The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of NSW Government central agencies, namely the Premier and Cabinet, Treasury and Customer Service clusters. There are 191 agencies in these clusters, including government financial, superannuation and insurance entities.

Unqualified audit opinions were issued on the financial statements for all agencies in the clusters. There were two high risk and 99 moderate risk audit findings on internal controls. Of these, 31 percent were repeat issues, and most related to weaknesses in information technology access controls.

The report notes a number of audit observations including:

• a qualified opinion on information technology internal controls at an outsourced service provider
• self-insurance losses of $1.4 billion partly due to unfavourable movements in the risk free discount rate, and increases in workers compensation claims, including psychological injury claims
• a shortfall (unfunded liability) of $637 million at 30 June 2019 in the Home Building Compensation Fund, due to premiums not being sufficient to meet costs of the scheme
• agencies self-assessed against the Australian Cyber Security Centre’s ‘Essential 8’ cyber risk mitigation strategies for the first time in 2018-19. Based on their own self assessments, more work needs to be done to improve cyber security resilience.

This report analyses the results of our financial statement audits of the Treasury, Premier and Cabinet and Customer Service clusters for the year ended 30 June 2019. Our key observations are summarised below.

This report provides parliament and other users of the NSW Government's central agencies and their cluster agencies financial statements with the results of our audits, observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• government financial services.

Central agency clusters were significantly impacted by Machinery of Government changes which took effect on 1 July 2019. This report is focussed on agencies now in the Treasury, Premier and Cabinet and Customer Service clusters. Some of these agencies may have been in another cluster during 2018–19. Please refer to the section on Machinery of Government changes for more details.

Central agencies and their key responsibilities are set out below.

Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions and they are given effect by Administrative orders.

The MoG changes announced following the NSW State election on 23 March 2019 significantly impacted Central Agencies’ clusters through Administrative Changes Orders issued on 2 April 2019 and 1 May 2019. These orders took effect on 1 July 2019.

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

This chapter outlines our audit observations on the 2019 financial reporting of agencies in the Treasury, Premier and Cabinet, and Customer Service clusters.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Treasury, Premier and Cabinet and Customer Service clusters.

Background

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

Appendix one – Timeliness of financial reporting by agency

Appendix two – Management letter findings by agency

Appendix three – Status of 2018 recommendations

Appendix four – Cluster agencies

Appendix five – Financial data

Copyright notice

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

This report outlines the results of audits of the financial statements of agencies now grouped in the NSW Planning, Industry and Environment cluster.

Unqualified audit opinions were issued for 56 of the 66 cluster agencies’ 30 June 2019 financial statements. Ten audits remain incomplete. The cluster agencies need to improve the timeliness of financial reporting. 

The Audit Office continued to identify issues regarding unprocessed Aboriginal land claims and the recognition of Crown land. ‘Auditor-General’s reports to parliament have recommended action to reduce the level of unprocessed land claims since 2007. However, the number of unprocessed claims continued to increase’, Margaret Crawford said.

One in five internal control findings were repeat issues. Key themes included information technology, asset management and improvements required to expense and payroll controls.

The report makes several recommendations including:

• Property NSW should urgently address the deficiencies in the lease data used to calculate the impact of the new leasing standard effective from 1 July 2019
• the Department of Planning, Industry and Environment should prioritise action to reduce unprocessed Aboriginal land claims
• the Department of Planning, Industry and Environment should ensure the Crown land database is complete and accurate so state agencies and local government councils are better informed about the Crown land they control.

This report analyses the results of our audits of financial statements of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2019. The table below summarises our key observations.

1. Machinery of Government changes

2. Financial reporting

3. Audit observations

This report provides parliament and other users of the Planning, Industry and Environment cluster agencies financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

This cluster was created by the Machinery of Government changes on 1 July 2019. This report is focused on agencies in the Planning, Industry and Environment cluster from 1 July 2019. However, these agencies were all in other clusters during 2018–19. Please refer to the section on Machinery of Government changes for more details.

Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions that are given effect by Administrative orders.

The MoG changes, announced following the NSW State election on 23 March 2019, created the Planning, Industry and Environment (PIE) cluster. The Administrative Changes Orders issued on 2 April 2019, 1 May 2019 and 28 June 2019 gave effect to these changes. These orders became effective on 1 July 2019.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning, Industry and Environment (PIE) cluster for 2019. In this chapter, the Department of Planning, Industry and Environment is referred to as DPIE, the former Department of Planning and Environment as DPE, and the former Department of Industry as DOI.

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

This chapter outlines our audit observations and insights from our financial statement audits of agencies in the Planning, Industry and Environment (PIE) cluster for 2019. In this chapter, the Department of Planning, Industry and Environment is referred to as DPIE, the former Department of Planning and Environment as DPE, and the former Department of Industry as DOI.

Appendix one – List of 2019 recommendations

Appendix two – Status of 2018 recommendations

Appendix three – Cluster agencies

Appendix four – Financial data

Appendix five – Management letter findings

Appendix six – Timeliness of financial reporting

Copyright notice

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

This report covers the findings and recommendations from the 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector. The 40 agencies selected for this report constitute around 84 per cent of total expenditure for all NSW public sector agencies.

The report provides insights into the effectiveness of controls and governance processes across the NSW public sector. It evaluates how agencies identify, mitigate and manage risks related to:

• financial controls
• information technology controls
• gifts and benefits
• internal audit
• contingent labour
• sensitive data.

The Auditor-General recommended that agencies do more to prioritise and address vulnerabilities in their internal controls and governance. The Auditor-General also recommended agencies increase the transparency of their management of gifts and benefits by publishing their registers on their websites.

This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2019.

1. Internal control trends

2. Information technology controls

3. Gifts and benefits

4. Internal audit

5. Managing contingent labour

6. Managing sensitive data

This report covers the findings and recommendations from our 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies (refer to Appendix three) in the NSW public sector. The 40 agencies selected for this volume constitute around 84 per cent of total expenditure for all NSW public sector agencies.

Although the report includes several agencies that have changed as a result of the Machinery of Government changes that were effective from 1 July 2019, its focus on sector wide issues and insights means that its findings remain relevant to NSW public sector agencies, including newly formed agencies that have assumed the functions of abolished agencies.

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

This is the third 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. For example, if they do not have strong information technology controls, sensitive information may be at risk of unauthorised access and misuse.

Areas of specific focus of the report have changed since last year

Last year's report topics included transparency and performance reporting, management of purchasing cards and taxi use, and fraud and corruption control. We are reporting on new topics this year and re-visiting agency management of gifts and benefits, which we first covered in our 2017 report. Re-visiting topics from prior years provides a baseline to show the NSW public sectors’ progress implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.

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 year the report focusses on:

• internal control trends
• information technology controls, including access to agency systems
• protecting sensitive information held within agencies
• managing large and diverse workforces (controls around employing and managing contingent workers)
• maintaining an ethical culture (management of gifts and benefits)
• effectiveness of internal audit function and its oversight by Audit and Risk Committees.

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, internal controls and audit observations are included in the individual 2019 cluster financial audit reports, which will be tabled in parliament from November to December 2019.

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

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

This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.

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

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage gifts and benefits. 

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency internal audit functions.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to on-board, manage and off-board contingent labour.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of governance and processes in relation to the management of sensitive data.

Appendix one – List of 2019 recommendations 

Appendix two – Status of 2018 recommendations

Appendix three – In-scope agencies

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

The report found the clearing of native vegetation on rural land is not effectively regulated and managed. The processes supporting the regulatory framework are weak and there is no evidence-based assurance that clearing of native vegetation is carried out in accordance with approvals. 

In 2014 an expert panel completed a review of biodiversity legislation in NSW. The panel’s recommendations included repealing the Native Vegetation Act 2003, proposing a new Act with the goal of maintaining a healthy, productive and resilient environment for the greatest wellbeing of the community, and recommending that management of native vegetation in the context of existing agricultural management would be assisted and supervised by Local Land Services (LLS).

Following the panel report, the NSW Government undertook major biodiversity conservation and land management reforms which saw the introduction of the Biodiversity Conservation Act 2016 (NSW) and the Local Land Services Amendment Act 2016 (NSW). The reforms commenced in August 2017. The Native Vegetation Act 2003, the Threatened Species Conservation Act 1995, the Nature Conservation Trust Act 2001, and parts of the National Parks and Wildlife Act 1974 were repealed.

Under the legislative reforms, the Biodiversity Conservation Act 2016 and Local Land Services Amendment Act 2016, which amended the Local Land Services Act 2013, aim to ensure a balanced approach to land management and biodiversity conservation in NSW.

A core objective of the Biodiversity Conservation Act 2016 is to conserve biodiversity at bioregional and state scales. A core objective of the Local Land Service Act 2013 is to ensure the proper management of natural resources in the social, economic and environmental interests of the state, consistently with the principles of ecologically sustainable development.

The integrated package of reforms included:

• new arrangements that allow land owners to improve productivity while responding to environmental risks
• new ways to assess and manage the biodiversity impacts of development
• a new state Environmental Planning Policy for managing impacts on native vegetation in urban areas
• significant investment in conservation of private land
• a risk-based system for regulating human and business interactions with native plants and animals
• streamlined approvals and dedicated resources to help reduce the regulatory burden.

Transition to this land management framework began on 25 August 2017 with the commencement of the Land Management (Native Vegetation) Code.

The overall objectives of the reforms are:

• to arrest and ultimately reverse the current decline in the state’s biodiversity while facilitating ecologically sustainable development, in particular efficient and sustainable agricultural development
• enable landholders to improve the efficiency of their agricultural systems and take a more active role in providing incentive and supporting landholders to improve the condition and function of their ecological systems. 

The objective of this audit is to assess whether the clearing of native vegetation in rural areas is effectively regulated and managed by the Office of Environment and Heritage (OEH) and LLS under these legislative frameworks. The audit also examined the progress of the Biodiversity Conservation Trust in implementing the Biodiversity Conservation Investment Strategy as a counterbalance to rural land clearing. 

At the time of this audit OEH was responsible for preparing the Native Vegetation Regulatory map and for compliance enforcement in relation to unlawful land clearing. Post 1 July 2019, under machinery of government changes, OEH will be abolished and its activities relevant to this audit will be moved to the new Department of Planning, Industry and Environment. For the purposes of this audit we will continue to refer to it as OEH. 

Local Land Services (LLS) is responsible for processing notifications and issuing certificates to landholders for managing the thinning or clearing of native vegetation on rural land through the ‘Land Management (Native Vegetation) Code 2018’ (the Code). This work includes monitoring and reporting on the implementation of the Code, including the establishment and management of set asides.

OEH is responsible for compliance and enforcement in relation to unlawful land clearing. It is also responsible for producing the NVR map, designed to show landholders where land clearing can occur without approval, where approval is required, and where land clearing is not permitted. Post 1 July 2019, under machinery of government changes, OEH will be abolished and its activities relevant to this audit will be moved to the new Department of Planning, Industry and Environment.

Appendix one - Response from agencies

Appendix two - Authorisations for thinning and clearing, and restoration initiatives under the Native Vegetation Act 2003

Appendix three - About the audit

Appendix four - Performance auditing

Parliamentary Reference: Report number #324 - released 27 June 2019

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

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

The Auditor-General for New South Wales, Margaret Crawford, released her report today on 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. While clear audit opinions were issued on all agency financial statements, the report notes that some complex accounting requirements caused significant errors in agency financial statements submitted for audit, which were corrected before the financial statements were approved. 

This report analyses the results of our audits of the Treasury, Premier and Cabinet and Finance, Services and Innovation cluster agencies for the year ended 30 June 2018. The table below summarises our key observations.

This report provides parliament and other users of the NSW Government's central agencies and their cluster agencies financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• liquidity risk management
• government financial services.

The central agencies and their key responsibilities are set out below.

A full list of agencies that this report covers by relevant cluster is included in Appendix three.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Treasury, Premier and Cabinet and Finance, Services and Innovation clusters for 2018.

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

This chapter outlines our observations and insights from:

• our financial statement audits of agencies in the Treasury, Premier and Cabinet and Finance, Services and Innovation cluster for 2018
• the areas of focus identified in the Audit Office work program.

The Audit Office work program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each of the NSW Government clusters.

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

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three - Cluster agencies

Appendix four - Timeliness of financial reporting and audit reporting

Appendix five - Management letter findings by risk rating

Appendix six – Financial data

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

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.

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