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.

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.

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.

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 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

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. 

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.

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.

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.

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

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. 

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

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

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

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

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

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

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

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

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

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

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

The focus of the report has changed since last year

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three - Cluster agencies

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.

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:

1. 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.
2. ensure that processes to check and verify data are in place for all agency data sources
3. 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:

1. 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

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

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

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

This audit assessed:

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

Appendix one - Response from agencies

Appendix two - List of selected agencies

Appendix three - Performance auditing

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.

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

Under section 421C of the Local Government Act 1993, I am pleased to present our first report on the statutory financial audits of councils, to NSW Parliament.

My appointment as the auditor of local government in New South Wales is the most significant change to the Auditor-General's mandate in nearly three decades.

Moving to the new audit arrangements over the past 18 months has been challenging but rewarding. It has confirmed my appreciation of local government – a sector passionate about the community and focused on delivering local services. 

The unique relationship each council has with its community differentiates it from other tiers of government.

Our audits
I am pleased to report that we completed 139 out of 140 financial statement audits for the 2016–17 audit cycle. The remaining council received an extension to lodge its financial statements.

We have also released a performance audit report on council reporting on service delivery. We will soon release another report on fraud controls in local councils and a report on council shared services later this year. 

• While the new audit mandate brings immense responsibility, my office has embraced the challenges involved and the objectives that NSW Parliament gave us: 
• strengthening governance and financial oversight in local government
• providing greater consistency in external audit
• ensuring reliable financial information is available to assess council performance
• improving financial management, fiscal responsibility and public accountability in how councils use citizens’ funds.

This report
This report is rich in data extracted from the results of the 2016–17 financial audits. For the first time, it presents a consistent view of financial performance across the New South Wales local government landscape. The report also provides guidance and includes recommendations to councils and the Office of Local Government aimed at strengthening financial reporting, asset management, governance and internal controls.

The report will help NSW Parliament understand the common challenges that councils face. It provides points of comparison for councils and signposts matters that will be the focus of future audits. Importantly, this report and the data visualisation that accompanies it, provides comprehensive and accessible information to citizens regarding the management and performance of their councils.

I would like to acknowledge the cooperation of councils throughout the audit process and our partnerships with the contract audit firms that helped us to deliver the audits. Together we can learn from each other and work towards improving outcomes for the community.  

Accurate and timely financial statements are an important element of sound financial management. They bring accountability and transparency to the way councils use public resources. Our financial audits assessed the following aspects of councils’ financial reporting:

• quality of financial reporting
• timeliness of financial reporting.

³ The Auditor‑General was appointed statutory auditor of eight councils for the 2015–16 reporting period at the specific request of councils, due to the failure by councils to appoint an auditor, or the inability of the previous auditor to complete the audit due to external investigation or auditor retirement.

Strong and sustainable financial performance provides the platform for councils to deliver services and respond to the needs of their community. This chapter outlines our audit observations on the performance of councils against the Office of Local Government's (OLG) performance indicators, grouped in three areas:

• operating revenue performance measures
• liquidity and working capital performance measures
• asset management performance measures.

Our analysis indicates that some councils face challenges in meeting these performance and sustainability measures.

OLG’s benchmarks for financial performance and sustainability

Each local council has unique characteristics such as its size, location and services provided to their communities. These differences affect the nature of each council's assets and liabilities, revenue and expenses, and in turn the financial performance measures against which it reports.

The Office of Local Government prescribes performance indicators for council reporting

The analysis in this chapter is based on performance measures prescribed in OLG’s Code of Accounting Practice and Financial Reporting (the Code). Councils report against these measures in their annual report, which includes the audited financial statements and other unaudited information. In the audited financial statements, councils report performance against six financial sustainability measures:

• operating performance
• own source operating revenue
• unrestricted current ratio
• debt service cover ratio
• rates and annual charges outstanding percentage
• cash expense cover ratio.

Councils also include the unaudited Special Schedule 7 'Report on Infrastructure Assets' in their annual reports. In this schedule, councils report to OLG on performance against four further measures:

• building and infrastructure renewals ratio
• infrastructure backlog ratio
• asset maintenance ratio
• cost to bring assets to agreed service level.

Each audited measure and three of the four unaudited measures has a prescribed benchmark. OLG’s benchmarks are the same for metropolitan, regional, rural and county councils, with the exception of the rates and annual charges outstanding percentage. Regional, rural and county councils have a different benchmark to metropolitan councils for this measure.

Three rural councils did not meet three of the audited OLG benchmarks

Most councils met OLG’s benchmarks for at least five or all of the six audited performance measures. Eight rural, four regional, four metropolitan and two county councils did not meet OLG’s benchmarks for two out of the six audited performance measures. Three rural councils did not meet OLG’s benchmarks for three out of the six audited performance measures.

The following table summarises how the councils performed across the six audited performance measures.

Appendix ten lists the performance of each council against all performance measures.

NSW councils own and manage a significant range of assets, including infrastructure, property, plant and equipment with a total value of $136 billion.

Many of the issues that our local government audits identified related to asset management. This chapter discusses some of the asset accounting issues we found, focusing on five areas:

• overall asset management issues
• asset registers
• asset valuation
• recognition and asset useful life estimates
• asset policy and planning.

Asset overview

NSW councils own and manage a significant range of assets, including infrastructure, property, plant and equipment.

At 30 June 2017, the combined carrying value of NSW council assets was as follows.

Good governance systems help councils to operate effectively and comply with relevant laws and standards. Internal controls assist councils to operate reliably and produce effective financial statements.

This chapter highlights the high risk issues we found and reports on a range of governance and control areas. Governance and control issues relating to asset management and information technology are covered in separate chapters.

Like most public sector agencies, councils increasingly rely on information technology (IT) to deliver services and manage sensitive information. While IT delivers considerable benefits, it also presents risks that councils need to address.

Our review of council IT systems focused on understanding the processes and controls that support the integrity, availability and security of the data used to prepare financial statements. This chapter outlines issues in three broad areas:

• high risk issues
• access to IT systems
• IT governance.

Appendix one - Response from the Office of Local Government

Appendix two - List of recommendations

Appendix three - Sources of information and council classifications

Appendix four - Councils amalgamated in 2016

Appendix five - Status of audits

Appendix six - Council spending by function - Definitions from the local government code of accounting practice and financial reporting

Appendix seven - OLG’s performance indicators from the audited financial statement - Descriptions

Appendix eight - OLG’s performance indicators from the unaudited special schedule 7 - Descriptions

Appendix nine - Financial information

Appendix ten - OLG’s performance indicators

Appendix 11 - NSW Crown Solicitor’s advice

Click here to access the Report on Local Government 2017 Data Visualisation

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

2. Service delivery

3. Government financial services

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.

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

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

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

Total State Sector Accounts received an unqualified audit opinion for the fifth consecutive year.

There was a $5.7 billion State budget surplus and continued investment in new infrastructure, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets. This report also comments on key accounting matters, including the correction of some previously reported balances and the first time reporting of combined Cabinet members’ compensation in the Total State Sector Accounts.

Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2017.

You will note that the format of this report has changed from previous years.

The intent of this change is to draw attention to the key matters that have been the focus of our audit and highlight significant factors that have contributed to the outcome.

First, it is pleasing to report once again that I issued a clear audit opinion on the State’s consolidated financial statements. This outcome demonstrates the Government’s continued focus on the quality of financial reporting across the NSW public sector.

High quality financial management and reporting are crucial to properly inform the public and build community confidence in our system of government.

The Treasury’s Financial Management Transformation program also aims to improve financial governance, budgeting and reporting arrangements across the sector. My Office is working collaboratively with The Treasury on reforms to reduce the burden of reporting, without weakening established safeguards.

The reforms should include measures to provide independent assurance of the budget process, of outcome reporting by agencies, and the power to “follow the dollar” given the increasing use of non-government organisations to deliver Government programs.

This Report also highlights another year of strong financial performance. The State’s budget result was a $5.7 billion surplus, and investment in new infrastructure has continued, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets.

Finally, could I take this opportunity to thank the staff of The Treasury for the way they approached this audit. Our partnership is critical to ensuring NSW is an exemplar of quality financial management and reporting.

Margaret Crawford 
24 October 2017

A clear audit opinion on the State’s consolidated financial statements was issued.

Timely and accurate financial reporting is essential for informed decision making, effective management of public funds and enhancing public accountability.

This year’s clear audit opinion reflects the Government’s continued efforts to improve the quality of financial reporting across the NSW public sector.

Since the introduction of ‘early close procedures’ in 2011-12, the number of significant errors in financial statements of agencies has generally fallen largely due to identifying and resolving complex accounting issues early. Agencies’ 2016-17 financial statements submitted for audit contained nine errors exceeding $20 million. All errors were subsequently corrected in the individual agencies financial statements.

Agencies should continue to respond to key accounting issues as soon as they are identified. Where issues are identified, accounting position papers should be prepared for consideration by the Audit Office, their Audit and Risk Committee members, and when relevant, The Treasury.

The State addressed the following key accounting matters during 2016-17. 

The State recognised rail tunnels and earthworks valued at $8.5 billion.

Some rail tunnels and earthworks have never been valued by the State. These include the City Circle, the country rail network and other tunnels and earthworks built before the year 2000. Some of these tunnels and earthworks date back to the early 1900s.

For many years, the State did not account for these assets as they believed that their value could not be reliably measured. This year an independent valuer was engaged to perform a comprehensive valuation. The methodology used demonstrated
that the assets could have been reflected in the financial statements earlier.

The State recorded an additional $8.5 billion to correct the value of infrastructure assets at 1 July 2016.

Cabinet member’s compensation and related party transactions were reviewed.

Due to changes in Accounting Standards, the State had to consider 'related party information' in the financial statements. Previously this only applied to for-profit entities.

This year, requirements to report related party information extended to members of Cabinet, considered to be “key management personnel” of the State, as defined by Accounting Standards.

The Treasury implemented a process to assess and report Cabinet member’s compensation, and transactions between Cabinet members and/or their close family members, and government agencies.

Collectively, Cabinet members’ remuneration was $8.8 million, which was mainly salaries and allowances, and $3.5 million of non-monetary benefits such as security and drivers. The Treasury determined there were no other specific “related party” transactions or balances that required disclosure in the State’s financial statements.

Information system limitations continue at TAFE NSW.

TAFE NSW has experienced ongoing issues with its student administration system.

TAFE NSW has again implemented additional processes to verify the accuracy and completeness of revenue from sales of goods and services.

TAFE NSW expects to spend up to $89 million on a new information system to address these issues. Modules of the new student enrolment system are expected to be in place for the 2018 enrolment period.

Restatements relating to the General Government Sector's investment in the commercial sector.

The State corrected two previously reported balances relating to the General Government Sector’s investment in the commercial sector.

Accounting Standards require the General Government Sector to effectively store gains or losses related to its investment in the commercial sector in reserves until the investment is derecognised.

When these investments are disposed of, the cumulative gains and losses must be cleared and recognised in the operating result. However, the Government had previously cleared the cumulative gains and losses directly to Accumulated Funds within equity.

To comply with Accounting Standards, a total of $6 billion previously reported as a movement in equity  at 30 June 2016, has now been corrected to the operating result.

In addition, Accounting Standards only allow gains or losses on its investments to be stored in reserves. In past years, the State recognised all changes in the value of its investment in Available for Sale Reserves, including the capital contributed to establish the State’s investment. In 2016-17, a total of $23.4 billion of contributed capital was corrected to accumulated funds at 1 July 2015.

The State’s budget result was a $5.7 billion surplus, $2.0 billion higher than the budget estimate.

The Total State Sector comprises 310 entities controlled by the NSW Government.

Of the total, the General Government Sector comprises 215 entities that provide goods and services not directly paid for by consumers.

The non-General Government Sector comprises 95 Government businesses that provide goods and services such as water and electricity, or financial services.

A principal measure of a Government’s overall performance is its Net Operating Balance, or Budget Result. The Net Operating Balance reports the difference between the cost of General Government service delivery and the revenue earned to fund these sectors.

The State has recorded budget surpluses and exceeded the original budget result in nine of the last ten years.

The State maintained its AAA credit rating.

The object of the Act is to maintain the AAA credit rating.

NSW’s finances are managed in alignment with the Fiscal Responsibility Act 2012 (the Act).

The Act established the framework for fiscal responsibility and strategy needed to protect the State’s AAA credit rating and service delivery to the people of NSW.

The purpose of maintaining the AAA credit rating is to reduce the cost of, and ensure the broadest access to, borrowings.

A triple-A credit rating also helps maintain business and consumer confidence so economic activity and employment are sustained. The legislation sets out targets and principles for financial management to achieve this.

New South Wales has credit ratings of AAA/Negative from Standard & Poor’s and Aaa/Stable from Moody’s Investors Service.

The fiscal targets for achieving this objective are:

General Government expenditure growth is lower than long term revenue growth.

General Government expenditure growth was 4.2 per cent in 2016-17, below the long-term revenue growth of 5.6 per cent.

Eliminating unfunded superannuation liabilities by 2030.

The Act sets a target of eliminating unfunded defined benefit superannuation liabilities by 2030. The State’s net superannuation liability was $58.6 billion at 30 June 2017 ($71.2 billion at 30 June 2016).

The Government predicts the 2030 target will be achieved. The State’s funding plan is to contribute amounts escalated by five per cent each year so the schemes will be fully funded by 2030. In 2016-17, the State made employer contributions of $1.5 billion, which is largely consistent with contributions over the past five years.

The liability values in the graph below do not reflect the values recorded in the Total State Sector Accounts. For financial reporting purposes, Accounting Standards (AASB 119 Employee Benefits) require the State to discount its superannuation liability using the government bond rate (refer to page 10 of this report). 

The relevant government bond rate in the current economic climate is 2.62 per cent.

The State’s target for the unfunded superannuation liability is measured using AASB 1056 Superannuation Entities. This is because it adopts a measurement basis that reflects expected earnings on fund assets, which are currently between 5.9 and 7.4 per cent. Using these rates, the liability is $15.0 billion at 30 June 2017 ($16.1 billion at 30 June 2016). The unfunded liability is $2.4 billion less than when the Act was introduced.

The State’s assets grew by $31.6 billion during 2016-17 to $409 billion.

Valuing the State’s physical assets.

When we audit the financial statements, we focus on areas we consider as higher risk. These areas are often complex, and require the use of estimates and judgements.

The State has $307.2 billion of physical assets measured at fair value in accordance with Australian Accounting Standards. Fair value calculations are inherently complex and sensitive to assumptions and estimates, increasing the risk these assets are incorrectly valued.

In our audits, we assess the reasonableness and appropriateness of assumptions used in valuing physical assets. This includes obtaining an understanding of the valuation methodologies applied and judgements made. We also review the completeness of asset registers, and the mathematical accuracy of valuation models.

Net movements between years includes additions, disposals, depreciation and valuations. This year, valuations of physical assets added $16.2 billion to the State’s assets, comprising: 

• Transport for NSW and Railcorp $8.5 billion

• New South Wales Land and Housing Corporation $4.8 billion

• Roads and Maritime Services $930 million

• Crown Entity $400 million.    

The State’s financial assets increased $27.5 billion in 2016-17

The State’s financial assets have increased by 88 per cent over the past four years. In 2016-17, financial assets increased primarily due to proceeds from the sale of government assets and businesses.

The Government implemented reforms to better use the State’s financial assets. A key element was the creation of an Asset and Liability Committee (ALCO) to provide advice on ways to improve balance sheet management.

Since the creation of the ALCO, reforms include:

• Establishment of the New South Wales Infrastructure Future Fund (NIFF). The net proceeds from the State’s asset recycling program are invested into the NIFF, which is managed by TCorp, with a balance of $14.6 billion by 30 June 2017. Funds raised are invested through the NIFF until the Government requires them for critical infrastructure projects that are part of the Restart NSW and Rebuilding NSW program of works. ALCO and TCorp provide advice on the NIFF’s performance and management

• Establishment of the Social and Affordable Housing Fund ($1.1 billion at 30 June 2017). ALCO oversees the Fund to ensure an appropriate investment approach that will maintain funding certainty for new social and affordable housing stock

• Cash and liquidity management reforms to centralise cash previously held by agencies in the Treasury Banking System. This reform is designed to ensure agencies have adequate levels of liquidity but with surplus funds invested centrally for better returns.

The State’s liabilities decreased by $13.1 billion during 2016-17 to $182 billion.

Valuing the State’s liabilities relies on an actuarial assessment.

Nearly half of the State’s liabilities relate to its employees. This includes unfunded superannuation, and employee benefits, such as long service and recreation leave.

Valuation of these obligations is subject to complex estimation techniques and significant judgements. Small changes in assumptions can materially impact the financial statements.

We address the risk associated with auditing these balances:

• using actuarial specialists

• testing controls around underlying employee data used in data models, and testing the accuracy of the calculations

• evaluating assumptions applied in calculating employee entitlements such as the discount rate and the probability of long service leave vesting conditions being met.

The State’s superannuation obligations reduced by $12.6 billion in 2016-17.

The State’s $58.6 billion superannuation liability represents obligations for past and present employees, less the value of assets set aside to meet those obligations. The superannuation liability decreased from $71.2 billion to $58.6 billion, largely due to an increase in the discount rate from 1.99 per cent to 2.62 per cent. This alone reduced the liability by $9.2 billion

The State’s borrowings totalled $70.6 billion at 30 June 2017.

The State’s borrowings totalled $70.6 billion at 30 June 2017, $9.5 billion less than the previous year. This was largely due to the repayment of borrowings when the assets of Ausgrid and Endeavour Energy were leased to the private sector.

TCorp issues bonds to raise funds for NSW Government agencies. The bonds are actively traded in financial markets providing price transparency and liquidity to public sector borrowers and institutional investors. All TCorp bonds are guaranteed by the NSW Government.

The Government manages its debt liabilities through its balance sheet management strategy. The strategy extends to TCorp, which applies an active risk management strategy to the Government’s debt portfolio.

General Government Sector debt is being restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to better match liabilities with the funding requirements of infrastructure assets and reduces refinancing risks. It also allows the Government to take advantage of the low interest rate environment.

The State recorded revenue of $83.5 billion in  2016-17, an increase of $5.3 billion from 2015-16.

The State’s results are underpinned by revenue growth in taxation, fees and fines.

Taxation, fees, fines and other revenue comprises $30.5 billion of taxation ($28.7 billion in 2015-16) and $5.3 billion of fees, fines and other revenue ($4.6 billion).

Tax revenue for the Total State Sector increased by $1.8 billion, or 6.4 per cent compared to 2015-16, primarily due to:

• one-off business asset sales and lease transactions, including $718 million in transfer duty from the Ausgrid and Endeavour Energy lease transactions

• $385 million increase in payroll tax from growth in NSW employment and average employee compensation

• a $426 million increase in land taxes.

Growth in stamp duty is expected to slow over the next 4 years.

General Government Sector stamp duties have increased from $6.2 billion in 2012-13 to $11.5 billion in 2016-17, an annual average growth rate of 16.5 per cent. The Government’s budget forecasts the growth in stamp duties to decline, to an average annual growth rate of 2.6 per cent between 2016-17 and 2020-21.

The State received Commonwealth grants and subsidies of $30.8 billion in 2016-17.

The State received $30.8 billion from the Commonwealth Government in 2016-17, $1.6 billion more than in 2015-16. This was primarily due to transaction based asset recycling grants of $1.0 billion and a $720 million increase in national land transport grants. This increase was offset by a $435 million decrease in General Purpose Grants, which mainly comprises New South Wales’ share of the Goods and Services Tax (GST). 

The State spent $79.4 billion in 2016-17 to deliver services to the community, an increase of $3.9 billion from 2015-16.

Overall expenses increased 5.2 per cent from last year. Most of the increase was due to higher employee costs and operating costs.

Total salaries and wages increased by 4.2 per cent from 2015-16.

Total salaries and wages increased to $30 billion from $28.8 billion in 2015-16. The Government wages policy aims to limit the growth in remuneration and other employee costs to no more than 2.5 per cent per annum.

Operating expenses increased by 12.4 per cent from 2015-16.

Within operating expenses, payments for supplies, services and other expenses increased, in part, due to the State:

• reacquiring mining licenses worth $482 million and additional land remediation costs of $101 million

• spending more on health including additional drug supplies relating to Hepatitis C.

State spend on transport and communications increased by 68.1 per cent since 2012-13.

While spending on health and education remain the largest functional areas provided by Government, expenditure on transport and communication increased, on average, by 13.9 per cent annually between 2012-13 and 2016-17. This increase reflects the Government’s investment in transport infrastructure such as the Sydney Metro and Westconnex. Over the same period, spending on health increased by $3.9 billion.

Expenditure on fuel and energy has decreased by an average of 44.7 per cent since 2012-13, reflecting the State’s leases of electricity network assets.

In 2011, the Government established Restart NSW to fund high priority infrastructure projects.

Restart NSW projects are primarily funded from the proceeds from the asset recycling program enabling Government to deliver new infrastructure investment.

Restart NSW provides funding for the delivery of Rebuilding NSW, which is the Government’s 10-year plan to invest $20 billion in new infrastructure.

The State finalised long-term leases of Ausgrid and Endeavour Energy assets.

In June 2017, the Government finalised its long-term lease of 50.4 per cent of Endeavour Energy. This transaction follows on from the long-term leases of TransGrid in December 2015 and 50.4 per cent of Ausgrid in December 2016. Net proceeds of $15.0 billion were paid into Restart NSW relating to these transactions.

The Government also finalised an arrangement for the private sector to provide land titling and registry services to the public for 35 years. The State, through Restart NSW, received an upfront payment of $2.6 billion from the new operator.

Restart NSW is funding $29.8 billion of new infrastructure.

The Government has detailed its plan to invest $20 billion into the Rebuilding NSW plan from Restart NSW.

At 30 June 2017, around $2.9 billion has already been spent on Rebuilding NSW projects from Restart NSW, with a further $9 billion included in the budget aggregates. The Government has also earmarked a further $8.1 billion in Restart NSW for future projects.

The most significant project is the Sydney Metro. The Government has committed $7.0 billion from Restart NSW to build a 30-kilometre metro line, linking Sydney Metro Northwest at Chatswood, through new stations in the lower North Shore, the Sydney CBD and southwest to Bankstown. At 30 June 2017, $2.4 billion has been spent on this project from Restart NSW.

Other significant projects funded by Restart NSW include a $1.8 billion contribution to WestConnex and reserved funding of $1 billion towards the State’s Major Stadia Network program.

The Treasury initiated the Financial Management Transformation (FMT) program with the aim of changing and improving financial governance, budgeting and reporting arrangements of the New South Wales public sector.

FMT aims to deliver better outcomes for the people of New South Wales and focuses on transparency and accountability for expenditure, and better value for money.

New Financial Management System

PRIME is the Information Technology (IT) solution component of the FMT program, replacing several historical systems. PRIME will provide both financial and performance information within one IT platform for all agencies in the NSW public sector.

It is expected to give Government more timely information to plan and deliver its policy priorities and the budget.

Independent assurance over the budget process would improve confidence in the reliability of the State’s financial information.

Appendix one - Prescribed entities

Appendix two - Legal opinions