved a net saving of $944,600 from August 2015 to May 2016 due to the introduction of Contractor Central. Industry also expects to achieve similar results with Contractor Central, which it advised was implemented in November 2016.

The Department of Industry and Transport for NSW should, by December 2017:

1. improve the accuracy and reliability of their data on contingent labour

2. routinely report the use of contingent labour to agency executive.

The Department of Industry, Department of Education, and Transport for NSW should:

by December 2017:

3. ensure agency-wide on-boarding and off-boarding guidelines or checklists detail the specific requirements for engaging or releasing contingent labour, including provisions for knowledge transfer.

by March 2018

4. ensure that contingent labour informs and is informed by workforce planning, by:

• analysing agency-wide business needs, staff capability, and skills gaps
• understanding how gaps are filled by contingent workers or other recruitment options
• assessing whether long-term contingent worker engagements are the most economical and effective labour option
• evaluating whether contingent workers meet agency business needs and deliver value for money.

5. assess and centrally document the performance of their contingent workforce to ensure that services are delivered as contracted

6. implement processes to ensure that hiring managers consider other recruitment options prior to engaging or re-engaging contingent workers.
    

Sector-wide learnings

This audit identified learnings that government agencies across the sector should consider when procuring and managing contingent labour:

1. Contingent workforce planning should be part of an agency’s broader workforce planning.

2. Using information systems to manage and procure contingent labour improves the accuracy, reliability and timeliness of contingent labour data. This information enables agencies to consistently assess contingent labour rates and to identify persistent skills gaps in their workforce.

3. Routine reporting of contingent labour to agency executives provides oversight of an agency’s use of contingent labour.

4. Hiring managers should consider all recruitment options, with advice from human resources staff, before engaging contingent labour to ensure that it is the most appropriate solution for a specific need.

5. Regularly assessing long tenure contingent labour engagements helps to ensure that such engagements are still the most economical and effective labour option.

6. Planning the engagement of contingent workers, including provisions for knowledge transfer, maximises the potential to obtain value for money from the use of contingent labour.

7. Assessing and centrally documenting the performance of contingent labour against agreed deliverables helps to ensure services are delivered as planned, including in terms of quality, and timeliness.