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20 December 2017

Published

Internal Controls and Governance 2017

Finance

Education

Community Services

Health

Justice

Whole of Government

Asset valuation

Compliance

Cyber security

Information technology

Internal controls and governance

Project management

Risk

Agencies need to do more to address risks posed by information technology (IT).

Effective internal controls and governance systems help agencies to operate efficiently and effectively and comply with relevant laws, standards and policies. We assessed how well agencies are implementing these systems, and highlighted opportunities for improvement.

1. Overall trends

New and repeat findings	The number of reported financial and IT control deficiencies has fallen, but many previously reported findings remain unresolved.
High risk findings	Poor systems implementations contributed to the seven high risk internal control deficiencies that could affect agencies.
Common findings	Poor IT controls are the most commonly reported deficiency across agencies, followed by governance issues relating to cyber security, capital projects, continuous disclosure, shared services, ethics and risk management maturity.

2. Information Technology

IT security	Only two-thirds of agencies are complying with their own policies on IT security. Agencies need to tighten user access and password controls.
Cyber security	Agencies do not have a common view on what constitutes a cyber attack, which limits understanding the extent of the cyber security threat.
Other IT systems	Agencies can improve their disaster recovery plans and the change control processes they use when updating IT systems.

3. Asset Management

Capital investment	Agencies report delays delivering against the significant increase in their budgets for capital projects.
Capital projects	Agencies are underspending their capital budgets and some can improve capital project governance.
Asset disposals	Eleven per cent of agencies were required to sell their real property through Property NSW but didn’t. And eight per cent of agencies can improve their asset disposal processes.

4. Governance

Governance arrangements	Sixty-four per cent of agencies’ disclosure policies support communication of key performance information and prompt public reporting of significant issues.
Shared services	Fifty-nine per cent of agencies use shared services, yet 14 per cent do not have service level agreements in place and 20 per cent can strengthen the performance standards they set.

5. Ethics and Conduct

Ethical framework	Agencies can reinforce their ethical frameworks by updating code‑of‑conduct policies and publishing a Statement of Business Ethics.
Conflicts of interest	All agencies we reviewed have a code of conduct, but they can still improve the way they update and manage their codes to reduce the risk of fraud and unethical behaviour.

6. Risk Management

Risk management maturity	All agencies have implemented risk management frameworks, but with varying levels of maturity.
Risk management elements	Many agencies can improve risk registers and strengthen their risk culture, particularly in the way that they report risks to their lead agency.

This report covers the findings and recommendations from our 2016–17 financial audits related to the internal controls and governance of the 39 largest agencies (refer to Appendix three) in the NSW public sector. These agencies represent about 95 per cent of total expenditure for all NSW agencies and were considered to be a large enough group to identify common issues and insights.

The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, controls and service delivery comments are included in the individual 2017 cluster financial audit reports tabled in Parliament from October to December 2017.

This new report offers strategic insight on the public sector as a whole

In previous years, we have commented on internal control and governance issues in the volumes we published on each ‘cluster’ or agency sector, generally between October and December. To add further value, we then commented more broadly about the issues identified for the public sector as a whole at the start of the following year.

This year, we have created this report dedicated to internal controls and governance. This will help Parliament to understand broad issues affecting the public sector, and help agencies to compare their own performance against that of their peers.

Without strong control measures and governance systems, agencies face increased risks in their financial management and service delivery. If they do not, for example, properly authorise payments or manage conflicts of interest, they are at greater risk of fraud. If they do not have strong information technology (IT) systems, sensitive and trusted information may be at risk of unauthorised access and misuse.

These problems can in turn reduce the efficiency of agency operations, increase their costs and reduce the quality of the services they deliver.

Our audits do not review every control or governance measure every year. We select a range of measures, and report on those that present the most significant risks that agencies should mitigate. This report divides these into the following six areas:

Overall trends
Information technology
Asset management
Governance
Ethics and conduct
Risk management.

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

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

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

Issues	Recommendations
1.1 New and repeat findings
The number of internal control deficiencies reduced over the past three years, but new higher-risk information technology (IT) control deficiencies were reported in 2016–17. Deficiencies repeated from previous years still make up a sizeable proportion of all internal control deficiencies.	Recommendation Agencies should focus on emerging IT risks, but also manage new IT risks, reduce existing IT control deficiencies, and address repeat internal control deficiencies on a more timely basis.
1.2 High risk findings
We found seven high risk internal control deficiencies, which might significantly affect agencies.	Recommendation Agencies should rectify high risk internal control deficiencies as a priority
1.3 Common findings
The most common internal control deficiencies related to poor or absent IT controls. We found some common governance deficiencies across multiple agencies.	Recommendation Agencies should coordinate actions and resources to help rectify common IT control and governance deficiencies.

Information technology (IT) has become increasingly important for government agencies’ financial reporting and to deliver their services efficiently and effectively. Our audits reviewed whether agencies have effective controls in place over their IT systems. We found that IT security remains the source of many control weakness in agencies.

Issues

Recommendations

2.1 IT security

User access administration

While 95 per cent of agencies have policies about user access, about two-thirds were compliant with these policies. Agencies can improve how they grant, change and end user access to their systems.

Recommendation

Agencies should strengthen user access administration to prevent inappropriate access to sensitive systems. Agencies should:

establish and enforce clear policies and procedures
review user access regularly
remove user access for terminated staff promptly
change user access for transferred staff promptly.

Privileged access

Sixty-eight per cent of agencies do not adequately manage who can access their information systems, and many do not sufficiently monitor or restrict privileged access.

Recommendation

Agencies should tighten privileged user access to protect their information systems and reduce the risks of data misuse and fraud. Agencies should ensure they:

only grant privileged access in line with the responsibilities of a position
review the level of access regularly
limit privileged access to necessary functions and data
monitor privileged user account activity on a regular basis.

Password controls

Forty-one per cent of agencies did not meet either their own standards or minimum standards for password controls.

Recommendation

Agencies should review and enforce password controls to strengthen security over sensitive systems. As a minimum, password parameters should include:

minimum password lengths and complexity requirements
limits on the number of failed log-in attempts
password history (such as the number of passwords remembered)
maximum and minimum password ages.

2.2 Cyber Security

Cyber security framework

Agencies do not have a common view on what constitutes a cyber attack, which limits understanding the extent of the cyber security threat.

Recommendation

The Department of Finance, Services and Innovation should revisit its existing framework to develop a shared cyber security terminology and strengthen the current reporting requirements for cyber incidents.

Cyber security strategies

While 82 per cent of agencies have dedicated resources to address cyber security, they can strengthen their strategies, expertise and staff awareness.

Recommendations

The Department of Finance, Services and Innovation should:

mandate minimum standards and require agencies to regularly assess and report on how well they mitigate cyber security risks against these standards
develop a framework that provides for cyber security training.

Agencies should ensure they adequately resource staff dedicated to cyber security.

2.3 Other IT systems

Change control processes

Some agencies need to improve change control processes to avoid unauthorised or inaccurate system changes.

Recommendation

Agencies should consistently perform user acceptance testing before system upgrades and changes. They should also properly approve and document changes to IT systems.

Disaster recovery planning

Agencies can do more to adequately assess critical business systems to enforce effective disaster recovery plans. This includes reviewing and testing their plans on a timely basis.

Recommendation

Agencies should complete business impact analyses to strengthen disaster recovery plans, then regularly test and update their plans.

Agency service delivery relies on developing and renewing infrastructure assets such as schools, hospitals, roads, or public housing. Agencies are currently investing significantly in new assets. Agencies need to manage the scale and volume of current capital projects in order to deliver new infrastructure on time, on budget and realise the intended benefits. We found agencies can improve how they:

manage their major capital projects
dispose of existing assets.

Issues

Recommendations or conclusions

3.1 Capital investment

Capital asset investment ratios

Most agencies report high capital investment ratios, but one-third of agencies’ capital investment ratios are less than one.

Recommendation

Agencies with high capital asset investment ratios should ensure their project management and delivery functions have the capacity to deliver their current and forward work programs.

Volume of capital spending

Most agencies have significant forward spending commitments for capital projects. However, agencies’ actual capital expenditure has been below budget for the last three years.

Conclusion

The significant increase in capital budget underspends warrant investigation, particularly where this has resulted from slower than expected delivery of projects from previous years.

3.2 Capital projects

Major capital projects

Agencies’ major capital projects were underspent by 13 percent against their budgets.

Conclusion

The causes of agency budget underspends warrant investigation to ensure the NSW Government’s infrastructure commitment is delivered on time.

Capital project governance

Agencies do not consistently prepare business cases or use project steering committees to oversee major capital projects.

Conclusion

Agencies that have project management processes that include robust business cases and regular updates to their steering committees (or equivalent) are better able to provide those projects with strategic direction and oversight.

3.3. Asset disposals

Asset disposal procedures

Agencies need to strengthen their asset disposal procedures.

Recommendations

Agencies should have formal processes for disposing of surplus properties.

Agencies should use Property NSW to manage real property sales unless, as in the case for State owned corporations, they have been granted an exemption.

Governance refers to the high-level frameworks, processes and behaviours that help an organisation to achieve its objectives, comply with legal and other requirements, and meet a high standard of probity, accountability and transparency.

This chapter sets out the governance lighthouse model the Audit Office developed to help agencies reach best practice. It then focuses on two key areas: continuous disclosure and shared services arrangements. The following two chapters look at findings related to ethics and risk management.

Issues

Recommendations or conclusions

4.1 Governance arrangements

Continuous disclosure

Continuous disclosure promotes improved performance and public trust and aides better decision-making. Continuous disclosure is only mandatory for NSW Government Businesses such as State owned corporations.

Conclusion

Some agencies promote transparency and accountability by publishing on their websites a continuous disclosure policy that provides for, and encourages:

regular public disclosure of key performance information
disclosure of both positive and negative information
prompt reporting of significant issues.

4.2 Shared services

Service level agreements

Some agencies do not have service level agreements for their shared service arrangements.

Many of the agreements that do exist do not adequately specify controls, performance or reporting requirements. This reduces the effectiveness of shared services arrangements.

Conclusion

Agencies are better able to manage the quality and timeliness of shared service arrangements where they have a service level agreement in place. Ideally, the terms of service should be agreed before services are transferred to the service provider and:

specify the controls a provider must maintain
specify key performance targets
include penalties for non-compliance.

Shared service performance

Some agencies do not set performance standards for their shared service providers or regularly review performance results.

Conclusion

Agencies can achieve better results from shared service arrangements when they regularly monitor the performance of shared service providers using key measures for the benefits realised, costs saved and quality of services received.

Before agencies extend or renegotiate a contract, they should comprehensively assess the services received and test the market to maximise value for money.

All government sector employees must demonstrate the highest levels of ethical conduct, in line with standards set by The Code of Ethics and Conduct for NSW government sector employees.

This chapter looks at how well agencies are managing these requirements, and where they can improve their policies and processes.

We found that agencies mostly have the appropriate codes, frameworks and policies in place. But we have highlighted opportunities to improve the way they manage those systems to reduce the risks of unethical conduct.

Issues

Recommendations or conclusions

5.1 Ethical framework

Code of conduct

All agencies we reviewed have a code of conduct, but they can still improve the way they update and manage their codes to reduce the risk of fraud and unethical behaviour.

Recommendation

Agencies should regularly review their code-of-conduct policies and ensure they keep their codes of conduct up-to-date.

Statement of business ethics

Most agencies maintain an ethical framework, but some can enhance their related processes, particularly when dealing with external clients, customers, suppliers and contractors.

Conclusion

Agencies can enhance their ethical frameworks by publishing a Statement of Business Ethics, which communicates their values and culture.

5.2 Potential conflicts of interest

Conflicts of interest

All agencies have a conflicts-of-interest policy, but most can improve how they identify, manage and avoid conflicts of interest.

Recommendation

Agencies should improve the way they manage conflicts of interest, particularly by:

requiring senior executives to make a conflict-of-interest declaration at least annually
implementing processes to identify and address outstanding declarations
providing annual training to staff
maintaining current registers of conflicts of interest.

Gifts and benefits

While all agencies already have a formal gifts-and-benefits policy, we found gaps in the management of gifts and benefits by some that increase the risk of unethical conduct.

Recommendation

Agencies should improve the way they manage gifts and benefits by promptly updating registers and providing annual training to staff.

Risk management is an integral part of effective corporate governance. It helps agencies to identify, assess and prioritise the risks they face and in turn minimise, monitor and control the impact of unforeseen events. It also means agencies can respond to opportunities that may emerge and improve their services and activities.

This year we looked at the overall maturity of the risk management frameworks that agencies use, along with two important risk management elements: risk culture and risk registers.

Issues

Recommendations or conclusions

6.1 Risk management maturity

All agencies have implemented risk management frameworks, but with varying levels of maturity in their application.

Agencies’ averaged a score of 3.1 out of five across five critical assessment criteria for risk management. While strategy and governance fared best, the areas that most need to improve are risk culture, and systems and intelligence.

Conclusion

Agencies have introduced risk management frameworks and practices as required by the Treasury’s:

'Risk Management Toolkit for the NSW Public Sector'
'Internal Audit and Risk Management Policy for the NSW Public Sector'.

However, more can be done to progress risk management maturity and embed risk management in agency culture.

6.2 Risk management elements

Risk culture

Most agencies have started to embed risk management into the culture of their organisation. But only some have successfully done so, and most agencies can improve their risk culture.

Conclusion

Agencies can improve their risk culture by:

setting an appropriate tone from the top
training all staff in effective risk management
ensuring desired risk behaviours and culture are supported, monitored, and reinforced through business plans, or the equivalent and employees' performance assessments.

Risk registers and reporting

Some agencies do not report their significant risks to their lead agency, which may impair the way resources are allocated in their cluster. Some agencies do not integrate risk registers at a divisional and whole-of-enterprise level.

Conclusion

Agencies not reporting significant risks at the cluster level increases the likelihood that significant risks are not being mitigated appropriately.

Effective risk management can improve agency decision-making, protect reputations and lead to significant efficiencies and cost savings. By embedding risk management directly into their operations, agencies can also derive extra value for their activities and services.

14 December 2017

Published

Report on Education 2017

Education

Financial reporting

Internal controls and governance

Management and administration

Procurement

Project management

Workforce and capability

The Auditor-General, Margaret Crawford released her report on the results of the financial audits of agencies in the Education cluster. The report focuses on key observations and findings from the most recent audits of these agencies.

'I am pleased to report that unqualified audit opinions were issued on the financial statements for all agencies in the Education cluster', the Auditor-General said. 'The quality and timeliness of financial reporting remains strong'.

13 December 2017

Published

Managing demand for ambulance services 2017

Health

Information technology

Management and administration

Risk

Service delivery

Shared services and collaboration

Workforce and capability

NSW Ambulance has introduced several initiatives over the past decade to better manage the number of unnecessary ambulance responses and transports to hospital emergency departments. However, there is no overall strategy to guide the development of these initiatives nor do NSW Ambulance's data systems properly monitor their impact. As a result, the Audit Office was unable to assess whether NSW Ambulance's approach to managing demand is improving the efficiency of ambulance services.

Demand for ambulance services is increasing. Demographic factors including population growth and ageing have contributed to this and ongoing growth in demand is likely. It is important that NSW Ambulance finds ways to respond to this demand more efficiently, while maintaining patient safety standards and meeting community expectations.

Most triple zero calls to NSW Ambulance do not involve medical issues that require an emergency response. NSW Ambulance has introduced a range of initiatives to change the way it manages these less urgent requests for assistance. Its major demand management initiatives include using a telephone advice line, referring some patients to services other than hospital emergency departments and using specialist paramedics to respond to less urgent cases.

The role of NSW Ambulance has changed in recent years. It is aiming to become a ‘mobile health service’ that identifies the needs of patients and provides or refers them to the most appropriate type of care. This change involves a significant expansion of the clinical decision-making role of paramedics. Considerable strategic and organisational efforts are required to make this work. The successful implementation of demand management initiatives is important to NSW Ambulance's ability to continue to meet demand for its services.

This audit assessed NSW Ambulance's major demand management initiatives that aim to reduce unnecessary demand for ambulance responses and unnecessary transport to hospital emergency departments. It aimed to assess the extent to which these initiatives have improved the efficiency of its services.

Conclusion

NSW Ambulance has introduced several initiatives that aim to manage demand for its services from less urgent cases more efficiently. There is no overall strategy for these initiatives and NSW Ambulance’s data systems do not measure their outputs or outcomes. As a result, we are unable to assess the impact of NSW Ambulance's demand management initiatives on the efficiency of ambulance services. More focus is needed to ensure these initiatives achieve the efficiency improvements necessary to help NSW Ambulance meet future increases in demand.

Increasing demand for ambulance services is a key issue for NSW Ambulance. Demand has increased at a faster rate than population growth in recent years and continued growth is expected. NSW Ambulance has introduced several initiatives that aim to manage demand for its services from people with less urgent medical issues more efficiently and align its approach with the rest of the health system in New South Wales.

These individual initiatives lack a broader strategy to guide their development. NSW Ambulance’s demand management initiatives also lack clear goals and performance targets, with insufficient organisational resources allocated to support their implementation. NSW Ambulance does not have a data system that allows it to conduct accurate routine monitoring of the activity and performance of these initiatives.

More effort is required to make demand management initiatives a core part of NSW Ambulance's work. Key relationships with other health services to support demand management initiatives have only recently been established. NSW Ambulance has not communicated proactively with the public about its demand management initiatives. To ensure paramedics are as well prepared as possible for their expanded roles, they need better professional development and up to date technology.

Demand for ambulance services in New South Wales is increasing steadily. Forecast future increases in demand due to population growth and ageing mean that NSW Ambulance must improve its efficiency to maintain its performance.

Demand for ambulance services is growing at a rate higher than population growth. The increase in demand is likely to continue as the population continues to grow and age. NSW Ambulance has made several recent changes to remove large parts of demand for its services, including moving non-emergency patient transport to a separate government agency and changing the way triple zero calls are categorised.

These changes were expected to improve emergency response time performance, but the anticipated improvements have not been achieved. If demand continues to increase as forecast, NSW Ambulance will need to find more efficient ways to manage demand to maintain its performance.

NSW Ambulance has introduced initiatives to change the way it manages demand from patients who have less urgent medical issues. These have the potential to achieve positive results, but we were unable to fully assess their impact because of weaknesses in data systems and monitoring. More needs to be done to demonstrate progress toward the efficiency improvements required.

NSW Ambulance uses a telephone referral system to manage triple zero calls from people with medical issues that do not require an ambulance. This has the potential to achieve efficiency improvements but there are weaknesses in NSW Ambulance's use and monitoring of this system. Paramedics are now able to make decisions about whether patients need transport to a hospital emergency department. NSW Ambulance does not routinely measure or monitor the decisions paramedics make, so it does not know whether these decisions are improving efficiency. Extended Care Paramedics who have additional skills in diagnosing and treating patients with less urgent medical issues were introduced in 2007. NSW Ambulance analysis indicates that these paramedics have the potential to improve efficiency, but have not been used as effectively as possible.

Our 2013 audit of NSW Ambulance found that accurate monitoring of activity and performance was not being conducted. More than four years later, this remains the case.

NSW Ambulance has recognised the need to change the way it manages demand and has developed initiatives that have the potential to improve efficiency. However, there are significant weaknesses in the strategy for and implementation of its demand management initiatives.

NSW Ambulance has identified the goal of moving from an emergency transport provider to a mobile health service and developed several initiatives to support this. Its demand management initiatives have the potential to contribute to the broader policy directions for the health system in New South Wales. However, there is no clear overall strategy guiding these initiatives and their implementation has been poor.

NSW Ambulance's reasons for changing its approach to demand management have not been communicated proactively to the community. Demand management initiatives that have been operating for over a decade still do not have clear performance measures or targets. Project management of new initiatives has been inadequate, with insufficient organisational resources to oversee them and inadequate engagement with other healthcare providers.

NSW Ambulance uses an in-house Vocational Education and Training course to recruit some paramedics, as well as recruiting paramedics who have completed a university degree. No other Australian ambulance services continue to provide their own Vocational Education and Training qualifications. Paramedics will need more support in several key areas to be able to fulfil their expanded roles in providing a mobile health service. Performance and development systems for paramedics are not used effectively. Up to date technology would help paramedics make better decisions and improve NSW Ambulance's ability to monitor demand management activity.

There are gaps in NSW Ambulance's oversight of the risks of some of the initiatives it has introduced, particularly its lack of information on the outcomes for patients who are not transported to hospital. Weaknesses in the way NSW Ambulance uses its data limit its ability to properly assess the risks of the demand management initiatives it has introduced.

Parliamentary reference - Report number #295 - released 13 December 2017

12 December 2017

Published

Industry 2017

Industry

Asset valuation

Compliance

Internal controls and governance

Procurement

Project management

Risk

The following report highlights the results of the financial audits of NSW Government entities in the Industry cluster. The report focuses on key observations and findings from the most recent audits of these entities.

The report notes that TAFE NSW will continue to incur extra costs each year to produce reliable financial information due to deficiencies in its student administration system. TAFE NSW plans to replace its Student Administration and Learning Management system in 2018-19 at an estimated cost of $89 million.

1. Financial reporting and controls

Financial reporting	Unqualified audit opinions were issued for 44 out of 48 financial statement audits with four audits incomplete. Early close procedures continue to promote earlier and better quality financial reporting.
Financial performance	The cluster recorded a net deficit of $107 million in 2016–17 ($78.0 million in 2015–16). Contributing to the overall cluster net deficit was the Department's $226 million net deficit offset by net surpluses at Water NSW and the Forestry Corporation of New South Wales.
TAFE NSW continues to experience system issues	TAFE NSW incurs extra costs each year to produce reliable financial information due to deficiencies in its student administration system. TAFE NSW plans to replace its Student Administration and Learning Management system in 2018–19 at an estimated cost of $89 million.
Internal controls	We identified 180 internal control issues, including 61 repeat issues across the cluster. We rated four of these issues as 'high' risk, 98 as ‘moderate’ risk and 78 as ‘low’ risk. Of the 180 issues raised, 37 related to financial reporting and 52 related to controls over processes such as procurement and fixed assets. Some internal control issues and recommendations identified in previous years, have been repeated and should be addressed promptly to reduce risks and improve processes.
Deficient user administration access	Agencies need to strengthen user access administration to critical financial systems.

2. Service delivery

Premier and State Priorities

Australian Bureau of Statistics data shows the Premier's priority for job creation has been achieved.

While performance has declined for the State priority to increase the proportion of people completing apprenticeships and traineeships, the Department advises it has initiatives in place to achieve this State priority, and the State priority for New South Wales to lead Australia in business confidence.

Crown land

The Department is working to respond to the recommendations from a Parliamentary Inquiry into Crown Land and to implement the revised framework contained in the Crown Land Management Act 2016.

Aboriginal land claims

Despite a continued focus, the Department has been unsuccessful in reducing the number of unprocessed Aboriginal land claims.

The Department should continue to implement measures to reduce the backlog of unprocessed Aboriginal land claims.

This report focuses on agencies in the Industry cluster. The report focuses on audit results, observations, conclusions and recommendations for financial reporting and controls, and service delivery.

This cluster leads the State's promotion of New South Wales as the place to invest and produce goods and services. Significant cluster agencies deliver services in the following areas:

Confidence in public sector decision-making and transparency is enhanced when financial reporting is accurate and timely. Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies.

This chapter outlines audit observations, conclusions and recommendations for the financial reporting and controls of agencies in the cluster for 2016–17.

Observation	Conclusion or recommendation
2.1 Quality of financial reporting
Unqualified audit opinions were issued for 44 out of 48 financial statement audits. Four audits are continuing.	Ongoing improvements in the preparation of financial statements helped identify and resolve material issues.
The number of misstatements within the cluster fell from 104 in 2015–16 to 70 in 2016–17.	The ‘early close procedures’ initiative introduced by the Treasury in 2011–12 has reduced the number of misstatements each year.
2.2 Timeliness of financial reporting
Most agencies complied with the Treasury’s early close procedures and the timetable for the preparation and audit of financial statements.	Greater focus on financial reporting and effective early close procedures has improved the timeliness of financial reporting, but further improvements are required.
2.3 Key financial issues from cluster agencies
The Department of Industry completed a revaluation of Crown land and continues work on improving the accounting for Crown land.	The value of Crown land recognised in the Department's financial statements at 30 June 2017 was $5.3 billion. The revaluation was carried out using a revised mass valuation approach which reduced complexity and subjectivity and improved transparency.
There is no process in place to ensure agencies recognise all the Crown land they manage and control.	Recommendation: The Department should confirm the completeness and accuracy of the Crown land database with other organisations that manage and control Crown land to improve the reliability of its records.
TAFE NSW incurred approximately $6 million of direct costs to deal with issues in its student administration system and establish the integrity of its financial data for 2016–17.	TAFE NSW will continue to incur extra costs each year to produce reliable financial information. TAFE NSW advises it intends to replace the Student Administration and Learning Management system it jointly implemented with the Department of Education three years ago at a cost $40.2 million. TAFE plans to implement the new system in 2018–19 at an estimated cost of $89 million.
2.4 Key financial information
The cluster recorded a net deficit of $107 million in 2016–17 ($78.0 million in 2015–16).	The overall cluster net deficit included the Department's $226 million net deficit which was partly offset by net surpluses in a number of other agencies, including Water NSW and the Forestry Corporation of New South Wales. Most agencies in the cluster, including the Department, but excluding the State owned corporations, are dependent on the NSW Government for the majority of their revenue.
2.5 Financial performance and sustainability
We assessed the performance of certain agencies against key financial sustainability indicators. This identified four agencies with adjusted net deficits and two agencies with liquidity ratios below one.	Overall, based on our analysis these agencies are not at high risk of sustainability concerns.
2.6 Internal controls
A significant number of repeat internal control issues were again raised with management for certain agencies in the cluster.	Recommendation (repeat issue): Internal control issues and recommendations from previous years should be addressed promptly to reduce risks and improve processes.
User access administration over financial systems needs to be improved. 17 moderate risk issues related to user access administration across nine agencies were identified.	Recommendation: Agencies should ensure administration of user access to critical systems retains documentation of approvals to create, modify and deactivate user access allocates appropriate access rights performs and documents regular user access reviews logs and monitors privileged/super user account activity deactivates terminated user access on a timely basis does not allow shared generic user accounts, instead of unique user accounts for staff performing administration tasks.

Government outcomes can be achieved by delivering services through a mix of the public, private or not-for-profit sectors. Service delivery reform is most successful if there is clear accountability for service delivery outcomes, decisions are aligned to the government's strategic direction, and performance and value for money are monitored and evaluated.

This chapter outlines our audit observations, conclusions and recommendations for the service delivery of agencies in the cluster for 2016–17.

Issues	Conclusion or recommendation
3.1 Measuring and reporting on performance
The Department is responsible for two State priorities (increasing apprenticeships and business confidence) and the Premier's priority of creating jobs. The Department also supports four state priorities.	Australian Bureau of Statistics data shows the Premier's priority for job creation continues to be achieved. The Department reported that the number of people completing apprenticeships and traineeships had declined to 59 per cent against a 2019 target of 65 per cent, while the State was ranked first or second on a range of business confidence indicators.
3.2 Improvements required in the administration of Crown land
The Department faces many challenges in the administration of Crown land. These challenges range from inadequate systems and processes through to satisfying competing commercial, environmental, and community interests.	The Department has implemented, or is implementing the recommendations from a performance audit on the Sale and Lease of Crown land and the Parliamentary Inquiry into Crown land. It is also implementing the revised framework for Crown land contained in the Crown Land Management Act 2016.
3.3 Aboriginal land claims over Crown land
The number of unprocessed Aboriginal land claims continues to increase. Work on finalising Aboriginal Land Agreements, which may help address the claims backlog, is continuing.	Recommendation (repeat Issue): The Department should continue to implement measures to reduce the number of unprocessed Aboriginal land claims.
3.4 Skills development
Eleven contracted Smart and Skilled service providers had their contracts cancelled for quality issues. There were 391 providers of Smart and Skilled qualifications as at October 2017.	The Department of Industry spent $1.4 billion on the provision of vocational education and training. The Department has controls in place to monitor the performance of contracted service providers to ensure quality delivery of training.

Appendix one - List of 2017 recommendations

Appendix two - Status of 2016 recommendations

Appendix three - Agencies selected for this volume

Appendix four - Timeliness of financial and audit reporting

Appendix five - Financial audit reporting

Appendix six - Financial analysis

1 November 2017

Published

Sharing school and community facilities

Education

Infrastructure

Management and administration

Risk

Shared services and collaboration

Schools and the community would benefit if school facilities were shared more often.

The Department of Education’s ‘Community Use of School Facilities Policy’ encourages but does not require schools to share facilities. Sharing depends heavily on the willingness of school principals and there are few incentives. There are many challenges in developing agreements with community users and there is only limited support available from the Department.

There are strategies and plans to support the sharing of facilities between schools and the wider community, but none are backed up with budgets, specific plans or timeframes.

Governments should strive for the best use of assets. This is particularly important in the context of a growing New South Wales population, fiscal constraints and increasing demand for services.

Lack of available land, rising land costs and population growth highlighted in our April 2017 'Planning for school infrastructure' performance audit report mean that new and existing schools will need to share their facilities with communities more than is currently the case.

This audit assessed how effectively schools share facilities with each other, local councils and community groups. In making this assessment, the audit examined whether the Department of Education (Department):

has a clear policy to encourage and support facilities sharing
is implementing evidence-based strategies and procedures for facilities sharing
can show it is realising an increasing proportion of sharing opportunities.

Facilities sharing is the use of a physical asset, such as a building, rooms, or open spaces, by more than one group for a range of activities at the same time or at different times. For the purposes of this audit, we have divided sharing arrangements into two types: shared use and joint use.

Shared use refers to arrangements where existing school assets are hired out for non-school purposes, usually for a limited time. The assets remain under the control of the school. Generally, there is little alteration or enhancement to the asset required to enable shared use. Shared use can also refer to schools using external facilities, such as council pools, but these arrangements are not included within the scope of this audit.

Joint use refers to arrangements where new or upgraded school and non-school facilities or community hubs are planned, funded, built and jointly shared between a school and other parties, usually involving significant investment.

Both shared use and joint use agreements are governed by contractual obligations.

Conclusion
The sharing of school facilities with the community is not fully effective. The Department of Education is implementing strategies to increase shared and joint use but several barriers, some outside the Department’s direct control, must be addressed to fully realise benefits to students and the community of sharing school facilities. In addition, the Department needs to do more to encourage individual schools to share facilities with the community.

A collaborative, multi-agency approach is needed to overcome barriers to the joint use of facilities, otherwise, the Department may need significantly more funds than planned to deliver sufficient fit-for-purpose school facilities where and when needed.

Government policies encourage, but do not mandate, shared and joint use of facilities.

Since the early 2000’s, several reviews in NSW and other jurisdictions have commented on the benefits of and need to increase the sharing of school facilities.

Several NSW Government strategies and plans support shared and joint use of facilities between schools and the wider community, but none are backed up with financial incentives, or specific plans with implementation timeframes. In Victoria and Queensland whole-of-government processes are in place to support a more coordinated approach to planning, building and sharing community facilities. For example, Victoria has a comprehensive policy framework encompassing both existing and future use of community facilities and a $50 million program to seed the development of community facilities on school sites over the next four years.

The Department recognises benefits from the shared use of school facilities, but provides insufficient support to Principals to ensure costs are recovered and that money raised from shared use can be spent by the school in a timely manner.

There are examples of successful shared use, but more can be done. Information about the available facilities is not readily available to potential community users. Schools should work more closely with councils and other stakeholders to leverage shared use.

Currently, the administrative burden, costs and risks associated with shared use can exceed the perceived benefits to schools, leading to reluctance amongst some Principals to share. In addition, a substantial backlog of school-initiated infrastructure proposals awaiting Departmental approval means that schools that raise money from sharing their facilities find it difficult to use the funds they raise on improved infrastructure. Some of these proposals have been waiting for approval for more than 12 months.

The Department could do more to support Principals by ensuring the fees charged for facilities cover the costs incurred by schools, that Principals can access help with negotiating and managing contracts, and that infrastructure proposals initiated and funded by schools are approved in a timely manner.

The Department is not monitoring shared use across the State, and does not evaluate different approaches as evidence to influence policies and procedures.

Recommendations
By December, 2018, the Department should:

increase incentives and reduce impediments for school Principals to share school facilities, including:
- review the methodology for calculating fees charged for facilities to ensure that shared use of school facilities does not result in a financial burden to schools or the Department
- improve support provided to Principals by School Infrastructure NSW, including reducing the backlog of school-initiated infrastructure proposals awaiting approval
- develop service standards, including timeframes, for assessing and approving school-initiated infrastructure proposals.
provide readily-accessible information about available school facilities to community groups and local councils
implement processes to monitor and regularly evaluate the implementation of the shared use policy and promote better practice to drive improvements.

The Department is planning a more strategic approach to increase the joint use of school facilities. However, several barriers, some outside the Department’s control, must be addressed to fully realise benefits of joint use agreements.

As discussed in our 2017 audit report on ‘Planning for school infrastructure’, joint use agreements are a key direction of the School Assets Strategic Plan. Joint use of school facilities will be necessary to ensure that there will be enough fit-for-purpose learning spaces for students when and where needed. Under the ‘Community Use of School Facilities Policy’ Principals play the leading role in identifying opportunities, and developing and managing agreements for sharing school facilities. This is impractical for joint use projects which involve substantial investment in new or refurbished assets, in particular for joint use projects in schools that are yet to be built. In addition, the policy does not address joint-use facilities built on land not owned by the Department. For these reasons, the Department is developing a new policy.

The Department is planning to develop joint use agreements in a more systematic way as part of school community planning, previously known as cluster planning, with a special focus on local councils. Several agreements are currently being piloted, and will be evaluated to provide an evidence-based foundation for this new approach.

To develop or refurbish school facilities for joint use, the Department, councils and other key stakeholders must work together and prioritise joint use from the earliest stages of any project. A collaborative, multi-agency approach is needed to ensure sufficient fit-for-purpose facilities are available for school students within the funding framework proposed in the School Assets Strategic Plan.

To increase shared and joint use, the Department is recruiting specialist staff in its Asset Division to assist with the brokerage, community engagement and development of agreements, but these staff are not dedicated to joint use projects and their available time may not be sufficient to provide the necessary support in the timeframes required.

Recommendations
By December, 2018, the Department of Education should:

ensure that the implementation of the new ‘Joint Use of School Facilities and Land Policy’ is adequately resourced, and has the support of Principals
implement processes to monitor and regularly evaluate the implementation of joint use policy and promote better practice to drive improvements.

Appendix one - Response from agency

Appendix two - About the audit

Appendix three - Victoria's 30-Year Infrastructure Strategy

Appendix four - Not-for-profit hire changes

Appendix five - Performance Auditing

Parliamentary reference - Report number #293 - released 1 November 2017

17 August 2017

Published

Planning and evaluating palliative care services in NSW

Health

Management and administration

Service delivery

Workforce and capability

NSW Health’s approach to planning and evaluating palliative care is not effectively coordinated. There is no overall policy framework for palliative and end-of-life care, nor is there comprehensive monitoring and reporting on services and outcomes.

Palliative care is an essential component of modern health care services and an increasingly important part of the wider health and social care systems. Palliative care is healthcare and support for people with a life-limiting illness, their families and carers. It is provided by, or informed by, professionals who specialise in palliative care. ‘End of life’ care is provided to people approaching the end of life by health professionals, who may work in the health, community or aged care systems. Not everyone receiving end of life care needs palliative care.

NSW Health has a policy and planning role in palliative and end-of-life care, and it coordinates a wide range of service providers. Local Health Districts (LHDs) provide care services in settings such as homes, hospitals and clinics to patients with varying needs. There are several care providers that can be involved.

Due to this shared nature of palliative care — where many people, services and settings are involved in delivering care to the patient — availability and communication of information is critical. For service planning, data and evidence must be drawn from various sources in a timely and efficient way.

This audit assessed whether NSW Health is effectively planning and evaluating palliative care services, in the context of rising demand, increasingly complex needs, and the diversity of service providers.

Conclusion

NSW Health has a limited understanding of the quantity and quality of palliative care services across the state, which reduces its ability to plan for future demand and the workforce needed to deliver it. At the district level, planning is sometimes ad hoc and accountability for performance is unclear.

The capacity of LHDs to use accurate and complete data to plan and deliver services is hindered by multiple disjointed information systems and manual data collections. Further, a data collection on patient outcomes, for benchmarking and quality improvement, is not used universally. This limits the ability of districts to plan, benchmark and improve services based on outcomes data.

NSW Health's engagement with stakeholders is not systematic. The lack of an overall stakeholder engagement strategy puts at risk the sustainability and value of stakeholder input in planning and limits transparency.

Over the last two years, NSW Health has taken steps to improve its planning and support for districts. The Agency for Clinical Innovation has produced an online resource which will assist LHDs in constructing their own, localised models of care. eHealth, which coordinates information communication technology for the state’s healthcare, aims to invest in integrating and improving information systems. These initiatives should help to address many of the issues now inhibiting integrated service delivery, reporting on activity and outcomes, and planning for the future.

1. By July 2018, NSW Health should develop an integrated palliative and end-of-life care policy framework that:

clearly articulates the interface between palliative and end of life care and outlines the priorities for the respective areas
defines policy goals and objectives, and a performance and evaluation framework for palliative care service planning and delivery
informs a related workforce plan which supports the policy framework and is linked to the Health Professional Workforce Plan 2012–2022
reviews the funding allocation model to ensure future enhancement funds are distributed equitably and transparently based on the need and population of districts.

By December 2018, NSW Health should:

2. assess how the functionality provided in data collection programs such as the Palliative Care Outcomes Collaboration program can be provided across all palliative care services in NSW

3. complete its statewide review of systems and reporting for end of life management including specialist palliative care, and develop a business case to implement a more integrated set of solutions to:

support providers delivering end of life and palliative care
help monitor service quality and quantity
provide comprehensive data for service planning

4. improve stakeholder engagement by:

developing a statewide stakeholder engagement strategy that brings together current activity and good practice, and is transparent and publicly available
defining accountability for overseeing and implementing the strategy at state and district levels.

1. Performance monitoring is inadequate

NSW Government policy on palliative care is outlined in the NSW Government Plan to Increase Access to Palliative Care 2012–2016 (the Plan). Under the Plan, the overarching policy is ‘to ensure that everyone has access to quality palliative care regardless of their economic or social circumstances, their geographical location or their medical condition.’ Some initiatives under the Plan are still being implemented.

NSW Health only has measures in place to assess some processes and activities for individual initiatives under the Plan. There is no tracking of outcomes relating to the policy goals set out in the Plan, such as increased choice to die at home or the location of the patient’s choice, and improved access to specialist palliative care services. NSW Health has not conducted an overall assessment of the Plan’s outcomes to guide future priorities.

Further, there is no overall performance and reporting framework for palliative and end of life care, meaning there is no monitoring of performance of palliative care services for NSW as a whole. This lack of evaluation and performance measurement impacts on NSW Health's ability to monitor progress and achievements, address gaps in service, and plan for future service enhancement.

2. Statewide planning and evaluation lacks coordination

Currently, palliative care services are complex to plan and evaluate. Many policies, strategies, guidelines, directives and data collections currently inform services. Even definitions of services vary. The split of policy functions for palliative care and end-of-life care between different branches within NSW Health adds further complexity. These arrangements create the risk of confusion, gaps in advice and support for LHDs.

Consistency is needed in the use of terminology and planning to achieve an integrated approach at all levels, including:

standard definitions of palliative care and end-of-life care
planning within a single structured policy framework to help clarify what services are to be delivered, who is accountable for delivering them and how to measure their outcomes.

Workforce planning is also affected. While NSW Health has identified significant gaps in the specialist palliative care workforce (especially in regional and remote areas) and it previously made workforce capacity one of its priorities, limited work has been undertaken in producing a statewide strategy to reduce these gaps.

3. District planning is not systematic and some external providers are poorly managed

An integrated approach would inform district-level service planning for palliative care. Planning in the districts we visited was sometimes ad hoc and accountability for performance unclear. Districts would benefit from:

better integrating data collection systems with planning
clearer guidelines, easy-to-use tools, monitoring and accountability systems.

The recently developed guide – A Blueprint for Improvement, from the Agency for Clinical Innovation – should help districts plan more effectively and consistently as it rolls out more widely in 2017. This takes an integrated approach to palliative and end-of-life care. Only one district we visited has finalised a comprehensive plan using the Blueprint.

Issues with district planning extend to external agreements with service providers, as these are sometimes poorly managed and do not support improved patient outcomes. Examples we reviewed showed a significant reporting burden with process-focused reporting. We also found little evidence of monitoring or action as a result of these reports.

4. Diverse information systems mean data collection and use are inconsistent

NSW Health gathers a broad range of data from many collection points and systems to inform palliative care services at hospital, ward or unit level, and community teams. However, the current data is limited because:

activity is under-reported, particularly in community-based services
collection is not universal across districts and services.

Districts also struggle with evidence-based planning and service delivery because multiple information systems mean data may be incomplete or inaccurate. Too often, clinicians and service managers rely on manual collection and paper-based systems.

eHealth, which coordinates information communication technology (ICT) for the state’s healthcare, is planning a statewide approach to capture information and report on all palliative care activity. The current plans of eHealth to review and improve systems should make data more complete, robust and accessible for quality improvement and planning.

5. An overarching stakeholder strategy would strengthen engagement

Just as data is central to effective planning and evaluation, so too is stakeholder engagement. However, there is currently no explicit stakeholder strategy, which means consultation is inconsistent across the state and not systematic at a district level.

While NSW Health uses a range of platforms to consult, the purpose and value is often not clear to stakeholders. Individual districts have some good practices, but there are limited mechanisms to identify and share these with other areas. A state-wide strategy would improve the quality and consistency of engagement, which will in turn inform service planning and delivery.

A stakeholder engagement strategy would integrate current initiatives, such as the two major networks that consult with health planning staff and clinicians. But it will also need to extend the feedback gathered from families, carers and volunteers, and from the peak bodies that represent them.

Parliamentary reference - Report number #291 - released 17 August 2017

6 July 2017

Published

Information and Communication Technologies in schools for teaching and learning

Education

Information technology

Infrastructure

Management and administration

Service delivery

Workforce and capability

Several factors are reducing effective use of information and communication technology (ICT) in the classroom.

These are primarily:

Information and communication technologies (ICT) are pervasive in modern life. Australian research has identified that the workforce demand for digital literacy and advanced digital skills is growing across most areas of work. There is broad agreement internationally and in Australian school systems that digital literacy is a core skill for the workforce and students will need to be confident with ICT. Education systems around the world are using ICT in classrooms to support learning and employment goals.

The New South Wales Department of Education’s (the Department’s) overall strategic directions for teaching and learning with ICT are set in the 'Strategic Information Technology Plan 2016–19'. The Department centrally provides a base level of resources to schools for ICT and schools supplement funding from their existing school budget and Parents and Citizens Associations. Each school decides how to allocate these funds to meet local needs. Schools also set expectations for how teachers and students will use technology to help deliver outcomes.

This audit assessed how well New South Wales public schools are using ICT to improve teaching and learning. It focussed on planning and teacher and student use of ICT. We examined whether:

the Department identifies key strategic opportunities to enhance the use of ICT platforms and technologies in schools
teachers are integrating ICT into classroom practice
the Department monitors the impact of ICT on student learning.

Conclusion

Several factors are reducing the effective use of ICT in the classroom. These are primarily:

ageing ICT equipment and inadequate wireless networks
variable student access to devices at school
variable teacher access to centrally provided devices to use outside of the classroom.

Many schools are struggling to keep up with growing ICT needs within available funding. The Department needs to review whether its current technology programs provide schools with sufficient resources and support to meet the Department’s strategic goals for 21st Century classrooms. The Department should also target additional support to schools to improve planning for ICT resources.

Most teachers are using ICT in the classroom, however, teacher access to devices outside the classroom varies between schools. In practice, teacher working days extend outside classroom hours. Teachers need access to devices for activities such as lesson preparation and student assessment. With limited access to devices outside of the classroom, teachers may not be able to effectively integrate ICT into lessons. Teachers also require further professional learning to support them to develop their skills in using ICT.

The Department is not sufficiently monitoring the digital literacy of New South Wales students, which has declined in national tests. Teachers could benefit from support to assess these skills at a school level. The Department also needs to investigate links between student use of ICT and learning outcomes, so they can better support teachers with evidence-based approaches to enhancing learning through ICT.

Old equipment and wireless networks are not keeping pace with modern demands

The Department’s vision for ICT is to enable ‘any learning opportunity, anywhere, anytime’. This vision is at risk due to an ageing stock of devices and wireless networks. The average age of devices in New South Wales schools is over four years. Older devices are less reliable, require greater maintenance and support, and cannot run demanding applications. Further, many school wireless networks are beyond the end of their useful life. This limits the number of teachers and students who can access online content on wireless networks at the same time.

The central funding model for ICT in schools is not meeting current needs

Funding for the Technology for Learning program to deliver ICT in schools has not increased since 2004, despite an increase in the number of students and emphasis placed on ICT in teaching and learning during this time. Schools supplement funding for ICT from their existing school budget and Parents and Citizens Associations.

The Department’s current funding model for ICT is not adequately addressing a growing gap in the provision of contemporary ICT in classrooms between schools able to access funding from other sources and those which cannot. The Department needs to review whether the Technology for Learning program is equitable in equipping all schools with the modern technology needed to achieve its vision.

Many teachers are not provided with devices for use outside of the classroom

School Principals we interviewed reported that technology is an essential part of a modern classroom and teacher access to devices outside of the classroom can impact how they use ICT. This is because, in practice, teacher working days extend outside classroom hours and teachers need access to devices for activities such as lesson preparation and student assessment. The Department provides teachers with access to a suite of software tools for these tasks.

The Commonwealth Government’s Digital Education Revolution program provided teachers of secondary school students with laptops from 2009 to 2013. The Department’s evaluation of the Digital Education Revolution program found that teachers reported greater confidence with, and use of, ICT throughout the program.
Providing desktop computers, laptops or tablets for teachers is now a school level decision and arrangements vary across schools. Each school must trade-off between allocating devices for students and teachers. Most other States and Territories provide all teachers with a laptop for use in and outside of the classroom or offer subsidised access to one.

There is limited teacher professional learning in the use of ICT

The Department’s research has identified that professional learning is an important factor in how effectively teachers use ICT to enhance teaching and learning. Despite this, the Department provides few courses on using ICT in the classroom directly, and most of these are offered in Sydney. This limits accessibility for teachers outside of the metropolitan area. Schools we visited reported that the costs of courses and providing relief teachers limits the number of external courses or events that teachers attend, especially for rural and regional schools. Increasing the use of online learning would improve access for teachers in these areas.

The Department is not adequately monitoring trends in professional learning in ICT or evaluating the overall effectiveness of courses. A recent upgrade to the professional learning system may provide the Department with better quality data to do this.

Greater monitoring and reporting on technology use in schools is required

The Local Schools, Local Decisions policy gives schools greater authority to make strategic decisions on the use of ICT appropriate to their local contexts. To support this, the Department needs to better monitor current trends, and identify emerging needs to determine future direction and how best to support schools.

For example, the Department does not currently know how many devices are allocated to teachers or how many schools have implemented a student Bring Your Own Device scheme. This affects how schools are using ICT, and places demand on the network and the type of support the Department must provide. An assessment of the ICT maturity of schools would help the Department target its resources to schools requiring greater assistance with planning.

The Department does not regularly monitor or report on student capabilities with ICT. A national assessment found that the ICT literacy of a sample of Year 6 and Year 10 New South Wales students fell between 2011 and 2014. The fall was greater in New South Wales than in other States and Territories. Without more regular assessment or reporting, the reasons behind this fall and the distribution of student capabilities between schools will remain unknown.

By July 2018, the Department of Education should:

Review the Technology for Learning program and school ICT support resourcing to determine whether resourcing is adequate for modern school requirements.
Develop a program to improve wireless networks in all NSW schools, for instance by expanding the Connecting Country Schools Program to all NSW schools.
Implement an assessment of school ‘ICT maturity’ and use this to target assistance to those schools requiring support with forward planning for ICT.
Improve the use of evidence to inform plans and strategies, including:
- more detailed monitoring of teacher and student access to and use of ICT
- evaluating the impact of teacher professional learning on student outcomes
- further examining the links between ICT and student outcomes.
Improve teacher access to devices for use outside of the classroom to improve how effectively they integrate ICT into teaching and learning.
Improve teacher professional learning by providing more:
- online learning opportunities for teachers in regional and remote areas
- courses focused on pedagogy to make best use of ICT.
Identify the ICT skills students need, and provide teaching resources to develop these skills and monitor their achievement.

Parliamentary reference - Report number #289 - released 6 July 2017

15 June 2017

Published

Sydney Road Maintenance Contracts

Transport

Infrastructure

Internal controls and governance

Management and administration

Procurement

Project management

In November 2013, Roads and Maritime Services (RMS) outsourced the maintenance of State roads in the Sydney region south and west zones using an innovative contracting approach called the Stewardship Maintenance Contract (SMC). The SMC links risk to reward, and uses a performance framework where outcomes should drive improved performance over time.

Roads and Maritime Services (RMS) is responsible for the Sydney region State roads network This includes over 2,800 kilometres of roads and associated road corridor infrastructure such as bridges, tunnels and drainage structures. RMS divides the network into three geographical areas: south, west and north zones.

In 1995, RMS first outsourced road corridor infrastructure maintenance for the north zone through a Performance Specified Maintenance Contract (PSMC). The current 10-year PSMC for the north zone will expire in October 2018. Prior to November 2013, RMS maintained roads in the south and west zones through its Road and Fleet Services unit.

In November 2013, RMS outsourced road maintenance services for the south and west zones using Stewardship Maintenance Contracts (SMC). The contracts run for seven years with an option for a further three years at RMS’ discretion. RMS estimated that the annual cost of these contracts was around $240 million in total. In March 2018, the contract prices are due to be reset by negotiation to reflect the contractors’ experience with, and better information about, the road networks and routine maintenance requirements.

The SMC model adopted stewardship principles to improve value for money. RMS defined stewardship principles as a broad set of values, attitudes and behaviours, required of the contractor to effectively manage the assets on behalf of RMS. The SMC also includes commercial principles, such as linking risk to reward, and a performance framework where outcomes drive performance.

This audit assessed whether RMS had effectively managed the outsourcing of road maintenance in the Sydney region south and west zones. In making this assessment, we answered the following questions:

Did RMS justify the decision to adopt the SMC model?
Do SMCs include key performance indicators (KPIs) and incentives which promote efficiency and effectiveness?
Does RMS collect high quality information on contractor performance and take action to correct performance deficiencies?
Are the expected benefits being achieved?

Conclusion

RMS developed an innovative contracting approach with the SMC. RMS has realised some benefits in the first year, including savings, from outsourcing road maintenance in the Sydney region south and west zones using the SMC. However, RMS’ management of the SMC has key elements missing which reduces its effectiveness.

The SMC includes performance measures and incentives to drive efficiency and effectiveness improvements over time.

RMS has established a contract management framework which includes most elements of good practice, including governance and dispute resolution mechanisms. However, it does not have procedures to guide its contract managers in managing specific provisions of the SMC. Consequently, RMS has not exercised several significant SMC requirements, such as having the contractor account for an efficiency dividend in its pricing at the start of each three-year works period. It also has not done enough to assure itself that the contractor provided performance and financial data are correct. This is important because the data is used to measure performance and calculate contractor payments.

RMS assessed that it had achieved around 80 per cent of the expected cost benefit in the initial year of the SMC. However, it has not tracked its achievement of benefits since then.

The Stewardship Maintenance Contract

RMS justified adopting the SMC model and included KPIs to drive efficiency and effectiveness

The SMC model includes features that RMS had not previously used for road maintenance contracts. These included adopting stewardship principles and transferring price risk to the contractor over time as the contractor becomes familiar with the assets being maintained.

The SMC model meets RMS’ requirements for flexibility in pricing models, the need for collaboration in asset maintenance planning, promoting innovation and effective performance management.

RMS used many good practices to develop the SMC model, including:

preparing a robust business case comparing the SMC model to RMS maintaining the road network itself, as well as assessing whether two other contracting models
(traditional and alliance) would meet its requirements
assessing experiences with similar arrangements in other jurisdictions and identifying elements that worked to get the best outcomes
developing a robust performance framework, which included a mix of efficiency and effectiveness KPIs that reflected NSW Government policy and RMS priorities
incorporating risk and reward incentives delivered through cost sharing arrangements which change as the contract matures
using a contract duration that supports RMS priorities and provides an incentive for better quality outcomes.

RMS uses data provided by the contractor to measure performance and calculate payments to the contractor. The SMC includes a specific sanction if RMS finds that the contractor provided incorrect performance data, but no specific sanction if the contractor provides incorrect financial data. If RMS finds that the contactor provided incorrect performance or financial data, RMS can only recover over-payments which may have been made using the incorrect data.

To provide a stronger incentive for the contractor to ensure data it provides is accurate, RMS should consider whether to incorporate stronger sanctions when negotiating the commercial reset due in mid-2018 for south and west zones. RMS should also consider this for the new contract for the north zone when the current PSMC contract expires in October 2018.

RMS' contract management approach and benefits realization

RMS can improve the effectiveness of its oversight and management of the SMC

RMS does not have SMC specific contract procedures to guide its contract managers. Consequently, RMS has not exercised several significant SMC requirements, such as having the contractors account for an efficiency dividend in their pricing at the start of each three-year works period. Effective contract management should be supported by contract specific procedures, with explanations of, and allocation of responsibility for, the various interventions that RMS may be required to exercise in the SMC.

Performance and financial reporting under the SMC is based on a mix of RMS and contractor provided data. While there are a range of audits of contractor provided performance and financial data that RMS can conduct each year under the SMC, it does not have a schedule of audits it will conduct and when.
During the first year of the SMC, RMS commissioned some limited audits of financial data. In the first three years of the SMC, RMS did not conduct any audits of performance data. Had there been SMC specific procedures in place, this would have reduced the risk of RMS not implementing a systematic audit program to give it reasonable assurance on the quality of the data that the contractor has provided. This is important because the data is used to measure performance and calculate contractor payments.

RMS has been aware of data quality issues since 2015. While RMS advised that it commenced addressing some data quality issues in response to a series of reviews conducted in 2015, a recent internal audit report indicates that RMS has not resolved the data quality issues.

RMS achieved benefits in the first year, but has not tracked benefits since

As part of the business case, RMS agreed to implement a benefits realisation strategy, including a benefits tracking tool. RMS commenced tracking benefits, but did not establish a comparative baseline pre-SMC on non-financial benefits, and has not tracked benefits past year one.

In 2015, a benchmarking study commissioned by RMS found that it had achieved 80 per cent of the expected recurrent cost savings and other benefits, such as improved workplace safety, in the first full year of the SMC. However, there was no clear baseline to measure
non-financial performance. The study was qualified due to gaps in available data. The study also did not reconcile the actual one-off transition costs to the business case estimate.

During the course of the audit, RMS advised that it intends to repeat this type of study to determine whether it has achieved all expected benefits (and their value), and that it would use the results to inform its negotiation with the SMC contractors as part of the commercial reset due in mid-2018.

Roads and Maritime Services is responsible for the State Roads network in the Sydney region

Roads and Maritime Services (RMS) is responsible for the Sydney region State roads network. This includes over 2,800 kilometres of roads and associated road corridor infrastructure such as bridges, tunnels and drainage structures. The network is divided into three geographical areas: south, west and north zones. Prior to November 2013, RMS maintained roads in the Sydney region south and west zones through its Road and Fleet Services unit.

In 1995, RMS first outsourced road corridor infrastructure maintenance for the north zone through a Performance Specified Maintenance Contract (PSMC). The current 10-year PSMC for the north zone will expire in October 2018. This contract is worth around $35 million per annum.

NSW Government priorities and road maintenance

Efficient and effective road maintenance contributes to the following NSW Government priorities:

improving road travel reliability
ensuring on-time running of public transport
reducing road fatalities
improving government services
keeping our environment clean.

The NSW Commission of Audit recommended outsourcing the maintenance of State roads

The NSW Commission of Audit in its Final Report on Government Expenditure (May 2012) recommended contestability as an appropriate strategy to consider for improving road maintenance service delivery for State roads.

The Commission benchmarked RMS’ road surface quality and cost per lane kilometre against those of Western Australia, Victoria, and Queensland. This showed that New South Wales lagged the other states on both these measures.

Exhibit 1: Interjurisdictional comparison of road maintenance outcomes 2009–10
	WA	VIC	QLD	NSW
Roads managed (lane kms)	52,659	50,510	71,353	80,348
Estimated spend ($/lane km)	5,000	4,500	6,000	7,000
Road quality measure (%)	99	99	94	91

Source: NSW Commission of Audit Final Report May 2012.

The Commission noted that RMS had conducted two independent reviews to examine the potential for extending road maintenance contestability. The Commission found that there was inadequate and inconclusive benchmarking to establish the efficiency of RMS’ Road and Fleet Services unit when compared to outsourcing. It recommended that RMS bring forward a proposal to conduct a competitive tender for the road maintenance of the Sydney region south zone road network to inform the feasibility of a progressive rollout of road maintenance contestability across other areas of the State. In August 2012, the NSW Government adopted the Commission’s recommendation.

The NSW Government introduced road maintenance contestability through Stewardship Maintenance Contracts

In April 2013, the NSW Government announced that it would introduce road maintenance contestability across the Sydney region, using a Stewardship Maintenance Contract (SMC) model to improve value for money. In doing so, it excluded RMS’ Road and Fleet Services unit from tendering.

The SMC model is based on the following key commercial and performance principles set by RMS:

performance driven by outcomes
flexible and adaptable
transparent and measurable
linking risk to reward
continuous improvement
criteria for selection of, and transition to, different payment models.

The following key stewardship principles underpin the SMC’s broad set of values, attitudes and behaviours, which are required of the contractor to effectively manage the assets on behalf of RMS:

putting RMS’ customers (road users and the general public) first and being responsive to them
being responsible and accountable for the outcomes resulting from the management of the assets
managing the assets diligently, efficiently and effectively with limited direction from RMS
working collaboratively with RMS to deliver services that are tailored to meet RMS’ evolving needs
acting with integrity and transparency in performing the services
performing the services in the best interests of RMS and asset users.

Other key features of the SMC include:

service requirements which describe the scope of the services, and the standards the contractor must meet
a commercial framework which defines how payments are structured, how performance assessment will impact on payments and outlines the key commercial principles. SMCs primarily divide payments into two main mechanisms, these being the priced component (or fixed price) and the target cost calculated as follows:
- fixed price – the contractor is paid a pre-agreed amount for specific services being provided, regardless of the actual costs incurred
- target cost – RMS and the contractor agree on a target cost for a project, and any cost overruns or underruns are shared between them
a performance framework which provides mechanisms for assessing contractor performance. This includes a comprehensive listing of the key result areas (KRAs) and key performance indicators (KPIs) against which RMS measures the contractor’s performance. The framework also outlines the scoring methodology that RMS uses to determine whether the contractor’s bid margin (profit and overheads) is reduced due to less than satisfactory performance or whether a bonus is paid if a threshold performance score is exceeded.

Road maintenance under SMCs for Sydney region south and west zones commenced in November 2013

In November 2013, RMS awarded SMCs to the Leighton Boral Amey consortium, now named Ventia Boral Amey (VBA), for the south zone and the DownerMouchel (DM) consortium for the west zone. The contracts run for seven years with an option for a further three years at RMS’ discretion. In April 2014, full services commenced following a four-month transition period. RMS estimated that the annual cost of these contracts was around $240 million in total. In March 2018, the contract prices are due to be reset by negotiation to reflect the contractors’ experience with, and better information about, the road networks and routine maintenance requirements.

Roads and Maritime Services should consider whether to incorporate stronger sanctions in the Stewardship Maintenance Contract if the contractor provides incorrect performance or financial data to RMS, when:
1. negotiating the commercial reset for the next works period with the Sydney region south and west zone contractors due in July 2018.
2. finalising a new SMC contract for the Sydney region north zone, due to commence in October 2018.

Roads and Maritime Services should, by September 2017:

2. Review its contract management framework for SMCs to ensure that all authorities and accountabilities of
contract managers are clearly defined, including:

a) accountability and procedures for exercising all operational clauses in the SMC where RMS may opt to, or be required to intervene, or make a decision

b) authority to approve or initiate the interventions RMS is required to, or may, exercise under the SMC

c) the audits that RMS will conduct to systematically validate the performance and financial data that the SMC contractors provide

d) the accountabilities of RMS contract managers to systematically review audits and quality reviews that the SMC contractors must conduct to demonstrate compliance with their service plans

e) the accountabilities of RMS contract managers to check that the monthly and annual reports provided by SMC contractors do not contain errors, omissions or inaccuracies.

3. Improve its management of benefits realisation by:

a) initiating a further benefits realisation review and record the benefits delivered against those
estimated following the tender process, including the one-off transition costs

b) identify any benefits, including savings, not yet attained and develop strategies to address any short-falls

c) establish a tool to track the ongoing realisation of benefits.

Parliamentary reference - Report number #288 - released 15 June 2017

8 June 2017

Published

NorthConnex

Premier and Cabinet

Treasury

Transport

Compliance

Infrastructure

Internal controls and governance

Management and administration

Procurement

The processes used to assess NorthConnex adequately considered value for money for taxpayers.This report also found that the impact of tolling concessions on road users and the motorway network was consistent with policy objectives described in the 2012 NSW Long Term Transport Master Plan.

By December 2017, the Department of Premier and Cabinet should:

1. publish an updated ‘Unsolicited Proposals – Guide for Submission and Assessment’ which clarifies obligations with requirements in other NSW Government policies such as the NSW PPP guideline and Infrastructure Investor Assurance Framework. The update should require:

a) a business case to be prepared, and a business case gateway review completed, as part of the assessment of the detailed proposal (currently stage 2)

b) probity reports must be completed and considered before the decision to proceed to the next stage.

The Department of Premier and Cabinet and NSW Treasury should immediately:

2. improve record keeping to ensure compliance with the State Records Act 1998 and the NSW Government Standard on Records Management.

Parliamentary reference - Report number #287 - released 8 June 2017

6 June 2017

Published

Universities 2016 Audits

Universities

Asset valuation

Compliance

Cyber security

Financial reporting

Fraud

Information technology

Internal controls and governance

Procurement

No qualified opinions were issued on the universities’ financial statements and the quality and timeliness of financial reporting continued to improve. The report found that all NSW universities recorded a surplus in 2016 with combined revenue growth exceeding expense growth by 1.1 per cent. Universities have diversified revenue sources and are now less reliant on government grants. Combined overseas student income exceeded domestic student income for the first time in 2016.

This report focuses on key observations and common issues identified from our financial audits of the ten NSW universities and their controlled entities in 2016. The universities are listed in Appendix Three.

In this report, parliament and other users of universities’ financial statements are provided with an analysis of universities’ results and key observations in the following areas:

Financial Performance and Reporting
Financial Controls
Governance
Teaching and Research.

Snapshot of NSW universities

A snapshot of NSW universities for the year ended 31 December 2016 is shown below.

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

This chapter outlines audit findings on financial performance and reporting of NSW universities for 2016.

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

In 2016, our audit teams made the following key observations on the financial controls of NSW universities.

Teaching and research are core activities of universities. The quality of teaching is a key driver for growth and attracting students. Through research, universities contribute to economic growth, lead innovation and improve their global rankings.

This chapter reports on teaching and research in NSW universities for 2016.

Appendix One - Financial Audit Reporting

Appendix Two - Financial Sustainability

Appendix Three - List of NSW universities

Appendix Four - Entities not commented on in this volume, by Minister

Audit progress

Sector

Year

Report type

Topic

Reports

1. Overall trends

2. Information Technology

3. Asset Management

4. Governance

5. Ethics and Conduct

6. Risk Management

This new report offers strategic insight on the public sector as a whole

2.1 IT security

2.2 Cyber Security

2.3 Other IT systems

3.1 Capital investment

3.2 Capital projects

3.3. Asset disposals

4.1 Governance arrangements

4.2 Shared services

5.1 Ethical framework

5.2 Potential conflicts of interest

6.1 Risk management maturity

6.2 Risk management elements

Conclusion

1. Financial reporting and controls

2. Service delivery

1. Performance monitoring is inadequate

2. Statewide planning and evaluation lacks coordination

3. District planning is not systematic and some external providers are poorly managed

4. Diverse information systems mean data collection and use are inconsistent

5. An overarching stakeholder strategy would strengthen engagement

Old equipment and wireless networks are not keeping pace with modern demands

The central funding model for ICT in schools is not meeting current needs

Many teachers are not provided with devices for use outside of the classroom

There is limited teacher professional learning in the use of ICT

Greater monitoring and reporting on technology use in schools is required

The Stewardship Maintenance Contract

RMS justified adopting the SMC model and included KPIs to drive efficiency and effectiveness

RMS' contract management approach and benefits realization

RMS can improve the effectiveness of its oversight and management of the SMC

RMS achieved benefits in the first year, but has not tracked benefits since

Roads and Maritime Services is responsible for the State Roads network in the Sydney region

NSW Government priorities and road maintenance

The NSW Commission of Audit recommended outsourcing the maintenance of State roads

The NSW Government introduced road maintenance contestability through Stewardship Maintenance Contracts

Road maintenance under SMCs for Sydney region south and west zones commenced in November 2013

Snapshot of NSW universities