What the report is about

In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.

This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.

The report is framed by recognition that the past four years have seen significant challenges and emergency events.

The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.

The report is a resource to support public sector agencies and local government to improve future programs and activities.

What we found

Our analysis of findings and recommendations is structured around six key themes:

• Integrity and transparency
• Performance and monitoring
• Governance and oversight
• Cyber security and data
• System planning for disruption
• Resource management.

The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.

In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.

The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.

The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.

While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.

Margaret Crawford
Auditor-General for New South Wales

This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.

• Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
• Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
• Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.

This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.

The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.

This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.

Appendix one – Included reports, 2018–2022

Appendix two – About this report

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 analyses the results of our audits of the Planning, Industry and Environment 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 Planning, Industry and Environment 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 Planning, Industry and Environment cluster agencies' financial statements audits for the year ended 30 June 2021.

What we found

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

An 'Other Matter' paragraph was included in the Independent Planning Commission's (the IPC) audit opinion because the prior year comparative figures were not audited. Prior to 2020–21, the IPC was not required to prepare separate financial statements under the Public Finance and Audit Act 1983 (PF&A Act). The financial reporting provisions of the Government Sector Finance Act 2018 now require the IPC to prepare financial statements.

The number of identified misstatements increased from 51 in 2019–20 to 54 in 2020–21.

The 2010–11 to 2019–20 audits of the Water Administration Ministerial Corporation’s (the Corporation) financial statements are incomplete due to insufficient records and evidence to support the transactions of the Corporation, particularly for the earlier years. Management has commenced actions to improve the governance and financial management of the Corporation. These audits are currently in progress and the 2020–21 audit will commence shortly.

There are 609 State controlled Crown land managers (CLMs) across New South Wales that predominantly manage small parcels of Crown land.

Eight CLMs prepared and submitted 2019–20 financial statements by the revised deadline of 30 June 2021. A further 24 CLMs did not prepare financial statements in accordance with the PF&A Act. The remaining CLMs were not required to prepare 2019–20 financial statements as they met NSW Treasury's financial reporting exemption criteria.

The Department of Planning, Industry and Environment's (the department) preliminary assessment indicates that 60 CLMs are required to prepare financial statements in 2020–21. To date, no CLMs have prepared and submitted financial statements for audit in 2020–21.

There are also 120 common trusts that have never submitted financial statements for audit. Common trusts are responsible for the care, control and management of land that has been set aside for specific use in a certain locality, such as grazing, camping or bushwalking.

What the key issues were

The number of matters we reported to management increased from 135 in 2019–20 to 180 in 2020–21, of which 40 per cent were repeat findings.

Seven high-risk issues were identified in 2020–21:

• system control deficiencies at the department relating to user access to HR and payroll management systems, vendor master data management and journal processing, which require manual reviews to mitigate risks
• deficiencies related to the Centennial Park and Moore Park Trust's tree assets valuation methodology
• the Lord Howe Island Board did not regularly review and monitor privileged user access rights to key information systems
• the Natural Resources Access Regulator identified and adjusted three prior period errors retrospectively, which indicate deficiencies within the financial reporting processes
• deficiencies relating to the Parramatta Park Trust's tree assets valuation methodology
• lease arrangements have not been confirmed between the Planning Ministerial Corporation and Office of Sport regarding the Sydney International Regatta Centre
• the Wentworth Park Sporting Complex land manager (the land manager) has a $6.5 million loan with Greyhound Racing NSW (GRNSW). GRNSW requested the land manager to repay the loan. However, the land manager subsequently requested GRNSW to convert the loan to a grant. Should this request be denied, the land manager would not be able to continue as a going concern without financial support. This matter remains unresolved for many years.

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 are managed and controlled by the department and land managers (including councils and land managers controlled by the state). 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 is implementing a new system to record Crown land (the CrownTracker project). The department advised that the project completion date will be confirmed by June 2022.

What we recommended

The department should ensure CLMs and common trusts meet their statutory reporting obligations.

Cluster agencies should prioritise and action recommendations to address internal control deficiencies, with a focus on addressing high-risk and repeat issues.

The department should prioritise action to ensure the Crown land database is complete and accurate. This will allow the department and CLMs to be better informed about the Crown land they control.

This report provides parliament and other users of the Planning, Industry and Environment cluster (the 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 Planning, Industry and Environment cluster (the cluster) for 2021.

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 statements audits of agencies in the Planning, Industry and Environment cluster.

Appendix one - Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – 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.

What the report is about

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and NSW Treasury have supported state agencies to manage climate risks to their assets and services.

Climate risks that can impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. Impacts can include damage to transport, communications and energy infrastructure, increases in hospital admissions, and making social housing or school buildings unsuitable.

NSW Treasury estimates these risks could have significant costs.

What we found

DPIE and NSW Treasury’s support to agencies to manage climate risks to their assets and services has been insufficient.

In 2021, key agencies with critical assets and services have not conducted climate risk assessments, and most lack adaptation plans.

DPIE has not delivered on the NSW Government commitment to develop a state-wide climate change adaptation action plan. This was to be complete in 2017.

There is also no adaptation strategy for the state. These have been released in all other Australian jurisdictions. The NSW Government’s draft strategic plan for its Climate Change Fund was also never finalised.

DPIE’s approach to developing climate projections is robust, but it hasn’t effectively educated agencies in how to use this information to assess climate risk.

NSW Treasury did not consistently apply dedicated resourcing to support agencies' climate risk management until late 2019.

In March 2021, DPIE and NSW Treasury released the Climate Risk Ready NSW Guide and Course. These are designed to improve support to agencies.

What we recommended

DPIE and NSW Treasury should, in partnership:

• enhance the coordination of climate risk management across agencies
• implement climate risk management across their clusters.

DPIE should:

• update information and strengthen education to agencies, and monitor progress
• review relevant land-use planning, development and building guidance
• deliver a climate change adaptation action plan for the state.

NSW Treasury should:

• strengthen climate risk-related guidance to agencies
• coordinate guidance on resilience in infrastructure planning
• review how climate risks have been assured in agencies’ asset management plans.

According to the Intergovernmental Panel on Climate Change in 2021, each of the last four decades has been successively warmer and surface temperatures will continue to increase until at least the mid-century. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Bureau of Meteorology (BoM) have reported that extreme weather across Australia is more frequent and intense, and there have been longer-term changes to weather patterns. They also report sea levels are rising around Australia increasing the risk of inundation and damage to coastal infrastructure and communities.

According to the Department of Planning, Industry and Environment (the department), in New South Wales the impacts of a changing climate, and the risks associated with it, will be felt differently across regions, populations and economic sectors. The department's climate projections indicate the number of hot days will increase, rainfall will vary across the state, and the number of severe fire days will increase.

The NSW Government is a provider of essential services, such as health care, education and public transport. It also owns and manages around $365 billion in physical assets (as at June 2020). More than $180 billion of its assets are in major infrastructure such as roads and railway lines.

In NSW, climate risks that could directly impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. In recent years, natural hazards exacerbated by climate change have damaged and disrupted government transport, communications and energy infrastructure. As climate risks eventuate, they can also increase hospital admissions when people are affected by poorer air quality, and make social housing dwellings or schools unsafe and unusable during heatwaves. The physical impacts of a changing climate also have significant financial costs. Taking into account projected economic growth, NSW Treasury has estimated that the fiscal and economic costs associated with natural disasters due to climate change will more than triple per year by 2061.

The department and NSW Treasury advise that leading practice in climate risk management includes a process that explicitly identifies climate risks and integrates these into existing risk management, monitoring and reporting systems. This is in line with international risk management and climate adaptation standards. For agencies to manage the physical risks of climate change to their assets and services, leading practice identified by the department means that they need to:

• use robust climate projection information to understand the potential climate impacts
• undertake sound climate risk assessments, within an enterprise risk management framework
• implement adaptation plans that reduce these risks, and harness opportunities.

Adaptation responses that could be planned for include: controlling development in flood-prone locations; ensuring demand for health services can be met during heatwaves; improving thermal comfort in schools to support student engagement; proactive asset maintenance to reduce disruption of essential services, and safeguarding infrastructure from more frequent and intense natural disasters.

According to NSW Treasury policy, agencies are individually responsible for risk management systems appropriate to their context. The department and NSW Treasury have key roles in ensuring that agencies are supported with robust information and timely, relevant guidance to help manage risks to assets and services effectively, especially for emerging risks that require coordinated responses, such as those posed by climate change.

This audit assessed whether the department and NSW Treasury are effectively supporting NSW Government agencies to manage climate risks to their assets and services. It focused on the management of physical risks to assets and services associated with climate change.

Appendix one – Response from agencies

Appendix two – Timeline of key activities 

Appendix three – About the audit 

Appendix four – Performance auditing

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.

Parliamentary reference - Report number #355 - released (7 September 2021).

What the report is about

This report examines the effectiveness of the Fast-tracked Assessment Program, administered by the Department of Planning, Industry and Environment (DPIE) between April 2020 and October 2020. 

The program aimed to support the construction industry during the COVID-19 crisis by accelerating the final assessment stages for planning proposals and development applications. 

DPIE selected projects and planning proposals for fast tracked assessment that demonstrated the potential to:

• deliver jobs
• progress to the next stage of development within six months of determination
• deliver public benefit.

The audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls.

What we found

Through tranches three to six of the program, DPIE successfully accelerated the final stages of 53 assessments. DPIE reported that 89 per cent of these proceeded to the next stage of development within six months.

Assessment of projects and planning proposals was compliant with legislation and other requirements. However, the audit found gaps in DPIE's management of conflicts of interest.

DPIE has not evaluated or costed the program and is not able to demonstrate the extent to which it provided support to the construction industry during COVID-19. 

Aspects of the program have been incorporated into longer term reforms to create a new level of transparency over the progress and status of planning assessments. 

What we recommended

DPIE should:

• strengthen controls over conflicts of interest 
• evaluate the Fast-tracked Assessment Program.

In April 2020, the Department of Planning, Industry and Environment (DPIE) introduced programs aimed at providing immediate support to the construction industry during the COVID-19 crisis. One of these was the Fast-tracked Assessment Program. This program identified planning proposals and development applications (DAs), across six tranches, that were partially-assessed and could be accelerated to determination.

In accordance with the program objectives, the planning proposals and DAs selected for fast-tracked assessment had to:

• deliver jobs – particularly in the construction industry
• be capable of progressing to the next stage of development within six months of determination
• deliver public benefit.

At the same time, the Fast-tracked Assessment Program was to lay a foundation for future reform of the planning system by piloting changes in the assessment process that could be adopted in the medium to long term.

This audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls. The audit focused on tranches three to six of the program, which were determined between July 2020 and October 2020. The rationale for focusing on these four tranches was that the program design had been slightly modified after the first two tranches to address identified risks.

Appendix one – Response from agency

Appendix two – Planning determination pathways

Appendix three – About the audit

Appendix four – Performance auditing

© 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.

Parliamentary reference - Report number #354 - released (27 July 2021).

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 2020. The table below summarises our key observations.

1. Financial reporting

2. 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
• 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.

The COVID‑19 Legislation Amendment (Emergency Measures–Treasurer) Act 2020 amended legislation administered by the Treasurer to implement further emergency measures as a result of the COVID‑19 pandemic. These amendments:

• allowed the Treasurer to authorise payments from the Consolidated fund until the enactment of the 2020–21 budget – impacting the going concern assessments of cluster agencies
• revised budgetary, financial and annual reporting time frames – impacting the timeliness of financial reporting
• exempted certain statutory bodies and departments from preparing financial statements.

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

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 statements audits of agencies in the Planning, Industry and Environment cluster
• assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies
• review of how the cluster agencies managed the increased risks associated with new programs aimed at stemming the spread of COVID-19 and stimulating the economy.

Cluster agencies experienced a range of control and governance related issues in recent years. An increased number of high risk issues and greater proportion of repeat issues were identified as part of our audits. It is important for cluster agencies to promptly address these issues.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 recommendations

Appendix three – Financial data

Appendix four – Management letter findings

Appendix five – Timeliness of financial reporting

Appendix six – Selected agencies for review of response to emergency events

The Auditor-General for New South Wales, Margaret Crawford, released a report today that examined the effectiveness of the waste levy and grants for waste infrastructure in minimising the amount of waste sent to landfill and increasing recycling rates.  

The audit found that the waste levy has a positive impact on diverting waste from landfill. However, while the levy rates increase each year in line with the consumer price index, the EPA has not conducted a review since 2009 to confirm whether they are set at the optimal level. The audit also found that there were no objective and transparent criteria for which local government areas should pay the levy, and the list of levied local government areas has not been reviewed since 2014. 

Grant funding programs for waste infrastructure administered by the EPA and the Environmental Trust have supported increases in recycling capacity. However, these grant programs are not guided by a clear strategy for investment in waste infrastructure. 

The Auditor-General made six recommendations aimed at ensuring the waste levy is as effective as possible at meeting its objectives and ensuring funding for waste infrastructure is contributing effectively to recycling and waste diversion targets.

Overall, waste generation in New South Wales (NSW) is increasing. This leads to an increasing need to manage waste in ways that reduce the environmental impact of waste and promote the efficient use of resources. In 2014, the NSW Government set targets relating to recycling rates and diversion of waste from landfill, to be achieved by 2021–22. The NSW Waste and Resource Recovery (WARR) Strategy 2014–21 identifies the waste levy, a strong compliance regime, and investment in recycling infrastructure as key tools for achieving these waste targets.

This audit assessed the effectiveness of the NSW Government in minimising waste sent to landfill and increasing recycling rates. The audit focused on the waste levy, which is paid by waste facility operators when waste is sent to landfill, and grant programs that fund infrastructure for waste reuse and recycling.

The waste levy is regulated by the Environment Protection Authority (EPA) and is generally paid when waste is disposed in landfill. The waste levy rates are set by the NSW Government and prescribed in the Protection of Environment Operations (Waste) Regulation 2014. As part of its broader role in reviewing the regulatory framework for managing waste and recycling, the EPA can provide advice to the government on the operation of the waste levy.

The purpose of the waste levy is to act as an incentive for waste generators to reduce, re-use or recycle waste by increasing the cost of sending waste to landfill. In 2019–20, around $750 million was collected through the waste levy in NSW. The government spends approximately one third of the revenue raised through the waste levy on waste and environmental programs.

One of the waste programs funded through the one third allocation of the waste levy is Waste Less, Recycle More (WLRM). This initiative funds smaller grant programs that focus on specific aspects of waste management. This audit focused on five grant programs that fund projects that provide new or enhanced waste infrastructure such as recycling facilities. Four of these programs were administered by the Environmental Trust and one by the EPA.

Achievement of the 2014–21 state targets for waste and resource recovery (WARR targets) is reliant in part on the availability of infrastructure that supports waste diversion and recycling. The state WARR targets dependent on waste infrastructure are:

• Increase recycling rates to 70 per cent for municipal solid waste and commercial and industrial waste, and 80 per cent for construction and demolition waste.
• Increase waste diverted from landfill to 75 per cent.

A further target — manage problem waste better by establishing or upgrading 86 drop-off facilities or services for managing household problem wastes state-wide — is dependent on accessible community waste drop-off facilities across NSW.

Exhibit 7 identifies the five grant programs that provide funding for new or enhanced waste infrastructure to increase capacity for reuse or recycling of waste. All five of these programs were examined in the audit.
In addition to the grant programs shown in Exhibit 7, other programs provide funding for infrastructure, but at a smaller scale. Examples of these include:

• Bin Trim which provides rebates to small businesses for small scale recycling equipment such as cardboard and soft plastic balers.
• Litter grants which provide funding for litter bins.
• Weighbridges grants for installation of a weighbridge at waste facilities.
• Landfill consolidation and environmental improvement grants for rural councils to replace old landfills with transfer stations or to improve the infrastructure at landfill sites.

Appendix one – Responses from audited agencies

Appendix two – About the audit

Appendix three – Performance auditing

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.

Parliamentary reference - Report number #343 - released 26 November 2020

The Auditor-General for New South Wales, Margaret Crawford, released a report today on how well four councils managed their local infrastructure contributions during the 2017-18 and 2018-19 financial years. 

Local infrastructure contributions, also known as developer contributions, are collected from developers to pay for local infrastructure such as drainage, local roads, open space and community facilities. Controls over local infrastructure contributions help to ensure that all contributions owed are collected, funds are spent as intended, and any contributions paid in the form of works-in-kind or dedicated land are correctly valued.

The audit found that Blacktown City Council and City of Sydney Council provided effective governance over their local infrastructure contributions whereas Central Coast and Liverpool City Councils’ governance arrangements require improvement.

The audit found that three councils had spent local infrastructure contributions in accordance with approved contributions plans. Central Coast Council and the former Gosford City Council had spent $13.2 million on administration costs in breach of the Environmental Planning and Assessment Act 1979. These funds were repaid into the council’s local infrastructure fund during the course of the audit.

The Auditor-General made a number of recommendations for each council relating to improving controls over contributions and increasing transparency. 

Read full report (PDF)
 

This audit examined the effectiveness of governance and internal controls over local infrastructure contributions, also known as developer contributions, held by four councils during the 2017–18 and 2018–19 financial years.

This performance audit was conducted with reference to the legislative and regulatory planning framework that was in place during that period.

Our work for this performance audit was completed at the end of March 2020 when we issued the final report to the four audited councils and the Department of Planning, Industry and Environment. We received their respective formal responses to the report’s recommendations during April and May 2020.

Concurrently to this audit, we sought Crown Solicitor’s advice (the ‘Advice’) regarding the use of local infrastructure contributions collected by local councils under the Environmental Planning and Assessment Act 1979 (‘the EPA Act’) for our financial audit work. The Advice clarified the applicable legislative requirements with reference to the application, investment and pooling of local infrastructure contributions. The Advice is included in Appendix 2 of this report. The Advice has not impacted on the findings and recommendations of this report.

Councils collect Local Infrastructure Contributions (LICs) from developers under the Environmental Planning and Assessment Act (1979), the Local Government Act (1993) and the City of Sydney Act (2000) (EP&A Act, LG Act and City of Sydney Act) to fund infrastructure required to service and support new development. At 30 June 2018, councils across NSW collectively held more than $3.0 billion in LICs collected from developers. Just over $1.37 billion in total was held by ten councils. Councils collecting LICs must prepare a contributions plan, which outlines how LICs will be calculated and apportioned across different types of infrastructure. Councils that deliver water and sewer services prepare a development servicing plan (DSP) which allows them to collect contributions for water and sewer infrastructure.

Development timeframes are such that there is often several years between when LICs are collected and the infrastructure is required. Good governance and internal controls are needed over these funds to ensure they are available when needed and spent appropriately.

This audit assessed the effectiveness of governance and internal controls over LICs collected by four councils during the 2017–18 and 2018–19 financial years: Blacktown City Council, Central Coast Council, City of Sydney Council and Liverpool City Council. As at June 2018 these councils held the four highest LIC balances, each in excess of $140 million.

A strong governance framework is important at each council to ensure that the funds are managed well, available when needed and spent as intended. The audit examined the following features of each council's governance framework as they apply to LICs:

• decision-making by councillors and council officers relating to LICs
• monitoring delivery of contributions plans and DSPs including:
  • reviewing assumptions underlying the plans
  • monitoring projected status of plans.

Internal controls over LICs are important to promote accountability, prevent fraud and deliver infrastructure to the required standard at the best possible price. If financial controls are weak or are not implemented well, there is a risk that LICs are misspent or that councils pay too much for infrastructure.

Not all councils' internal controls adequately addressed risks associated with the administration of LICs

The audit examined a number of internal controls that manage risks related to LICs. These included:

• financial controls over receipt and expenditure of LIC funds
• management of conflicts-of-interest when dealing with developers
• independent valuations of works-in-kind and dedicated land
• ensuring delivery and quality of works-in-kind, and obtaining security from developers in the event of non-delivery or poor quality work
• management of variations to VPAs and works-in-kind agreements.

We reviewed controls included in policies and procedures and then checked samples of work to ensure that controls were implemented. We found variation in the controls that councils implemented, and some weaknesses in controls. It is a matter for each council to assess their financial risk and develop internal controls that support the collection, management, and expenditure of LICs. However, councils must be able to assure their communities and developers that they are doing everything possible to collect all LICs owing and that work conducted by developers in lieu of cash payments is properly valued and carried out to the required standard.

Further information about audit findings in relation to internal controls for each council are included in chapters five to eight. The exhibit below demonstrates variation in several controls implemented in the audited councils.

In a 2018 report, the Independent Commission Against Corruption noted that 'the appetite for transparency is expanding in both the public and private sectors'.

The Practice Note and S64 Guidance refer to transparency, including the importance of transparency over:

• calculation and apportionment of LICs
• funding of infrastructure, including where and when infrastructure is delivered
• arrangements made with developers through VPAs.

The LIC system is largely transparent for community members who know where to look

Contributions plans and DSPs are public documents, exhibited to the public before being adopted by council. Councils included in the audit publish their contributions plans and DSPs on their websites and meet statutory requirements with regard to reporting and accessibility of information.

However, other public information relating to the LIC system is fragmented across different websites and reports and varies in detail across councils.

The Practice Note states that councils are accountable for providing the infrastructure for which contributions are collected. Demonstrating that infrastructure has been provided is difficult with fragmented information. As an example of transparent reporting, Blacktown City Council's 2018–19 annual report includes information about infrastructure that has been delivered for every contributions plan, providing transparency over how LICs have been spent.

Use of LICs collected under VPAs is not always transparent

Contributions collected under VPAs are not required to demonstrate the same relationship to a development as LICs collected under section 7.11 of the EP&A Act. VPAs are often negotiated because a developer requests a change to a planning instrument, and it is important that these arrangements, and their outcomes, are transparent to the community.

The EP&A Regulation includes mechanisms to ensure that VPAs are partially transparent. VPAs are exhibited to the public and approved by the elected council. Councils must maintain a VPA Register and make the VPA Deeds of Agreement available on request. However, there is no obligation on council to report on the outcomes or delivery of developers' obligations under VPAs. The four audited councils vary in transparency and accessibility of information available about VPAs.

The Practice Note suggests that councils incorporate the intended use of LICs collected under VPAs in the Deed of Agreement, but there is no guidance relating to transparency over where and when funds have actually been spent. There is merit in councils providing greater transparency over public benefits delivered through VPAs to give communities confidence in VPAs as a planning tool.

Credit arrangements with developers are not always well documented or monitored

When levying LICs, section 7.11(6) of the EP&A Act requires councils to take into account land, money, or works-in-kind that the developer has contributed on other development sites over and above their LIC obligations. This section of the EP&A Act allows a developer to offset a LIC owed on one site against land or works contributed on another. This leads to some developers carrying 'credits' for work delivered to councils, to be paid back by reduced LICs on a future development. Blacktown City Council and Central Coast Council allow developers to carry credits. Liverpool City Council and City of Sydney Council do not permit credits and instead pay the developers for any additional work undertaken.

Councils should formally document credit arrangements and have a robust process to validate and keep track of credit balances and report on them. Central Coast Council does not keep good track of credit arrangements and neither Blacktown City Council or Central Coast Council aggregate or report on outstanding credit balances.

Appendix one – Responses from councils and the Department of Planning, Industry and Environment

Appendix two – Advice from the Crown Solicitor

Appendix three – About the audit

Appendix four – Performance auditing

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.

Parliamentary reference - Report number #339 - released 17 August 2020

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 Auditor-General for New South Wales, Margaret Crawford, released her report today on the NSW Planning and Environment cluster. The report focuses on key observations and findings from the most recent financial audits of these agencies. Unqualified audit opinions were issued for all agencies' financial statements. However, some cultural institutions had challenges valuing collection assets in 2017–18. These issues were resolved before the financial statements were finalised.

This report analyses the results of our audits of financial statements of the Planning and Environment cluster for the year ended 30 June 2018. The table below summarises our key observations.

This report provides parliament and other users of the Planning 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
• service delivery.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making is 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 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 Planning and Environment cluster for 2018
• the areas of focus identified in the Audit Office work program.

The Audit Office annual 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 certain service delivery outcomes for 2017–18. The data on activity levels and performance is provided by cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited. 

We report this information on service delivery to provide additional context to understand the operations of the Planning and Environment cluster, and to collate and present service information for different segments of the cluster in one report. 

In our recent performance audit, ‘Progress and measurement of Premier's Priorities’, we identified 12 limitations of performance measurement and performance data. We recommended the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all relevant agency data sources.

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three- Cluster agencies

Appendix four - Financial data

Appendix five - Timeliness of financial reporting

Appendix six - Management letter findings by risk rating