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Appendix one – Misstatements in financial statements submitted for audit

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14 December 2023

Published

Planning and Environment 2023

Planning

Environment

Industry

Asset valuation

Compliance

Financial reporting

Information technology

Infrastructure

Internal controls and governance

Management and administration

Risk

Shared services and collaboration

What this report is about

Results of the Planning and Environment portfolio financial statement audits for the year ended 30 June 2023.

The audit found

Unqualified audit opinions were issued for all completed Planning and Environment portfolio agencies. Seven audits are ongoing.

The Catholic Metropolitan Cemeteries Trust (CMCT) did not comply with its obligations under the Government Sector Finance Act 2018 (GSF Act) to prepare and submit financial statements for audit.

The Department of Planning and Environment (the department) has not yet provided their assessment of the financial reporting requirements for the 579 Category 2 Statutory Land Managers (SLMs) for 2022–23.

One-hundred-and-nineteen Commons Trusts are non-compliant with the GSF Act as they have not submitted their financial statements for audit.

We issued unqualified opinions on the Water Administration Ministerial Corporation's 2020–21, 2021–22 and 2022–23 financial statements.

The number of monetary misstatements identified in our audits decreased from 59 in 2021–22 to 51 in 2022–23, however the gross value of misstatements increased.

The key audit issues were

The former Resilience NSW and NSW Reconstruction Authority (the Authority) re-assessed the accounting implications arising from contractual agreements relating to temporary housing assets associated with the Northern Rivers Temporary Homes Program. This resulted in adjustments to recognise the associated assets and liabilities.

We continue to identify significant deficiencies in NSW Crown land information records.

The department has not been effective in addressing the differing practices for the financial reporting of rural firefighting equipment vested to councils under section 119 (2) of the Rural Fires Act 1997.

The number of findings across the portfolio reported to management increased from 132 in 2021–22 to 140 in 2022–23. Thirty per cent of issues were repeated from the prior year.

Seven high-risk issues were identified. These related to the findings outlined above, deficiencies in quality reviews of asset valuations, internal control processes and IT general controls.

The audit recommended

Recommendations were made to the department and portfolio agencies to address these deficiencies.

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

financial reporting
audit observations.

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

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

Section highlights

Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of portfolio agencies. Seven audits are ongoing.
We have been unable to commence audits of the Catholic Metropolitan Cemeteries Trust (CMCT). NSW Treasury's position remains that the Catholic CMCT is a controlled entity of the State for financial reporting purposes. This means CMCT is a Government Sector Finance (GSF) agency and is obliged under Section 7.6 of the Government Sector Finance Act 2018 (GSF Act) to prepare financial statements and submit them to the Auditor-General for audit. To date, CMCT has not met its statutory obligations under the GSF Act.
The Department of Planning and Environment has not yet provided their assessment against the reporting exemption requirements in the Government Sector Finance Regulation 2018 (GSF Regulation) for the estimated 579 Category 2 Statutory Land Managers (SLMs) or 119 Commons Trusts for 2022–23 and no Category 2 SLM or Commons Trust has submitted its 2022–23

financial statements for audit. Consequently, the lack of compliance with reporting requirements by these 698 agencies presents a challenge to obtaining reliable financial data for these agencies for the purposes of consolidation to the Total State Sector Accounts.
The audits of the Water Administration Ministerial Corporation's (WAMC) financial statements for the years ended 30 June 2021 and 30 June 2022 were completed in June 2023 and unqualified audit opinions issued. The 30 June 2023 audit was completed and an unqualified audit opinion was issued on 12 October 2023.
The number of reported corrected misstatements decreased from 46 in 2021–22 to 36, however the gross value of misstatements increased from $73 million in 2021–22 to $491.8 million in 2022–23.
Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
A change to the NSW paid parental leave scheme, effective October 2023, created a new legal obligation that needed to be recognised by impacted government agencies. Impact to the agencies' financial statements were not material.

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 portfolio.

Section highlights

The number of findings across the portfolio reported to management increased from 132 in 2021–22 to 140 in 2022–23 and 30% were repeat issues (34% in 2021–22).
The 2022–23 audits identified seven high-risk and 76 moderate risk issues across the portfolio. Four of the high-risk issues were repeat issues, one was a repeat issue with the risk rating reassessed to high-risk in the current year and two were new findings in 2022–23.
The former Resilience NSW and NSW Reconstruction Authority had previously assessed that they did not control the temporary housing assets associated with the administration of the Northern Rivers Temporary Homes Program, under relevant accounting standards. A re-assessment of the agreements was made subsequent to the submission of the Authority’s 2022–23 financial statements for audit, which determined that the Authority was the appropriate NSW Government agency to recognise these assets and associated liabilities not previously recognised by the Authority or the former Resilience NSW.
There continues to be significant deficiencies in Crown land records. The department should continue to implement their data strategy and action plan to ensure the Crown land database is complete and accurate.
Since 2017, the Audit Office has recommended that the department, through OLG should address the differing practices for the financial reporting of rural firefighting equipment vested to councils under section 119 (2) of the Rural Fires Act 1997. The department has not been effective in resolving this issue. In 2023, twenty-six of 108 completed audits of councils received qualified audit opinions on their 2023 financial statements (43 of 146 completed audits in 2022). Six councils had their qualifications for not recognising vested rural firefighting equipment removed in 2022–23.

Appendix one – Misstatements in financial statements submitted for audit

29 November 2023

Published

Regional NSW 2023

Industry

Environment

Planning

Whole of Government

Asset valuation

Compliance

Cyber security

Financial reporting

Fraud

Information technology

Infrastructure

Procurement

Regulation

Risk

Service delivery

Shared services and collaboration

What this report is about

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

What we found

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

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

What the key issues were

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

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

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

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

What we recommended

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

Portfolio agencies should:

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

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

financial reporting
audit observations.

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

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

Section highlights

Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of the portfolio agencies. Two audits are ongoing.
The total number of errors (including corrected and uncorrected) in the financial statements increased compared to the prior year.
Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
Portfolio agencies continue to provide financial assistance to communities affected by natural disasters.
A change to the NSW paid parental leave scheme, effective October 2023, created a new legal obligation that needed to be recognised by impacted government agencies. Impact to the agencies' financial statements were not material.

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

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

Section highlights

The 2022–23 audits identified one high risk and nine moderate risk issues across the portfolio. Of these, one was a moderate risk repeat issue.
The total number of findings decreased from 36 to 23 which mainly related to deficiencies in internal controls.
The high risk matter relates to the monitoring and managing of privilege user access at NSW Food Authority.

Appendix one – Misstatements in financial statements submitted for audit

21 December 2022

Published

Transport and Infrastructure 2022

Transport

Asset valuation

Financial reporting

Information technology

Infrastructure

Management and administration

Procurement

What the report is about

Result of the Transport and Infrastructure cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for all Transport and Infrastructure cluster agencies' financial statements.

An 'other matter' paragraph was included in TAHE's Independent Auditor's Report for its 30 June 2022 financial statements which draws attention to Transport and Asset Holding Entity's (TAHE) reliance on government-funded customers.

We included an ‘emphasis of matter’ paragraph in the Independent Auditor’s Report for State Transit Authority of New South Wales’ (the authority) 30 June 2022 financial statements, which draws attention to the financial statements being prepared on a liquidation basis as the authority’s principal activities ceased operations on 3 April 2022.

What the key issues were

The 2021–22 audits identified five high-risk findings:

detailed business modelling to support returns from TAHE
valuation of assets at TAHE
control of assets at TAHE
accounting and valuation of tree assets at Centennial Park and Moore Park Trust and Parramatta Park Trust.

Access and licence fees - TAHE

Revised commercial agreements were signed between TAHE, the operators and Transport for NSW on 23 June 2022 to reflect increased access and licence fees detailed in the 18 December 2021 Heads of Agreement.

TAHE’s ability to generate the expected return of 2.5% based on the current modelling is heavily reliant on the government funding the public rail operators (TAHE's customers).

There are risks that:

TAHE will not be able to recontract for access and licence fees at a level that is consistent with current projections
future governments' funding to TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections
TAHE will be unable to grow its non-government revenues.

Valuation of assets - TAHE

Although TAHE's selected valuation of assets falls within an acceptable range, there remains a significant gap between what has been assessed as an acceptable range and TAHE's range.

What we recommended

Control of assets - TAHE

While we accepted TAHE’s position on control for the current year, NSW Treasury and TAHE should continue to monitor the risk that control of TAHE assets could change in future reporting periods. TAHE must continue to demonstrate control of its assets or the current accounting presentation would need to be reconsidered.

This report provides Parliament and other users of the Transport and Infrastructure cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

financial reporting
audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport and Infrastructure cluster (the cluster) for 2022.

Section highlights

Unqualified audit opinions were issued on all Transport and Infrastructure cluster agencies' financial statements.
An 'Other Matter' paragraph was included in the Transport Asset Holding Entity of New South Wales' (TAHE) Independent Auditor's Report to draw attention to TAHE's reliance on government-funded customers.
An 'Emphasis of Matter' paragraph was included in the State Transit Authority of New South Wales' (the authority) Independent Auditor's Report to draw attention to management’s disclosures that State Transit Authority of New South Wales' financial statements for the year ended 30 June 2022 were prepared on a liquidation basis as the authority’s principal activities ceased operations on 3 April 2022.
While TAHE's valuation of assets at 30 June 2022 was within an acceptable range of valuation outcomes, there remained significant differences in assumptions used when compared with relevant market benchmarks.
Sydney Metro corrected two prior period errors of $1.5 billion and $51 million in accounting and valuation of assets, and double counting of assets capitalised in infrastructure as well as assets under construction respectively.

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 cluster.

Section highlights

The number of findings reported to management decreased from 87 in 2020–21 to 59 in 2021–22.
Repeat findings accounted for 54.2% of management letter points. Many repeat findings related to controls over payroll, including management of annual leave and processing of timesheets, management of conflicts of interests, weaknesses in controls over information technology user access administration and password management.
One new high-risk issue was identified in 2020–21, and four high-risk repeat issues remained.
The five high-risk issues arose from the audit in the cluster, with respect to:
- control over TAHE assets and operations (repeat)
- TAHE detailed business modelling to support returns (repeat)
- valuation of trees (repeat for Parramatta Park Trust and Centennial Park and Moore Park Trust)
- TAHE asset valuations.

Appendix one – Misstatements in financial statements submitted for audit

Copyright notice

15 December 2022

Published

Planning and Environment 2022

Environment

Industry

Local Government

Planning

Asset valuation

Compliance

Financial reporting

Information technology

Infrastructure

Internal controls and governance

Management and administration

Risk

What the report is about

Result of the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.

Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.

Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.

Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.

The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.

All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).

NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.

What the key issues were

Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.

There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.

The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.

Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.

Recommendations were made to address these deficiencies.

This report provides Parliament and other users of the Planning and Environment cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

financial reporting
audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster (the cluster) for 2022.

Section highlights

Unqualified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing. The audit of the Catholic Metropolitan Cemeteries Trust(CMCT) has not been able to commence, despite repeated requests to do so.
The audits of the Water Administration Ministerial Corporation's (WAMC) financial statements for the years ended 30 June 2011 to 30 June 2020 were completed in November 2022. These audits had been long outstanding due to insufficient records and evidence to support the transactions and balances of WAMC, particularly for the earlier years. In recent years, management commenced actions to improve WAMC's governance and financial management, and finalise the outstanding audits.

Disclaimed audit opinions were issued on the 2010–11 to 2015–16 financial statements as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.

Qualified audit opinions were issued for the 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.

Unqualified audit opinions were issued for the 2018–19 and 2019–20 financial statements.

The 2020–21 and 2021–22 WAMC audits are in progress.
The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.

All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).

The department needs to do more to ensure Category 2 SLMs and Commons Trusts meet their statutory reporting obligations.

The department and Category 2 SLMs should finalise their reporting exemption assessments earlier to allow sufficient time for the non-exempted SLMs to prepare and submit annual financial statements by the statutory reporting deadline.
NSW Treasury has met with the Catholic Metropolitan Cemeteries Trust (CMCT) to consider their perspective as part of confirming CMCT is a controlled entity of the State for the purposes of financial reporting. NSW Treasury has confirmed that the CMCT is a controlled entity of the State. This means that the CMCT is statutorily obliged under section 7.6 of the GSF Act to prepare financial statements in accordance with the GSF Act and Treasurer's Directions, and give them to the Auditor-General for audit pursuant to the Government Sector Audit Act 1983 (GSA Act). Section 34 of the GSA Act requires the Auditor-General to furnish an audit report on these financial statements.

The department wrote to CMCT to request it work with, and offer full assistance to, the Auditor-General in the exercise of her duties. To date, the CMCT has not met its obligations to prepare financial statements under the GSF Act as it has not submitted its financial statements to the Auditor-General for audit despite repeated requests, and has not provided access to its books and records for the purposes of a financial audit. The CMCT contends that they are not a GSF agency as defined by the GSF Act and therefore not a controlled entity of the State.
Six agencies required to perform early close procedures did not complete a total of 11 mandatory procedures. Incomplete procedures included the delayed resolution of matters raised in prior years and two agencies did not record movements in the fair value of physical assets in the financial statements.

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 Planning and Environment cluster.

Section highlights

Since 2017, the Audit Office of New South Wales has recommended that the Department of Planning and Environment (the department) address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue, and in 2022, 32 of 118 completed audits of councils received qualified audit opinions on their 2022 financial statements.
Consistent with the department’s role to assess councils' compliance with legislative responsibilities, standards or guidelines, the department should intervene where councils do not recognise rural firefighting equipment.
There continues to be significant deficiencies in Crown land records. The department should implement an action plan to ensure the Crown land database is complete and accurate.
The number of findings reported to management decreased from 161 in 2020–21 to 132 in 2021–22. Eight high-risk findings were identified during 2021–22, of which six were repeat issues. One new high-risk finding related to deficiencies in governance processes and internal controls identified as a part of the Water Administration Ministerial Corporation's 2011–2020 financial statements audits.
The department and NSW Treasury did not comply with section 35 of the Energy and Utilities Administration Act 1987 (EUA Act). However, complying with the EUA Act could create non-compliance with other pieces of legislation. Amendments to the EUA Act have been made to resolve this inconsistency. The amendment took effect from April 1999.

Appendix five – Councils received qualified audit opinions

Copyright notice

8 December 2022

Published

Regional NSW 2022

Environment

Industry

Planning

Asset valuation

Compliance

Financial reporting

Fraud

Information technology

Infrastructure

Internal controls and governance

Management and administration

Regulation

Risk

Shared services and collaboration

What the report is about

Result of the Regional NSW cluster agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for Regional NSW cluster agencies. Two audits are ongoing.

What the key issues were

The Department of Regional NSW (the department) and Local Land Services (LLS) accepted changes to their office leasing arrangements managed by Property NSW.

These changes resulted in the collective derecognition of $100.6 million of rights-of-use-assets and $110.4 million of lease liabilities.

In 2021–22, the cluster agencies continued to assist communities in their recovery from recent weather emergencies, including significant flooding in New South Wales.

The Northern Rivers Reconstruction Corporation was established in May 2022 to rebuild communities in the Lismore and Northern Rivers region impacted by floods.

The number of matters reported to management decreased from 36 in 2020–21 to 14 in 2021–22.

Five moderate risk issues were identified and 14% of reported issues were repeat issues.

One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.

This report provides Parliament and other users of the Regional NSW cluster financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

financial reporting
audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW cluster (the cluster) for 2022.

Section highlights

Unqualified audit opinions were issued on the financial statements of cluster agencies. Two audits are ongoing.
Cluster agencies completed all required early close procedures.
Changes to accommodation arrangements managed by Property NSW on behalf of the department and cluster agencies resulted in the collective derecognition of approximately $100.6 million in right-of-use assets and corresponding lease liabilities totalling $110.4 million from the balance sheets of these agencies.
Cluster agencies continue to provide financial assistance to communities affected by natural disasters.

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

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

Section highlights

The 2021–22 audits identified five moderate issues across the cluster. One moderate risk issue was a repeat issue related to Local Land Services' annual fair value assessment of the asset improvements on land reserves used for moving stock.
Of the four newly identified moderate rated issues, one related to internal control deficiencies and improvements and three related to financial reporting.
The number of findings reported to management has decreased from 36 in 2020–21 to 14 in 2021–22.

Appendix one – Misstatements in financial statements submitted for audit

Appendix one - Misstatements in financial statements submitted for audit

20 May 2022

Published

COVID-19: response, recovery and impact

Community Services

Education

Health

Justice

Premier and Cabinet

Transport

Treasury

Whole of Government

Cross-agency collaboration

Financial reporting

Management and administration

Service delivery

Shared services and collaboration

What the report is about

This report draws together the financial impact of COVID-19 on the agencies integral to responses across the state government sector of New South Wales.

What we found

Since the COVID-19 pandemic hit NSW in January 2020, and until 30 June 2021, $7.5 billion was spent by state government agencies for health and economic stimulus. The response was largely funded by borrowings.

The key areas of spending since the start of COVID-19 in NSW to 30 June 2021 were:

direct health response measures – $2.2 billion
personal protective equipment – $1.4 billion
small business grants – $795 million
quarantine costs – $613 million
increases in employee expenses and cleaning costs across most agencies
vaccine distribution, including vaccination hubs – $71 million.

The COVID-19 pandemic significantly impacted the financial performance and position of state government agencies.

Decreases in revenue from providing goods and services were offset by increases in appropriations, grants and contributions, for health and economic stimulus funding in response to the pandemic.

Most agencies had expense growth, due to additional operating requirements to manage and respond to the pandemic along with implementing new or expanded stimulus programs and initiatives.

Response measures for COVID-19 have meant the NSW Government is unlikely to meet targets in the Fiscal Responsibility Act 2012 being:

annual expense growth kept below long-term average revenue growth
elimination of State’s unfunded superannuation liability by 2030.

Fast facts

First COVID-19 case in NSW on 25 January 2020
COVID-19 vaccinations commenced on 21 February 2021
By 31 December 2021, 25.2 million PCR tests had been performed in NSW and 13.6 million vaccines administered, with 93.6% of the 16 and over population receiving two doses
During 2020–21, NSW Health employed an extra 4,893 full-time staff and incurred $28 million in overtime mainly in response to COVID-19
During 2020–21, $1.2 billion was spent on direct health COVID-19 response measures and $532 million was spent on quarantine for incoming international travellers

Section highlights

Up to 30 June 2021, $7.5 billion has been spent by state government agencies for health and economic stimulus.
Revenue increased for most agencies as falling revenue from providing goods and services was offset by additional funding from appropriations, grants and contributions.
Expenses increased as most agencies incurred additional costs to manage and respond to the pandemic along with delivering stimulus and support programs.
Borrowings of $7.5 billion over the last two years helped to fund the response to COVID-19.

Section highlights

NSW Government unlikely to meet targets in Fiscal Responsibility Act 2012.

13 December 2021

Published

Regional NSW 2021

Environment

Industry

Asset valuation

Compliance

Financial reporting

Infrastructure

Internal controls and governance

Management and administration

Service delivery

This report analyses the results of our audits of the Regional NSW cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Regional NSW cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Regional NSW cluster (the cluster) agencies’ financial statement audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all completed 30 June 2021 financial statement audits of cluster agencies. Four audits are ongoing.

The number of misstatements identified in the financial statements of cluster agencies decreased from 27 in 2019–20 to seven in 2020–21.

The Department corrected an understatement of $82.2 million in prepaid income related to the Bushfire Clean-up Program.

What the key issues were

Local Land Services (LLS) undertook a comprehensive revaluation of asset improvements on land reserves used for moving stock (travelling stock reserves).

The revaluation process identified that improvements on land reserves, with a value of $93.0 million, had not been previously recognised in the financial statements. LLS corrected this error by restating the 2019–20 comparative balances in its 2020–21 financial statements.

The Forestry Corporation of NSW revalued its biological assets that comprise approximately 225,000 hectares of softwood plantations and 34,000 hectares of hardwood forests. The current year valuation resulted in $71.4 million decrement in the total biological assets from $824.9 million in 2019–20 to $753.5 million in 2020–21.

The number of matters reported to management decreased from 36 in 2019–20 to 19 in 2020–21. Twelve moderate risk issues were identified and 47 per cent of reported issues were repeat issues.

What we recommended

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

Fast facts

The Regional NSW cluster plans and delivers regional programs and infrastructure to respond to regional issues, creating and preserving regional jobs, driving regional economy, growing existing and supporting emerging industries. There are 31 agencies in the cluster.

$2.3b of regional land and buildings as at 30 June 2021.
100% unqualified audit opinions were issued for all completed 30 June 2021 financial statements audits.
7 monetary misstatements were reported in 2020–21.
$603m of grants and subsidies administered to the regional community in 2020–21.
12 moderate risk management letter findings were identified and reported to management.
47% of reported issues were repeat issues.

This report provides Parliament and other users of the Regional NSW cluster agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

financial reporting
audit observations.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW cluster for 2021.

Section highlights

Unqualified audit opinions were issued for all completed 30 June 2021 financial statements audits of cluster agencies. Four audits are ongoing.
The number of monetary misstatements identified during the audit decreased from 27 in 2019–20 to seven in 2020–21.
Three cluster agencies could improve their early close process by completing all required procedures.
Local Land Services disclosed a prior period error relating to the completeness of asset improvements on travelling stock reserves.

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

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

Section highlights

The number of findings reported to management decreased from 36 in 2019–20 to 19 in 2020–21, and 47 per cent were repeat findings.
The 2020–21 audits identified 12 moderate risk and seven low risk issues across the cluster.
Four moderate risk issues and five low risk issues were repeat findings from
2019–20.

Appendix two - Early close procedures

Appendix three - Financial data

Copyright notice

10 December 2020

Published

Transport 2020

Transport

Asset valuation

Cyber security

Financial reporting

Information technology

Infrastructure

Project management

1. Financial Reporting
Audit opinion	Unmodified audit opinions issued for the financial statements of all Transport cluster entities.
Quality and timeliness of financial reporting	All cluster agencies met the statutory deadlines for completing the early close and submitting the financial statements. Transport cluster agencies continued to experience some challenges with accounting for land and infrastructure assets. The former Roads and Maritime Services and Sydney Metro recorded prior period corrections to property, plant and equipment balances.
Impact of COVID-19 on passenger revenue and patronage	Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19. The Transport cluster received additional funding from NSW Treasury during the year to support the reduced revenue and additional costs incurred such as cleaning on all modes of public transport and additional staff to manage physical distancing.
Completion of the CBD and South East Light Rail	The CBD and South East Light Rail project was completed and commenced operations in this financial year. At 30 June 2020, the total cost of the project related to the CBD and South East Light Rail was $3.3 billion. Of this total cost, $2.6 billion was recorded as assets, whilst $700 million was expensed.
2. Audit Observations
Internal control	While internal controls issues raised in management letters in the Transport cluster have decreased compared to the prior year, control weaknesses continue to exist in access security for financial systems. We identified 56 management letter findings across the cluster and 43 per cent of all issues were repeat issues. The majority of the repeat issues relate to information technology controls around user access management. There were three high risk issues identified - two related to financial reporting of assets and one for implementation of TAHE (see below).
Agency responses to emergency events	Transport for NSW established the COVID-19 Taskforce in March 2020 to take responsibility for the overall response of planning and coordination for the Transport cluster. It also implemented the COVIDSafe Transport Plan which incorporates guidance on physical distancing, increasing services to support social distancing and cleaning.
RailCorp transition to TAHE	On 1 July 2020, RailCorp was renamed Transport Asset Holding Entity of New South Wales (TAHE) and converted to a for-profit statutory State-Owned Corporation. TAHE is a commercial for-profit Public Trading Entity with the intent to provide a commercial return to its shareholders. A plan was established by NSW Treasury to transition RailCorp to TAHE which covered the period 1 July 2015 to 1 July 2019. A large portion of the planned arrangements were not implemented by 1 July 2020. As at the time of this report, the TAHE operating model, Statement of Corporate Intent (SCI) and other key plans and commercial agreements are not finalised. The State Owned Corporations Act 1989 generally requires finalisation of an SCI three months after the commencement of each financial year. However, under the Transport Administration Act 1988, TAHE received an extension from the voting shareholders, the Treasurer and Minister for Finance and Small Business, to submit its first SCI by 31 December 2020. In accordance with the original plan, interim commercial access arrangements were supposed to be in place with RailCorp prior to commencement of TAHE. Under the transitional arrangements, TAHE is continuing to operate in accordance with the asset and safety management plans of RailCorp. The final operating model is expected to include considerations of safety, operational, financial and fiscal risks. This should include a consideration of the potential conflicting objectives of a commercial return, and maintenance and safety measures. This matter has been included as a high risk finding in our management letter due to the significance of the financial reporting impacts and business risks for TAHE. Recommendation: TAHE management should: establish an operating model in line with the original intent of a commercial return finalise commercial agreements with the public rail operators confirm forecast financial information to assess valuation of TAHE infrastructure finalise asset and safety management plans. Resolution of the above matters are critical as they may significantly impact the financial reporting arrangements for TAHE for 2020–21, in particular, accounting policies adopted as well as measurement principles of its significant infrastructure asset base.
Completeness and accuracy of contracts registers	Across the Transport cluster, contracts and agreements are maintained by the transport agencies using disparate registers. Recommendation (repeat): Transport agencies should continue to implement a process to centrally capture all contracts and agreements entered. This will ensure: agencies are fully aware of contractual and other obligations appropriate assessment of financial reporting implications ongoing assessments of accounting standards, in particular AASB 16 ‘Leases’, AASB 15 'Revenue from Contract with Customers', AASB 1058 'Income of Not-for-Profit Entities' and new accounting standard AASB 1059 'Service Concession Arrangements: Grantors' are accurate and complete.

This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

financial reporting
audit observations
the impact of emergencies and the pandemic.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2020, including any financial implications from the recent emergency events.

Section highlights

Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19.
Unqualified audit opinions were issued on all Transport agencies' financial statements.
Transport cluster agencies continued to experience challenges with accounting of land and infrastructure assets.

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

This chapter outlines our:

observations and insights from our financial statement audits of agencies in the Transport cluster
assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.

Section highlights

While there was a decrease in findings on internal controls across the Transport cluster, 43 per cent of all issues were repeat issues. Many repeat issues related to information technology controls around user access management.
RailCorp transitioned to TAHE on 1 July 2020. TAHE's operating model and commercial arrangements with public rail operators has not been finalised despite government original plans to be operating from 1 July 2019. TAHE management should finalise its operating model and commercial agreements with public rail operators as they may significantly impact the financial reporting arrangements for TAHE for 2020–21.
Completeness and accuracy of contracts registers remains an ongoing issue for the Transport cluster.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019, 2018 and 2017 recommendations

Appendix three – Management letter findings