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18 December 2018

Published

Government Advertising 2017-18

Premier and Cabinet

Compliance

Regulation

The State Insurance Regulatory Authority’s (SIRA) ‘green slip refund’ campaign, and the TAFE semester one 2018 student recruitment campaign, complied with most requirements of the Government Advertising Act 2011 and the Government Advertising Guidelines, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.

The Government Advertising Act 2011 (the Act) requires the Auditor-General to conduct a performance audit on the activities of one or more government agencies in relation to government advertising campaigns in each financial year. The performance audit assesses whether a government agency or agencies has carried out activities in relation to government advertising in an effective, economical and efficient manner and in compliance with the Act, the regulations, other laws and the Government Advertising Guidelines (the Guidelines).

This audit examined two campaigns conducted in 2017–18:

the 'Green slip refund' campaign run by the State Insurance Regulatory Authority (SIRA)
the semester one component of the 'TAFE NSW 2018 Student Recruitment Annual Campaign Program' run by the NSW TAFE Commission (TAFE).

Section 6 of the Act prohibits political advertising. Under this section, material that is part of a government advertising campaign must not contain the name, voice or image of a minister, member of parliament or a candidate nominated for election to parliament or the name, logo or any slogan of a political party. Further, a campaign must not be designed to influence (directly or indirectly) support for a political party.

Conclusion

Neither campaign breached the prohibition on political advertising contained in section 6 of the Act. Both campaigns also complied with most requirements of the Act, the regulations, other laws and the Guidelines. Neither agency could demonstrate that their campaigns were fully effective or economical.

SIRA did not breach section 6 of the Act, which prohibits political advertising. However, SIRA used its post-campaign evaluation to ask the public whether they believe the government was helping to reduce the cost of living by making reforms in a variety of areas, including some that were not related to the green slip campaign. SIRA advised that these additional statements were included to provide a broader context for any change in the green slip campaign survey results. This is not an appropriate use of the post-campaign evaluation because the post-campaign evaluation should measure the success of the campaign against its stated objectives.

Neither campaign met all their key objectives, limiting the overall effectiveness of the campaigns. SIRA successfully increased awareness of the availability of green slip refunds and met the target for the proportion of people claiming their refunds online. However, it did not meet its objective to inform the public about the reforms to the green slip scheme, beyond the refunds available to motorists. While 62 per cent of surveyed people were aware of the reforms, there was little knowledge about many specific aspects of the reforms, which people largely associated with lower insurance prices and refunds. TAFE was successful in achieving targets for changing the public perception of TAFE. However, it failed to achieve its semester one enrolment target.

SIRA was not able to demonstrate that its campaign was economical as it directly negotiated with a single supplier for the campaign's creative materials. This is contrary to the NSW Government's and SIRA's own procurement guidance that advise it to seek quotes from suppliers on a prequalification scheme if available. SIRA had access to the Advertising and Digital Communication Services prequalification scheme, but still continued with direct negotiations. While SIRA sought to demonstrate value for money by comparing the supplier's quote to the expenditure on creative materials in other campaigns, it did not document this evaluation to ensure that decision makers were fully informed.

TAFE was not able to demonstrate that its campaign was economical as it did not compare the campaign with a zero-advertising scenario to demonstrate the exact benefits directly attributable to the campaign. TAFE's cost-benefit analysis also did not identify to what extent benefits could be achieved without advertising, nor did it consider alternatives to advertising which could achieve the same impact as the advertising campaign. All these elements should have been included in TAFE's cost benefit analysis.

Both agencies achieved some efficiencies in implementing their campaigns. SIRA booked all of its media placements in a cost-efficient manner. TAFE booked most of its media placements in a cost-efficient manner and achieved further efficiencies through the re-use of previous campaign material.

The State Insurance Regulatory Authority (SIRA) conducted the 'Green slip refund' campaign between March and June 2018. SIRA ran this campaign to raise awareness of the Compulsory Third Party (CTP) refunds and reforms after the Motor Accidents Injuries Act 2017 commenced in December 2017. SIRA's view is that the reforms include a reduced cost for CTP insurance, benefits for at-fault drivers, reduced opportunity for fraud and attempts to lower insurance company profits. Green slip holders are also able to claim partial refunds on their 2017 green slip insurance premium. The campaign aimed to make green slip holders aware of the refunds available, encourage them to claim online and to inform people about the changes to the green slip scheme. The campaign focused on the first two of these objectives. The total cost of the campaign was $1.9 million. See Appendix two for more details on this campaign.

The 'Green slip refund' advertising campaign did not breach section 6 of the Act which prohibits political advertising. However, SIRA used its post-campaign evaluation to ask the public whether they believe the government was helping to reduce the cost of living by making reforms in a variety of areas, including some that were not related to the green slip campaign. SIRA advised that these additional statements were included to provide a broader context for any change in the green slip campaign survey results. This is not an appropriate use of the post-campaign evaluation because the post-campaign evaluation should measure the success of the campaign against its stated objectives.

The campaign met most of its objectives, including raising awareness of the green slip refunds and encouraging people to claim online. However, the campaign was not fully effective because it did not inform the public of the green slip reforms. This was one of the objectives of the campaign. Sixty-two per cent of people in the post-campaign survey stated that they were aware of the reforms, an increase from the baseline of 20 per cent. However, these people largely associated the reforms with lower insurance prices and had a low awareness of any other elements of the reforms, such as SIRA's view that the reforms introduced better support for people injured on the road. This indicates that the campaign did little to inform people about the green slip reforms beyond the price of insurance.

SIRA was able to ensure cost-efficient media purchases by signing its media booking authority within the timeframe advised by DPC.

SIRA could not demonstrate that the campaign was carried out economically. SIRA directly negotiated with a single supplier to procure the creative materials for this campaign. Direct negotiations make it difficult to ensure value for money due to the lack of competition. SIRA proceeded with direct negotiations despite being able to access a prequalification scheme which could increase competition. In doing so, SIRA did not follow government's or its internal procurement guidance. While SIRA sought to demonstrate value for money by comparing the supplier's quote to the expenditure on creative materials in other campaigns, it did not document this evaluation to ensure that decision makers were fully informed.

Campaign materials we reviewed did not breach section 6 of the Act

Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:

be designed to influence (directly or indirectly) support for a political party
contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
contain the name, logo, slogan or any other reference to a political party.

The audit team found no breaches of section 6 of the Act in the campaign material we reviewed.

Before the start of the campaign, SIRA conducted a survey which asked people whether they agreed ‘that the NSW Government is helping to reduce the cost of living by making positive reforms to:

reduce the cost of green slips
reduce the cost of health insurance
increase the number of jobs
increase investment in the state.'

SIRA's initial submission to peer review listed one of the campaign objectives as improving the perception of the government as a positive reformer. DPC advised SIRA that this should not be included. SIRA removed this objective.

Even though SIRA appropriately removed this objective, the post-campaign evaluation still measured agreement with the above statements, three of which did not relate to this campaign or SIRA's responsibilities. SIRA advised that these three additional statements were included to provide a broader context for any change in the green slip campaign survey results. For example, if all four measures reported an increase in positive responses of roughly the same size, then the increase may have been due to factors other than the advertising campaign.

This is not an appropriate use of the post-campaign evaluation, which should measure the success of the campaign against its stated objectives. The Guidelines list the purposes that government advertising may serve and none of these relate to improving the perception of the government. The inclusion of the above questions in SIRA's post-campaign evaluation creates a risk that the results may be used for party political purposes.

The campaign met most targets, however some were not challenging to achieve

The post-campaign evaluation demonstrated that the campaign met the targets for 12 of its 13 objectives including the targets relating to raising awareness of the refunds and the proportion of people claiming their refunds online. A fourteenth objective, the percentage of people aware that they should contact SIRA after a road accident injury, did not have a target set, meaning that it is not possible to say whether the campaign had the desired impact in this case.

In August 2017, before the campaign commenced, SIRA conducted a survey to determine the baselines for some of its objectives. This is a good practice to support an effective post campaign evaluation process. The survey found that 20 per cent of people were aware of the green slip reforms. SIRA's objective was to raise this to 25 per cent, which represents a small gain relative to the proposed campaign expenditure. The campaign aimed for 40 per cent of motorists to be aware of refunds, which is very low given that this was the primary focus of the campaign. SIRA followed the advice of its survey provider when setting these targets.

In the survey carried out after the campaign, 66 per cent of people were aware of the availability of green slip refunds for most motorists. The campaign also aimed to get 83 per cent of motorists to claim their refunds via online channels. It met this target, with a total of 84 per cent. Finally, 62 per cent of people in the post-campaign survey were aware of the green slip reforms. This result is discussed further below.

The overall target for total number of refunds claimed is 85 per cent of eligible drivers, that is to say CTP holders. SIRA will evaluate the results of this objective after the conclusion of the refund period in June 2019.

The campaign did little to inform the public about the broader green slip reforms

One objective of the green slip refund campaign was to inform the public about the green slip reforms. The final campaign creative material focused almost entirely on the green slip refunds rather than the range of other reforms. This was because the peer review raised concerns that the creative material was attempting to deliver too many messages.

The campaign submission stated that the advertising campaign would raise awareness of the broader reforms to the CTP scheme, citing several examples such as reduced opportunities for fraud and reduced insurer profits. SIRA also advised the Minister for Finance, Services and Property that secondary messaging in the campaign would benefit public understanding of the reforms.

Some of the television and radio advertisements referred to ‘more protection’ or ‘better protection’ for people injured on New South Wales roads, however advertisements did not refer to other elements of the reforms. Other campaign creative materials contained messages solely relating to the green slip refund and made no further reference to the broader reforms. SIRA used other communication channels, such as giving wallet cards to health service providers, to spread these messages to people, particularly those who had been injured.

Sixty two per cent of people in the post-campaign survey were aware of the green slip reforms. SIRA asked these people which benefits they associated with the reforms. The results of this survey are in Exhibit 4. Seventy-one per cent of this sample identified the reduced costs of green slips as one of the changes, but awareness of other elements of the reforms remains low. Though 29 per cent of people perceive the reforms to make the green slip scheme ‘fairer’, no more than 15 per cent of people could list a specific benefit which did not relate to insurance prices.

Exhibit 4: Perceived benefits associated with the changes to the CTP green slip scheme
Perceived benefit	Percentage aware of this benefit
Reduced costs of green slips for vehicle owners	71%
A fairer scheme for all people	29%
Reduced costs of comprehensive vehicle insurance	20%
Better support for people injured on our roads	15%
Less chances of fraudulent claims	15%
Lowering insurance company profits	13%
Quicker payment of claims to injured people	10%

Source: State Insurance Regulatory Authority.

Another campaign target was to ensure that people understood that they should contact SIRA in case of an injury. None of the campaign creative materials contained this information. SIRA did some limited work to inform the public about this through its social media channels. One of the pieces of creative material directed the reader to SIRA's website for further information on the reforms, which contained this information. During the campaign period, there was an increase in the number of calls received by SIRA's CTP Assist phone line. However, in the post-campaign evaluation, only two per cent of surveyed people identified that they should contact SIRA in case of an injury.

The media plan allowed sufficient time for cost-efficient media placement

During the peer review process, DPC provides advice to agencies about the time they should allow to ensure cost-efficient media placement. For example, DPC advise that agencies book television advertising six to 12 weeks in advance and that agencies book radio advertising two to eight weeks in advance.

SIRA allowed sufficient time between the completion of the peer review process and the commencement of the first advertising. SIRA signed the agreement with the approved Media Agency Services provider eight weeks before the campaign started, meaning that it could achieve cost-efficient media placement for all types of media used in this campaign.

SIRA directly negotiated with a single supplier, making it difficult to demonstrate value for money

SIRA directly negotiated with a single supplier to procure the campaign's creative material. A direct negotiation occurs when an agency negotiates with a proponent without first undergoing a competitive process. It is difficult to demonstrate value for money using direct negotiation due to the lack of competition.

ICAC's 'Guidelines for managing risks in direct negotiations' (ICAC Guidelines) provide guidance on how to undertake direct negotiations. SIRA has a direct negotiation checklist that aligns to the ICAC Guidelines. The SIRA checklist advises that staff should confirm that existing New South Wales prequalification schemes cannot provide the procurement before undertaking a direct negotiation. SIRA did not do this.

To procure creative materials, agencies can access the Advertising and Digital Communication Services prequalification scheme (the prequalification scheme). Using the prequalification scheme allows agencies to quickly seek quotes from suppliers who have a demonstrated track record and expertise. While agencies are not required to use the prequalification scheme, the NSW Procurement Board advises that agencies should use prequalification schemes where they are available to promote competition.

By using direct negotiation when the prequalification scheme was available, and by not seeking quotes from other suppliers, SIRA was acting in a way that reduced competition. This increases the risk that SIRA did not achieve value for money in its procurement of creative materials.

SIRA advised that it sought to ensure value for money by comparing the quote from its selected supplier with the amount spent on creative materials in other campaigns of similar size. SIRA did not document this analysis at the time or include it as part of the briefing note staff used to seek approval for undertaking direct negotiation. As a result, decision-makers were not fully informed when approving this engagement.

SIRA reported in a briefing note that it engaged in direct negotiations because:

it believed that the original timeframe did not allow for a competitive tender process
the supplier had done previous work on a related campaign for SIRA
the supplier provided sample work which received positive feedback from focus groups.

In July 2017, when peer review commenced, SIRA planned to launch the campaign in November 2017 to coincide with the beginning of the green slip reforms. SIRA believed that this timeframe was narrow enough to warrant entering direct negotiations. The ICAC Guidelines advise that a narrow timeframe is not a valid reason to enter into a direct negotiation. In late October 2017, the campaign launch was delayed until March 2018 to stagger the demand on the resources of Service NSW, which is administering the refund.

The ICAC Guidelines also advise against re-appointing a supplier because it has performed previous work. Instead, agencies could consider previous experience as one of several factors when deciding between quotes. In cases where an agency asks a supplier to provide sample work, the ICAC Guidelines advise that agencies should request sample work from multiple potential suppliers to promote competition.

The campaign's cost benefit analysis complied with the Act and Guidelines

The Act requires a cost benefit analysis (CBA) for any government advertising campaign likely to exceed $1.0 million in value. Section six of the Guidelines set out the requirements for a government advertising CBA. The campaign's CBA complied with the requirements of the Act and the Guidelines.

The campaign CBA could have demonstrated further cost effectiveness if it considered alternative media mixes as outlined in NSW Treasury's 'Cost Benefit Analysis Framework for Government Advertising and Information Campaigns'. This would also have been consistent with the Handbook.

The cluster Secretary signed the compliance certificate instead of the head of SIRA

The Act requires the head of the agency running the campaign to sign a compliance certificate.

The Secretary of the Department of Finance, Services and Innovation, the cluster to which SIRA belongs, signed the campaign's compliance certificate. However, section 17(2) of the State Insurance and Care Governance Act 2015 states that SIRA is ‘for the purposes of any Act, a NSW Government agency.’ Given this, the Chief Executive of SIRA was responsible for signing the compliance certificate for this campaign.

This is a minor non-compliance with the Act because the Chief Executive had reviewed the campaign and recommended that the Secretary sign the compliance certificate.

The NSW TAFE Commission (TAFE) ran the 'TAFE NSW 2018 Student Recruitment Annual Campaign Program' from November 2017 to September 2018. The aim of the campaign was to assist TAFE in achieving its 2018 student enrolment target by improving the perception of TAFE's brand and generating student enquiries. This is the first state-wide campaign run by TAFE operating under the One TAFE model. Previously, each TAFE Institute ran its own campaigns. The total budget of the campaign was $19.5 million. This audit examined only the semester one 2018 component of the campaign, which ran from November 2017 to April 2018 at a total cost of $9.5 million. See Appendix two for more details on this campaign.

The semester one component of the 'TAFE NSW 2018 Student Recruitment Annual Campaign Program' did not breach the specific provisions of section 6 of the Act which prohibits political advertising.

The campaign was not fully effective because it did not achieve its objective of reaching TAFE's semester one enrolment target.

The campaign was successful at achieving the campaign's targets which related to changing the public perception of TAFE.
TAFE was able to place most of its campaign media within cost-efficient timeframes. TAFE also achieved efficiencies by re-using many creative materials from a previous campaign.

TAFE could not demonstrate this campaign was carried out economically. TAFE's cost benefit analysis (CBA) for this campaign did not comply with three requirements of the Guidelines. For example, TAFE did not compare the campaign to a baseline case of not advertising.

The Guidelines require government advertising to be accurate in all statements. TAFE breached this requirement. The campaign material included one statement that was inaccurate and one that was overstated.

The revision of the Brand Guidelines in August 2017 impacted this campaign. TAFE re-used many creative materials that were created when TAFE was not required to include the NSW Government logo on its advertising material. DPC appears to have directed agencies that were launching advertising campaigns to immediately comply with the Brand Guidelines, however we could not find evidence that this advice was given to TAFE. As such, 59 per cent of TAFE's materials were not compliant with the Brand Guidelines at the launch of the campaign in November 2017. TAFE had made most of this campaign's creative materials compliant by June 2018.

The campaign materials we reviewed did not breach section 6 of the Act

Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:

be designed to influence (directly or indirectly) support for a political party
contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
contain the name, logo, slogan or any other reference to a political party.

The audit team found no breaches of section 6 of the Act in the campaign material we reviewed.

The campaign achieved 16 of 24 objectives, but did not reach its enrolment target

The campaign had 24 objectives which had a target for semester one. TAFE set these targets using a combination of previous experience, corporate objectives and brand surveys.

The overall objective of the combined semester one and two campaigns was to support TAFE achieving its 2018 total enrolment target of 549,636. TAFE's semester one target was 361,350, which it did not achieve. This indicates that the campaign was not fully effective.

The campaign achieved 11 of its 16 output objectives. The output targets related to TAFE's media placements and ability to reach an audience efficiently. TAFE tracked progress against many of the campaign's output objectives daily. TAFE altered its media channels throughout the campaign meaning that some of the output objectives were not met because TAFE decided to focus on alternative media channels. The campaign also achieved all seven of its outcome objectives. The outcome objectives related to changing the public perception of TAFE.

TAFE's initial media plan allowed for efficient media placement

While TAFE's initial media plan allowed sufficient time between the approval of the campaign and its launch, a delay in receiving final approval for the campaign meant TAFE could not purchase media placements until two months later than planned. Most purchases still remained within DPC's recommended timeframes, but Indigenous television advertisements and metropolitan out of home advertisements both fell outside DPC's recommended time periods by one week. These delays did not impact on TAFE's efficiency.

TAFE re-used many creative materials, achieving some cost-savings

Rather than commissioning new creative materials, TAFE re-used many creative materials from the previous campaign and supplemented these with a selection of new creative materials. TAFE advised that this led to a cost saving of approximately $130,000.
TAFE sought quotes from suppliers on the government's Advertising and Digital Communication Services prequalification scheme for two creative material contracts. These contracts covered updates to existing materials and a selection of new materials.

The campaign's cost-benefit analysis did not comply with three requirements of the Guidelines

The Act requires an agency to conduct a cost-benefit analysis (CBA) if the cost of an advertising campaign is likely to exceed $1.0 million. The Guidelines set out the requirements of this CBA. TAFE did not comply with three of these requirements, outlined in Exhibit 5.

Exhibit 5: Guideline requirements for CBAs with which TAFE did not comply
6.2 The cost benefit analysis must isolate the additional costs and benefits attributable to the advertising campaign itself compared to the base-case of not-advertising. 6.3 The cost benefit analysis must specify the extent to which the expected benefits could be achieved without advertising. 6.4 The cost benefit analysis must outline what options other than advertising could be used to successfully implement the program and achieve the program benefits and a comparison of their costs.

Source: NSW Government Advertising Guidelines (2012).

In this circumstance, section 6.2 of the Guidelines required the CBA to identify the number of enrolments TAFE would expect if it did not advertise. TAFE advised us that it is not possible to say what this scenario would look like because there had always been some degree of advertising, however, this argument is not reflected in the CBA.

TAFE used 2017 as the baseline in the CBA. In 2017, TAFE spent $13.2 million on advertising. As such, the CBA was only able to isolate the impact of the increased expenditure rather than the impact of the campaign's entire $19.5 million expenditure. TAFE advised that 2017 had the most reliable state-wide data and this contributed to the decision to use it as the baseline.

During the audit, TAFE sought advice from NSW Treasury regarding whether a 2017 baseline was appropriate and NSW Treasury advised that it was. Regardless, TAFE did not receive this advice prior to writing the CBA and did not put commentary around this in the CBA. This would also not be sufficient for fulfilling the requirements of the Guidelines.

The CBA did not comply with sections 6.3 and 6.4 of the Guidelines. The CBA briefly considered the impact of spending the campaign budget directly on new training courses, however there was no sustained analysis of this option. TAFE staff advised that there are no realistic alternatives to advertising for achieving the campaign's objectives. However we did not see analysis to support this conclusion in documents provided to us.

The campaign CBA could have better demonstrated cost effectiveness if it considered alternative media mixes as outlined in NSW Treasury's 'Cost Benefit Analysis Framework for Government Advertising and Information Campaigns'. This would also have been consistent with the Handbook.

TAFE made one inaccurate claim in its advertising and overstated a second

The Guidelines set out rules regarding the content of a government advertising campaign. Exhibit 6 sets out one of the principles with which agencies must comply.

Exhibit 6: Guidelines' requirement for accuracy
The following principles apply to the style and content of government advertising campaigns: Accuracy in the presentation of all facts, statistics, comparisons and other arguments. All statements and claims of fact included in government advertising campaigns must be able to be substantiated.

Source: NSW Government Advertising Guidelines (2012).

TAFE made one inaccurate claim in its advertising and overstated a second.

In some campaign creative material, TAFE claimed that 78 per cent of its own graduates are employed after training (Exhibit 15 in Appendix 2). According to the National Centre for Vocational Education Research, 78 per cent of New South Wales Vocational Education and Training (VET) graduates (i.e. from all training providers) are employed after training. The result for TAFE graduates is 70.4 per cent.

One of the campaign's television advertisements refers to TAFE as ‘Australia's most reputable education provider’. This statement referred to a survey of current TAFE students who were asked where they would consider studying in future: TAFE, University or a private college. The current TAFE students selected TAFE by a large margin. The limited scope of TAFE's student survey and its results do not support the claim that it is ‘Australia's most reputable education provider’.

DPC did not consistently communicate the transitional arrangements for the Brand Guidelines and as such much of TAFE's creative material did not comply at campaign launch

On 7 August 2017, the government released the NSW Government Brand Guidelines (Brand Guidelines), setting out how agencies use the NSW Government logo. The Brand Guidelines replaced the Branding Style Guide which had been in place since September 2015. Some agencies were exempt from using the Branding Style Guide and the introduction of the new Brand Guidelines required these agencies to apply for a new exemption.

TAFE had recently commenced the peer review process for this campaign when the Brand Guidelines were released. TAFE was exempt from the requirements of the Branding Style Guide and as such the material which TAFE was planning to re-use in the new campaign did not contain the NSW Government logo.

Communication about how long agencies had to make themselves compliant with the Brand Guidelines was unclear. On 11 August 2017, the Chair of the Cabinet Standing Committee on Communication and Government Advertising (the Committee) sent a letter to the Secretary of the Department of Industry informing him that the Department must update all its material to be compliant with the Brand Guidelines ‘as soon as practicable within an 18-month transition period’. The Department of Industry advised TAFE that new advertising would need to be immediately compliant, however it was not clear if this included materials which agencies were re-using from previous campaigns. DPC advised the audit team that it expected re-used materials to be compliant when agencies launched new campaigns. DPC provided this advice to some agencies but did not communicate it more broadly. We could not source evidence that DPC provided this advice to TAFE.

DPC ran workshops to explain the transitional arrangements in September 2017 for the changes in the Brand Guidelines, however these did not specifically address the transitional timeframes for new advertising campaigns.

The Department of Industry, on behalf of TAFE, applied to the Committee for approval to co-brand the TAFE logo with the NSW Government logo. This was approved in October 2017. The requirements for co-branding are in Exhibit 7.

Exhibit 7: Co-branding in the NSW Government Brand Guidelines
Co-branding partners the agency logo with the NSW Government logo. The NSW Government logo must always be presented as the dominant or lead brand. The Brand Guidelines provide the following template shown below the exhibit box. The NSW Government logo is on the left and the agency logo is placed on the right, with a dividing line between them.

Appendix one - Responses from agencies

Appendix two - About the campaigns

Appendix three - About the audit

Appendix four - Performance auditing

Parliamentary reference - Report number #311 - released 18 December 2018

11 December 2018

Published

Unsolicited proposal process for the lease of Ausgrid

Premier and Cabinet

Asset valuation

Infrastructure

Internal controls and governance

Management and administration

Procurement

Project management

Service delivery

Shared services and collaboration

In October 2016, the NSW Government accepted an unsolicited proposal from IFM Investors and AustralianSuper to lease 50.4 per cent of Ausgrid for 99 years. The deal followed the Federal Government’s rejection of two bids from foreign investors, for national security reasons.

A performance audit of the lease of Ausgrid has found shortcomings in the unsolicited proposal process. Releasing the audit findings today, the Auditor-General for New South Wales, Margaret Crawford said ‘this transaction involved a $20 billion asset owned by the people of New South Wales. As such, it warranted strict adherence to established guidelines’.

Ausgrid is a distributor of electricity to eastern parts of Sydney, the Central Coast, Newcastle and the Hunter Region.

In June 2014, the then government announced its commitment to lease components of the state's electricity network as part of the Rebuilding NSW plan. Implementation of the policy began after the government was re-elected in 2015. Between November 2015 and August 2016, the NSW Government held a competitive tender process to lease 50.4 per cent of Ausgrid for 99 years. The NSW Government abandoned the process on 19 August 2016 after the Australian Treasurer rejected two bids from foreign investors, for national security reasons. That day, the Premier and Treasurer released a media statement clarifying the government's objective to complete the transaction via a competitive process in time to include the proceeds in the 2017–18 budget.

On 31 August 2016, the state received an unsolicited proposal from IFM Investors and AustralianSuper to acquire an interest in Ausgrid under the same terms proposed by the state during the tender process. In October 2016, the government accepted the unsolicited proposal.

This audit examined whether the unsolicited proposal process for the partial long-term lease of Ausgrid was effectively conducted and in compliance with the government’s 2014 Unsolicited Proposals: Guide for Submission and Assessment (Unsolicited Proposals Guide or the Guide).

The audit focused on how the government-appointed Assessment Panel and Proposal Specific Steering Committee assessed key requirements in the Guide that unsolicited proposals must be demonstrably unique and represent value for money.

Conclusion

The evidence available does not conclusively demonstrate the unsolicited proposal was unique, and there were some shortcomings in the negotiation process, documentation and segregation of duties. That said, before the final commitment to proceed with the lease, the state obtained assurance that the proposal delivered value for money.

It is particularly important to demonstrate unsolicited proposals are unique, in order to justify the departure from other transaction processes that offer greater competition, transparency and certainty about value for money.

The Assessment Panel and the Proposal Specific Steering Committee determined the Ausgrid unsolicited proposal was unique, primarily on the basis that the proponent did not require foreign investment approval from the Australian Treasurer, and the lease transaction could be concluded earlier than through a second tender process. However, the evidence that persuaded the Panel and Committee did not demonstrate that no other proponent could conclude the transaction in time to meet the government’s deadline.

It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.

The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. It also does not demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.

The Panel, Committee and financial advisers determined that the final price represented value for money, and that retendering offered a material risk of a worse financial outcome. However, an acceptable price was revealed early in the negotiation process, and doing so made it highly unlikely that the proponent would offer a higher price than that disclosed. The Department of Premier and Cabinet (DPC) and NSW Treasury were not able to provide a documented reserve price, bargaining strategy or similar which put the negotiations in context. It is not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance.

Key aspects of governance recommended by the Guide were in place. Some shortcomings relating to role segregation, record keeping and probity assurance weakened the effectiveness of the unsolicited proposal process adopted for Ausgrid.

The reasons for accepting that the proposal and proponent were unique are not compelling.

The Unsolicited Proposals Guide says the 'unique benefits of the proposal and the unique ability of the proponent to deliver the proposal' must be demonstrated.

The conclusion reached by the Panel and Committee that the proposal offered a ‘unique ability to deliver (a) strategic outcome’ was primarily based on the proponent not requiring foreign investment approval from the Australian Treasurer, and allowing the government to complete the lease transaction earlier than by going through a second tender process.

It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.

The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. Nor does it demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.

That said, the Australian Treasurer’s decision to reject the two bids from the previous tender process created uncertainty about the conditions under which he would approve international bids. The financial advisers engaged for the Ausgrid transaction informed the Panel and Committee that:

it was not likely another viable proponent would emerge soon enough to meet the government’s transaction deadline
the market would be unlikely to deliver a better result than offered by the proponent
going to tender presented a material risk of a worse financial result.

The Unsolicited Proposals Guide says that a proposal to directly purchase or acquire a government-owned entity or property will generally not be unique. The Ausgrid unsolicited proposal fell into this category.

Recommendations:
DPC should ensure future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:

recognise that when considering uniqueness they should:
- require very strong evidence to decide that both the proponent and proposal are the only ones of their kind that could meet the government’s objectives
- give thorough consideration to any reasonable counter-arguments against uniqueness.
rigorously consider all elements of the Unsolicited Proposals Guide when determining whether a proposal should be dealt with as an unsolicited proposal, and document these deliberations and all relevant evidence
do not use speed of transaction compared to a market process as justification for uniqueness.

The process to obtain assurance that the final price represented value for money was adequate. However, the negotiation approach reduced assurance that the bid price was maximised.

The Panel and Committee concluded the price represented value for money, based on peer-reviewed advice from their financial advisers and knowledge acquired from previous tenders. The financial advisers also told the Panel and Committee that there was a material risk the state would receive a lower price than offered by the unsolicited proposal if it immediately proceeded with a second market transaction.

The state commenced negotiations on price earlier than the Guide says they should have. Early disclosure of a price that the state would accept reduced the likelihood of achieving a price greater than this. DPC says the intent of this meeting was to quickly establish whether the proponents could meet the state’s benchmark rather than spending more time and resources on a proposal which had no prospect of proceeding.

DPC and NSW Treasury were not able to provide a documented reserve price, negotiation strategy or similar which put the negotiations and price achieved in context. It was not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance. However, the Panel and Committee endorsed the outcomes of the negotiations.

The negotiations were informed by the range of prices achieved for similar assets and the specific bids for Ausgrid from the earlier market process.

Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:

document a minimum acceptable price, and a negotiating strategy designed to maximise price, before commencing negotiations
do not communicate an acceptable price to the proponent, before the negotiation stage of the process, and then only as part of a documented bargaining strategy.

Key aspects of governance recommended by the Guide were in place, but there were some shortcomings around role segregation, record keeping and probity assurance.

The state established a governance structure in accordance with the Unsolicited Proposals Guide, including an Assessment Panel and Proposal Specific Steering Committee. The members of the Panel and Steering Committee were senior and experienced officers, as befitted the size and nature of the unsolicited proposal.

The separation of negotiation, assessment and review envisaged by the Guide was not maintained fully. The Chair of the Assessment Panel and a member of the Steering Committee were involved in negotiations with the proponent.

DPC could not provide comprehensive records of some key interactions with the proponent or a documented negotiation strategy. The absence of such records means the Department cannot demonstrate engagement and negotiation processes were authorised and rigorous.

The probity adviser reported there were no material probity issues with the transaction. The probity adviser also provided audit services. This is not good practice. The same party should not provide both advisory and audit services on the same transaction.

Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government entity or asset:
•   maintain separation between negotiation, assessment and review in line with the Unsolicited Proposals Guide
•   keep an auditable trail of documentation relating to the negotiation process
•   maintain separation between any probity audit services engaged and the probity advisory and reporting services recommended in the current Guide.

Appendix one - Response from agency

Appendix two - NSW Government’s summary of assessment of the Ausgrid unsolicited proposal

Appendix three - The definition and nature of unsolicited proposals

Appendix four - Ausgrid unsolicited proposal process

Appendix five - About the audit

Appendix six - Performance auditing

Parliamentary reference - Report number #309 - released 11 December 2018

30 October 2018

Published

Internal Controls and Governance 2018

Education

Community Services

Finance

Health

Industry

Justice

Planning

Premier and Cabinet

Transport

Treasury

Whole of Government

Environment

Compliance

Cyber security

Financial reporting

Fraud

Information technology

Internal controls and governance

Management and administration

Procurement

Project management

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

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

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

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

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

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

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

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

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

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

The focus of the report has changed since last year

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

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

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

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

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

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

Observation	Conclusions and recommendations
2.1 High risk findings
We found six high risk findings (seven in 2016–17), one of which was repeated from both last year and 2015–16.	Recommendation: Agencies should reduce risk by addressing high risk internal control deficiencies as a priority.
2.2 Common findings
We found several internal controls and governance findings common to multiple agencies.	Conclusion: Central agencies or the lead agency in a cluster can play a lead role in helping ensure agency responses to common findings are consistent, timely, efficient and effective.
2.3 New and repeat findings
Although internal control deficiencies decreased over the last four years, this year has seen a 42 per cent increase in internal control deficiencies.	The increase in new IT control deficiencies and repeat IT control deficiencies signifies an emerging risk for agencies.
IT control deficiencies feature in this increase, having risen by 63 per cent since last year. The number of repeat IT control deficiencies has doubled and is driven by the increasing digital footprint left by agencies as government prioritises on-line interfaces with citizens, and the number of transactions conducted through digital channels increases	Recommendation: Agencies should reduce IT risks by: assigning ownership of recommendations to address IT control deficiencies, with timeframes and actions plans for implementation ensuring audit and risk committees and agency management regularly monitor the implementation status of recommendations.

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

Observation	Conclusions and recommendations
3.1 Management of IT vendors
Contract management framework Although 87 per cent of agencies have a contract management policy to manage IT vendors, one fifth require review.	Conclusion: Agencies can more effectively manage IT vendor contracts by developing policies and procedures to ensure vendor management frameworks are kept up to date, plans are in place to manage vendor performance and risk, and compliance with the framework is monitored by: internal audit focusing on key contracting activities experienced officers who are independent of contract administration performing spot checks or peer reviews targeted analysis of data in contract registers.
Contract risk management Forty-one per cent of agencies are not using contract management plans and do not assess contract risks. Half of the agencies that did assess contract risks, had not updated the risk assessments since the commencement of the contract.	Conclusion: Instead of applying a 'set and forget' approach in relation to management of contract risks, agencies should assess risk regularly and develop a plan to actively manage identified risks throughout the contract lifecycle - from negotiation and commencement, to termination.
Performance management Eighty-six per cent of agencies meet with vendors to discuss performance. Only 24 per cent of agencies sought assurance about the accuracy of vendor reporting against KPIs, yet sixty-seven per cent of the IT contracts allow agencies to determine performance based payments and/or penalise underperformance.	Conclusion: Agencies are monitoring IT vendor performance, but could improve outcomes and more effectively manage under-performance by: a more active, rigorous approach to both risk and performance management checking the accuracy of vendor reporting against those KPIs and where appropriate seeking assurance over their accuracy invoking performance based payments clauses in contracts when performance falls below agreed standards.
Transitioning services Forty-three per cent of the IT vendor contracts did not contain transitioning-out provisions. Where IT vendor contracts do make provision for transitioning-out, only 28 per cent of agencies have developed a transitioning-out plan with their IT vendor.	Conclusion: Contract transition/phase out clauses and plans can mitigate risks to service disruption, ensure internal controls remain in place, avoid unnecessary costs and reduce the risk of 'vendor lock-in'.
Contract Registers Eleven out of forty agencies did not have a contract register, or have registers that are not accurate and/or complete.	Conclusion: A contract register helps to manage an agency’s compliance obligations under the Government Information (Public Access) Act 2009 (the GIPA Act). However, it also helps agencies more effectively manage IT vendors by: monitoring contract end dates and contract extensions, and commence new procurements through their central procurement teams in a timely manner managing their contractual commitments, budgeting and cash flow requirements. Recommendation: Agencies should ensure their contract registers are complete and accurate so they can more effectively govern contracts and manage compliance obligations.
3.2 IT general controls
Governance Ninety-five per cent of agencies have established policies to manage key IT processes and functions within the agency, with ten per cent of those due for review.	Conclusion: Regular review of IT policies ensures risks are considered and appropriate strategies and procedures are implemented to manage these risks on a consistent basis. An absence of policies can lead to ad-hoc responses to risks, and failure to consider emerging IT risks and changes to agency IT environments.
User access administration Seventy-two deficiencies were identified related to user access administration, including: thirty issues related to granting user access across 43 per cent of agencies sixteen issues related to removing user access across 30 per cent of agencies twenty-six issues related to periodic reviews of user access across 50 per cent of agencies.	Recommendation: Agencies should strengthen the administration of user access to prevent inappropriate access to key systems.
Privileged access Forty per cent of agencies do not periodically review logs of the activities of privileged users to identify suspicious or unauthorised activities.	Recommendation: Agencies should: review the number of, and access granted to privileged users, and assess and document the risks associated with their activities monitor user access to address risks from unauthorised activity.
Password controls Twenty-three per cent of agencies did not comply with their own policy on password parameters.	Recommendation: Agencies should ensure IT password settings comply with their password policies.
Program changes Fifteen per cent of agencies had deficient IT program change controls mainly related to segregation of duties and authorisation and testing of IT program changes prior to deployment.	Recommendation: Agencies should maintain appropriate segregation of duties in their IT functions and test system changes before they are deployed.

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

Observation

Conclusion or recommendation

4.1 Reporting on performance

Only 57 per cent of agencies linked reporting on performance to their strategic objectives.

The use of targets and reporting performance over time was limited and applied inconsistently.

Conclusion: There is significant disparity in the quality and consistency of how agencies report on their performance in their annual reports. This limits the reliability and transparency of reported performance information.

Agencies could improve performance reporting by clearly linking strategic objectives to reported outcomes, and reporting on performance against targets over time. NSW Treasury may need to provide more guidance to agencies to support consistent and high-quality performance reporting in annual reports.

There is no independent assurance that the performance metrics agencies report in their annual reports are accurate.

Prior performance audits have noted issues related to the collection of performance information. For example, our 2016 Report on Red Tape Reduction highlighted inaccuracies in how the dollar-value of red tape reduction had been reported.

Conclusion: The ability of Parliament and the public to rely on reported information as a relevant and accurate reflection of an agency's performance is limited.

The relevance and accuracy of performance information is enhanced when:

policies and guidance support the consistent and accurate collection of data
internal review processes and management oversight are effective
independent review processes are established to provide effective challenge to the assumptions, judgements and methodology used to collect the reported performance information.

4.2 Reporting on reports

Agency reporting on major projects does not meet the requirements of the annual reports regulation.

Forty-seven per cent of agencies did not report on costs to date and estimated completion dates for major works in progress. Of the 47 per cent of agencies that reported on major works, only one agency reported detail about significant cost overruns, delays, amendments, deferments or cancellations.

NSW Treasury produce an annual report checklist to help agencies comply with their annual report obligations.

Recommendation: Agencies should comply with the annual reports regulation and report on all mandatory fields, including significant cost overruns and delays, for their major works in progress.

The information the annual reports regulation requires agencies to report deals only with major works in progress. There is no requirement to report on completed works.

Sixteen of 30 agencies reported some information on completed major works.

Conclusion: Agencies could improve their transparency if they reported, or were required to report:

on both works in progress and projects completed during the year
actual costs and completion dates, and forecast completion dates for major works, against original and revised budgets and original expected completion dates
explanations for significant cost overruns, delays and key project performance metrics.

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

Observation	Conclusion or recommendation
5.1 Management of purchasing cards
Volume of credit card spend Purchasing card expenditure has increased by 76 per cent over the last four years in response to a government review into the cost savings possible from using purchasing cards for low value, high volume procurement.	Conclusion: The increasing use of purchasing cards highlights the importance of an effective framework for the use and management of purchasing cards.
Policy framework We found all agencies that held purchasing cards had a policy in place, but 26 per cent of agencies have not reviewed their purchasing card policy by the scheduled date, or do not have a scheduled revision date stated within their policy.	Recommendation: Agencies should mitigate the risks associated with increased purchasing card use by ensuring policies and purchasing card frameworks remain current and compliant with the core requirements of TPP 17–09 'Use and Management of NSW Government Purchasing Cards'.
Preventative controls We found that: all agencies maintained purchasing card registers seventy-six per cent provided training to cardholders prior to being issued with a card eighty-nine per cent appointed a program administrator, but only half of these had clearly defined roles and responsibilities thirty-two per cent of agencies place merchant blocks on purchasing cards forty-seven per cent of agencies place geographic restrictions on purchasing cards.	Agencies have designed and implemented preventative controls aimed at deterring the potential misuse of purchasing cards. Conclusion: Further opportunities exist for agencies to better control the use of purchasing cards, such as: updating purchasing card registers to contain all mandatory fields required by TPP17–09 appointing a program administrator for the agency's purchasing card framework and defining their role and responsibility for the function strengthening preventive controls to prevent misuse.
Detective controls Ninety-two per cent of agencies have designed and implemented at least one control to monitor purchasing card activity. Major reviews, such as data analytics (29 per cent of agencies) and independent spot checks (49 per cent of agencies) are not widely used.	Agencies have designed and implemented detective controls aimed at identifying potential misuse of purchasing cards. Conclusion: More effective monitoring using purchasing card data can provide better visibility over spending activity and can be used to: detect misuse and investigate exceptions analyse trends to highlight cost saving opportunities.
5.2 Management of taxis
Policy framework Thirteen per cent of agencies have not developed and implemented a policy to manage taxi use. In addition: a further 41 per cent of agencies have not reviewed their policies by the scheduled revision date, or do not have a scheduled revision date more than half of all agencies’ policies do not offer alternative travel options. For example, only 36 per cent of policies promoted the use of general Opal cards.	Conclusion: Agencies can promote savings and provide more options to staff where their taxi use policies: limit the circumstances where taxi use is appropriate offer alternate, lower cost options to using taxis, such as general Opal cards and rideshare.
Detective controls All agencies approve taxi expenditure by expense reimbursement, purchasing card and Cabcharge, and have implemented controls around this approval process. However, beyond this there is minimal monitoring and review activity, such as data monitoring, independent spot checks or internal audit reviews.	Conclusion: Taxi spend at agencies is not significant in terms of its dollar value, but it is significant from a probity perspective. Agencies can better address the probity risk by incorporating taxi use into a broader purchasing card or fraud monitoring program.

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

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

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

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

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

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

Observation	Conclusion or recommendation
6.1 Prevention systems
Prevention systems Ninety-two per cent of agencies have a fraud control plan in place, 81 per cent maintain a fraud database and 79 per cent report fraud and corruption matters as a standing item on audit and risk committee agendas. Only 54 per cent of agencies have an employment screening policy and all agencies have IT security policies, but gaps in IT security controls could undermine their policies.	Conclusion: Most agencies have implemented fraud prevention systems to reduce the risk of fraud. However poor IT security along with other gaps in agency prevention systems, such as employment screening practices heightens the risk of fraud and inappropriate use of data. Agencies can improve their fraud prevention systems by: completing regular fraud risk assessments, embedding fraud risk assessment into their enterprise risk management process and reporting the results of the assessment to the audit and risk committee maintaining a fraud database and reviewing it regularly for systemic issues and reporting a redacted version of the database on the agency's website to inform corruption prevention networks developing policies and procedures for employee screening and benchmarking their current processes against ICAC's publication ‘Strengthening Employment Screening Practices in the NSW Public Sector’ developing and maintaining up to date IT security policies and monitoring compliance with the policy.
Twenty-three per cent of agencies were not performing fraud risk assessments and some agency fraud risk assessments may not be as robust as they could be.	Conclusion: Agencies' systems of internal controls may be less effective where new and emerging fraud risks have been overlooked, or known weaknesses have not been rectified.
6.2 Detection systems
Detection systems Several agencies reported they were developing a data monitoring program, but only 38 per cent of agencies had already implemented a program.	Studies have shown data monitoring, whereby entire populations of transactional data are analysed for indicators of fraudulent activity, is one of the most effective methods of early detection. Early detection decreases the duration a fraud remains undetected thereby limiting the extent of losses. Conclusion: Data monitoring is an effective tool for early detection of fraud and is more effective when informed by a comprehensive fraud risk assessment.
6.3 Notification systems
Notification system All agencies have notification systems for reporting actual or suspected fraud and corruption. Most agencies provide multiple reporting lines, provide training and publicise options for staff to report actual or suspected fraud and corruption.	Conclusion: Training staff about their obligations and the use of fraud notification systems promotes a fraud-aware culture

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three - Cluster agencies

27 September 2018

Published

Members' Additional Entitlements 2017

Premier and Cabinet

Compliance

Internal controls and governance

Management and administration

Regulation

Service delivery

13 September 2018

Published

Progress and measurement of the Premier's Priorities

Premier and Cabinet

Compliance

Internal controls and governance

Management and administration

Project management

Risk

Service delivery

Shared services and collaboration

Workforce and capability

The Premier’s Implementation Unit uses a systematic approach to measuring and reporting progress towards the Premier’s Priorities performance targets, but public reporting needed to improve, according to a report released today by the Auditor-General of NSW, Margaret Crawford.

The Premier of New South Wales has established 12 Premier’s Priorities. These are key performance targets for government.

The 12 Premier's Priorities
150,000 new jobs by 2019	Reduce the volume of litter by 40 per cent by 2020
10 key projects in metro and regional areas to be delivered on time and on budget, and nearly 90 local infrastructure projects to be delivered on time	Increase the proportion of NSW students in the top two NAPLAN bands by eight per cent by 2019
Increase the proportion of women in senior leadership roles in the NSW Government sector from 33 to 50 per cent by 2025 and double the number of Aboriginal and Torres Strait Islander people in senior leadership roles in the NSW Government sector, from 57 to 114	Increase the proportion of young people who successfully move from Specialist Homelessness Services to long-term accommodation to more than 34 per cent by 2019
61,000 housing completions on average per year to 2021	Reduce the proportion of domestic violence perpetrators reoffending by 25 per cent by 2021
Improve customer satisfaction with key government services every year, this term of government to 2019	Decrease the percentage of children and young people re-reported at risk of significant harm by 15 per cent by 2020
81 per cent of patients through emergency departments within four hours by 2019	Reduce overweight and obesity rates of children by five percentage points by 2025

Source: Department of Premier and Cabinet, Premier’s Priorities website.

Each Premier’s Priority has a lead agency and minister responsible for achieving the performance target.

The Premier’s Implementation Unit (PIU) was established within the Department of Premier and Cabinet (DPC) in 2015. The PIU is a delivery unit that supports agencies to measure and monitor performance, make progress toward the Premier’s Priorities targets, and report progress to the Premier, key ministers and the public.

This audit assessed how effectively the NSW Government is progressing and reporting on the Premier's Priorities.

The Premier’s Implementation Unit (PIU) is effective in assisting agencies to make progress against the Premier’s Priorities targets. Progress reporting is regular but transparency to the public is weakened by the lack of information about specific measurement limitations and lack of clarity about the relationship of the targets to broader government objectives.The PIU promotes a systematic approach to measuring performance and reporting progress towards the Premier’s Priorities’ performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives.

The PIU provides a systematic approach to measuring performance and reporting progress towards the Premier's Priorities performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives. The data used to measure the Premier’s Priorities comes from a variety of government and external datasets, some of which have known limitations. These limitations are not revealed in public reporting, and only some are revealed in progress reported to the Premier and ministers. This limits the transparency of reporting.

The PIU assists agencies to avoid unintended outcomes that can arise from prioritising particular performance measures over other areas of activity. The PIU has adopted a collaborative approach to assisting agencies to analyse performance using data, and helping them work across organisational silos to achieve the Premier’s Priorities targets.

Data used to measure progress for some of the Premier’s Priorities has limitations which are not made clear when progress is reported. This reduces transparency about the reported progress. Public reporting would also be improved with additional information about the relationship between specific performance measures and broader government objectives.

The PIU is responsible for reporting progress to the Premier, key ministers and the public. Agencies provide performance data and some play a role in preparing progress reports for the Premier and ministers. For 11 of the Premier's Priorities, progress is reported against measurable and time-related performance targets. For the infrastructure priority, progress is reported against project milestones.

Progress of some Priorities is measured using data that has known limitations, which should be noted wherever progress is reported. For example, the data used to report on housing completions does not take housing demolitions into account, and is therefore overstating the contribution of this performance measure to housing supply. This known limitation is not explained in progress reports or on the public website.

Data used to measure progress is sourced from a mix of government and external datasets. Updated progress data for most Premier’s Priorities is published on the Premier’s Priorities website annually, although reported to the Premier and key ministers more frequently. The PIU reviews the data and validates it through fieldwork with front line agencies. The PIU also assists agencies to avoid unintended outcomes that can arise from prioritising single performance measures. Most, but not all, agencies use additional indicators to check for misuse of data or perverse outcomes.

We examined the reporting processes and controls for five of the Premier’s Priorities. We found that there is insufficient assurance over the accuracy of the data on housing approvals.

The relationships between performance measures and broader government objectives is not always clearly explained on the Premier’s Priority website, which is the key source of public information about the Premier’s Priorities. For example, the Premier’s Priority to reduce litter volumes is communicated as “Keeping our Environment Clean.” While the website explains why reducing litter is important, it does not clearly explain why that particular target has been chosen to measure progress in keeping the environment clean.

By December 2018, the Department of Premier and Cabinet should:

improve transparency of public reporting by:
- providing information about limitations of reported data and associated performance
- clarifying the relationship between the Premier’s Priorities performance targets and broader government objectives.
ensure that processes to check and verify data are in place for all agency data sources
encourage agencies to develop and implement additional supporting indicators for all Premier’s Priority performance measures to prevent and detect unintended consequences or misuse of data.

The Premier's Implementation Unit is effective in supporting agencies to deliver progress towards the Premier’s Priority targets.

The PIU promotes a systematic approach to monitoring and reporting progress against a target, based on a methodology used in delivery units elsewhere in the world. The PIU undertakes internal self-evaluation, and commissions regular reviews of methodology implementation from the consultancy that owns the methodology and helped to establish the PIU. However, the unit lacks periodic independent reviews of their overall effectiveness. The PIU has adopted a collaborative approach and assists agencies to analyse performance using data, and work across organisational silos to achieve the Premier’s Priorities targets.

Agency representatives recognise the benefits of being responsible for a Premier's Priority and speak of the value of being held to account and having the attention of the Premier and senior ministers.

By June 2019, the Department of Premier and Cabinet should:

establish routine collection of feedback about PIU performance including:
- independent assurance of PIU performance
- opportunity for agencies to provide confidential feedback.

Appendix one: Response from agency

Appendix two: Data sources

Appendix three: About the audit

Appendix four: Performance auditing

Parliamentary reference - Report number #307 - released 13 September 2018

28 June 2018

Published

Regulation of water pollution in drinking water catchments and illegal disposal of solid waste

Environment

Compliance

Internal controls and governance

Management and administration

Regulation

Risk

There are important gaps in how the Environmental Protection Authority (EPA) implements its regulatory framework for water pollution in drinking water catchments and illegal solid waste disposal. This limits the effectiveness of its regulatory responses, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.

The NSW Environment Protection Authority (the EPA) is the State’s primary environmental regulator. The EPA regulates waste and water pollution under the Protection of the Environment Operations Act 1997 (the Act) through its licensing, monitoring, regulation and enforcement activities. The community should be able to rely on the effectiveness of this regulation to protect the environment and human health. The EPA has regulatory responsibility for more significant and specific activities which can potentially harm the environment.

Activities regulated by the EPA include manufacturing, chemical production, electricity generation, mining, waste management, livestock processing, mineral processing, sewerage treatment, and road construction. For these activities, the operator must have an EPA issued environment protection licence (licence). Licences have conditions attached which may limit the amount and concentrations of substances the activity may produce and discharge into the environment. Conditions also require the licensee to report on its licensed activities.

This audit assessed the effectiveness of the EPA’s regulatory response to water pollution in drinking water catchments and illegal solid waste disposal. The findings and recommendations of this review can be reasonably applied to the EPA’s other regulatory functions, as the areas we examined were indicative of how the EPA regulates all pollution types and incidents.

Conclusion

There are important gaps in how the EPA implements its regulatory framework for water pollution in drinking water catchments and illegal solid waste disposal which limit the effectiveness of its regulatory response. The EPA uses a risk-based regulatory framework that has elements consistent with the NSW Government Guidance for regulators to implement outcomes and risk-based regulation. However, the EPA did not demonstrate that it has established reliable practices to accurately and consistently detect the risk of non compliances by licensees, and apply consistent regulatory actions. This may expose the risk of harm to the environment and human health.

The EPA also could not demonstrate that it has effective governance and oversight of its regulatory operations. The EPA operates in a complex regulatory environment where its regional offices have broad discretions for how they operate. The EPA has not balanced this devolved structure with an effective governance approach that includes appropriate internal controls to monitor the consistency or quality of its regulatory activities. It also does not have an effective performance framework that sets relevant performance expectations and outcome-based key performance indicators (KPIs) for its regional offices.

These deficiencies mean that the EPA cannot be confident that it conducts compliance and enforcement activities consistently across the State and that licensees are complying with their licence conditions or the Act.

The EPA's reporting on environmental and regulatory outcomes is limited and most of the data it uses is self reported by industry. It has not set outcome-based key result areas to assess performance and trends over time.

The EPA uses a risk-based regulatory framework for water pollution and illegal solid waste disposal but there are important gaps in implementation that reduce its effectiveness.

Elements of the EPA’s risk-based regulatory framework for water pollution and illegal solid waste disposal are consistent with the NSW Government Guidance for regulators to implement outcomes and risk-based regulation. There are important gaps in how the EPA implements its risk-based approach that limit the effectiveness of its regulatory response. The EPA could not demonstrate that it effectively regulates licensees because it has not established reliable practices that accurately and consistently detect licence non compliances or breaches of the Act and enforce regulatory actions.

The EPA lacks effective governance arrangements to support its devolved regional structure. The EPA's performance framework has limited and inconclusive reporting on regional performance to the EPA’s Chief Executive Officer or to the EPA Board. The EPA cannot assure that it is conducting its regulatory responsibilities effectively and efficiently.

The EPA does not consistently evaluate its regulatory approach to ensure it is effective and efficient. For example, there are no set requirements for how EPA officers conduct mandatory site inspections, which means that there is a risk that officers are not detecting all breaches or non-compliances. The inconsistent approach also means that the EPA cannot rely on the data it collects from these site inspections to understand whether its regulatory response is effective and efficient. In addition, where the EPA identifies instances of non compliance or breaches, it does not apply all available regulatory actions to encourage compliance.

The EPA also does not have a systematic approach to validate self-reported information in licensees’ annual returns, despite the data being used to assess administrative fees payable to the EPA and its regulatory response to non-compliances.

The EPA does not use performance frameworks to monitor the consistency or quality of work conducted across the State. The EPA has also failed to provide effective guidance for its staff. Many of its policies and procedures are out-dated, inconsistent, hard to access, or not mandated.

Recommendations

By 31 December 2018, to improve governance and oversight, the EPA should:
1.	implement a more effective performance framework with regular reports to the Chief Executive Officer and to the EPA Board on outcomes-based key result areas that assess its environmental and regulatory performance and trends over time
By 30 June 2019, to improve consistency in its practices, the EPA should:
2.	progressively update and make accessible its policies and procedures for regulatory operations, and mandate procedures where necessary to ensure consistent application
3.	implement internal controls to monitor the consistency and quality of its regulatory operations.

The EPA does not apply a consistent approach to setting licence conditions for discharges to water.

The requirements for setting licence conditions for water pollution are complex and require technical and scientific expertise. In August 2016, the EPA approved guidance developed by its technical experts in the Water Technical Advisory Unit to assist its regional staff. However, the EPA did not mandate the use of the guidance until mid-April 2018. Up until then, the EPA had left discretion to regional offices to decide what guidance their staff use. This meant that practices have differed across the organisation. The EPA is yet to conduct training for staff to ensure they consistently apply the 2016 guidance.

The EPA has not implemented any appropriate internal controls or quality assurance process to monitor the consistency or quality of licence conditions set by its officers across the State. This is not consistent with good regulatory practice.

The triennial 2016 audit of the Sydney drinking water catchment report highlighted that Lake Burragorang has experienced worsening water quality over the past 20 years from increased salinity levels. The salinity levels were nearly twice as high as in other storages in the Sydney drinking water catchment. The report recommended that the source and implication of the increased salinity levels be investigated. The report did not propose which public authority should carry out such an investigation.

To date, no NSW Government agency has addressed the report's recommendation. There are three public authorities, the EPA, DPE and WaterNSW that are responsible for regulating activities that impact on water quality in the Sydney drinking water catchment, which includes Lake Burragorang.

Recommendation

By 30 June 2019, to address worsening water quality in Lake Burragorang, the EPA should:
4.	(a) review the impact of its licensed activities on water quality in Lake Burragorang, and
	(b) develop strategies relating to its licensed activities (in consultation with other relevant NSW Government agencies) to improve and maintain the lake's water quality.

The EPA’s risk-based approach to monitoring compliance of licensees has limited effectiveness.

The EPA tailors its compliance monitoring approach based on the performance of licensees. This means that licensees that perform better have a lower administrative fee and fewer mandatory site inspections.

However, this approach relies on information that is not complete or accurate. Sources of information include licensees’ annual returns, EPA site inspections and compliance audits, and pollution reports from the public.

Licensees report annually to the EPA on their performance, including compliance against their licence conditions. The Act contains significant financial penalties if licensees provide false and misleading information in their annual returns. However, the EPA does not systematically or consistently validate information self-reported by licensees, or consistently apply regulatory actions if it discovers non-compliance.

Self-reported compliance data is used in part to assess a licensed premises’ overall environmental risk level, which underpins the calculation of the administrative fee, the EPA’s site inspection frequency, and the licensee’s exposure to regulatory actions. It is also used to assess the load-based licence fee that the licensee pays.

The EPA has set minimum mandatory site inspection frequencies for licensed premises based on its assessed overall risk level. This is a key tool to detect non-compliance or breaches of the Act. However, the EPA has not issued a policy or procedures that define what these mandatory inspections should cover and how they are to be conducted. We found variations in how the EPA officers in the offices we visited conducted these inspections. The inconsistent approach means that the EPA does not have complete and accurate information of licensees’ compliance. The inconsistent approach also means that the EPA is not effectively identifying all non-compliances for it to consider applying appropriate regulatory actions.

The EPA also receives reports of pollution incidents from the public that may indicate non-compliance. However, the EPA has not set expected time frames within which it expects its officers to investigate pollution incidents. The EPA regional offices decide what to investigate and timeframes. The EPA does not measure regional performance regarding timeframes.

The few compliance audits the EPA conducts annually are effective in identifying licence non-compliances and breaches of the Act. However, the EPA does not have a policy or required procedures for its regulatory officers to consistently apply appropriate regulatory actions in response to compliance audit findings.

The EPA has not implemented any effective internal controls or quality assurance process to check the consistency or quality of how its regulatory officers monitor compliance across the State. This is not consistent with good regulatory practice.

Recommendations

To improve compliance monitoring, the EPA should implement procedures to:
5.	by 30 June 2019, validate self-reported information, eliminate hardcopy submissions and require licensees to report on their breaches of the Act and associated regulations in their annual returns
6.	by 31 December 2018, conduct mandatory site inspections under the risk-based licensing scheme to assess compliance with all regulatory requirements and licence conditions.

The EPA cannot assure that its regulatory enforcement approach is fully effective.

The EPA’s compliance policy and prosecution guidelines have a large number of available regulatory actions and factors which should be taken into account when selecting an appropriate regulatory response. The extensive legislation determining the EPA’s regulatory activities, and the devolved regional structure the EPA has adopted in delivering its compliance and regulatory functions, increases the risk of inconsistent compliance decisions and regulatory responses. A good regulatory framework needs a consistent approach to enforcement to incentivise compliance.

The EPA has not balanced this devolved regional structure with appropriate governance arrangements to give it assurance that its regulatory officers apply a consistent approach to enforcement.

The EPA has not issued standard procedures to ensure consistent non-court enforcement action for breaches of the Act or non-compliance with licence conditions. Given our finding that the EPA does not effectively detect breaches and non-compliances, there is a risk that it is not applying appropriate regulatory actions for many breaches and non-compliances.

A recent EPA compliance audit identified significant non-compliances with incident management plan requirements. However, the EPA has not applied regulatory actions for making false statements on annual returns for those licensees that certified their plans complied with such requirements. The EPA also has not applied available regulatory actions for the non-compliances which led to the false or misleading statements.

Recommendation

By 31 December 2018 to improve enforcement, the EPA should:
7.	Implement procedures to systematically assess non-compliances with licence conditions and breaches of the Act and to implement appropriate and consistent regulatory actions.

The EPA has implemented the actions listed in the NSW Illegal Dumping Strategy 2014–16. To date, the EPA has also implemented four of the six recommendations made by the ICAC on EPA's oversight of Regional Illegal Dumping Squads.

The EPA did not achieve the NSW Illegal Dumping Strategy 2014–16 target of a 30 per cent reduction in instances of large scale illegal dumping in Sydney, the Illawarra, Hunter and Central Coast from 2011 levels.

In the reporting period, the incidences of large scale illegal dumping more than doubled. The EPA advised that this increase may be the result of greater public awareness and reporting rather than increased illegal dumping activity.

By June 2018, the EPA is due to implement one outstanding recommendation made by the ICAC but has not set a time for the other outstanding recommendation.

Appendix one – Response from agency

Appendix two – List of enforcement tools

Appendix three – The EPA's organisational structure

Appendix four – The EPA's regions and branches

Appendix five – About the audit

Appendix six – Performance auditing

Parliamentary reference - Report number #304 - released 28 June 2018

17 May 2018

Published

Regional Assistance Programs

Premier and Cabinet

Planning

Transport

Compliance

Infrastructure

Management and administration

Project management

Infrastructure NSW effectively manages how grant applications for regional assistance programs are assessed and recommended for funding. Its contract management processes are also effective. However, we are unable to conclude whether the objectives of these programs have been achieved as the relevant agencies have not yet measured their benefits, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.

In 2011, the NSW Government established Restart NSW to fund new infrastructure with the proceeds from the sale and lease of government assets. From 2011 to 2017, the NSW Government allocated $1.7 billion from the fund for infrastructure in regional areas, with an additional commitment of $1.3 billion to be allocated by 2021. The NSW Government allocates these funds through regional assistance programs such as Resources for Regions and Fixing Country Roads. NSW councils are the primary recipients of funding provided under these programs.

The NSW Government announced the Resources for Regions program in 2012 with the aim of addressing infrastructure constraints in mining affected communities. Infrastructure NSW administers the program, with support from the Department of Premier and Cabinet.

The NSW Government announced the Fixing Country Roads program in 2014 with the aim of building more efficient road freight networks. Transport for NSW and Infrastructure NSW jointly administer this program, which funds local councils to deliver projects that help connect local and regional roads to state highways and freight hubs.

This audit assessed whether these two programs (Resources for Regions and Fixing Country Roads) were being effectively managed and achieved their objectives. In making this assessment, we answered the following questions:

How well are the relevant agencies managing the assessment and recommendation process?
How do the relevant agencies ensure that funded projects are being delivered?
Do the funded projects meet program and project objectives?

The audit focussed on four rounds of Resources for Regions funding between 2013–14 to 2015–16, as well as the first two rounds of Fixing Country Roads funding in 2014–15 and 2015–16.

Conclusion

Infrastructure NSW effectively manages how grant applications are assessed and recommended for funding. Infrastructure NSW’s contract management processes are also effective. However, we are unable to conclude on whether program objectives are being achieved as Infrastructure NSW has not yet measured program benefits.

While Infrastructure NSW and Transport for NSW managed the assessment processes effectively overall, they have not fully maintained all required documentation, such as conflict of interest registers. Keeping accurate records is important to support transparency and accountability to the public about funding allocation. The relevant agencies have taken steps to address this in the current funding rounds for both programs.

For both programs assessed, the relevant agencies have developed good strategies over time to support councils through the application process. These strategies include workshops, briefings and feedback for unsuccessful applicants. Transport for NSW and the Department of Premier and Cabinet have implemented effective tools to assist applicants in demonstrating the economic impact of their projects.

Infrastructure NSW is effective in identifying projects that are 'at‑risk' and assists in bringing them back on track. Infrastructure NSW has a risk‑based methodology to verify payment claims, which includes elements of good practice in grants administration. For example, it requires grant recipients to provide photos and engages Public Works Advisory to review progress claims and visit project sites.

Infrastructure NSW collects project completion reports for all Resources for Regions and Fixing Country Roads funded projects. Infrastructure NSW intends to assess benefits for both programs once each project in a funding round is completed. To date, no funding round has been completed. As a result, no benefits assessment has been done for any completed project funded in either program.

The project selection criteria are consistent with the program objectives set by the NSW Government, and the RIAP applied the criteria consistently. Probity and record keeping practices did not fully comply with the probity plans.

The assessment methodology designed by Infrastructure NSW is consistent with2 the program objectives and criteria. In the rounds that we reviewed, all funded projects met the assessment criteria.

Infrastructure NSW developed probity plans for both programs which provided guidance on the record keeping required to maintain an audit trail, including the use of conflict of interest registers. Infrastructure NSW and Transport for NSW did not fully comply with these requirements. The relevant agencies have taken steps to address this in the current funding rounds for both programs.

NSW Procurement Board Directions require agencies to ensure that they do not engage a probity advisor that is engaged elsewhere in the agency. Infrastructure NSW has not fully complied with this requirement. A conflict of interest arose when Infrastructure NSW engaged the same consultancy to act as its internal auditor and probity advisor.

While these infringements of probity arrangements are unlikely to have had a major impact on the assessment process, they weaken the transparency and accountability of the process.

Some councils have identified resourcing and capability issues which impact on their ability to participate in the application process. For both programs, the relevant agencies conducted briefings and webinars with applicants to provide advice on the objectives of the programs and how to improve the quality of their applications. Additionally, Transport for NSW and the Department of Premier and Cabinet have developed tools to assist councils to demonstrate the economic impact of their applications.

The relevant agencies provided feedback on unsuccessful applications to councils. Councils reported that the quality of this feedback has improved over time.

Recommendations

By June 2018, Infrastructure NSW should:
- ensure probity reports address whether all elements of the probity plan have been effectively implemented.

By June 2018, Infrastructure NSW and Transport for NSW should:
- maintain and store all documentation regarding assessment and probity matters according to the State Records Act 1998, the NSW Standard on Records Management and the relevant probity plans

Infrastructure NSW is responsible for overseeing and monitoring projects funded under Resources for Regions and Fixing Country Roads. Infrastructure NSW effectively manages projects to keep them on track, however it could do more to assure itself that all recipients have complied with funding deeds. Benefits and outcomes should also start to be measured and reported as soon as practicable after projects are completed to inform assessment of future projects.

Infrastructure NSW identifies projects experiencing unreasonable delays or higher than expected expenses as 'at‑risk'. After Infrastructure NSW identifies a project as 'at‑risk', it puts in place processes to resolve issues to bring them back on track. Infrastructure NSW, working with Public Works Advisory regional offices, employs a risk‑based approach to validate payment claims, however this process should be strengthened. Infrastructure NSW would get better assurance by also conducting annual audits of compliance with the funding deed for a random sample of projects.

Infrastructure NSW collects project completion reports for all Resources for Regions and Fixing Country Roads funded projects. It applies the Infrastructure Investor Assurance Framework to Resources for Regions and Fixing Country Roads at a program level. This means that each round of funding (under both programs) is treated as a distinct program for the purposes of benefits realisation. It plans to assess whether benefits have been realised once each project in a funding round is completed. As a result, no benefits realisation assessment has been done for any project funded under either Resources for Regions or Fixing Country Roads. Without project‑level benefits realisation, future decisions are not informed by the lessons from previous investments.

Recommendations

By December 2018, Infrastructure NSW should:
- conduct annual audits of compliance with the funding deed for a random sample of projects funded under Resources for Regions and Fixing Country Roads
- publish the circumstances under which unspent funds can be allocated to changes in project scope
- measure benefits delivered by projects that were completed before December 2017
- implement an annual process to measure benefits for projects completed after December 2017

By December 2018, Transport for NSW and Infrastructure NSW should:
- incorporate a benefits realisation framework as part of the detailed application.

Appendix one - Response from agencies

Appendix two - Maps of funded projects

Appendix three - About the audit

Appendix four - Performance auditing

Parliamentary reference - Report number #300 - released 17 May 2018

19 December 2017

Published

Planning and Environment 2017

Planning

Environment

Asset valuation

Information technology

Internal controls and governance

Management and administration

Project management

The following report highlights results of financial audits of agencies in the Planning and Environment cluster. The report focuses on key observations and findings from the most recent audits of these agencies.

The audits were completed for most agencies in the cluster and unqualified audit opinions issued. Issues identified during the financial statement audits of seven small agencies delayed their finalisation beyond the statutory deadline, and six of these remain incomplete. Apart from these small agencies, the quality of financial reporting across the cluster remained at a high standard.

1. Financial reporting and controls

Financial reporting	Unqualified audit opinions were issued for 39 of the 45 cluster agencies. Issues identified during the financial statement audits of seven small agencies delayed their finalisation beyond the statutory deadline. Six of these audits remain incomplete at the date of this report.
	Agencies completed early close procedures mandated by the Treasury. We noted opportunities for agencies to improve the effectiveness of these procedures.
Internal Controls	One in six internal control weaknesses identified during the financial audits were repeat issues. Agencies should action audit recommendations promptly.
	User administration over financial systems needs to be strengthened to prevent inappropriate access to financial information.

2. Service Delivery

Housing completions	Australian Bureau of Statistics data indicates the Department of Planning and Environment achieved the Premier's priority for housing completions in 2016–17.
Increasing housing supply	Australian Bureau of Statistics data shows the Department of Planning and Environment achieved the annual target of delivering over 50,000 housing approvals over the past three years.
Major project assessment	Progress against the State priority target to reduce time taken to assess planning applications for State significant developments is difficult to determine as the measure is unclear.
Litter management	The Environment Protection Authority's data indicates that progress towards the Premier's priority target for litter reduction slowed in 2016–17.
Cultural participation	The Department of Planning and Environment’s data indicates overall attendance at cultural venues and events in New South Wales increased by 16 per cent in 2015–16.

This report provides Parliament and others with the audit results, observations and recommendations for Planning and Environment cluster agencies. The report has been structured into two chapters focussing on financial reporting and controls and service delivery.

The Planning and Environment cluster plays a role in ensuring each community across New South Wales receives the services and infrastructure it needs.

This chapter outlines our audit observations and recommendations related to financial reporting and controls of Planning and Environment cluster agencies for 2016–17.

Observation	Conclusion or recommendation
2.1 Quality of financial reporting
Unqualified audit opinions were issued for 39 of the 45 cluster agencies' financial statements.	Issues identified during the financial statement audits of seven smaller agencies delayed their completion. Six audits remain incomplete at the date of this report. Apart from these seven small agency audits, the quality of financial reporting across the cluster remained at a high standard.
2.2 Timeliness of financial reporting
Seven agencies' financial statement audits were not completed by the statutory deadline with six audits incomplete at the date of this report.	Issues identified during the financial statement audits of seven smaller agencies delayed their finalisation beyond the statutory deadline. These agencies would benefit from performing additional early close procedures in future reporting periods.
2.3 Financial and sustainability analysis
Water and Electricity utility agencies continue to operate with low liquidity ratios.	A liquidity ratio below one is an indicator that an entity may not be able to pay its debts as and when they fall due. Whilst liquidity ratios were below one, utility agencies demonstrated they can continue to support ongoing operations due to: access to regulated revenue streams assets with long useful lives to generate revenue debt funding limits approved by the NSW Treasurer under the Public Authorities (Financial Arrangements) Act 1987.
2.5 Internal controls
One in six internal control weaknesses reported in 2016–17 were repeat issues.	Delays in implementing audit recommendations can prolong the risk of fraud and error. Recommendation (repeat issue): anagement letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing repeat issues.
Nine of these internal control weaknesses related to the creation, modification, deletion and review of user access to financial systems.	These control weaknesses may compromise the integrity and security of financial data. Recommendation (repeat issue): Management of user administration over financial systems should be strengthened to prevent inappropriate access to financial information.

This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17.

Observation	Conclusion or recommendation
3.1 Premier's and State priorities
The Planning and Environment cluster is responsible for delivering five Premier's and State priorities.	One priority target was achieved in 2016–17, two targets are on track to be achieved and progress towards one target slowed. Progress against one target cannot be determined.
3.2 Planning
Housing Completion
There were 63,506 housing completions in 2016–17. This was 4.1 per cent above the Premier’s priority target of delivering 61,000 housing completions per year.	The Australian Bureau of Statistics data shows the housing completions target was achieved in 2016–17.
Housing supply
The number of approvals for new houses in 2016–17 was 72,472 against the State priority target of more than 50,000 approvals per year.	The Australian Bureau of Statistics data indicates the housing approvals target was achieved in 2016–17.
Major project assessment
State significant developments are not clearly defined for the purposes of reporting against the State priority target.	The Department of Planning and Environment will clarify with the Department of Premier and Cabinet which developments are captured by the State priority target.
The Department of Planning and Environment’s data shows the time taken to assess complex State significant developments increased by 16 per cent in 2016–17 while the time taken to assess less complex developments reduced by 20 per cent.	The Department of Planning and Environment considers it is on track to meet the State priority target of halving the time taken to assess State significant developments, despite uncertainty over the target measure.
Housing acceleration fund
Program business cases were not developed for projects in Housing Acceleration Fund Rounds 1 to 4. The Department advised a program business case will be developed for Housing Acceleration Fund Round 5 projects.	A program business case is necessary to ensure related projects are evaluated, managed and coordinated effectively.
A benefit realisation review process has not yet been approved for Housing Acceleration Fund projects. The Department of Planning and Environment advised it is developing a benefit realisation review process.	A benefit realisation review process is necessary to determine whether funded projects achieved intended outcomes.
Greater Sydney Commission
The Greater Sydney Commission forecasts a further 725,000 dwellings in the greater Sydney region will be required up to 2036 to meet housing demand.	In response to population growth, the Commission has set a five-year housing supply target of 189,100 houses across the five Greater Sydney Commission districts.
ePlanning system
The Department of Planning and Environment did not perform a benefit realisation review for phase one of the ePlanning project. It has committed to performing a benefit realisation review after completion of phase two in 2018.	It cannot be determined if phase one of the project delivered expected outcomes as a benefit realisation review was not performed.
3.3. Environment and Heritage
Litter volume in New South Wales was 6.6 litres per 1,000 square metres in 2016–17, an increase of 16 per cent from the prior year. This is above the Premier's priority litter volume target of 4.2 litres per 1,000 square metres by 2020.	The Environment Protection Authority's data indicates the progress towards the target of reducing the volume of litter by 40 per cent by 2020 has slowed.
The NSW Government plans to invest $240 million to facilitate strategic biodiversity conservation on private land.	Performance measures have not yet been developed for the private land conservation program.
3.4 Water
IPART reduced water usage charges for most Sydney Water Corporation customers in 2016–17.	Water usage prices in New South Wales compare favourably to larger water utilities in other jurisdictions.
Hunter Water Corporation's water recycling and water conservation performance has been stable over recent years. The volume of Sydney Water Corporation’s recycled water reduced by 12 per cent in 2016–17 compared to the previous year.	Sydney Water Corporation experienced reduced industry demand for recycled water. Several large industrial customers relocated away from Sydney.
3.5 Arts and culture
A State priority target is to increase overall attendance at cultural venues and events in New South Wales by 15 per cent from 2014–15 levels by 2019.	The Department of Planning and Environment's data indicates overall attendance increased by 16 per cent in 2015–16, although attendance fluctuated across individual venues and events. This indicates progress towards achieving the overall target by 2019.

Appendix one - List of 2017 recommendations

Appendix two - Status of 2016 recommendations

Appendix three - Agencies selected for this volume

Appendix four - Financial audit reporting

Appendix five - Timeliness of financial reporting

Appendix six - Financial indicators

21 November 2017

Published

Central Agencies 2017

Finance

Premier and Cabinet

Asset valuation

Compliance

Financial reporting

Fraud

Information technology

Internal controls and governance

Project management

This report highlights the results of the financial audits of NSW Government central agencies. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Treasury, Premier and Cabinet, and Finance, Services and Innovation clusters.

The report includes a range of findings in respect to service delivery. One repeat finding is that while the Government regularly reports on the 12 Premier's priorities, there is no comprehensive reporting on the 18 State priorities.

1. Financial reporting and controls

Audit Opinions	Unqualified audit opinions were issued for all agencies' 30 June 2017 financial statements.
Early close	Early close procedures continue to facilitate the timely preparation of financial statements and completion of audits, but agencies can make further improvement.
Deficient user administration access	User access administration over financial systems remains an area of weakness. Agencies need to strengthen user access administration to critical systems.
Transitioning to outsourced service providers	Transitioning of services to outsourced service providers can be improved. Outsourcing services can lead to better outcomes, which may include lower transaction costs and improved services, but it also introduces new risks.

2. Service delivery

Premier and State Priorities	A comprehensive report of performance against the 18 State Priorities is yet to be published. While some measures are publicly reported through agency annual reports or other sources, a comprehensive report of performance against the 18 State Priorities would ensure all State Priorities are publicly reported, provide a single and easily accessible source of reference and improve transparency.
ICT and digital government	The Digital Government Strategy was released in May 2017. Targets will need to be set to assess and monitor progress against the Strategy.
Digital information security	Not all agencies are complying with the NSW Government's information security policy. This increases the risk of noncompliance with legislation, information security breaches and difficulty restoring data or maintaining business continuity in the event of a disaster or disruption.
Property and asset utilisation	Property NSW's performance reporting would be enhanced by developing and reporting on customer satisfaction, reporting against set targets and benchmarking cost of service to the private sector.

3. Government financial services

Prudential oversight of NSW Government superannuation funds	Prudential oversight of SAS Trustee Corporation Pooled Fund and Parliamentary Contributory Superannuation Fund has not been prescribed. Structured and comprehensive prudential oversight of these funds remains important as they operate in a specialised, complex and continuously changing investment market sector, have over 106,000 members and manage investments in excess of $42.4 billion.
Green slip scheme affordability	Currently, Green Slips in NSW are the most expensive in Australia. However, CTP reforms are expected to reduce the cost of Green Slips.

This report sets out the results of the 30 June 2017 financial statement audits of NSW Government's central agencies and their cluster agencies.

Central agencies play a key role in ensuring policy coordination, good administrative and people management practices and prudent fiscal management. The central agencies and their key responsibilities are set out below.

Confidence in public sector decision‑making and transparency is enhanced when financial reporting is accurate and timely. Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. This chapter outlines our audit observations, conclusions or recommendations related to financial reporting and controls of agencies for 2016–17.

Observation	Conclusion or recommendation
2.1 Quality of financial reporting
Unqualified audit opinions were issued for all agency financial statements.	The quality of financial reporting continues to remain strong across the clusters.
2.2 Timeliness of financial reporting
Most agencies complied with the statutory timeframes for completion of early close procedures and preparation and audit of financial statements.	Early close procedures continue to facilitate the timely preparation of financial statements and completion of audits, but agencies can make further improvement.
2.3 Financial performance and sustainability
We assessed the performance of agencies listed in Appendix six against some key financial sustainability indicators. This highlighted two agencies with negative operating margins of more than ten per cent and one agency with a liquidity ratio of less than 0.5.	These agencies have strategies in place to remain financially sustainability and manage their liquidity. Our analysis found that, overall, the agencies are not at high risk of sustainability concerns.
2.4 Internal Controls
User access administration over financial systems remains an area of weakness. Sixteen moderate risk and ten low risk issues related to user access administration across eight agencies were identified.	Recommendation: Agencies should review user access administration to critical systems to ensure: policies for user access creation, modification and deactivation are documented approval is being obtained to establish, modify or delete user accounts regular user access reviews are performed and highly privileged user account activity is logged and monitored evidence of review is maintained.
Transitioning of services to outsourced service providers can be improved. Our 2016–17 audits identified one high risk issue relating to Property NSW's outsourcing of property and facility management services to the private sector. While a high risk issue was identified in 2015–16 from the Department of Finance, Services and Innovation's outsourcing of transactional and information technology services to GovConnect there has been an improvement in GovConnect's internal control environment throughout 2016–17.	Outsourcing services can lead to better outcomes, which may include lower transaction costs and improved services, but it also introduces new risks. The transition needs to be carefully managed and requires thorough planning and effective project governance. This should be supported by oversight and direction from senior management and independent project assurance.
2.5 Human Resources
The percentage of full‑time equivalent staff with annual leave greater than 30 days in the Finance, Services and Innovation, Premier and Cabinet and the Treasury clusters is 7.9 per cent, 17.1 per cent and 18.4 per cent respectively.	Agencies have strategies in place to reduce annual leave balances that are greater than 30 days. The effectiveness of these strategies will need to be monitored to ensure they are helping to achieve the desired outcome.

This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17.

Observation	Conclusion or recommendation
3.1 Premier and State priorities
The Department of Premier and Cabinet monitors the achievement of targets and the implementation of initiatives to deliver the 12 Premier’s Priorities. Responsible ministers and agencies manage the 18 State Priorities. A comprehensive report of performance against the 18 State Priorities is yet to be published.	While some measures are publicly reported through agency annual reports or other sources, a comprehensive report of performance against the 18 State Priorities would ensure all State Priorities are publicly reported, provide a single and easily accessible source of reference and improve transparency. Where possible, independent sources are used to measure performance, however without independent assurance there is an increased risk that the target measures are inaccurate, not relevant or do not fairly represent actual performance.
Performance against the State Priority to make NSW the easiest state to start a business is not currently published. A key aspect of making NSW the easiest state to start a business is making regulatory obligations easier to understand and implement.	Initiatives, such as easy to do business and red tape reduction are in place to help achieve this priority. The regulatory policy framework is under review following an October 2016 performance audit on ‘Red tape reduction’ that found the regulatory burden of legislation had increased.
3.2 Financial management
Revenue NSW earned record crown revenue of $30.0 billion in 2016–17 to support the state's finances.	Record crown revenue has been driven by the sustained increase in duties revenue, which has increased by 93.7 per cent over the last five years. This is a consequence of the continued strength in the property market over this time and large one off NSW Government business asset sales and leases.
3.3 ICT and digital government
The Digital Government Strategy (the Strategy) was released in May 2017 to build on reforms set out in previous ICT strategies.	The Strategy’s priorities and enablers aim to support digital innovation. Targets and measures will need to be set to assess and monitor progress against the Strategy.
The Digital Information Security Policy (DISP) is a key tool that helps ensure a minimum set of information security controls are implemented across NSW Government agencies. A review of 2016 annual reports found 15 agencies (13 in 2015) did not attest to compliance with the DISP and of the agencies that attested to compliance, 34 reported issues associated with their compliance.	The Strategy’s priorities and enablers aim to support digital innovation. Targets and measures will need to be set to assess and monitor progress against the Strategy. Failure to comply with the DISP increases the risk of noncompliance with legislation, information security breaches and difficulty restoring data or maintaining business continuity in the event of a disaster or disruption.
3.4 Property and asset utilisation
Property NSW's performance reporting could be improved. M2012-20 'Government Property NSW and Government Property Principles' required Property NSW to set key performance indicators to measure property and asset utilisation performance.	Property NSW's performance reporting would be enhanced by developing and reporting on customer satisfaction, reporting against set targets and benchmarking cost of service to the private sector.

This chapter outlines our audit observations, conclusions and recommendations specific to NSW Government agencies providing financial services.

Observation	Conclusion or recommendation
4.1 Key issues
The SAS Trustee Corporation (STC) Pooled Fund and the Parliamentary Contributory Superannuation (PCS) Fund are not required to comply with the prudential and reporting standards issued by the Australian Prudential Regulation Authority (APRA). Amendments to relevant legislation allows the Minister for Finance, Services and Property to prescribe applicable prudential standards and audit requirements.	Structured and comprehensive prudential oversight of these funds remains important as they operate in a specialised, complex and continuously changing investment market sector, have over 106,000 members and manage investments of more than $42.4 billion. Recommendation: The Treasury should liaise with the respective Trustees to implement appropriate prudential standards and oversight arrangements for the exempt public sector superannuation funds.
Currently, Green Slips in NSW are the most expensive in Australia. Average premiums for Sydney Metropolitan vehicles increased by 10.4 per cent between 1 January 2016 and 31 December 2016.	CTP reforms are expected to reduce the cost of Green Slips. The State Insurance Regulatory Authority will need to ensure it has appropriate processes in place to track and report against the expected benefits.
4.2 Financial performance and sustainability
Net unfunded superannuation liabilities were $15.0 billion at 30 June 2017. Under the Fiscal Responsibility Act 2012, the NSW Government’s target is to eliminate unfunded superannuation liabilities by 2030.	The superannuation funds’ strategic asset allocation and investment strategies are monitored and adjusted to help achieve a fully funded position by 2030.
The Home Warranty Scheme commenced in 2011. Over this time total premiums collected have not been sufficient to cover expected claim costs.	Funding arrangements introduced during 2016–17 allow the Home Building Compensation Fund to apply to the Crown for reimbursement of unfunded realised losses from under-pricing of premiums. Other reforms are planned to address the long term sustainability of the home building compensation scheme.
4.3 Investment performance
The NSW Government’s main superannuation funds have maintained the management expense ratio (MER) at consistent levels over the past two years. The Parliamentary Contributory Superannuation (PCS) Fund does not set an MER target.	MER is an industry recognised ratio to measure the performance of funds and investment managers. Recommendation: The Fund Secretary for the PCS Fund, in conjunction with the Trustee, should consider establishing an appropriate management expense ratio target to measure performance.

Appendix one - List of 2017 recommendations

Appendix two - Status of 2016 recommendations

Appendix three - Agencies selected for this volume

Appendix four - Timeliness of financial reporting and audit reporting

Appendix five - Financial audit reporting

Appendix six - Financial analysis

11 May 2017

Published

Mining Rehabilitation Security Deposits

Planning

Industry

Environment

Infrastructure

Management and administration

Project management

The Department of Planning and Environment requires mining companies to rehabilitate sites according to conditions set in the mining development approval. The Department holds mining rehabilitation security deposits that are meant to cover the full cost of rehabilitation if a mining company defaults on its rehabilitation obligations.

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.

Conclusion

The Department holds security deposits for mining rehabilitation consistent with the amounts it has requested from mining companies, and it should be able to claim on a deposit if a mining company defaults on its rehabilitation obligations. The total value of deposits has increased from $500 million in 2005 to around $2.2 billion in 2016, covering around 450 mine sites. The Department’s management of the security deposit process has improved in recent years, and it has well advanced plans for further improvement, including a revised cost calculation tool.

The Department’s policy is that each mine’s security deposit should cover the full costs of rehabilitation for that mine. The security deposits the Department holds are not likely to be sufficient to cover the full costs of each mine’s rehabilitation in the event of a default. The rates and allowances in the current cost calculation tool have not been updated since 2013 and some activities required for effective rehabilitation are not covered, or not covered adequately.

Security deposits also do not include sufficient contingency given the substantial risks and uncertainties associated with mine rehabilitation and closure, particularly in the absence of a detailed closure plan. This risk is exacerbated by the limited independent verification of mining company claims about the size of the outstanding rehabilitation task, which remains the case despite recent improvements to monitoring and review procedures and practices.

There is also no financial assurance held over the risk of significant unexpected environmental degradation in the long-term after a mine is deemed to be rehabilitated and the security deposit is returned. A security deposit is not an appropriate vehicle for covering this risk.

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.

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.

Parliamentary reference - Report number #285 - released 11 May 2017

Audit progress

Sector

Year

Report type

Topic

Reports

Campaign materials we reviewed did not breach section 6 of the Act

The campaign met most targets, however some were not challenging to achieve

The campaign did little to inform the public about the broader green slip reforms

The media plan allowed sufficient time for cost-efficient media placement

SIRA directly negotiated with a single supplier, making it difficult to demonstrate value for money

The campaign's cost benefit analysis complied with the Act and Guidelines

The cluster Secretary signed the compliance certificate instead of the head of SIRA

The campaign materials we reviewed did not breach section 6 of the Act

The campaign achieved 16 of 24 objectives, but did not reach its enrolment target

TAFE's initial media plan allowed for efficient media placement

TAFE re-used many creative materials, achieving some cost-savings

The campaign's cost-benefit analysis did not comply with three requirements of the Guidelines

TAFE made one inaccurate claim in its advertising and overstated a second

DPC did not consistently communicate the transitional arrangements for the Brand Guidelines and as such much of TAFE's creative material did not comply at campaign launch

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

The focus of the report has changed since last year

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

1. Financial reporting and controls

2. Service Delivery

2.1 Quality of financial reporting

2.2 Timeliness of financial reporting

2.3 Financial and sustainability analysis

2.5 Internal controls

3.1 Premier's and State priorities

3.2 Planning

3.3. Environment and Heritage

3.4 Water

3.5 Arts and culture

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

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

There is no financial assurance over long-term environmental risks

Rehabilitation and closure outcomes are vague, particularly for unplanned closure

Monitoring is not adequate to effectively gauge rehabilitation progress

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