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Published

Actions for Road asset management in local government

Road asset management in local government

Local Government
Finance
Industry
Community Services
Transport
Asset valuation
Financial reporting
Infrastructure
Internal controls and governance
Management and administration
Risk
Service delivery

About this report

Local councils in NSW manage a large proportion of roads across the state. Roads often represent a significant proportion of total council
expenditure.

How councils manage roads is impacted by their revenue, local conditions, and the needs of residents, businesses and other road users.

This audit was undertaken within the wider context of natural disasters and weather events that have significantly impacted the road network in NSW in recent years.

It assessed whether three councils had effectively managed their road assets to meet the needs of their communities, makes detailed findings and recommendations to each audited council, and identifies key lessons for the wider local government sector.

Key findings

All councils can improve how they link community consultation with planned service levels. Formalising these processes could help better demonstrate how current service levels meet community needs.

Clarence Valley Council

  • has established a strategic priority for road asset management but not formal governance arrangements or a long-term capital works program
  • is delivering and reporting on its work to respond to natural disasters but does not report against targets for road asset quality and service
  • has set benchmarks for road asset maintenance, replacement and renewal but needs clear service levels.

Gwydir Shire Council

  • did not have aligned, up-to-date asset plans during the audit period
  • did not have a long-term capital works program but adopted a prioritisation program for capital works in August 2024
  • did not effectively implement formal governance, or coordinate management oversight, to manage its road assets.

Wollondilly Shire Council

  • has a strategic framework for road asset management and has used long-term plans to guide its asset capital and maintenance works
  • has reported asset management outcomes against a planned capital works program but could improve how it uses KPIs to demonstrate performance.

Key observations of good practice

This report identifies that effective road asset management is best supported when councils have:

  1. a good understanding and articulation of the community’s vision, priorities and purpose for local roads
  2. asset management documents that are current and aligned with broader strategies and financial plans
  3. long-term capital works planning that considers associated ongoing costs, and is supported by systematic prioritisation of works
  4. clear and documented decision making processes
  5. transparent performance reporting on progress and outcomes 
  6. reliable, accurate and assured data and systems
  7. continuous improvement through both formal reviews and capturing lessons learned
  8. resilience and responsiveness to natural disasters with a planned approach to disaster recovery.

 

This is the first performance audit of the local government sector that I am tabling in Parliament as Auditor-General for New South Wales.

Our performance audits are designed to provide valuable information to parliamentarians, sector stakeholders and the public. Ultimately, our aim is to ensure transparency, a principle that underpins effective and efficient use of public resources.

The management of roads and associated assets is a critical issue for local councils across the state. In recent years, many councils have had to contend with the immediate and ongoing effects of natural disasters.

These natural disasters, along with increased community expectations, population changes and complex regulatory obligations all contribute to financial sustainability risks for councils. Some councils have used short-term funding allocations (including emergency relief grants) to cover the costs of managing long-term assets. These councils do not have the capacity to generate sufficient income from their own sources, and therefore depend on assistance from other levels of government. Councils’ ability to plan and budget for the long term has also been disrupted by the need for new or restored infrastructure outside asset life cycles.

Several reports and inquiries in recent years have highlighted these significant financial sustainability risks. The parliamentary inquiry into the ‘Ability of local governments to fund infrastructure and services’,1 due to be tabled soon, will be a critical input to a long-term solution.

The three councils audited in this report – Clarence Valley, Gwydir Shire and Wollondilly Shire –each experienced significant natural disasters, including fires, storms and floods during the audit period. Despite this, each audited council was able to deliver a large volume of road asset management works.

This report provides valuable lessons from these audited councils that can help all councils manage their roads more effectively in the face of evolving risks and competing resource demands.

I acknowledge this has been a difficult time for some councils across NSW. This report supports councils with practical steps to manage their roads as effectively as possible, improve their resilience to climate challenges and meet legislative requirements.


1 The inquiry into the ‘Ability of local governments to fund infrastructure and services’ by the NSW Legislative Council Standing Committee on State Development commenced on 14 March 2024 to inquire into, and report on, the ability of local governments to fund infrastructure and services.

Background

Local councils in New South Wales (NSW) manage over 180,000 km of local and regional roads combined. These roads are crucial to travel within local government areas and across the state, improving community accessibility. Reliable roads ensure commercial and public transport can run on time, increase safety and keep the environment clean.

As roads age and deteriorate, they become more expensive to repair. Road surfaces and formations are vulnerable to both extreme heat and water exposure. These kinds of exposure have varying effects on the ways roads degrade, depending on the amount of traffic and the kinds of vehicles that use them.

Local conditions, business and road-user needs, and the impacts of natural disasters vary between councils and influence the way each council manages its roads. Regularly maintaining roads can keep roads functional and safe and prevent costly, unbudgeted repairs and replacements.

In the 2022–23 financial year (FY2022–23), the estimated total replacement cost of council road assets across NSW was around $102 billion. In the same year, local councils reported collective road asset maintenance expenditure of around $1 billion.

Since 2017, financial audits of local councils have identified asset management-related issues, including gaps in asset management processes, governance and systems. The Audit Office’s ‘Local Government 2023’ report outlined 266 asset management-related findings across the local government sector, including gaps in revaluation processes, maintenance of information in asset management systems and accounting practices.

Councils also provide a wide range of other services and infrastructure, including water and sewer infrastructure and services, waste management, environmental protection, housing, and community transport. Through integrated planning and reporting, councils determine how they will allocate resources to their services and infrastructure. Understanding community expectations for assets and services, alongside technical requirements, supports effective planning for function, cost and quality.

Audit objective

This audit assessed how effectively three councils – Clarence Valley Council, Gwydir Shire Council and Wollondilly Shire Council – are managing their road assets to meet the needs of their communities.

The audit assessed whether the selected councils:

  • have a strategic framework in place for managing their road assets
  • have effective governance, data and systems for road asset management
  • are managing their road assets in line with planned service levels and quality outcomes.

Overview of findings

This audit assessed how effectively Clarence Valley Council, Gwydir Shire Council and Wollondilly Shire Council managed their road assets to meet the needs of their communities.

In assessing each Council’s performance, this audit concluded:

Clarence Valley Council has effectively established a strategic priority for road asset management, but delivery of this priority was not supported by formal governance arrangements or a long-term capital works program. While the Council is delivering and reporting on a large volume of road asset works in response to natural disasters, it does not report on consolidated targets for road asset quality and service. The Council has set benchmarks for maintenance, replacement and renewal of roads. It now needs to enhance this with clear service levels to ensure community needs and expectations are met.

Detailed conclusions and recommendations for the Council are outlined in sections 2.2 and 2.3. Recommendations include that Clarence Valley Council:

  • updates and implements its asset management plan and associated improvement actions
  • reviews and implements key performance indicators (KPIs)
  • captures lessons learned from its natural disaster responses
  • implements a long-term capital works program.

Gwydir Shire Council did not have aligned, up-to-date long-term asset management plans to support a strategic framework for road asset management across the audit period. The Council did not effectively implement formal governance and coordinated management oversight for its road assets. The Council implemented updates to its asset management plans in June 2024 and governance arrangements in July 2024.

The Council has reported on the large volume of works it is delivering, including in response to natural disasters, but is not reporting in the context of information about targets and quality benchmarks. The Council does not have a long-term capital works program, but adopted a prioritised rolling program of works in August 2024 to guide its priorities and efforts over time.

Detailed conclusions and recommendations for the Council are outlined in sections 3.2 and 3.3. Recommendations include that Gwydir Shire Council:

  • implements its asset management plans and associated improvement actions
  • formalises and documents community priorities and service level expectations for roads
  • captures lessons learned from its natural disaster responses.

Wollondilly Shire Council has effectively applied a coordinated and strategic framework to deliver road asset management. The Council has long-term plans to guide its efforts and uses data to inform its approach. The Council has delivered a large volume of works in response to natural disasters during the audit period. The Council is reporting its road asset management outcomes and can demonstrate progress against a clearly defined capital works program, but its use of performance indicators could be improved.

Detailed conclusions and recommendations for the Council are outlined in sections 4.2 and 4.3. Recommendations include that Wollondilly Shire Council:

  • finalises and implements its transport asset management plan
  • reviews performance indicators for road assets
  • formalises and documents community priorities within its integrated planning and reporting (IP&R) and asset management frameworks.

Key observations of good practice

While each council was separately audited, this report also identifies practices that contribute to effective road asset management across all local councils.

These include:

  1. a good understanding and articulation of the community’s vision, priorities and purpose for local roads
  2. asset management documents that are current and aligned with broader strategies and financial plans
  3. long-term capital works planning that considers associated ongoing costs, and is supported by systematic prioritisation of works
  4. clear and documented decision making processes
  5. transparent performance reporting on progress and outcomes
  6. reliable, accurate and assured data and systems
  7. continuous improvement through both formal reviews and capturing lessons learned
  8. resilience and responsiveness to natural disasters with a planned approach to disaster recovery.

Further lessons for local government can be found in Appendix 3.

Appendix 1 – Response from entity

Appendix 2 – Council expenditure profile

Appendix 3 – Lessons for local government road asset management

Appendix 4 – About the audit

Appendix 5 – Performance auditing

 

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

 

Parliamentary reference - Report number #401 - released 21 November 2024.

Published

Actions for Internal controls and governance 2024

Internal controls and governance 2024

Whole of Government
Gift and benefit
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance
Management and administration
Regulation
Risk
Service delivery
Shared services and collaboration

About this report

Internal controls are key to the accuracy and reliability of agencies’ financial reporting processes. This report analyses the internal controls and governance of 26 of the NSW public sector’s largest agencies for the 2023–24 financial year.

Findings

There are gaps in key business processes, which expose agencies to risks. These gaps are identified in 121 findings across the 26 agencies—including 4 high risk, 73 moderate risk and 44 low risk findings. All four high-risk issues related to IT controls and 19% of control deficiencies were repeat issues. Thirty-five per cent of agencies had deficiencies in control over privileged access.

Shared IT services

Six agencies provide IT shared services to 120 other customer agencies. All six had control deficiencies—three of these were high risk. Four agencies provide no independent assurance to their customers about the effectiveness of their own IT controls.

Cyber security

Eighteen agencies assessed cyber risk as being above their risk appetite. Fourteen of these agencies had not set a timeframe to resolve these risks and two agencies have not funded plans to improve cyber security.

Fraud and corruption control

Agencies need to improve fraud and corruption control. Instances of non-compliance with TC18-02 NSW Fraud and Corruption Policy were identified, including gaps such as a lack of comprehensive employment screening policies and not reporting matters to the audit and risk committee.

Gifts and benefits

Management of gifts and benefits requires better governance and transparency. All agencies had policy and guidance but all had gaps in management and implementation—such as not publishing registers nor providing ongoing training.

Information Technology

Nine agencies did not effectively restrict or monitor user access to privileged accounts.

Recommendations

The report makes recommendations to agencies to implement proper controls and improve processes in relation to:

  • organisational processes
  • information technology
  • cyber security
  • fraud and corruption, and
  • gifts and benefits.

 

Read the PDF report

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

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

This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies found across agencies.

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

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security.

This chapter outlines our audit observations, conclusions and recommendations from our review of agencies' fraud and corruption control framework, policies and practices. Our Internal Controls and Governance 2018 found a number of fraud and corruption control gaps in NSW Government.

The NSW Treasury Circular TC18-02 NSW Fraud and Corruption Control Policy (the Circular) requires NSW government agencies to develop, implement and maintain a fraud and corruption control framework. The Circular sets out minimum standards for a NSW Government agency’s fraud and corruption control framework.

Previous Audit Office report on agency fraud and corruption control

Report on Internal Controls and Governance 2018 (published October 2018)

The report found there were gaps in the fraud and corruption controls by some agencies, which increased the risk of reputational damage and financial loss.

Where relevant, we have included the results from our 2018 report on Internal Controls and Governance below for comparison purposes.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' managing of gifts and benefits.

Published

Actions for Threatened species and ecological communities

Threatened species and ecological communities

Environment
Compliance
Financial reporting
Information technology
Internal controls and governance
Management and administration
Project management
Risk

About this report

Over 1,100 native animals, plants and ecological communities are listed as threatened in New South Wales. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) delivers programs and activities aiming to reduce the risk of extinction for threatened species and ecological communities. 

This audit assessed whether DCCEEW has effectively delivered outcomes to support threatened species and ecological communities across New South Wales including delivery of the statutory Biodiversity Conservation Program (Saving our Species). 

Findings

DCCEEW uses a risk‑based approach to guide and deliver a range of programs aiming to improve the outcomes for threatened species and ecological communities.

However, DCCEEW has not effectively determined departmental priorities, coordinated programs to align efforts, or reported on the overall outcomes it is delivering for threatened species and ecological communities. 

Further, DCCEEW does not capture sufficient data to monitor species that it is not actively managing, creating a risk that it cannot readily identify or respond to further decline.

Under the Saving our Species program, DCCEEW is delivering conservation actions for less than one‑third of all threatened species and ecological communities. This number has reduced over time, in line with reduced program funding. 

Gaps in core program planning and risk management frameworks create program delivery risks. 

Recommendations

The report made several recommendations to DCCEEW, focusing on:

  • Strengthening Saving our Species program compliance, governance, planning and risk management frameworks.
  • Developing a long‑term framework to coordinate and align efforts across DCCEEW for the delivery of threatened species outcomes.
  • Expanding activities to improve coordination with other parts of government delivering activities that impact on outcomes for threatened species.

This chapter assesses the effectiveness of DCCEEW’s ability to report on threatened species outcomes across its various programs and activities, and its strategic planning for the delivery of these outcomes at a departmental level.

Under Part 4, Division 6 of the BC Act, DCCEEW is required to deliver a Biodiversity Conservation Program. The program’s statutory objectives are to:

  • maximise the long-term security of threatened species and ecological communities in nature
  • minimise the impacts of key threatening processes on biodiversity and ecological integrity.

Under Section 4.36 of the BC Act, the program must have:

  • strategies to achieve the objectives of the program in relation to each threatened species and threatened ecological community
  • a framework to guide the setting of priorities for implementing the strategies
  • a process for monitoring and reporting on the overall outcomes and effectiveness of the program.

Appendix one – Response from agency

Appendix two – Legislative and regulatory provisions relevant to threatened species

Appendix three – Programs and activities relevant to threatened species

Appendix four – Comparison of statutory provisions for the conservation of threatened species

Appendix five – About the audit

Appendix six – Performance auditing

 

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

 

 Parliamentary reference - Report number #399 released 15 August 2024.

Published

Actions for Universities 2023

Universities 2023

Universities
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance
Risk
Service delivery

About this report

Financial audit results of the NSW public universities’ financial statements for the year ended 31 December 2023.

Audit findings

Unmodified audit opinions were issued for all ten universities.

Eight universities reported net deficits. Three of these improved on their 2022 results.

Total fees and charges returned to pre-pandemic levels, with 40.5% earned from overseas students from three countries.

Employee related expenses increased 10.2% in 2023 mainly due to an additional 2,830 full time equivalent staff, in response to increased teaching and research activities.

Key issues

The number of findings reported to management has increased to 111 matters in 2023 up from 88 in 2022.

These included one high risk finding and 62 moderate risk findings, a 72% increase from last year.

Gaps identified in universities governance processes included delays in responding to findings and recommendations; staff not attesting compliance with codes of conduct annually; and not capturing and recording staff conflicts of interests within central registers.

Seven of the ten universities have cyber security risks above what they determine as an acceptable risk. Four universities did not have a cyber security uplift program.

Recommendations

Universities should address all recommendations made in the report (see Appendix one for a summary of these).

In particular, there should be a focus on prioritising remediation of wage underpayments to affected employees; ensuring a centralised conflict of interest register is maintained for all staff; considering emerging risks in university risk registers; ensuring controlled entities are considered when determining internal audit plans; and focusing efforts to improve cyber security risk management and cyber resilience capability.

This report provides NSW Parliament with the results of our 2023 financial audits of universities in New South Wales and their controlled entities, including analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and enrolments
  • cyber security.

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

This chapter outlines audit observations related to the financial reporting of universities in NSW for 2023.

Appropriate financial controls help to ensure the efficient and effective use of resources and administration of policies. They are essential for quality and timely decision-making. Effective governance is essential for the stability, sustainability and ethical operation of universities. It ensures accountability, transparency and promotes responsible decision making.

This chapter outlines our observations and insights from our financial statement audits of NSW universities.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These, along with the less significant matters, are reported to universities for management to address.

Section highlights

  • The 2023 audits identified one high risk finding which has been carried forward since 2018. There were 62 moderate risk issues also identified across NSW universities.
  • Seventeen of the moderate risk issues were repeat issues. Repeat issues mainly related to information technology controls around user access management, privileged user review, outdated policies and procedures, payroll and procurement processing improvements.
  • The number of findings reported to management has increased to 111 matters in 2023 up from 88 in 2022.
  • The number of overall repeat deficiencies has decreased with 32 reported in 2023 compared to 41 in 2022. 
  • Seven universities do not require staff to annually attest to the Code of Conduct.
  • Four universities did not capture and record conflicts of interests for all staff within a centralised register.
  • All universities have developed risk management frameworks, policies, appetite statements and registers however improvements are needed.

Universities' primary objectives are the functions of teaching and research. They invest most of their resources aiming to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.

This chapter outlines teaching and enrolment outcomes for universities in NSW for 2023.

Section highlights

  • Six universities were reported as having full-time employment rates of their domestic undergraduates in 2023 that were greater than the national average.
  • Overall student enrolments at NSW universities increased, with higher enrolments in Health, Information Technology and Engineering related courses.
  • On average, universities delivered 52% of courses face to face, an increase from 45% reported in 2022.
  • Five universities in 2023 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.
  • Only one metropolitan based university reported increased enrolments of Aboriginal and Torres Strait Islander students in 2022.

This chapter of the report focuses on the cyber risk environment for universities, how universities have assessed that risk, what frameworks they use to strategically identify controls that respond to those risks, and the extent to which they have implemented or have plans to implement those controls. We also address some specific controls in respect of cyber resilience.

Section highlights

  • Seven of the ten universities have cyber security risks above what they have determined as an acceptable risk level.
  • One university did not assess its current cyber security maturity, which is a recommended practice to support prioritisation of cyber security improvements.
  • Four universities did not have a formal cyber security uplift program.
  • One university did not have a specific budget for improving its cyber security.

Appendix one – List of 2023 recommendations

Appendix two – Status of 2022 recommendations

Appendix three – Universities' controlled entities

 

Copyright notice

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

Published

Actions for Local Government 2023

Local Government 2023

Local Government
Asset valuation
Cyber security
Financial reporting
Fraud
Information technology
Internal controls and governance

What this report is about

Results of the local government sector financial statement audits for the year ended 30 June 2023.

Findings

Unqualified audit opinions were issued for 85 councils, eight county councils and 12 joint organisations.

Qualified audit opinions were issued for 36 councils due to non-recognition of rural firefighting equipment vested under section 119(2) of the Rural Fires Act 1997.

The audits of seven councils, one county council and one joint organisation remain in progress at the date of this report due to significant accounting issues.

Fifty councils, county councils and joint organisations missed the statutory deadline of submitting their financial statements to the Office of Local Government, within the Department of Planning, Housing and Infrastructure, by 31 October.

Audit management letters included 1,131 findings with 40% being repeat findings and 91 findings being high-risk. Governance, asset management and information technology continue to represent 65% of the key areas for improvement.

Fifty councils do not have basic governance and internal controls to manage cyber security.

Recommendations

To improve quality and timeliness of financial reporting, councils should:

  • adopt early financial reporting procedures, including asset valuations
  • ensure integrity and completeness of asset source records
  • perform procedures to confirm completeness, accuracy and condition of vested rural firefighting equipment.

To improve internal controls, councils should:

  • track progress of implementing audit recommendations, and prioritise high-risk repeat issues
  • continue to focus on cyber security governance and controls.

 

Pursuant to the Local Government Act 1993 I am pleased to present my Auditor-General’s report on Local Government 2023. My report provides the results of the 2022–23 financial audits of 121 councils, eight county councils and 12 joint organisations. It also includes the results of the 2021–22 audits for two councils and two joint organisations which were completed after tabling of the Auditor-General’s report on Local Government 2022. The 2022–23 audits for eight councils, one county council and one joint organisation remain in progress due to significant accounting issues.

This will be my last consolidated report on local councils in NSW as my term as Auditor-General ends in April. Without a doubt, the change in mandate to make me the auditor of the local government sector has been the biggest challenge in my term. Challenging for councils as they adjust to consistent audit arrangements and for the staff of the Audit Office of NSW as they learn about the issues facing NSW councils.

The change in mandate aimed to improve the quality of financial management and reporting across the sector. This will take time. But this report does show some ‘green shoots’ with more councils submitting financial reports to the Office of Local Government by 31 October and more councils having Audit, Risk and Improvement Committees. 

I also want to acknowledge that councils face significant challenges responding to and recovering from emergency events whilst cost and resourcing pressures have been persistent.

The findings from our audits identify opportunities to further improve timeliness and quality of financial reporting and integrity of systems and processes. The recommendations in this report are also intended to improve financial management and reporting capability, encourage sound governance, and boost cyber resilience.

 

Margaret Crawford PSM
Auditor-General for New South Wales

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

This chapter outlines audit observations related to the financial reporting audit results of councils, county councils and joint organisations.

A strong system of internal controls enables councils to operate effectively and efficiently, produce reliable financial reports, comply with laws and regulations, and support ethical government.

This chapter outlines the overall trends in governance and internal controls across councils, county councils and joint organisations in 2022–23.

Financial audits focus on key governance matters and internal controls supporting the preparation of councils’ financial statements. Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues are reported to management and those charged with governance through audit management letters. These letters include our observations with risk ratings, related implications, and recommendations.

Appendix one – Response from the Office of Local Government within the Department of Planning, Housing and Infrastructure

Appendix two – NSW Crown Solicitor’s advice

Appendix three – Status of previous recommendations

Appendix four – Status of audits

Appendix five – Councils received qualified audit opinions for non-recognition of rural firefighting equipment

 

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

Published

Actions for State Finances 2023

State Finances 2023

Treasury
Whole of Government
Asset valuation
Compliance
Cyber security
Financial reporting
Infrastructure
Internal controls and governance
Management and administration
Regulation

What this report is about

Results of the audit of the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023.

Findings

The audit opinion on the 2022–23 Consolidated State Financial Statements was qualified in relation to two issues and included an emphasis of matter.

The first qualification matter is a continuation of the prior year limitation of scope on the audit relating to the Catholic Metropolitan Cemeteries Trust (CMCT), a controlled state entity, who continued to deny access to its management, books and records for the purposes of a financial audit. As a result, the Audit Office was unable to obtain sufficient appropriate audit evidence to support the assets, liabilities, income and expenses relating to CMCT recorded in the TSS and the equity investment recognised in the GGS relating to the net assets of CMCT.

The second qualification matter relates to the limitations on the accuracy and reliability of financial information relating to Statutory Land Managers (SLMs) and Common Trust entities (CTs) controlled by the State and were either exempted from requirements to prepare financial reports, or who were required to submit financial reports and have not done so. The Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities, income and expenses that should be recognised in the 2022–23 Consolidated State Financial Statements and which have not been recorded in the Consolidated State Financial Statements.

The independent audit opinion also includes an emphasis of matter drawing attention to key decisions made by the NSW Government regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE).

Recommendations

The report includes recommendations for NSW Treasury to address several high-risk findings, including:

  • ensuring accurate and reliable financial information is available to recognise the non-land balances of SLMs and CTs
  • ensuring the CMCT, SLMs and CTs meet their statutory reporting obligations
  • conducting a broader review of the financial reporting exemption framework
  • continued monitoring of TAHE's control over its assets
  • providing timely guidance to the sector relating to legislative or policy changes that impact financial reporting
  • developing an accounting policy for the reimbursement of unsuccessful tender bid cost contributions.

Pursuant to section 52A of the Government Sector Audit Act 1983, I am pleased to present my Report on State Finances, for the year ended 30 June 2023. 

The report highlights the maturity of financial reporting across the sector, with most New South Wales (NSW) government agencies that consolidate into the whole-of-government accounts having unqualified audit reports.  

This report also highlights important areas for improvement. Improving the timely completion of the NSW Government's consolidated financial statements, and resolving matters on the quality of the Total State Sector Accounts that have resulted in modifications to the independent audit opinion, should be a key focus.  

Colleagues in NSW Treasury and key agencies, along with staff of the Audit Office, have worked extremely hard and collaboratively throughout the year to resolve significant accounting and audit matters, and address recommendations from past audits. I thank them for their diligence and commitment to ensuring the quality and timeliness of financial management and reporting in the NSW public sector.  

This level of professionalism needs to be sustained in view of the significant challenges that lie ahead, including embedding sustainability reporting and the disclosure of climate-related financial information. The State and the Audit Office are well placed to meet these challenges.  

As this is the last report I will present on State Finances during my term as Auditor-General, I would like to conclude by saying what an honour it has been to serve the Parliament of NSW in such an important role. A commitment to independent assurance and transparent reporting on the activities of government have been a hallmark of NSW for two centuries. We should all take pride in and protect this commitment to good government.

 

Margaret Crawford PSM 

Auditor-General for New South Wales

The Independent Auditor's report was qualified 

The audit opinion on the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023 was qualified in relation to two issues and included an emphasis of matter. These matters are detailed below. 

From here on, the Consolidated State Financial Statements are referred to as the Total State Sector Accounts (TSSA), in line with NSW Treasury's naming convention. 

The audit opinion continued to be qualified due to a limitation on the scope of the audit relating to the Catholic Metropolitan Cemeteries Trust 

The first qualification matter is a continuation of the prior year limitation of scope relating to the Catholic Metropolitan Cemeteries Trust (CMCT), who continued to deny access to its management, books and records for the purposes of a financial audit. 

NSW Treasury's position remains that CMCT is a controlled entity of the State for financial reporting purposes. This means CMCT is a GSF agency and is obliged under Section 7.6 of the Government Sector Finance Act 2018 (GSF Act) to prepare financial statements and give them to the Auditor-General for audit. 

To date, CMCT has not met its statutory obligations under the GSF Act. CMCT has not submitted its financial statements to the Auditor-General for audit despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. As a controlled entity, NSW Treasury is required by Australian Accounting Standards to consolidate the CMCT into the TSSA. 

Consequently, the Audit Office was unable to obtain sufficient appropriate audit evidence on the carrying amount of assets and liabilities recognised in the TSS as at 30 June 2023 and of the amount of income and expenses for the year then ended. The value of the net assets of CMCT consolidated into the TSS is $321 million, and the total comprehensive income of CMCT consolidated into the TSS for the year is $25.8 million. The GGS financial statements for the year ended 30 June 2023 also recognised an equity investment in the net assets of CMCT ($321 million). 

This limitation of scope resulted in a qualified audit opinion being issued on the TSS and the GGS. 

Section 3 of this report titled 'Limitation of scope relating to CMCT' discusses this matter in further detail. 

The audit opinion was qualified due to a limitation on the scope of the audit relating to the non-land assets, liabilities, income and expenses of controlled entities that manage crown land and associated assets and for which reliable financial information is not available 

There are 579 Category 2 Statutory Land Managers and 119 Commons Trust entities controlled by the State. 

A category 2 Statutory Land Manager (SLM) is a type of Crown Land Manager that is controlled by the State. It excludes other Crown Land Managers such as councils, metro cemeteries and Crown Holiday Parks land managers. Commons Trusts (CT) are responsible for the care, control and management of commons for which the trust is established. A common is a parcel of land that has been set aside by the Governor or the Minister for specific use in a certain locality, such as grazing, camping or bushwalking.

NSW Treasury has determined that SLMs and CTs are controlled entities of the State. Consequently these should be recognised in the TSSA as required by Australian Accounting Standards. However, the non-land assets, liabilities, income and expenses of SLMs and CTs have not been recognised in the TSSA. 

Most of these entities have not prepared financial statements, upon which to consolidate the non-land assets, liabilities, income and expenses of SLMs and CTs into the TSSA. This is because they have either not complied with their financial reporting obligations under section 7.6 of the GSF Act, or they were not required to prepare financial statements as they met the prescribed reporting exemption criteria set out in the Government Sector Finance Regulation 2018. 

In 2022–23 NSW Treasury reviewed available financial information to estimate the aggregate value of non-land assets, liabilities, income and expenses relating to SLMs and CTs that were not recognised in the TSSA. 

NSW Treasury estimates the aggregate value of non-land assets not recognised in the TSSA to be in the range of $351.6 million to $382.4 million. However, there are significant limitations on the accuracy and reliability of financial information that support these estimates. Only 12 entities were supported by what NSW Treasury defined as ‘highly reliable financial data’. Two hundred and eighty-four entities provided self-reported information and 288 entities had not submitted any financial data. The balances of the remaining entities were supported by what NSW Treasury defined as ‘somewhat reliable financial data’. This included ‘lower-quality’ financial statements and assessments of asset values performed by the former Department of Planning and Environment (DPE). 

Because of the limitations on the accuracy and reliability of financial information relating to SLMs and CTs, the Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities that should be recognised in the TSSA as at 30 June 2023 and of the amount of income and expenses that should be recognised in the TSSA for the year then ended. 

Accordingly, this limitation of scope resulted in a qualified audit opinion being issued on the TSSA. 

Section 4 of this report titled 'Limitation of scope relating to Category 2 Statutory Land Managers and Commons Trusts' discusses this matter in further detail. 

The audit opinion included an emphasis of matter drawing attention to key decisions regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE) 

The Independent Auditor’s Report also includes an emphasis of matter, drawing attention to key decisions made by the government in August 2023 regarding the future of TAHE. 

The decisions are likely to have a significant impact on TAHE's financial position and future operating model, including converting TAHE from a for-profit State Owned Corporation (SOC) to a non-commercial Public Non-Financial Corporation (PNFC). 

These decisions may impact the future commercial agreements with the public rail operators and the future valuation of TAHE’s assets that are consolidated in the TSS. The decisions also mean that cash contributions made to TAHE are treated as grant expenses, rather than equity investments, the audit matter that has previously been reported. 

Section 5 of this report titled 'Investment in TAHE' discusses this matter in further detail. 

Other significant matters relating to the TSSA audit are covered in Section 6 titled 'Key audit findings'.

The number of identified errors increased in 2022–23 

In 2022–23, agency financial statements presented for audit contained 29 errors, where each error exceeded $20 million (20 errors in 2021–22). The total value of these errors was $2.5 billion, an increase from the previous year ($973 million in 2021–22). 

The following graph shows the number of reported errors (both corrected and uncorrected), exceeding $20 million over the past five years in agencies’ financial statements presented for audit. 

Most errors related to: 

  • the incorrect application of Australian Accounting Standards and NSW Treasury policies 
  • issues with the data, judgements and assumptions used when valuing non-current physical assets and liabilities 
  • non-recognition of provisions related to the enhanced paid parental leave scheme that became effective 1 October 2022.

CMCT continues to deny the NSW Government and the Auditor-General access to its management, books and records 

NSW Treasury has reconfirmed the CMCT is a controlled entity of the State. The Audit Office accepts the position of NSW Treasury. 

The reaffirmation of this position means CMCT is a GSF agency under the provisions of the GSF Act. Section 7.6 of the GSF Act places an obligation on CMCT to prepare financial statements and give them to the Auditor-General. Further, section 34 of the Government Sector Audit Act 1983 (the GSA Act) requires the Auditor-General to furnish an audit report on these financial statements. 

The Audit Office recommended in the ‘State Finances 2022’ report that NSW Treasury and DPE should ensure CMCT meets its statutory reporting obligations. CMCT continues to contest NSW Treasury’s determination and asserts they are not a controlled entity of the NSW Government. 

To date, CMCT has not met its statutory obligations to prepare financial statements under the GSF Act and provide them to the Auditor-General for audit. CMCT has not submitted their financial statements to the Auditor-General for audit despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. There continued to be correspondence between the Audit Office of NSW, CMCT, NSW Treasury and DPE in 2022–23 regarding this matter.

Category 2 Statutory Land Managers and Commons Trusts should be consolidated in the TSSA 

A category 2 Statutory Land Manager (SLM) is a type of Crown Land Manager that is controlled by the State. It excludes other Crown Land Managers such as councils, metro cemeteries and Crown Holiday Parks land managers. SLMs are persons or entities appointed by the Minister to be responsible for the care, control and management of Crown reserves on behalf of the people of New South Wales. 

Commons Trusts (CTs) are responsible for the care, control and management of commons for which the trust is established. A common is a parcel of land that has been set aside by the Governor or the Minister for specific use in a certain locality, such as grazing, camping or bushwalking. CTs are considered to be controlled entities of the Minister who administers the Commons Management Act 1989. CTs are not SLMs. 

Category 2 SLMs and CTs are controlled entities of the State and should be consolidated in the Total State Sector Accounts as required by Australian Accounting Standards. 

Most of these entities have not prepared audited financial statements, upon which to consolidate the non-land assets, liabilities, income and expenses of SLMs and CTs into the Total State Sector Accounts. This is because they have either not complied with their financial reporting obligations under section 7.6 of the GSF Act or they were not required to prepare audited financial statements as they met the prescribed reporting exemption criteria set out in the Government Sector Finance Regulation 2018. Further information on this compliance matter is included in Section 6 of this report titled 'Key audit findings'. 

Insufficient financial information is available to estimate the value of non-land assets, liabilities, revenues and expenses of SLMs and CTs that should be consolidated in the TSSA 

In 2022–23, NSW Treasury reviewed the available financial information to estimate the aggregate value of assets, liabilities, income, and expenses relating to SLMs and CTs that should be consolidated in the TSSA. 

Land managed by the SLMs and CTs is valued each year by the former Department of Planning and Environment (DPE) and included in the TSSA in aggregate ($466 million, 2021–22: $318 million). However, there were significant issues with the accuracy and reliability of financial information to support non-land assets, liabilities, income and expenses of SLMs and CTs. 

NSW Treasury considered the financial statements of 30 of the largest SLMs and CTs, self-reported financial information for around 400 SLMs and CTs, asset valuations, aerial photography, review of business operations, risks, legal claims, insurance arrangements and limitations imposed due to the scale and bespoke nature of the operations. DPE facilitated further engagement with SLMs and CTs to identify additional information.

NSW Treasury estimates the aggregate value of non-land assets not recognised in the TSSA to be in the range of $351.6 million to $382.4 million. However, there are significant limitations on the accuracy and reliability of financial information that support these estimates. Only 12 entities were supported by what NSW Treasury defined as ‘highly reliable financial data’. Two hundred and eighty-four entities provided self-reported information and 288 entities had not submitted any financial data. The balances of the remaining entities were supported by what NSW Treasury defined as ‘somewhat reliable financial data’. This included ‘lower-quality’ financial statements and assessments of asset values performed by DPE. 

Although the review provided some information about the SLMs and CTs, NSW Treasury concluded that there were significant limitations in the financial information available from the SLMs and CTs, and limited information to support compliance with accounting policies and relevant Treasurer’s directions. 

The TSSA audit opinion was qualified in relation to SLMs and CTs 

The opinion in the TSSA’s audit report was qualified due to the limitations on the accuracy and reliability of financial information relating to SLMs and CTs. This is a new audit qualification for 2022–23. 

This limitation was appropriately disclosed in Note 1 'Statement of Significant Accounting Policies' of the TSSA. The Statement of Compliance signed by the Secretary of NSW Treasury and the Treasurer on 18 January 2024 was also updated to acknowledge the disclosure in Note 1 regarding SLMs and CTs.

In September 2023, the NSW Government announced its intention to convert TAHE into a non-commercial PNFC. 

TAHE’s new operating model is expected to be implemented in three phases: 

  • Phase 1: the government expects to transition TAHE to not-for-profit status by taking administrative actions under the State Owned Corporations Act 1989
  • Phase 2: the government expects to introduce an initial wave of legislative changes to allow for the introduction of the new operating model. 
  • Phase 3: the government expects to introduce further legislative changes to remove TAHE’s status as a SOC. The corporation is expected to be renamed. 

Cash contributions from NSW Treasury to TAHE in 2022–23 have been expensed and are no longer treated as equity contributions 

In prior years the cash transfers from NSW Treasury (an entity in the GGS) to TAHE, an entity controlled by the State that is classified in the PNFC sector, were treated as equity contributions. 

The equity contributions were recognised on the basis there was a reasonable expectation to earn a sufficient rate of return of 2.5% (including recovering any holding losses) on the investment in TAHE. The exception to this treatment is if there is no reasonable expectation of a sufficient rate of return on the contribution, in which case, the transfer should be recorded as a capital transfer expense. Returns include dividends, income tax equivalents and holding gains or losses. 

The accounting treatment of the cash contributions to TAHE has been an area of significant audit focus in previous years, and significant audit findings reported to Parliament. The significant uncertainty relating to the assumptions and estimates used to forecast a 2.5% return on GGS investments into TAHE, that supported the recognition of an equity contribution in the prior year, was reported as an emphasis of matter in the 2021–22 TSSA audit report. 

In 2022–23 the government changed the intent and expectations in relation to the future operating model of TAHE. This change in direction meant the government will no longer account for cash contributions to TAHE as equity, but rather will treat such contributions as an expense. This is because the government is no longer demonstrating that there is a reasonable expectation of a sufficient rate of return on the contributions made by the GGS to TAHE. 

As a result, from 1 July 2022, the capital funding of $1.6 billion provided to TAHE in 2022–23 has been recorded as a capital transfer expense in the GGS Statement of Comprehensive Income. 

The emphasis of matter included in last year’s TSSA audit report relating to the significant uncertainty relating to the assumptions and estimates used to forecast returns on GGS investments into TAHE is no longer relevant this year. However, the Audit Office have included a new emphasis of matter in the 2022–23 TSSA audit report, drawing attention to the key decisions made by the government in August 2023 regarding the future of TAHE. 

'Emphasis of matter' paragraphs are included in an agency's Independent Auditor's Report for matters that have been presented or disclosed by the agency in its certified financial statements. Whilst they do not constitute an audit qualification, they do highlight matters that are, in our judgment, relevant to the users' understanding of the financial statements. 

Further information on last year's audit of the government's investment in TAHE can be found in our ‘State Finances 2022’ report.

Valuation of TAHE assets in TAHE's accounts

At 30 June 2023, TAHE reported $16.5 billion in property, plant and equipment and related intangibles within the cash generating units (CGUs) – a $2.8 billion or 15% decrease from the same time last year (2021–22: $19.3 billion). The fair value of these assets at balance date is determined using the income approach – appropriate for TAHE given its current for-profit status. Such an approach is reliant on, and is sensitive to TAHE’s judgements, estimates and assumptions. 

The reduction in the carrying value of reported assets was largely driven by the uncertainty of TAHE's future operating model under the new government, which increased the risk and discount rates applied to the valuation model. 

Given the uncertainty over the future of TAHE, NSW Treasury and TAHE will need to assess whether the income approach remains an appropriate basis of valuation going forward. 

Control of TAHE assets 

TAHE's position on control of assets for the current year was accepted 

TAHE assessed that it maintains control of its assets as it has exercised authority and power over its assets during the year, as well as continuing to operate as an independent SOC. 

Consistent with the prior year, the audit did not find evidence that the assets held by TAHE are not controlled by TAHE. However, given the constraints that can be imposed through the operating licence, there is a risk that limitations could be placed on the operations or functions of TAHE. Future limitations to the degree of control TAHE, and its board, can exercise over it functions may impact the degree of control TAHE has over its assets going forward. The current operating licence issued by the Minister for Transport expires on 30 June 2024. 

Furthermore, the government’s decision to change the operating model for TAHE in future years could impact the control TAHE has over its assets. The control of these assets by TAHE will be a continued area of audit focus.

Recommendation 

NSW Treasury and TAHE should continue to monitor the risk that control of TAHE assets could change in future reporting periods based on the government’s decision on TAHE’s new operating model. 

TAHE must continue to demonstrate control of its assets; or the current accounting presentation would need to be reconsidered.

Performance audit on the design and implementation of TAHE 

In January 2023, the Auditor-General tabled a performance audit on the 'Design and implementation of the Transport Asset Holding Entity', which assessed the effectiveness of NSW government agencies' design and implementation of TAHE. The audit included TAHE, Transport for NSW and NSW Treasury. 

The audit found the design and implementation of TAHE, which spanned seven years, was not effective. 

The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.

The budget benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose. 

Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed. 

Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.

Deficit of $10.6 billion compared with a budgeted deficit of $11.3 billion 

The General Government Sector (GGS) comprises of 210 entities and provides public services or carries out policy or regulatory functions. Agencies in this sector are funded centrally by the State. 

A principal measure of the government's overall activity and policies is its net operating balance (budget result). This is the difference between the cost of general government service delivery and the revenue earned to fund these sectors. 

Outside the GGS, a further 104 government-controlled entities are included within the TSSA. These entities form part of the PNFC (32) and PFC (72) sectors, and generally provide goods and services for which consumers pay for directly (including water and electricity). 

The GGS's budget result for the 2022–23 financial year was a deficit of $10.6 billion compared to an original forecast of a budget deficit of $11.3 billion.

Revenues increased $6.6 billion to $113.2 billion 

The State’s total revenues increased $6.6 billion to $113.2 billion, an increase of 6.2% compared to the previous year. Total revenue growth in 2021–22 was 18.2%. The State's increase in revenue was mostly from $2 billion in sale of goods and services, $1.5 billion in fines, regulatory fees and other revenue, and $1.4 billion in interest. 

Sale of goods and services increased by 14.8% 

Sale of goods and services revenue increased by $2 billion, mainly due to the return of the State's operations and services post the COVID-19 pandemic, including the: 

  • return of elective surgery, increased patient services and sale of high-cost drugs under the Pharmaceutical Benefits Scheme co-payment for Section 100 Highly Specialised Drugs for both private and public patients 
  • increased user demand for public transport 
  • re-opening of schools contributing to higher revenue from student fees, sports and extracurricular activities. 

Fines, regulatory fees and other revenue increased by 19.8% 

Fines, regulatory fees and other revenue increased by $1.5 billion, mainly due to higher mining royalties collected by the State of $949 million. Extracted volume and weight of coal, gold and copper increased in 2022–23, as the COVID-19 pandemic lockdown restrictions eased, increasing the demand for export commodities. 

Interest revenue increased by 137.6% 

Interest revenue increased by $1.5 billion because of the strong interest rate environment and increases in the cash rate impacting securities, investment deposits and government agencies. As a result, this is passed on to new client loans as TCorp’s own borrowing costs increase.

Assets grew by $75.1 billion to $651 billion 

The State’s assets include physical assets such as land, buildings and infrastructure systems, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $75.1 billion or 13.1% to $651 billion. The increase was largely due to increases in the carrying value of land, buildings and infrastructure systems. 

Valuing the State’s physical assets 

The State’s physical assets were valued at $489 billion 

The value of the State’s physical assets increased by $52.6 billion to $489 billion in 2022–23 ($46.7 billion increase in 2021–22). The State’s physical assets include land and buildings ($214 billion), infrastructure systems ($256 billion) and plant and equipment ($19.4 billion). 

The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include assets reclassified to held for sale.

Appendix one – Prescribed entities

Appendix two – TSS sectors and entities

 

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

Published

Actions for Treasury 2023

Treasury 2023

Treasury
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance
Management and administration
Procurement
Regulation
Risk
Service delivery
Shared services and collaboration

What this report is about

Result of the Treasury portfolio of agencies’ financial statement audits for the year ended 30 June 2023.

The results of the audit of the NSW Government’s consolidated Total State Sector Accounts (TSSA), which are prepared by NSW Treasury, will be reported separately in our report on ‘State Finances 2023’.

The audit found

Unqualified audit opinions were issued on all general purpose financial statement audits.

Qualified audit opinions were issued on two of the 24 other engagements prepared by portfolio agencies. These related to payments made from Special Deposit Accounts that did not comply with the relevant legislation.

The number of monetary misstatements identified in our audits increased from 29 in 2021–22 to 39 in 2022–23.

The new parental leave policy impacted agencies across all portfolios. NSW Treasury should perform annual assessments to identify changes in legislation and regulation and provide timely guidance to the sector.

Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders’ costs, clearer guidance on how to account for these costs in agencies’ financial statements is required.

The key audit issues were

Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account. Two repeat issues referred to the need to improve quality review processes over financial reporting and the timely approval of administration costs.

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

 

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

  • financial reporting
  • audit observations.

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

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

Section highlights

  • Unqualified audit opinions were issued on all Treasury portfolio agencies’ 2022–23 financial statements.
  • Two qualified audit opinions were issued on special purpose financial reports, relating to whether payments from the Electricity Retained Interest Corporation – Ausgrid (ERIC-A) Fund and the Electricity Retained Interest Corporation – Endeavour (ERIC-E) Fund, complied with the relevant legislation.
  • The total number of errors (both corrected and uncorrected) in the financial statements increased from 29 in 2021–22 to 39 in 2022–23.
    Reported corrected misstatements increased from 15 in 2021–22 to 25 with a gross value of $7.1 billion in 2022–23. Reported uncorrected misstatements increased from 13 in 2021–22 to 14 in 2022–23, with a gross value of $277.6 million in 2022–23.

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

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

Section highlights

  • Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account.
  • A further 35 moderate risk findings were reported in 2022–23, of which ten were repeat findings.
  • Some agencies have again spent monies without an authorised delegation.
  • The quality of information provided for audit purposes needs to improve.

 

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

Appendix five – Acquittals and other opinions

 

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

Published

Actions for Health 2023

Health 2023

Health
Whole of Government
Asset valuation
Compliance
Financial reporting
Information technology
Internal controls and governance
Project management
Regulation
Risk
Shared services and collaboration
Workforce and capability

What this report is about

Results of the Health portfolio of agencies' financial statement audits for the year ended 30 June 2023.

The audit found

Unmodified audit opinions were issued for all Health portfolio agencies' financial statements. 

The number of monetary misstatements increased in 2022–23, driven by key accounting issues, including the first-time recognition of paid parental leave and plant and equipment fair value adjustments. 

The key audit issues were 

NSW Health identified errors regarding the recognition and calculation of long service leave entitlements for employees with ten or more years of service that had periods of part time service in the first ten years, resulting in prior period restatements. 

Comprehensive revaluation of buildings at the Graythwaite Charitable Trust found errors in the previous year's valuation, resulting in prior period restatements. 

New parental leave legislation increased employee liabilities for portfolio agencies. The Ministry of Health corrected the consolidated financial statements to record parental leave liabilities for all agencies within the Health portfolio.   

A repeat high-risk issue relates to processing time records by administrators that have not been reviewed prior to running the pay cycle.   

Thirty per cent of reported issues were repeat issues. 

The audit recommended 

Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards. 

Portfolio agencies should address deficiencies that resulted in qualified reports on:   

  • the design and operation of shared service controls
  • prudential non-compliance at residential aged care facilities.

 

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

  • financial reporting
  • audit observations.

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

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

Section highlights

  • Unqualified audit opinions were issued for all portfolio agencies required to prepare general purpose financial statements.
  • The total number of errors (including corrected and uncorrected) in the financial statements increased compared to the prior year.
  • The Ministry of Health retrospectively corrected an $18.9 million adjustment in its financial statements relating to long service leave entitlements for certain employees.
  • Graythwaite Charitable Trust retrospectively corrected a $4.2 million adjustment in its financial statements related to prior period valuations. 

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

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

 Section highlights 

  • The 2022–23 audits identified one high-risk and 57 moderate risk issues across the portfolio.
  • The high-risk matter related to the forced-finalisation of time records.
  • The total number of findings increased from 67 to 111 in 2022–23.
  • Thirty per cent of the issues were repeat issues. Most repeat issues related to internal control deficiencies or non-compliance with key legislation and/or central agency policies.
  • Forced-finalisation of time records, accounting for the new paid parental leave provision and user access review deficiencies were the most commonly reported issues.
  • Qualified Assurance Practitioner's reports were issued on:
    • the design and operation of controls as documented by HealthShare NSW
    • the Ministry's Annual Prudential Compliance Statements in relation to residential aged care facilities.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

 

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

 

 

Published

Actions for Transport 2023

Transport 2023

Transport
Whole of Government
Asset valuation
Compliance
Financial reporting
Information technology
Infrastructure
Internal controls and governance
Management and administration
Procurement
Risk

What this report is about

Result of the Transport portfolio of agencies' financial statement audits for the year ended 30 June 2023.

The audit found

Unqualified audit opinions were issued for all Transport portfolio agencies.

An 'emphasis of matter' paragraph was included in the Transport Asset Holding Entity of New South Wales' (TAHE) independent auditor's report, which draws attention to management's disclosure regarding proposed changes to TAHE's operating model.

Government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE's assets.

Transport for NSW's valuation of roads and bridges resulted in a net increase to its asset value by $15.7 billion.

Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders' costs, clearer guidance on how to account for these costs in agency's financial statements is required.

The key audit issues were

The number of issues reported to management decreased from 53 in 2021–22 to 49 in 2022–23.

High-risk findings include:

  • gaps in how Sydney Metro manages its contractors and how conflicts of interest are recorded and managed
  • future financial reporting implications to account for government's proposed changes to TAHE's future operating model, including asset valuations and control assessments of assets and operations
  • Parramatta Park Trust's tree assets' valuation methodology needs to be addressed.

Recommendations were made to address the identified deficiencies.

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

  • financial reporting
  • audit observations.

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

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

Section highlights

  • Unqualified audit opinions were issued on all the portfolio agencies’ 30 June 2023 financial statements.
  • An 'Emphasis of Matter' paragraph was included in the Transport Asset Holding Entity of New South Wales’ (TAHE) Independent Auditor's Report to draw attention to management's disclosure regarding the proposed changes to TAHE's future operating model.
  • The total number of errors (including corrected and uncorrected) in the financial statements increased by 59% compared to the prior year.
  • The recent government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE’s assets.
  • Transport for NSW needs to further improve its quality assurance processes over comprehensive valuations, in particular, ensuring key inputs used in the valuations are properly supported and verified.
  • Transport for NSW and Sydney Metro capitalised over $300 million of bid costs paid to unsuccessful bidders. NSW Treasury’s Bid Cost Contributions Policy does not contemplate how these costs should be recognised in agency’s financial statements. Transport agencies should work with NSW Treasury to develop an accounting policy for the bid cost contributions to ensure consistent application across the sector.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport portfolio.

Section highlights

  • The 2022–23 audits identified four high risks and 28 moderate risk issues across the portfolio. Thirty-nine per cent of issues were repeat findings.
  • Four high risk findings include:
    • TAHE’s asset valuations (new)
    • TAHE’s control of assets and operations (new)
    • Sydney Metro’s management of contractors and conflicts of interest (new)
    • Parramatta Park Trust’s valuation of trees (repeat).
  • The total number of findings decreased from 53 in 2021–22 to 49 in 2022–23. Many repeat findings related to control weaknesses over the asset valuation, payroll processes, conflicts of interest and information technology user access administration.


Appendix one – Misstatements in financial statements submitted for audit 

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting 

Appendix four – Financial data 

 

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

Published

Actions for Planning and Environment 2023

Planning and Environment 2023

Planning
Environment
Industry
Asset valuation
Compliance
Financial reporting
Information technology
Infrastructure
Internal controls and governance
Management and administration
Risk
Shared services and collaboration

What this report is about

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

The audit found

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

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

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

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

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

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

The key audit issues were

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

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

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

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

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

The audit recommended

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

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

  • financial reporting
  • audit observations.

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

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

Section highlights

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

    financial statements for audit. Consequently, the lack of compliance with reporting requirements by these 698 agencies presents a challenge to obtaining reliable financial data for these agencies for the purposes of consolidation to the Total State Sector Accounts.

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

 

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

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

Section highlights 

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

 

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures 

Appendix three – Timeliness of financial reporting 

Appendix four – Financial data

 

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