The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the management of the One TAFE NSW modernisation program.

In 2016, the Government released 'A Vision for TAFE NSW' which stated that TAFE NSW needed to become more flexible, efficient and competitive. It set out the need to progressively reduce significant cost inefficiencies, including by moving away from separate institutes to a single institute model. TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision.

The Auditor General found that the One TAFE NSW modernisation program did not deliver against its key objectives within planned timeframes. The modernisation program originally aimed to realise $250 million in annual savings from 2018–19. Because of project delays and higher than expected transition costs, TAFE NSW did not meet the original savings target. TAFE NSW has made progress on key elements of the program and anticipates that savings will be realised in coming years.

The report makes two recommendations to improve governance arrangements for delivering on commercial objectives and increasing transparency of non commercial activities. 

The report also identifies a series of lessons for future government transformation programs.

TAFE NSW is the public provider of Vocational Education and Training (VET) in New South Wales. In 2018, TAFE NSW enrolled 436,000 students in more than 1,200 courses at around 130 locations across the State.

There have been major policy changes impacting TAFE NSW over the past decade. Under the Smart and Skilled reform, TAFE NSW started to compete with other Registered Training Organisations (RTOs) for a share of the student market.

In 2016, the NSW Government released 'A Vision for TAFE NSW'. The Vision stated that a failure to adapt to market circumstances had left TAFE NSW with unsustainable costs and inefficiencies. To address this, TAFE NSW needed to become more flexible, efficient and competitive. It set out that TAFE NSW must progressively reduce significant cost inefficiencies, including by moving away from a model of separate institutes to a One  TAFE NSW model. The NSW Government set TAFE NSW a target to achieve savings through implementing the Vision.

TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision. The program initially aimed to deliver savings of $250 million per year from 2018–19, but this target was reviewed and updated as the program was being delivered.

This audit assessed whether TAFE NSW effectively managed the One TAFE NSW modernisation program to deliver on the NSW Government's vision for TAFE NSW. In making this assessment, the audit examined whether:

• delivery of the program was well planned
• the program was driven by sound governance arrangements
• TAFE NSW is making progress against the intended outcomes of the program.

The audit focused on the effectiveness of planning, governance and reporting arrangements. It examined five projects within the overall modernisation program as case studies.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – 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 #346 - released 17 December 2020

This report analyses the results of our audits of the financial statements of the Treasury, Premier and Cabinet, Customer Service cluster agencies (central agencies), and the Legislature for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

This report provides Parliament and other users of NSW Government central agencies' financial statements and the Legislature's financial statements with the results of our financial audits, observations, analyses, conclusions and recommendations.

Emergency events, such as bushfires, floods and the COVID-19 pandemic significantly impacted agencies in 2019–20. Our findings on nine agencies that were most impacted by recent emergency events are included throughout this report.

Refer to Appendix one for the names of all central agencies and Appendix four for the nine agencies most impacted by emergency events.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely. This chapter outlines our audit observations on the financial reporting of central agencies and the Legislature for 2020, including the financial implications from recent emergency events.

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

This chapter outlines:

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

Appendix one – Timeliness of financial reporting by agency

Appendix two – List of 2020 recommendations

Appendix three – Status of 2019 recommendations

Appendix four – Agencies most impacted by recent emergency events

Appendix five – Management letter findings by agency

Appendix six – Financial data

The Auditor-General for New South Wales, Margaret Crawford, released a report today titled Education 2020. This report focuses on key observations and findings from the most recent audits of agencies in the Education cluster.

Unqualified audit opinions were issued for all cluster agencies’ financial statements. However, internal control deficiencies were identified across the cluster agencies, including deficiencies in the management of purchasing cards and 15 internal control issues that were repeated from the previous year.

The 2019–20 natural disasters caused widespread damage in both Northern and Southern NSW. The COVID‑19 pandemic further challenged agencies, requiring social distancing and other infection control measures which disrupted the traditional means of teaching students. Agencies have adjusted their operations to respond to these emergency events.

The TAFE Commission’s revenues 2019–20 were impacted by the pandemic. Lower enrolments and an increase in fee-free short courses offered during the year contributed to the result.

Read the PDF report

This report analyses the results of our audits of financial statements of entities within the Education cluster for the year ended 30 June 2020. The table below summarises our key observations and recommendations.

1. Financial reporting 

2. Audit observations

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

• financial reporting
• audit observations
• the impact of emergencies and the COVID-19 pandemic.

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

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

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

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

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

This chapter outlines our:

• observations and insights from our financial statement audits of agencies in the Education cluster. It also comments on our review of elements of the financial control framework applied by schools in NSW whose financial results form part of the Department of Education's (the Department) financial statements.
• assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 and 2018 recommendations

Appendix three – Financial data

Copyright notice

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The Auditor-General for New South Wales, Margaret Crawford, released a report today examining whether the Department of Communities and Justice had effective governance and partnership arrangements in place to deliver ‘Their Futures Matter’.

Their Futures Matter was intended to place vulnerable children and families at the heart of services, and direct investment to where funding and programs deliver the greatest social and economic benefits. It was a four-year whole-of-government reform in response to the 2015 Tune Review of out-of-home care.

The Auditor-General found that while important foundations were put in place, and new programs trialled, the key objective to establish an evidence-based whole-of-government early intervention approach for vulnerable children and families in NSW was not achieved.

Governance and cross-agency partnership arrangements to deliver Their Futures Matter were found to be ineffective. 'Their Futures Matter lacked mechanisms to secure cross portfolio buy‑in and did not have authority to drive reprioritisation of government investment', the Auditor-General said.

At the reform’s close, the majority of around $380 million in investment funding remains tied to existing agency programs, with limited evidence of their comparative effectiveness or alignment with Their Futures Matter policy objectives. The reform concluded on 30 June 2020 without a strategy or plan in place to achieve its intent.

The Auditor-General made four recommendations to the Department of Communities and Justice, aimed at improving implementation of outstanding objectives, revising governance arrangements, and utilising the new human services data set to address the intent of the reform. However, these recommendations respond only in part to the findings of the audit.

According to the Auditor-General, ‘Cross-portfolio leadership and action is required to ensure a whole-of-government response to delivering the objectives of Their Futures Matter to improve outcomes for vulnerable children, young people and their families in New South Wales.’

Read full report (PDF)

In 2016, the NSW Government launched 'Their Futures Matter' (TFM) - a whole-of-government reform aimed at delivering improved outcomes for vulnerable children, young people and their families. TFM was the government's key response to the 2015 Independent Review of Out of Home Care in New South Wales (known as 'the Tune Review').

The Tune Review found that, despite previous child protection reforms, the out of home care system was ineffective and unsustainable. It highlighted that the system was not client-centred and was failing to improve the long-term outcomes for vulnerable children and families. The review found that the greatest proportion of relevant expenditure was made in out of home care service delivery rather than in evidence-based early intervention strategies to support children and families when vulnerabilities first become evident to government services (such as missed school days or presentations to health services).

The then Department of Family and Community Services (FACS) designed the TFM reform initiatives, in consultation with central and human services agencies. A cross-agency board, senior officers group, and a new unit in the FACS cluster were established to drive the implementation of TFM. In the 2016–17 Budget, the government allocated $190 million over four years (2016–17 to 2019–20) to the reform. This resourced the design and commissioning of evidence-based pilots, data analytics work, staffing for the implementation unit and secretariat support for the board and cross-agency collaboration.

As part of the TFM reform, the Department of Premier and Cabinet, NSW Treasury and partnering agencies (NSW Health, Department of Education and Department of Justice) identified various existing programs that targeted vulnerable children and families (such as the preceding whole-of-government ‘Keep Them Safe’ reform coming to an end in June 2020). Funding for these programs, totalling $381 million in 2019–20, was combined to form a nominal ‘investment pool’. The government intended that the TFM Implementation Board would use this pool to direct and prioritise resource allocation to evidence-based interventions for vulnerable children and families in NSW.

This audit assessed whether TFM had effective governance and partnership arrangements in place to enable an evidence-based early intervention investment approach for vulnerable children and families in NSW. We addressed the audit objective with the following audit questions:

• Was the TFM reform driven by effective governance arrangements?
• Was the TFM reform supported by effective cross-agency collaboration?
• Has the TFM reform generated an evidence base to inform a cross-agency investment approach in the future?

The audit did not seek to assess the outcomes for children, young people and families achieved by TFM programs and projects.

Their Futures Matter (TFM) is a whole-of-government reform to deliver improved outcomes for vulnerable children, young people and their families.

Supported by a cross-agency TFM Board, and the TFM Unit in the then Department of Family and Community Services (FACS), the reform aimed to develop whole-of-government evidence-based early intervention investment approaches for vulnerable children and families in NSW.

Governance refers to the structures, systems and practices that an organisation has in place to:

• assign decision-making authorities and establish the organisation's strategic direction
• oversee the delivery of its services, the implementation of its policies, and the monitoring and mitigation of its key risks
• report on its performance in achieving intended results, and drive ongoing improvements.

We examined whether the TFM reform was driven by effective governance arrangements and cross-agency collaboration.

The reform agenda and timeframe set down for Their Futures Matter (TFM) were ambitious. This chapter assesses whether the TFM Board and TFM Unit had the capability, capacity and clout within government to deliver the reform agenda.

Creating a robust evidence base was important for Their Futures Matter, in order to:

• identify effective intervention strategies to improve supports and outcomes for vulnerable children and families
• make efficient use of taxpayer money to assist the maximum number of vulnerable children and families
• inform the investment-based approach for future funding allocation.

This chapter assesses whether the TFM reform has developed an evidence base to inform cross-agency investment decisions.

Appendix one – Response from agency

Appendix two – TFM governance entities

Appendix three – TFM Human Services Data Set

Appendix four – TFM pilot programs

Appendix five – About the audit

Appendix six – Performance auditing

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Parliamentary reference - Report number #337 - released 24 July 2020

This report focuses on whether Destination NSW (DNSW) can demonstrate that its support for major events achieves value for money.

The audit found that DNSW’s processes for assessing and evaluating the major events it funds are mostly effective, but its public reporting does not provide enough transparency.

DNSW provides clear information to event organisers seeking funding and has a comprehensive methodology for conducting detailed event assessments. However, the reasons for decisions to progress events from the initial assessment to the detailed assessment stage are not documented in sufficient detail.

DNSW does not publish detailed information about the events it funds or the outcomes of these events. This means that members of the public are unable to see whether its activities achieve value for money. However, DNSW’s internal reporting to its key decision‑makers, including the CEO, the Board and the Minister is appropriate.

The Auditor-General made four recommendations to DNSW, aimed at improving the transparency of its activities, improving the documentation of decisions and certain compliance matters, and streamlining its approach to assessing and evaluating events that receive smaller amounts of funding.

Read full report (PDF)

Destination NSW (DNSW) provides funding to attract a range of major events to New South Wales, including high-profile professional sports matches and tournaments, musicals, art and museum exhibitions, and participation-focused events such as festivals and sports events that members of the public can enter. The NSW Government's rationale for providing funding is to encourage event organisers to hold events in New South Wales, and to ensure that events held in New South Wales maximise the potential for attracting overseas and interstate visitors.

This audit assessed whether DNSW can demonstrate that its support for major events achieves value for money. In making this assessment, the audit examined whether:

• DNSW effectively assesses proposals to support major events
• DNSW effectively evaluates the impact of its support for major events.

This audit focused on DNSW's work to attract major events to New South Wales. It did not assess DNSW's tourism promotion or development work, which includes developing tourism strategies, marketing and advertising campaigns, national and international partnerships, and regional programs.

Appendix one – Response from Destination NSW

Appendix two – About the audit 

Appendix three – Performance auditing

Copyright Notice

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

Parliamentary reference - Report number #332 - released 9 April 2020.

This report outlines whether the Department of Customer Service (the department) has effective controls in place to ensure the integrity of data in the Births, Deaths and Marriages Register (the register), and to prevent unauthorised access and misuse.

The audit found that the department has processes in place to ensure that the information entered in the register is accurate and that any changes to it are validated. Although there are controls in place to prevent and detect unauthorised access to, and activity in the register, there were significant gaps in these controls. Addressing these gaps is necessary to ensure the integrity of information in the register.

The Auditor-General made nine recommendations to the department, aimed at strengthening controls to prevent and detect unauthorised access to, and activity in the register. These included increased monitoring of individuals who have access to the register and strengthening security controls around the databases that contain the information in the register.

The NSW Registry of Births Deaths and Marriages is responsible for maintaining registers of births, deaths and marriages in New South Wales as well as registering adoptions, changes of names, changes of sex and relationships. Maintaining the integrity of this information is important as it is used to confirm people’s identity and unauthorised access to it can lead to fraud or identity theft.

Read full report (PDF)

The NSW Registry of Births Deaths and Marriages (BD&M) is responsible for maintaining registers of births, deaths and marriages in New South Wales. BD&M is also responsible for registering adoptions, changes of name, changes of sex and relationships. These records are collectively referred to as 'the Register'. The Births, Deaths and Marriages Registration Act 1995 (the BD&M Act) makes the Registrar (the head of BD&M) responsible for maintaining the integrity of the Register and preventing fraud associated with the Register. Maintaining the integrity of the information held in the Register is important as it is used to confirm people's identity. Unauthorised access to, or misuse of the information in the Register can lead to fraud or identity theft. For these reasons it is important that there are sufficient controls in place to protect the information.

BD&M staff access, add to and amend the Register through the LifeLink application. While BD&M is part of the Department of Customer Service, the Department of Communities and Justice (DCJ) manages the databases that contain the Register and sit behind LifeLink and is responsible for the security of these databases.

This audit assessed whether BD&M has effective controls in place to ensure the integrity of data in the Births, Deaths and Marriages Register, and to prevent unauthorised access and misuse. It addressed the following:

• Are relevant process and IT controls in place and effective to ensure the integrity of data in the Register and the authenticity of records and documents?
• Are security controls in place and effective to prevent unauthorised access to, and modification of, data in the Register?

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #330 - released 7 April 2020.

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

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

The report notes a number of audit observations including:

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

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

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

• financial reporting
• audit observations
• government financial services.

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

Central agencies and their key responsibilities are set out below.

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

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

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

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

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

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

Background

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

Appendix one – Timeliness of financial reporting by agency

Appendix two – Management letter findings by agency

Appendix three – Status of 2018 recommendations

Appendix four – Cluster agencies

Appendix five – Financial data

Copyright notice

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

This report focuses on key observations and findings from the most recent financial audits of agencies in the Education cluster. From 1 July 2019, the Technical and Further Education Commission, the NSW Skills Board and the functions and activities associated with vocational training and skills form part of the Education cluster.

Unqualified audit opinions were issued for all cluster agencies’ financial statements. However, internal control deficiencies were identified across the cluster agencies, including 14 findings that were repeated from the previous year. Control deficiencies were also identified in a sample of the state’s 2,200 schools. Schools did not always apply the guidance in the Department of Education's ‘Finance in Schools Handbook’, resulting in control weaknesses in key areas such as governance, cash management and procurement.

'In addition, we continue to observe inconsistencies in the employee leave data reported from the Department of Education’s payroll system, which impact the reliability of estimates of the Department’s liability for employee benefits. The robustness of the Department's quality assurance over leave liability data should be improved', the Auditor-General said.

Download the Education 2019 report (PDF)

This report analyses the results of our audits of financial statements of entities within the Education cluster for the year ended 30 June 2019. The table below summarises our key observations.

1. Machinery of Government changes

2. Financial reporting

3. Audit observations

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

• financial reporting
• audit observations.

This cluster was significantly impacted by the Machinery of Government changes. The Technical and Further Education Commission and the NSW Skills Board, part of the former Industry cluster, were transferred on 1 July 2019. This report focuses on agencies in the Education cluster from 1 July 2019. Please refer to the section on Machinery of Government changes for more details.

Machinery of Government refers to how the government organises the structures and functions of the public service. Machinery of Government changes are where the government reorganises these structures and functions, and the changes are given effect by Administrative Arrangements Orders.

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 Education cluster for 2019.

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 Education cluster. It also comments on our review of the financial control framework applied by 70 schools in NSW whose financial results form part of the Department of Education's (the Department) financial statements.

Appendix one – List of 2019 recommendations

Appendix two – Status of 2018 recommendations

Appendix three – Cluster agencies

Appendix four – Financial data

Copyright notice

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

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

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

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

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

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

1. Internal control trends

2. Information technology controls

3. Gifts and benefits

4. Internal audit

5. Managing contingent labour

6. Managing sensitive data

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

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

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

This is the third report dedicated to internal controls and governance at NSW State Government agencies. The report provides insights into the effectiveness of controls and governance processes in the NSW public sector by:

• highlighting the potential risks posed by weaknesses in controls and governance processes
• helping agencies benchmark the adequacy of their processes against their peers
• focusing on new and emerging risks, and the internal controls and governance processes that might address those risks.

Without strong governance systems and internal controls, agencies increase the risks associated with effectively managing their finances and delivering services to citizens. For example, if they do not have strong information technology controls, sensitive information may be at risk of unauthorised access and misuse.

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

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

Our audits do not review all aspects of internal controls and governance every year. We select a range of measures and report on those that present heightened risks for agencies to mitigate. This year the report focusses on:

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

The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, internal controls and audit observations are included in the individual 2019 cluster financial audit reports, which will be tabled in parliament from November to December 2019.

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

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

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

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

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

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

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

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

Appendix one – List of 2019 recommendations 

Appendix two – Status of 2018 recommendations

Appendix three – In-scope agencies

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

Three key agencies are not fully complying with the NSW Procurement Board’s Direction for engaging probity practitioners, according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin. They also do not have effective processes to achieve compliance or assure that probity engagements achieved value for money.

Probity is defined as the quality of having strong moral principles, honesty and decency. Probity is important for NSW Government agencies as it helps ensure decisions are made with integrity, fairness and accountability, while attaining value for money.

Probity advisers provide guidance on issues concerning integrity, fairness and accountability that may arise throughout asset procurement and disposal processes. Probity auditors verify that agencies' processes are consistent with government laws and legislation, guidelines and best practice principles. 

According to the NSW State Infrastructure Strategy 2018-2038, New South Wales has more infrastructure projects underway than any state or territory in Australia. The scale of the spend on procuring and constructing new public transport networks, roads, schools and hospitals, the complexity of these projects and public scrutiny of aspects of their delivery has increased the focus on probity in the public sector. 

A Procurement Board Direction, 'PBD-2013-05 Engagement of probity advisers and probity auditors' (the Direction), sets out the requirements for NSW Government agencies' use and engagement of probity practitioners. It confirms agencies should routinely take into account probity considerations in their procurement. The Direction also specifies that NSW Government agencies can use probity advisers and probity auditors (probity practitioners) when making decisions on procuring and disposing of assets, but that agencies:

• should use external probity practitioners as the exception rather than the rule
• should not use external probity practitioners as an 'insurance policy'
• must be accountable for decisions made
• cannot substitute the use of probity practitioners for good management practices
• not engage the same probity practitioner on an ongoing basis, and ensure the relationship remains robustly independent. 

The scale of probity spend may be small in the context of the NSW Government's spend on projects. However, government agencies remain responsible for probity considerations whether they engage external probity practitioners or not.

The audit assessed whether Transport for NSW, the Department of Education and the Ministry of Health:

• complied with the requirements of ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’
• effectively ensured they achieved value for money when they used probity practitioners.

These entities are referred to as 'participating agencies' in this report.

We also surveyed 40 NSW Government agencies with the largest total expenditures (top 40 agencies) to get a cross sector view of their use of probity practitioners. These agencies are listed in Appendix two.

There are no professional standards and capability requirements for probity practitioners

NSW Government agencies use probity practitioners to independently verify that their procurement and asset disposal processes are transparent, fair and accountable in the pursuit of value for money. 

Probity practitioners are not subject to regulations that require them to have professional qualifications, experience and capability. Government agencies in New South Wales have difficulty finding probity standards, regulations or best practice guides to reference, which may diminish the degree of reliance stakeholders can place on practitioners’ work.

The NSW Procurement Board provides direction for the use of probity practitioners

The NSW Procurement Board Direction 'PBD-2013-15 for engagement of probity advisers and probity auditors' outlines the requirements for agencies' use of probity practitioners in the New South Wales public sector. All NSW Government agencies, except local government, state owned corporations and universities, must comply with the Direction when engaging probity practitioners. This is illustrated in Exhibit 1 below.

Appendix one – Response from agencies

Appendix two – List of selected agencies

Appendix three – About the audit