Reports
Actions for State Finances 2022
State Finances 2022
What the report is about
Results of the 2021–22 consolidated General Government Sector (GGS) and Total State Sector (TSS) financial statements audits.
What we found
The Independent Auditor’s Report on the 2021–22 GGS and TSS financial statements was modified with a limitation of scope and also contained an emphasis of matter.
The opinion in the TSS Independent Auditor’s Report was modified with a limitation of scope on certain balances consolidated in the TSS financial statements because the Catholic Metropolitan Cemeteries Trust (CMCT) denied access to its management, books and records for the purpose of conducting a financial audit.
The Independent Auditor’s Report also includes an emphasis of matter drawing attention to the significant uncertainties associated with the GGS’s equity investment in Transport Asset Holding Entity (TAHE). The significant uncertainty relates to key assumptions and estimates used to forecast a 2.5% return from GGS investments into TAHE that supports the accounting treatment as an equity injection, including:
- funding to support the Rail Operators to pay TAHE’s contracted and forecast access and licence fees up until 2045–46. The Rail Operators are dependent on funding from the GGS to pay access and licence fees. Forecast modelling notes a requirement of a further $10.2 billion in budget funding to pay TAHE to the end of the ten-year contract period in 2030–31, in addition to the $5.5 billion allocated in the forward estimates and up to $50.8 billion for the period 2032 to 2046
- a significant portion of the projected returns are earnt outside of the ten-year contract period and there is a risk that TAHE may not be able to recontract fees at levels consistent with current projections.
What we recommended
The report includes a number of recommendations including:
- continued monitoring that TAHE controls the reported assets ensuring the CMCT, Category 2 Statutory Land Managers (SLM) and Commons Trusts meet their statutory reporting obligations
- ensuring accounting and audit position papers are sufficiently consulted with key stakeholders and are concluded on a timely basis
- ensuring agencies support the timely conclusion of audits by bringing to the auditors' attention key Cabinet records and identifying references relating to accounting issues impacting the financial statements
- for Special Deposit Accounts (SDA) responsible managers should ensure amounts appropriated under any Act or law for payment into the account are appropriately recorded, ensuring payments from SDAs are allowable and made in accordance with Treasurer's delegations and standing authorisation.
Pursuant to section 52A of the Government Sector Audit Act 1983 I am pleased to present my Auditor-General’s Report on State Finances 2022.
Once again this year has presented considerable challenges for the state sector and my Office as we collectively grapple with uncertainties related to COVID-19 and the disruption of emergency events impacting New South Wales. In addition, there were many recommendations arising from last year’s audit to be addressed.
While there is more to do to ensure good financial stewardship of the State, resolution of matters was helped by constructive engagement with the NSW Treasury at the most senior levels. Personally I wish to thank the Treasurer and Secretary for their commitment to instilling integrity in financial management systems and processes. The support Treasury provided for recent amendments to the Government Sector Audit Act 1983 to provide ‘follow the dollar’ powers and other changes recommended by the Public Accounts Committee quadrennial review of my Office is also acknowledged.
Finally I want to thank the teams that contributed to this year’s audit of the Total State Accounts for their diligence, professionalism and commitment. I am very proud of your work.
Margaret Crawford
Auditor-General for New South Wales
The Independent Auditor's Report was qualified and also included an emphasis of matter
The audit opinion on the State's 2021–22 financial statements was modified. The delayed signing of the NSW Total State Sector Accounts (TSSA) by NSW Treasury was in order to resolve significant accounting issues that were material to the TSSA. The key areas requiring significant audit effort included reviewing the State's accounting for TCorp Investment Management (IM) Funds and responding to the risks related to the Catholic Metropolitan Cemeteries Trust (CMCT) denying access to its management and books and records, which is detailed in this Report.
NSW Treasury aimed to sign the TSSA by 19 October 2022. This was delayed by nearly six weeks and the TSSA audit opinion was subsequently signed on the statutory deadline imposed on the Treasurer for tabling of the TSSA in the Legislative Assembly of 30 November 2022.
The Independent Auditor’s Report was modified due to a limitation of scope on the balances consolidated in the TSSA relating to the CMCT
The opinion in the Independent Auditor’s Report was modified with a limitation of scope due to the inability to access management, books and records of a controlled entity, the CMCT.
This year, NSW Treasury, after reconsidering all facts and the perspectives of the CMCT, reconfirmed that the CMCT is a controlled entity of the State for financial reporting purposes. This means CMCT is a GSF agency under the provisions of the Government Sector Finance Act 2018 (GSF Act). As such NSW Treasury is required by Australian Accounting Standards to consolidate the CMCT into the Total State Sector Accounts (TSSA). The value of assets and liabilities of CMCT consolidated into the TSSA is $310.3 million and $15.1 million, respectively, and the loss of CMCT consolidated into the TSSA for the year is $2.4 million.
To date, CMCT has not met its statutory obligations to prepare financial statements under the GSF Act and give them to the Auditor-General. CMCT has not submitted its financial statements to the Auditor-General for audit as required despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. The Secretary of the Department of Planning and Environment wrote to CMCT to request it work with, and offer full assistance to, the Auditor-General in the exercise of her duties.
NSW Treasury has met with and considered CMCT's perspectives. NSW Treasury’s position remains that CMCT is a controlled entity of the State for financial reporting purposes. Consequently, CMCT has not met its statutory obligations as a controlled entity to submit its financial statements for audit and provide access to its books and records. Therefore, the Audit Office was unable to obtain sufficient appropriate audit evidence about the carrying amount of assets and liabilities consolidated into the Total State Sector Accounts as at 30 June 2022 and of the amount of income and expenses for the year then ended. Accordingly a modified audit opinion was issued on the NSW Government's 2021–22 consolidated financial statements.
Section 3 of this report titled 'Limitation of Scope relating to CMCT' discusses this matter in further detail.
An emphasis of matter drawing attention to uncertainty relating to the General Government Sector's investment in the Transport Asset Holding Entity (TAHE) remains
The Independent Auditor’s Report also includes an emphasis of matter, drawing attention to the significant uncertainties associated with the General Government Sector's (GGS) equity investment in TAHE. The significant uncertainty relates to key assumptions used to forecast returns from investments into TAHE in order to support the recognition of the government's funding of TAHE as an equity injection.
At the time of signing the Independent Auditor's Report, there was significant uncertainty with regards to assumptions and estimates used to forecast a return from the GGS investment into TAHE, which supports the recognition of an equity injection. There is significant uncertainty relating to:
- the 2022–23 Budget committed $5.5 billion to fund TAHE's key customers, Sydney Trains and NSW Trains (the operators), to support their payment of access and licence fees agreed on 23 June 2022. However, this funding only extends out to the end of the forward estimates period in 2025–26, which falls short of the ten-year contractual periods to 2030–31 and the projected period to 2045–46 to achieve a 2.5% return from the government's equity investment. The government will need to fund the operators an additional $10.2 billion in Budget funding so that they can meet their contractual obligations to TAHE from 2026–27 to 2030–31, and a further projected funding of $50.8 billion from 2031 to 2046. This additional funding is not within the government's published Budget figures, leading to uncertainty on whether the government-funded operators can pay access and licence fees beyond the forward estimates period of 2025–26
- a significant portion of the projected returns are earnt outside the ten-year contract period (terminating 30 June 2031) and there is a risk that TAHE will not be able to recontract for access and licence fees at a level that is consistent with current projections. There is also a risk that funding for TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections.
The 'State Finances 2021' report made recommendations regarding the significant accounting issues relating to TAHE. The State's response to these recommendations are detailed in Section 4 of this report titled ‘Investment in the Transport Asset Holding Entity’. Other significant matters related to the TSSA audit are covered in Section 8 titled ‘Key audit findings’.
Other financial reporting matters
All government agencies were granted an extra week to submit financial statements for audit
A one-week extension provided agencies across the sector with additional time to resolve key accounting issues and submit financial statements for audit by 1 August 2022.
Further extensions were approved for the following seven agencies (ten in 2020–21):
- State Insurance Regulatory Authority (3 August 2022)
- Dams Safety NSW (8 August 2022)
- Jenolan Caves Reserve Trust (8 August 2022)
- Transport for NSW (8 August 2022)
- Department of Enterprise, Investment and Trade (22 August 2022)
- Transport Asset Holding Entity (22 August 2022)
- Department of Transport (26 August 2022).
Additional extensions provided agencies with more time to complete:
- asset valuations
- valuations of actuarially assessed liabilities.
An initial draft of the TSSA was provided to audit on 15 September 2022. This version was incomplete and excluded the impact of consolidating the State's TCorp IM funds under the correct Australian Accounting Standards. An additional three versions of the draft TSSA were provided to audit progressively to update the TCorp IM fund consolidated balances. The final complete version of the TSSA was submitted on 27 October 2022 which included all adjustments relating to the TCorp IM fund consolidation. Refer to section 8.1 for more details on the material restatements relating to the consolidation of the TCorp IM funds.
In 2021–22, agency financial statements presented for audit contained 20 errors exceeding $20 million (24 in 2020–21). The total value of these errors was $973 million, a decrease from the previous year ($6.6 billion in 2020–21).
The graph below shows the number of reported errors exceeding $20 million over the past five years in agencies’ financial statements presented for audit.
The errors resulted from:
- incorrect application of Australian Accounting Standards and NSW Treasury policies
- incorrect judgements and assumptions when valuing non-current physical assets and liabilities.
NSW Treasury concluded CMCT is a controlled entity of the State
In response to our recommendation in the ‘State Finances 2021’ report, NSW Treasury reconfirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. The Audit Office accepted the position of NSW Treasury.
The reaffirmation of this position means CMCT is a GSF agency under the provisions of the Government Sector Finance Act 2018 (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.
To date, CMCT has not met its statutory obligations to prepare financial statements under the GSF Act and give them to the Auditor-General. 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 was extensive correspondence between the Audit Office of NSW, CMCT, NSW Treasury and the Department of Planning and Environment in 2022 regarding this matter.
RecommendationNSW Treasury and the Department of Planning and Environment should ensure the Catholic Metropolitan Cemeteries Trust meets its statutory reporting obligations. |
In addition, on 10 December 2021, the then Minister for Water, Property and Housing wrote to the Auditor-General requesting a financial and performance audit be performed pursuant to section 27B(3)(c) of the GSA Act. The audit would cover the financial affairs of CMCT, including whether funds have been used for the proper purpose. The Audit Office of New South Wales has written to CMCT on a number of occasions to request the provision of documentation and access to management in order to conduct the performance audit. CMCT has not provided the Audit Office of New South Wales access to its management, books and records for the purpose of the required performance audit.
NSW Treasury has met with and considered CMCT's perspectives. NSW Treasury’s position remains that CMCT is a controlled entity of the State for financial reporting purposes. Consequently, CMCT did not meet its statutory obligations as a controlled entity to submit its financial statements for audit and provide access to its books and records.
The TSSA audit opinion included a limitation of scope
The opinion in the TSSA Independent Auditor’s Report was modified with a limitation of scope due to an inability to access management and the books and records of CMCT. 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 Treasury and the Treasurer on 29 November 2022 was also updated to acknowledge the disclosure in Note 1 regarding CMCT.
The Audit Office was unable to obtain sufficient appropriate audit evidence about the carrying amount of assets and liabilities consolidated into the Total State Sector Accounts as at 30 June 2022 and of the amount of income and expenses for the year then ended. Accordingly a modified audit opinion was issued on the NSW Government's 2021–22 consolidated financial statements.
The process of information sharing by NSW Treasury continues to require improvement
In last year’s ‘State Finances 2021’ report an extreme risk management letter finding was reported for NSW Treasury to ensure it significantly improve its processes so that all relevant information is identified and shared with the Audit Office to support material transactions and balances of the State.
A number of events reconfirmed that NSW Treasury needs to continue improving its process with respect to information sharing with the Audit Office. Notably, NSW Treasury’s finance team had not demonstrated that all available information (on their systems) was considered by them when assessing the State’s control over CMCT.
Critical information relating to CMCT was in the possession of NSW Treasury since late October 2021 but not considered when reconfirming their accounting position on the State's control of CMCT this year. A further reconfirmation of the State's control over CMCT was needed by NSW Treasury to ensure this information was considered in their accounting assessment.
The above demonstrates that more effective consultation is required by NSW Treasury with key stakeholders to ensure all information relevant to forming an accounting position relating to the TSSA is captured. This will ensure new information is not identified late in the audit process and NSW Treasury considers all information when concluding on the accounting position of the State.
RecommendationNSW Treasury should ensure when drafting position papers and concluding on accounting issues impacting the State, these are provided to audit on a timely basis and reflect a complete and accurate understanding of the key public sector issues being considered. |
Last year's report highlighted that NSW Government actions avoided a qualified opinion in 2020–21 relating to the General Government Sector's $2.4 billion cash contribution to Transport Asset Holding Entity (TAHE). These actions included the NSW Government agreeing to provide additional future funding to TAHE's key government customers Sydney Trains and NSW Trains (the operators) to support increases in access and licence fees to be paid to TAHE.
The additional funding by the government was necessary to demonstrate that a reasonable expectation of a sufficient rate of return would be earned on its equity invested in TAHE. Last year, there was no government policy on what the minimum return should be on investments in other public sector entities, so the long-term inflation rate was used as a benchmark. A recommendation was made in last year's State Finances report that NSW Treasury establish a policy on the minimum expected return from its investments.
On 6 September 2022, NSW Treasury finalised its policy relating to the government’s returns on equity investments. The application of this policy is limited to State Owned Corporations and similar to the Commonwealth framework for commercial businesses, which requires the expected return be at least equal to the long-term inflation rate.
The government's commitment to additional funding was conveyed last year through revised shareholder expectations being published in the 2021–22 'NSW Budget-Half yearly Review' on 16 December 2021, increasing the expected returns on equity from 1.5% to the expected long-term inflation rate of 2.5%. On 18 December 2021, Transport for NSW (TfNSW) and the operators entered into a Heads of Agreement (HoA). This formed the basis of negotiations to revise the pricing within the existing ten-year contracts and deliver upon the shareholders’ expected return of 2.5% on contributed equity to be earned over the estimated weighted average remaining useful lives of TAHE's assets.
Further information on last year's audit of the government’s investment in TAHE can be found in our 'State Finances 2021' report.
Ten-year commercial agreements were signed between TAHE, operators and TfNSW
Last year's State Finances report recommended that NSW Treasury facilitate revised commercial agreements to reflect the access and licence fees detailed in the HoA. As these agreements were not executed by 30 June 2021, last year's audit opinion of the Total State Sector Accounts (TSSA) included an Emphasis of Matter drawing attention to the uncertainty that existed at balance date as these agreements were not finalised.
On 23 June 2022, commercial agreements were signed between TAHE, the operators and Transport for NSW through a deed of variation. The revised access and licence fees for the ten-year period 2021–22 to 2030–31 was $16.6 billion, which is $520 million less than the HoA fees of $17.1 billion.
Comparison | FY22 $m |
FY23 $m |
FY24 $m |
FY25 $m |
FY26 $m |
FY27 $m |
FY28 $m |
FY29 $m |
FY30 $m |
FY31 $m |
Total $m |
Revised commercial agreements | 641.1 | 911.8 | 1,298.1 | 1,585 | 1,807.3 | 1,921.8 | 1,992 | 2,065.4 | 2,139.1 | 2,252.8 | 16,614.4 |
HoA | 679.9 | 1,081.4 | 1,236 | 1,398.9 | 1,645.8 | 1,826.1 | 2,023.3 | 2,209.4 | 2,404.5 | 2,629.2 | 17,134.6 |
Difference | (38.8) | (169.6) | 62.1 | 186.1 | 161.5 | 95.7 | (31.3) | (144) | (265.4) | (376.4) | (520.2) |
TAHE's main customers principally rely on government funding to pay access and licence fees
Whilst TAHE has agreed ten-year access and licence fees of $16.6 billion with its two main customers Sydney Trains and NSW Trains, these two operators significantly rely on government funding when making these payments to TAHE. At 30 June 2022, TAHE's expected return of 2.5% is contingent upon the GGS funding the operators to support their payment of access and licence fees that have been agreed with TAHE for the ten-year contracted period and for non-contracted periods from 2031–32 to 2045–46.
The 2022–23 NSW Budget has allocated $5.5 billion to fund the operators, to support their payment of access and licence fees. However, this funding extends to the end of the forward estimates period in 2025–26, which falls short of the ten-year contractual period to 2030–2031 and the projected period to 2045–46 to achieve the 2.5% return.
2022–261 $b |
2027–20312 $b |
2032–46 $b |
Total $b |
|
Access and licence fees3 | 5.5 | 10.2 | 50.8 | 66.5 |
The government will need to fund the operators an additional $10.2 billion in budget funding to meet their contractual obligations to TAHE from 2026–27 to 2030–2031, and a further projected funding of $50.8 billion from 2032 to 2046. This is needed to ensure the government continues to demonstrate its expected return on investment of 2.5%. This additional funding is not within the government's published 2022–23 NSW Budget figures, leading to uncertainty on whether the government funded operators can pay access and licence fees beyond the forward estimate period of 2025–26.
Significant funding uncertainties remain
While the ten-year access and licence fee agreements were communicated to the NSW Government's Expenditure Review Committee, it is yet to be fully provided for in the government's budget figures. As TAHE's projections are highly dependent on the operators as its key customers, it remains critical that the government continue to provide sufficient funding to the operators so they can pay for access and use of TAHE assets. This means the significant funding uncertainties reported in last year's TSSA audit opinion remain for 2021–22.
The government has estimated $37.9 billion in returns (equivalent to 2.5% on contributed equity) is to be earned from its investment in TAHE over the period from 1 July 2022 to 30 June 2046. As previously reported, TAHE derives most of its revenue from access and licence fee agreements from the operators, who in turn are both funded by grants through TfNSW from the GGS. More than 95% of these returns are estimated to be earned outside of the ten-year contract period (terminating 30 June 2031).
2022–261 $b |
2027–20312 $b |
2032–46 $b |
Total $b |
|
Returns to GGS | 1.8 | 4.7 | 31.5 | 37.9 |
There remains risk that:
- TAHE will not be able to recontract for access and licence fees at a level that is consistent with current projections
- future governments' funding to TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections
- TAHE will be unable to grow its non-government revenues.
This significant funding uncertainty was also reported in last year's TSSA audit opinion and will remain for 2021–22.
In 2021–22, TAHE and NSW Treasury prepared further modelling to support the Government's intent to earn a 2.5% return inclusive of recovering the holding (revaluation) loss of $20.3 billion on its investment in TAHE
Last year's State Finances report highlighted that NSW Treasury, with TAHE, should prepare robust projections and business plans to support the expected returns forecast beyond FY2031.
This year TAHE engaged an expert to help develop a model demonstrating the government's expected returns from its investment in TAHE. The model mathematically forecasts that returns of 2.5% will be achieved by 2046 and this will include recovery of the revaluation losses of $20.3 billion relating to 2020–21.
The current model includes some key assumptions:
- The main source of revenue is the access and licence fees expected from the two public rail operators (Sydney Trains and NSW Trains) contributing to more than 80% of TAHE's projected revenue. The rail operators are largely funded by the government when paying access and licence fees to TAHE.
- For the first ten years, the access and licence fees are based on the signed agreements between TAHE and the public rail operators.
- Beyond the ten-year contracted period, the model assumes existing contractual terms for access and licence fees will continue unchanged allowing for an annual rise for inflation (2.5% per annum), and increased fees to enable a 7.62% return for renewed assets.
- The capital expenditure included in the model is only the amounts approved by the Expenditure Review Committee (ERC) as part of the ten-year forecast. The model beyond ten years includes expected investment in renewed and replacement assets but excludes any forecasts relating to growth capex that is not approved by the ERC, and any related depreciation expenses for growth capex.
While management has developed a 35-year long term financial model to support the returns, we note this will need to be refined over the next few years. Furthermore, these are forecasted figures and we have not seen sufficient evidence of whether this reflects reality (that is, the achievement of dividends representing a return on equity) as it is still very early. Therefore, this will remain a high-risk matter until we have seen sufficient evidence of reality to the forecasted figures.
There is negative net impact on the budget after 2024–25 and this will grow in the future
There are some key points to highlight with this modelling and these are best conveyed with the graph below. This graph shows total cash injections made by the GGS since the government first announced the creation of TAHE as a for-profit entity in the 2015–16 NSW Budget. It also conveys the forecast returns from TAHE to the GGS and the level of funding operators will need from the GGS to pay TAHE's access and licence fees over the 30-year period. These cash flows are key inputs used in the modelling which calculates a 2.5% return from TAHE inclusive of recovering the holding (revaluation) loss of $20.3 billion.
The government continues to respond to the impact of the COVID-19 pandemic on New South Wales through its economic stimulus measures
The COVID-19 pandemic continued to significantly impact the State’s finances, reducing revenue and increasing expenses especially in sectors directly responsible for responding to the COVID-19 pandemic, such as Health. In October 2021, the government announced through the 'COVID-19 Economic Recovery Strategy' an additional $2.8 billion in economic stimulus and response measures following the conclusion of the three-month lockdown due to the Delta COVID-19 outbreak. Measures included:
- $739 million in household and social support, including housing support for Aboriginal communities and survivors of domestic violence, and vouchers to thank parents for their efforts to support learning from home
- $500 million to consumers and businesses including expansion of the 'Dine & Discover' and 'Stay & Rediscover' voucher programs
- $495 million in education support addressing learning gaps for children and helping schools prepare for future learning disruptions
- $487 million in combined funding for tourism, events, sports, and recreation throughout New South Wales
- $130 million to fund mental health services for individuals whose mental health was impacted by the pandemic.
The 2021–22 financial year included $21.9 billion for pandemic response and economic stimulus measures. Of this, $17.9 billion was spent in 2021–22 while a further $1 billion of the budgeted amount from 2021–22 was carried forward into 2022–23. The graph below shows the total allocation and spend by cluster for 2022 compared to target spend.
There were 14 natural disaster declarations including four severe weather events in 2021–22
Natural disasters such as bushfires, storms, floods, and other adverse weather events can have a significant impact on the State's finances. Costs associated with natural disasters include direct response costs such as clean-up and recovery, temporary accommodation, and as well as financial assistance provided to impacted communities such as recovery and business support grants.
The NSW Government can make a natural disaster declaration allowing eligible individuals and communities from impacted Local Government Areas access to a range of special financial assistance measures.
In 2021–22, there were 14 natural disaster declarations announced comparable to 14 in the previous year. These natural disaster declarations largely related to storms and floods throughout the State. In 2021–22, there was a larger number of 'severe weather' events declared, with four in 2021–22 (nil in 2020–21).
Natural disaster expenses increased 143% to $1.4 billion in 2021–22, up from $569 million last year
Over 2021–22, the budgeted cost for declared natural disasters was $1.9 billion ($725 million in 2020–21). Actual expenditure by the State on disaster response increased by $815 million to $1.4 billion. The graph below shows the total allocation and spend by cluster for 2022 compared to their budget spend.
Deficit of $15.3 billion compared with a budgeted deficit of $8.6 billion
The outcomes of the government’s overall activity and policies are reflected in 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.
The General Government Sector, which comprises 196 entities, generally provides goods and services funded centrally by the State.
In addition to the 196 entities within the General Government Sector, a further 85 government controlled businesses are included within the consolidated Total State Sector financial statements. These businesses generally provide goods and services, such as water, electricity and financial services for which consumers pay for directly, and form part of the PNFC (31) and PFC (54) sectors.
The budget result for the 2021–22 financial year was a deficit of $15.3 billion compared to an original forecast of a budget deficit of $8.6 billion.
Revenues increased $16.1 billion to $106.7 billion
The State’s total revenues increased $16.1 billion to $106.7 billion, an increase of 17.8% compared to the previous year. Total revenue growth in 2020–21 was 5.1%. The State's increase in revenue was mostly from $9.2 billion in grants and subsidies and $4.6 billion in taxation.
Taxation revenue increased by 13.3%
Taxation revenue increased by $4.6 billion, mainly due to the net of:
- $4.9 billion higher stamp duties collected from property sales driven by growth in property transaction volumes and prices during 2021–22. This was growth was experienced across residential and commercial property markets
- $296 million lower gambling and betting taxes compared to 2020–21. Decrease was primarily attributed to the ongoing effects of COVID-19 restrictions and venue closures within the first half of 2021–22.
Stamp duties of $16.6 billion remains the largest source of taxation revenue, $7.7 billion higher than payroll tax of $8.9 billion, the second-largest source of taxation revenue.
Assets grew by $53 billion to $571 billion
The State’s assets include physical assets such as land, buildings and infrastructure, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $53.2 billion or 10.3% to $571 billion. The increase was largely due to increases in the carrying value of land, buildings and infrastructure systems.
Valuing the State’s physical assets
State’s physical assets valued at $437 billion
The value of the State’s physical assets increased by $46.8 billion to $437 billion in 2021–22 ($724 million increase in 2020–21). The State’s physical assets include land and buildings ($198 billion), infrastructure systems ($221 billion), and plant and equipment ($18 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 and other opening balance adjustments.
Appendix one – Prescribed entities
Appendix three – TSS sectors and entities
Copyright notice
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Actions for Internal controls and governance 2022
Internal controls and governance 2022
What the report is about
This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state-owned corporations and public financial corporations, for the year ended 30 June 2022.
What we found
Internal control trends
The proportion of control deficiencies identified as high-risk this year increased to 8.2% (5.9% in 2020–21). Sixteen of the 23 high-risk findings related to financial controls while seven related to IT controls.
Repeat findings of control deficiencies now represent 48% of all findings (47% in 2020–21).
Information technology
There continues to be a high number of deficiencies relating to IT general controls, particularly around user access reviews, which affected 56% of agencies.
Cyber security
Agencies' self-assessed maturity levels against the NSW Cyber Security Policy mandatory requirements are lower than target levels. Overall, maturity levels against the Australian Cyber Security Centre's Essential Eight controls have not improved since last year.
Management of cyber risks relating to third party IT service providers should be improved. IT service providers may pose risks to the agency if the provider's cyber security controls have weaknesses.
Consultants and contractors
Agencies risk over-reliance on the same consultants and contractors. A quarter of agencies have re-engaged the same contractor over the past five years.
Employment screening Twenty-four per cent of agencies have not complied with the employment screening requirements of the Government Sector Employment Act 2013 with regard to citizenship or residency. Screening and induction practices for non-permanent workers are often less stringent than for permanent employees. This can pose increased risks to an entity of not detecting applicants with false credentials or a history of corrupt conduct.
Contract management
Half of all agencies' procurement contract registers are incomplete, which is non-compliant with the Government Information (Public Access) Act 2009.
What we recommended
Agencies should:
- prioritise actions to address repeat control deficiencies
- prioritise improvements to their cyber security and resilience
- reinforce mandatory cyber training to all staff and improve completion rates
- ensure that contractor engagements that have been renewed over multiple years are periodically reassessed against the market.
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.
For consistency and comparability, we have adjusted the 2021 results to incorporate additional audit findings that were reported after the date of the 'Internal controls and governance 2021' report. Therefore, the 2021 figures will not necessarily align with those reported in our 2021 report.
This section also covers how agencies have complied with TD 21-04 during 2021–22.
Section highlightsWe identified 23 high-risk findings, compared to 20 last year, with ten repeated from last year. Sixteen of the 23 findings related to financial controls and seven related to IT controls.
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency controls to manage key financial systems.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security planning and governance arrangements.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' practices in engaging external experts, such as consultants and contractors.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' employment screening practices.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' contract management processes.
Section highlights
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Actions for Planning and Environment 2022
Planning and Environment 2022
What the report is about
Result of the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.
Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.
Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.
Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.
The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.
All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).
NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.
What the key issues were
Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.
There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.
The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.
Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Planning and Environment cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster (the cluster) for 2022.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Planning and Environment cluster.
Section highlights
|
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 – Councils received qualified audit opinions
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.
Actions for Stronger Communities 2022
Stronger Communities 2022
What the report is about
Results of the Stronger Communities cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unqualified audit opinions were issued on all completed 30 June 2022 financial statement audits. One audit is ongoing.
All 13 cluster agencies that have accommodation arrangements with Property NSW derecognised right-of-use assets and lease liabilities of $917 million and $1 billion respectively. The agencies also collectively recorded a gain on derecognition of $136 million.
The Department of Communities and Justice (the department) assumed the responsibility for delivery of the Process and Technology Harmonisation program from the Department of Customer Service. In 2021–22, the department incurred costs of $42.8 million in relation to the project, which remains ongoing.
The number of monetary misstatements identified during the audits decreased from 50 in 2020–21 to 48 in 2021–22.
What the key issues were
Six of the 15 cluster agencies required to submit 2021–22 mandatory early close procedures did not meet the statutory deadlines. One agency did not complete all mandatory procedures.
Five high-risk findings were identified in 2021–22. They related to deficiencies in:
- user access administration at the department, NSW Rural Fire Service and New South Wales Aboriginal Land Council (NSWALC)
- segregation of duties at the NSW Trustee and Guardian and NSWALC.
Recommendations were made to those agencies to address these control deficiencies.
This report provides Parliament and other users of the Stronger Communities cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Stronger Communities cluster (the cluster) for 2022.
Section highlights
|
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 Stronger Communities cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Health 2022
Health 2022
What the report is about
Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for the financial statements for all Health cluster agencies.
The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).
A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.
What the key issues were
The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.
Three unresolved high-risk issues were:
-
COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.
-
Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.
-
Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.
What we recommended
-
COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.
-
Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.
-
Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.
This report provides Parliament and other users of Health cluster (the cluster) 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 cluster (the cluster) for 2022.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Education 2022
Education 2022
What the report is about
Result of the Education cluster financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Education cluster agencies.
An 'other matter' paragraph was included in the TAFE Commission's independent auditor's report as it did not have a delegation or sub-delegation from the Minister for Education and Early Learning to incur expenditure from cluster grants.
What the key issues were
Annual fair value assessments of land and buildings showed material differences in their carrying values. As a result, the Department of Education and the TAFE Commission completed desktop revaluations of land and buildings, collectively increasing the value of these assets by $1.2 billion and $4.7 billion respectively.
The Department of Education and the NSW Education Standards Authority accepted changes to their office leasing arrangements managed by Property NSW. These changes resulted in the collective derecognition of $270.6 million of right-of-use assets and $382.9 million in lease liabilities.
What we recommended
A high-risk matter was reported in the management letter for the TAFE Commission highlighting non-compliance with policies and procedures guiding appropriate use of purchasing cards.
We recommended cluster agencies prioritise and address internal control deficiencies.
This report provides Parliament and other users of the Education cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Education cluster (the cluster) for 2022.
Section highlights
|
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.
Section highlights
|
The number of findings reported to management has increased, and 31% were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2021–22, there were 29 findings raised across the cluster (28 in 2020–21). Thirty-one per cent of all issues were repeat issues (50% in 2020–21).
The most common new and repeat issues related to internal control deficiencies in agencies’ information technology general controls, application controls, and procurement and payroll practices.
A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.
A high-risk matter was reported at the TAFE Commission highlighting instances of non-compliance with policies and procedures guiding appropriate purchasing card use
As part of our audit of the TAFE Commission, we integrated the use of data analytics into the audit approach. We performed data analytics over aspects of payroll, procurement and accounts payable activities. This helped us to highlight anomalies or risks in those data sets that are relevant to the audit of the TAFE Commission and plan testing procedures to address those risks. Data analytics also assisted us in providing an insight into the internal control environment of the TAFE Commission, highlighting areas where key controls are not in place or are not operating as management intended.
Our analysis over purchasing card data supplied by the TAFE Commission for the period July 2021 to March 2022 found deficiencies in the provisioning, use and cancellation of purchasing cards. This included identified instances of:
- controls effectively bypassed when a purchasing card surrendered by a former employee had been used by another employee
- split payments, circumventing delegation / cardholder limits
- delays in the submission and approval of purchasing card transactions.
The table below describes the common issues identified across the cluster by category and risk rating:
Risk rating | Issue |
Information technology | |
High: 0 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 2 new, 1 repeat 3 |
The financial audits identified areas for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of note were deficiencies identified in:
|
Internal control deficiencies or improvements | |
High: 1 new, 0 repeat 1 Moderate: 5 new, 3 repeat 2 Low: 4 new, 1 repeat 3 |
The financial audits identified internal control weaknesses across key business processes relevant to financial reporting. Of note were deficiencies identified in:
|
Financial reporting | |
High: 0 new, 0 repeat 1 Moderate: 1 new, 1 repeat 2 Low: 2 new, 0 repeat 3 |
The financial audits identified:
|
2 Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
3 Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Recommendation
We recommend cluster agencies prioritise and action recommendations to address the internal control deficiencies outlined above.
Actions for Premier and Cabinet 2022
Premier and Cabinet 2022
What the report is about
Result of the Premier and Cabinet cluster financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all Premier and Cabinet cluster agencies.
The machinery of government changes within the Premier and Cabinet cluster resulted in the transfer of net assets of $1 billion from the Department of Premier and Cabinet.
The Department of Premier and Cabinet, Public Service Commission and Parliamentary Counsel's Office accepted changes to their office leasing arrangements managed by Property NSW. These changes resulted in the collective de-recognition of $167.3 million of right-of-use assets, $225.1 million in lease liabilities and recognition of $47.8 million of other gains/losses.
What the key issues were
The number of issues we reported to management decreased.
Forty per cent of issues were repeated from the prior year.
Four moderate risk issues were reported in the management letters for Department of Premier and Cabinet and New South Wales Electoral Commission. Three out of the four moderate risk issues were repeat issues.
The repeat issues related to internal control deficiencies in agencies' including lack of updated procurement policies and procedures and information technology general controls.
Fast facts
The Premier and Cabinet cluster comprises seven agencies, delivering the government's objectives and facilitating stewardship of the public service.
- $0.2b property, plant and equipment as at 30 June 2022
- $3b total expenditure incurred in 2021–22
- 100% unqualified audit opinions issued on agencies’ 30 June 2022 financial statements
- 4 moderate risk findings identified
- 15 monetary misstatements reported in 2021–22
- 40% of reported issues were repeat issues
This report provides Parliament and other users of the Premier and Cabinet’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Premier and Cabinet cluster for 2022.
Section highlights
|
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 Premier and Cabinet cluster.
Section highlights
|
Appendix one – Early close procedures
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.
Actions for Audit Insights 2018-2022
Audit Insights 2018-2022
What the report is about
In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.
This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.
The report is framed by recognition that the past four years have seen significant challenges and emergency events.
The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.
The report is a resource to support public sector agencies and local government to improve future programs and activities.
What we found
Our analysis of findings and recommendations is structured around six key themes:
- Integrity and transparency
- Performance and monitoring
- Governance and oversight
- Cyber security and data
- System planning for disruption
- Resource management.
The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.
In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.
The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
Fast facts
- 72 audits included in the Audit Insights 2018–2022 analysis
- 4 years of audits tabled by the Auditor-General for New South Wales
- 6 key themes for Audit Insights 2018–2022.
I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.
The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.
While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.
Margaret Crawford
Auditor-General for New South Wales
Integrity and transparency | Performance and monitoring | Governance and oversight | Cyber security and data | System planning | Resource management |
Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. | Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. | The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. | Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. | Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. | Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest. |
Government entities should report to the public at both system and project level for transparency and accountability. | Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. | Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. | In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. | Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. | Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds. |
Entities must provide balanced advice to decision-makers on the benefits and risks of investments. | Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. | Active review of policies and procedures in line with current business activities supports more effective risk management. | Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. | Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. | Transformation programs can be improved by resourcing a program management office. |
Clear guidelines and transparency of decisions are critical in distributing grant funding. | Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. | Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues. | Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need. | ||
Governments must ensure timely and complete provision of information to support governance, integrity and audit processes. | |||||
Read more | Read more | Read more | Read more | Read more | Read more |
This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.
- Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
- Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
- Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.
This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.
The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.
This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.
Appendix one – Included reports, 2018–2022
Appendix two – About this report
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Transport 2021
Transport 2021
What the report is about
The results of the Transport cluster agencies’ financial statement audits for the year ended 30 June 2021.
What we found
Unmodified financial statement audit opinions were issued for all Transport cluster agencies. Resolution of issues delayed signing the Transport Asset Holding Entity of NSW (TAHE) until 24 December 2021. Matters relating to TAHE are also reported in the report on State Finances 2021.
Emphasis of Matter - TAHE
An Emphasis of Matter paragraph was included in TAHE's audit opinion to draw attention to uncertainty associated with:
- future access and licence fees that are subject to re-signed agreements
- an additional $4.1 billion of funding that is outside the forward estimates period
- a significant portion of the fair value of TAHE’s non-financial assets is reflected in the terminal value, which is outside the ten-year contract period to 30 June 2031, and the risk that TAHE will not be able to negotiate contract terms to support current projections.
TAHE's transition from RailCorp also changed its valuation of assets to an income approach, resulting in a $20.3 billion decrease to the fair value. The fair value decrease was because the cash flows were not sufficient to support the previous recorded value.
TAHE corrected a misstatement of $1.2 billion relating to the valuation of its assets. This followed significant deliberation on key judgements and assumptions, with TAHE adopting risk assumptions in its valuation that were not in line with comparable benchmarks.
Emphasis of Matter - State Transit Authority of New South Wales
An Emphasis of Matter paragraph was included in the State Transit Authority of NSW's (the Authority) audit opinion to draw attention to the financial statements not prepared on a going concern basis. This was because the NSW Government put the Authority's bus contracts out to competitive tender and accordingly, management assessed the Authority's principal activities are not expected to operate for a full 12 months after 30 June 2021.
The implementation of AASB 1059 ‘Service Concession Arrangements: Grantors’ resulted in a net increase in assets of $23.5 billion across the Transport cluster.
The 2020–21 audits identified six high-risk and 45 moderate risk issues across the cluster. Fourteen of the moderate risk issues were repeat issues, including information technology controls around management of user access for key financial systems and payroll processes.
The high-risk issues, in addition to those related to TAHE and previously reported in the report on State Finances 2021, include:
- absence of conflict of declarations related to land acquisition processes at Transport for NSW
- no evidence of conflict of interest declarations obtained by TAHE from consultants and contractors regarding involvement in other engagements.
What we recommended
TAHE needs to:
- finalise revised commercial agreements to reflect fees detailed in a Heads of Agreement signed on 18 December 2021
- prepare robust projections and business plans to support the required rate of return.
NSW Treasury and TAHE should monitor the risk that control of TAHE assets could change in the future.
Transport for NSW needs to significantly improve its processes to ensure all key information is identified and shared with the Audit Office.
Transport agencies should implement a process to ensure conflicts of interest declarations are completed for land acquisitions and applied consistently across the cluster.
Transport agencies should implement a process to capture all contracts and agreements entered to ensure:
- agencies are aware of contractual obligations
- financial reporting implications are assessed, particularly with respect to leases, revenue and service concession arrangements.
Fast facts
The Transport cluster plans and delivers infrastructure and integrated services across all modes of transport. This includes road, rail, bus, ferry, light rail, cycling and walking. There are 11 agencies in the cluster.
- $128b road and maritime system infrastructure assets as at 30 June 2021
- 100% unqualified audit opinions were issued on agencies 30 June 2021 financial statements
- 26 monetary misstatements were reported in 2020–21
- $24.9b rail systems infrastructure assets as at 30 June 2021
- 6 high-risk management letter findings were identified
- 37% of reported issues were repeat issues
This report provides Parliament and other users of the transport cluster (the cluster) agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the cluster for 2021.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the cluster.
Section highlights
|
Findings reported to management
The number of findings reported to management has increased, and 37 per cent of all issues were repeat issues
Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of agencies. The Audit Office does this through management letters, which include observations, related implications, recommendations and risk ratings.
In 2020–21, there were 73 findings raised across the cluster (56 in 2019–20) and 37 per cent of all issues were repeat issues (43 per cent in 2019–20).
In view of the recent performance audit ‘Managing Cyber Risks’ and compliance audit ‘Compliance with the NSW Cyber Security Policy’ involving the cluster, it is noted with concern that the most common repeat issues related to weaknesses in controls over information technology user access administration and password management. Moderate risk issues included completeness and accuracy of contract registers, accounting for assets and management of supplier and payroll masterfiles.
A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports, and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Control deficiencies may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation, and central agency policies.
The table below describes the common issues identified across the cluster by category and risk rating.
Risk rating | Issue |
Information technology | |
Moderate: 7 new, 4 repeat** |
The financial audits identified opportunities for agencies to improve information technology processes and controls that support the integrity of financial data used to prepare agencies' financial statements. Of particular concern are issues associated with:
|
Low: 4 new, 1 repeat*** | |
Internal control deficiencies or improvements | |
High: 1 new* |
The financial audits identified internal control deficiencies across key business processes, including:
|
Moderate: 15 new, 8 repeat** | |
Low: 2 new, 5 repeat*** | |
Financial reporting | |
High: 3 new* |
The financial audits identified opportunities for agencies to strengthen financial reporting, including:
|
Moderate: 3 new, 1 repeat** | |
Low: 2 new*** | |
Governance and oversight | |
High: 1 new* |
The financial audits identified opportunities for agencies to improve governance and oversight processes, including:
|
Moderate: 2 new** | |
Non-compliance with key legislation and/or central agency policies | |
High: 1 new* |
The financial audits identified the need for agencies to improve its compliance with key legislation and central agency policies, including:
|
Moderate: 4 new, 1 repeat** | |
Low: 1 new, 7 repeat*** |
** Moderate risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
*** Low risk from the consequence and/or likelihood of an event that has had, or may have a negative impact on the entity.
Note: Management letter findings are based either on final management letters issued to agencies.
2020–21 audits identified six high-risk findings
High-risk findings were reported at the following cluster agencies.
Agency | Description |
2020–21 findings | |
Transport for NSW (new finding) |
Declaration of conflicts of interest in the land acquisition process In 2021, we conducted a performance audit over the Acquisition of 4–6 Grand Avenue, Camellia which examined:
The report made several recommendations over Transport for NSW’s internal policies and procedures to guide the land acquisition process. As part of the financial audit, we obtained an understanding of key controls and processes relating to the acquisition of land, relevant to the audit of the financial statements. We found that conflicts of interests were not always declared by all officers involved in the land acquisition process. Furthermore, processes for declaring conflicts of interests are not consistently applied across cluster agencies. Out of a sample of 19 land acquisitions tested, we identified:
Management advised that the land acquisition processes, at the time of the land acquisitions, did not require formal conflicts of interests to be declared as they believe that as per Transport for NSW code of conduct, declaration is only required where the staff member considers that a potential or perceived Conflict of Interest exists. However, Transport for NSW's Procurement Policy requires the documentation of formal declarations from all staff involved in procurement activities to formally disclose any conflicts of interest or state that they do not have a conflict of interest. This matter has been included as a high-risk finding in the management letter as absence of rigorous and consistent management of conflicts of interests, and non-compliance with established policies increases the risk that Transport for NSW may be exposed to reputational damage or financial losses in relation to land acquisitions. Furthermore, this may result in lack of probity or value-for money considerations during the land acquisition process. Further details are elaborated below under 'Land acquisitions'. |
Transport Asset Holding Entity of New South Wales (new finding) |
Control over TAHE assets and operations The State-Owned Corporations Act 1989 maintains that all decisions relating to the operation of a statutory state-owned corporation (SOC) are to be made by or under the authority of the board. However, under the Transport Administration Act 1988 (TAA), the functions of TAHE may only be exercised under one or more operating licences issued by the portfolio minister. The current Operating Licence confers terms and conditions for TAHE to carry out its functions, and imposes constraints on TAHE, including (but not limited to):
Such operating licences are short term in nature, and the TAA allows the transport minister (portfolio minister) to grant one or more operating licences to TAHE and may amend, substitute, or impose, amend or revoke conditions of the operating licence. For the current year, the legal form of the arrangements established in its first year of operation imply TAHE has control over the assets based on the Implementation Deed and the agreements signed with the public operators. However, risks remain as TAHE is in its early stages, and the actual substance of operations will need to be observed and considered. Given the restrictions that can be placed on the entity through the Operating Licence, and the ability to make further changes to the Operating Licence and Statement of Expectations set by the portfolio minister, there is a risk there could be limitations placed on the Board of Directors to operate with sufficient independence in its decision-making with respect to the operations of TAHE. Over time, this may further impact the degree of control required by TAHE to satisfy the recognition criteria over its assets. It may also fundamentally change the presentation of TAHE’s financial statements. Future limitations to the degree of control TAHE, and its Board, can exercise over its functions may impact the degree of control TAHE has over its assets going forward. As part of the 2021–22 audit, we will monitor and assess whether, in substance, these assets continue to be controlled by TAHE and whether, in substance, TAHE can operate as an independent SOC. We require management continue to demonstrate that TAHE continues to maintain control over its assets and has the ability to operate as an independent SOC. Further details are described below under 'Transport Asset Holding Entity'. |
Transport Asset Holding Entity of New South Wales (new finding) |
Asset valuation The final updated valuation was based on cash flows that were in a signed Heads of Agreement, which stated that it set out the proposed indicative future access and licence fees which will form the basis of the negotiations between TAHE, Transport for NSW, Sydney Trains and NSW Trains, who will work together to review access fees and licence fees payable under the agreements and to make all necessary changes to the Operating Agreements by 1 July 2022. This adds uncertainty in the cash flows. It is crucial that TAHE formalises these updated fees in legally binding signed access and licence agreements with the relevant parties as soon as possible. Refer below for further details on the Heads of Agreement. |
Transport Asset Holding Entity of New South Wales (new finding) |
Conflict of interest (COI) management For procurement transactions through direct negotiation with single quotes, there was no evidence of COI declarations obtained from the consultants and contractors regarding involvement in other engagements. Contractors and consultants are required to declare actual COI. However, there was no requirement to confirm nil conflict of interest. In addition, there is a risk that perceived COI may not be adequately assessed or managed. TAHE is expected to operate as an independent SOC and would need to ensure any perceived or actual conflict of interest is adequately addressed. Management should implement a process to:
The declarations should consider individuals and relationships that may create, or may be perceived to create, conflicts of interest. |
Transport Asset Holding Entity of New South Wales (new finding) |
Detailed business modelling to support returns On 18 December 2021, Transport for NSW, TAHE and the operators, Sydney Trains and NSW Trains entered into a Heads of Agreement (HoA). This HoA forms the basis of negotiations to revise the pricing within the existing 10-year contracts and deliver upon the shareholders' expectation of a return of 2.5 per cent per annum of contributed equity, including recovering the revaluation loss incurred in 2020–21. TAHE needs to revise its business plan and include detailed business modelling that supports the shareholding ministers' revised expectations of return (2.5 per cent return on the State’s equity injections and recovery of the write-down of assets over the average useful life of those assets) and align the business plan and Statement of Corporate Intent. This requires more detailed projections, estimates and plans that support how TAHE expects to recover the asset write-down and expected returns to government. The current modelling for ten years needs to be enhanced with modelling over the expected recovery period of approximately 33 years. |
Transport Asset Holding Entity of New South Wales (new finding) |
Access price build-up Management explained that in determining access and licence fees for the agreements with Sydney Trains and NSW Trains, assets prior to the commencement of equity injections in 2015–16 were excluded from the calculations. Management explained the premise being that these assets were previously funded by government through capital grants. The replacement and refurbishment of these assets is expected to be through government funded maintenance performed through the public rail operators and/or the equity injections from NSW Treasury rather than through access and licence fees. |
The number of moderate risk findings increased from prior year
Forty-five moderate risk findings were reported in 2020–21, representing a 73.1 per cent increase from 2019–20. Of these, 14 were repeat findings, and 31 were new issues.
Key moderate risk findings related to:
- weaknesses in user access management to key financial systems
- management of contracts and agreements register
- management of supplier and payroll masterfiles
- accounting for assets
- control deficiencies at service organisations
- segregation of duties relating to the hiring of employees
- conflict of interest management
- annual leave management
- review of internal audit charter
- disaster recovery planning.
Transport Asset Holding Entity of New South Wales
Background
The establishment of TAHE was originally announced by the NSW Government in the 2015–16 State Budget. On 1 July 2020, the former Rail Corporation New South Wales (RailCorp), a not-for-profit entity, transitioned to the Transport Asset Holding Entity of New South Wales (TAHE), a for-profit statutory state-owned corporation under the Transport Administration Act 1988. There was no change in the structure of TAHE as a new entity was not created. Ownership remains fully with the government. TAHE, and the former RailCorp, were both classified as Public Non-Financial Corporation (PNFC) entities within the Total State Sector Accounts.
Prior to 1 July 2015, the government paid appropriations to Transport for NSW, a General Government Sector (GGS) agency, to construct transport assets. When completed, these assets were granted to the former RailCorp, a not for-profit entity within the PNFC sector. The grants to the former RailCorp were recorded as an expense in the State’s GGS budget result.
From 1 July 2015, the government announced the creation of TAHE (a dedicated asset manager). Funding for new capital projects was to be provided through equity injections and was no longer recorded as an expense to the GGS budget, even though the business model was yet to be determined. The change, as explained in the 2015–16 State Budget, was due to the expectation that the former RailCorp will transition to TAHE, which was intended, over time to provide a commercial return. That Budget also highlighted how the change, which was largely a change in the basis of accounting, was intended to improve the GGS budget result each year. In total, the GGS has contributed approximately $11.1 billion to TAHE since 2015–16. This includes the equity injections from the GGS to TAHE made in the current year of $2.4 billion.
NSW Treasury initially set a timetable for the stand-up of TAHE of 1 July 2019, which included finalising the business model, operating model and contracts for the use of TAHE's assets. The enactment of the Transport Administration Act 1988 resulted in RailCorp transitioning to TAHE on 1 July 2020, 12 months after its originally planned operational date. Contributions paid to the former RailCorp and subsequently to TAHE by the GGS were treated as equity investments from July 2015 forward. This treatment continued, despite delays in settling the business model. In 2020, the Audit Office raised a high-risk finding due to the significance of the financial reporting impacts and business risks for NSW Treasury and TAHE.
The business model adopted and the flow of funds between transport agencies in the GGS and PNFC sectors is shown in the diagram below. For further details refer to the Report on State Finances 2021.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – 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.
Actions for Facilitating and administering Aboriginal land claim processes
Facilitating and administering Aboriginal land claim processes
What the report is about
The Aboriginal Land Rights Act 1983 (NSW) (the Act) provides land rights over certain Crown land for Aboriginal Land Councils in NSW.
If a claim is made over Crown land (land owned and managed by government) and meets other criteria under the Act, ownership of that land is to be transferred to the Aboriginal Land Council.
This process is intended to provide compensation for the dispossession of land from Aboriginal people in NSW. It is a different process to the recognition of native title rights under Commonwealth law.
We examined whether relevant agencies are effectively facilitating and administering Aboriginal land claim processes. The relevant agencies are:
- Department of Premier and Cabinet (DPC)
- Department of Planning and Environment (DPE)
- NSW Aboriginal Land Council (NSWALC).
We consulted with Local Aboriginal Land Councils (LALCs) and other Aboriginal community representative groups to hear about their experiences.
What we found
Neither DPC nor DPE have established the resources required for the NSW Government to deliver Aboriginal land claim processes in a coordinated way, and which transparently commits to the requirements and intent of the Act.
Delays in determining land claims result in Aboriginal Land Councils being denied the opportunity to realise their statutory right to certain Crown land. Delays also create risks due to uncertainty around the ownership, use and development of Crown land.
DPC has not established governance arrangements to ensure accountability for outcomes under the Act, and effective risk management.
DPE lacks clear performance measures for the timely and transparent delivery of its claim assessment functions. DPE also lacks a well-defined framework for prioritising assessments.
LALCs have concerns about delays, and lack of transparency in the process.
Reviews since at least 2014 have recommended actions to address numerous issues and improve outcomes, but limited progress has been made.
The database used by DPC (Office of the Registrar) for the statutory register of land claims has not been upgraded or fully validated since the 1990s.
In 2020, DPE identified the transfer of claimable Crown land to LALCs to enable economic and cultural outcomes as a strategic priority. DPE has some activities underway to do this, and to improve how it engages with Aboriginal Land Councils – but DPE still lacks a clear, resourced strategy to process over 38,000 undetermined claims within a reasonable time.
What we recommended
In summary:
- DPC should lead strategic governance to oversee a resourced, coordinated program that is accountable for delivering Aboriginal land claim processes
- DPE should implement a resourced, ten-year plan that increases the rate of claim processing, and includes an initial focus on land grants
- DPE and DPC should jointly establish operational arrangements to deliver a coordinated interagency program for land claim processes
- DPC should plan an interagency, land claim spatial information system, and the Office of the Registrar should remediate and upgrade the statutory land claims register
- DPC and NSWALC should implement an education program (for state agencies and the local government sector) about the Act and its operations
- DPE should implement a five-year workforce development strategy for its land claim assessment function
- DPE should finalise updates to its land claim assessment procedures
- DPE should enhance information sharing with Aboriginal Land Councils to inform their claim making
- NSWALC should enhance information sharing and other supports to LALCs to inform their claim making and build capacity.
Fast facts
|
The return of land under the Aboriginal Land Rights Act 1983 (NSW) (the Act) is intended to provide compensation for the dispossession of land from Aboriginal people in New South Wales. A claim on Crown land1 made by an Aboriginal Land Council that meets criteria under the Act is to be transferred to the claimant council as freehold title. The 2021 statutory review of the Act recognises the spiritual, social, cultural and economic importance of land to Aboriginal people.
The Minister for Aboriginal Affairs administers the Act, with support from Aboriginal Affairs NSW (AANSW) in the Department of Premier and Cabinet (DPC). AANSW also leads the delivery of Opportunity, Choice, Healing, Responsibility and Empowerment (OCHRE), the NSW Government's plan for Aboriginal affairs, and assists the Minister to implement the National Agreement on Closing the Gap – which includes a target for increasing the area of land covered by Aboriginal and Torres Strait Islander people's legal rights or interests.
The Act gives responsibility for registering land claims to an independent statutory officer, the Registrar of the Aboriginal Land Rights Act (the Registrar), whose functions are supported by the Office of the Registrar (ORALRA) which is resourced by AANSW.2
The Land and Environment Court of New South Wales has stated that there is an implied obligation for land claims to be determined within a reasonable time. The Minister administering the Crown Land Management Act 2016 (NSW) is responsible for determining land claims. This function is supported by the Department of Planning and Environment (DPE),3 whose staff assess and recommend claims for determination based on the criteria under section 36(1) of the Act. There is also a mechanism under the Act for land claims to be negotiated in good faith through an Aboriginal Land Agreement.
The NSW Aboriginal Land Council (NSWALC) is a statutory corporation constituted under the Act with a mandate to provide for the development of land rights for Aboriginal people in NSW, in conjunction with the network of 120 Local Aboriginal Land Councils (LALCs). LALCs are constituted over specific areas to represent Aboriginal communities across NSW. Both NSWALC and LALCs can make land claims.
DPC and DPE are responsible for governance and, in partnership with NSWALC, operational and information-sharing activities that are required to coordinate Aboriginal land claim processes. LALCs, statutory officers, government agencies, local councils, and other parties need to be engaged so that these processes are coordinated effectively and managed in a way that is consistent with the intent of the Act, and other legislative requirements.
The first land claim was lodged in 1983. The number of undetermined land claims has increased over time, and at 31 December 2021 DPE data shows 38,257 undetermined claims.
The issue of undetermined land claims has been publicly reported by the Audit Office since 2007. Recommendations to agencies to better facilitate processes and improve how functions are administered have been made in multiple reviews, including two Parliamentary inquiries in 2016.
The objective of this audit was to assess whether relevant agencies are effectively facilitating and administering Aboriginal land claim processes. In making this assessment, we considered whether:
- agencies (DPE, DPC (AANSW and ORALRA) and NSWALC) coordinate information and activities to effectively facilitate Aboriginal land claim processes
- agencies (DPE and DPC (ORALRA)) are effectively administering their roles in the Aboriginal land claim process.
We consulted with LALCs to hear about their experiences and priorities with respect to Aboriginal land claim processes and related outcomes. We have aimed to incorporate their insights into our understanding of their expectations of government with respect to delivering requirements, facilitating processes, and identifying opportunities for improved outcomes.
ConclusionThe Department of Premier and Cabinet (DPC) and the Department of Planning and Environment (DPE) are not effectively facilitating or administering Aboriginal land claim processes. Neither agency has established the resources required for the NSW Government to operate a coordinated program of activities to deliver land claim processes in a way that transparently commits to the requirements and intent of the Aboriginal Land Rights Act 1983 (NSW) (the Act). Arrangements to engage the NSW Aboriginal Land Council (NSWALC) in these activities have not been clearly defined. There are more than 38,000 undetermined land claims that cover approximately 1.12 million hectares of Crown land. As such, DPE has not been meeting its statutory requirement to determine land claims nor its obligation to do so within a reasonable time. Over 60 per cent of these claims were lodged with the Registrar of the Aboriginal Land Rights Act, for DPE to determine, more than five years ago. DPE’s Aboriginal Outcomes Strategy 2020–23 identifies transferring claimable Crown land to Local Aboriginal Land Councils (LALCs) as a priority to enable economic and cultural outcomes. Since mid-2020 DPE has largely focused on supporting LALCs to identify priority land claims for assessment and on negotiating Aboriginal Land Agreements. This work may support the compensatory intent of the Act but is in its early stages and is unlikely to increase the pace at which land claims are determined. Based on current targets, it will take DPE around 22 years to process existing undetermined land claims. Delays in processing land claims result in Aboriginal Land Councils being denied the opportunity to realise their statutory right to certain Crown land in NSW. The intent of the Act to provide compensation to Aboriginal people for the dispossession of land has been significantly constrained over time. Since 2014, numerous reviews have made recommendations to agencies to address systemic issues, improve processes, and enhance outcomes: but DPC and DPE have made limited progress with implementing these. Awareness of the intent and operations of the Act was often poor among staff from some State government agencies and local government representatives we interviewed for the audit. DPC has not established culturally informed, interagency governance to effectively oversee Aboriginal land claim processes – and ensure accountability for outcomes consistent with the intent of the Act, informed by the expectations of the NSWALC and LALCs. Such governance has not existed since at least 2017 (the audited period) and we have not seen evidence earlier. DPE still does not have performance indicators for its land claim assessment function that are based on a clear analysis of resources, that demonstrate alignment to defined outcomes, and which are reported routinely to key stakeholders, including NSWALC and LALCs. LALCs have raised strong concerns during our consultations, describing delays in the land claim process and the number of undetermined land claims as disrespectful. LALCs have also noted a lack of transparency in, and opportunity to engage with, Aboriginal land claim processes. DPE’s role in assessing Aboriginal land claims, and identifying opportunities for Aboriginal Land Agreements, requires specific expertise, evidence gathering and an understanding of the complex interaction between the Act and other legislative frameworks, including the Native Title Act 1993 (Cth) and the Crown Land Management Act 2016 (NSW). In mid-2020, DPE created an Aboriginal Land Strategy Directorate within its Crown lands division, increased staffing in land claim assessment functions, and set a target to increase the number of land claims to be granted in 2021–22. In the six months to December 2021, DPE granted more land claims (207 claims) than in most years prior. DPE has also assisted some LALCs to identify priority land claims for assessment. But the overall number of claims processed per year remains well below the historical (five-year) average number of claims lodged (2,506 claims). As such, DPE has not yet established an appropriately resourced workforce to assess the large number of undetermined land claims and engage effectively with Aboriginal Land Councils and other parties in the process. There also are notable gaps in DPE’s procedures that impact the transparency of the process, especially with respect to timeframes and the prioritisation of land claims for assessment. DPC (the Office of the Registrar of the Aboriginal Land Rights Act, ORALRA) has not secured or applied resources that would assist the Registrar to use discretionary powers, introduced in 2015, not to refer certain land claims to DPE for assessment (those not on Crown land). This could have improved the efficiency and coordination of end-to-end land claim processes. DPC (ORALRA) is also not effectively managing data and ensuring the functionality of the statutory Register of Aboriginal land claims. This contributes to inefficient coordination with DPE and NSWALC, and creates a risk of inconsistent information sharing with LALCs, government agencies, local councils and other parties. More broadly, responsibilities for sharing information about the location and status of land under claim are not well defined across agencies. These factors contribute to risks to Crown land with an undetermined land claim, which case law has found to establish inchoate property rights for the claimant Aboriginal Land Council.4 It can also lead to uncertainty around the ownership, use and development of Crown land, with financial implications for various parties. |
Since 1983, 53,861 Aboriginal land claims have been lodged with the Registrar.25
The Land and Environment Court of New South Wales has stated there is an implied obligation on the Crown Lands Minister to determine land claims within a reasonable time.26
As at 31 December 2021, DPE has processed less than a third (31 per cent) of these land claims: 14,273 were determined by the Crown Lands Minister (that is, granted or refused, in whole or part) and 2,562 were withdrawn. This amounts to 16,835 claims processed, including the negotiated settlement of 15 claims through three Aboriginal Land Agreements. As a result, DPE reports that approximately 163,900 hectares of Crown land has been granted to Aboriginal Land Councils since 1983 up to 31 December 2021.
There are 38,257 land claims awaiting determination, which cover about 1.12 million hectares of Crown land.
The 2017 report on the statutory review of the Act noted that the land claims ‘backlog’ was one of the ‘Top 5’ priorities identified by LALCs during consultations. The importance of this issue is consistent with findings from our consultations with LALCs in 2021 (see Exhibit 7).
LALCs raised concerns about delays in the Aboriginal land claim process, including waiting decades for claims to be assessed and years for land to be transferred once granted. The large number of undetermined claims has been described by LALCs as disrespectful, and as reflecting under-resourcing by governments. LALCs reported that these delays undermine the compensatory intent of the Act, including by creating uncertainty for their plans to support the social and economic aspirations of their communities. |
Delays in delivering on the statutory requirement to determine land claims, and limited use of other mechanisms to process claims in consultation or agreement with NSWALC and LALCs, undermines the beneficial and remedial intent of Aboriginal land rights under the Act. It also:
- impacts negatively on DPE’s ability to comply with the statutory requirement to determine land claims, because often the older a claim becomes the more difficult it can be to gather the evidence required to assess it
- creates uncertainty around the ownership, use and development of Crown land, which can have financial impacts on Aboriginal Land Councils, government agencies, local councils and developers.
Risks that arise in the context of undetermined claims are discussed further in section 3.3.
26 Jerrinja Local Aboriginal Land Council v Minister Administering the Crown Lands Act [2007] NSWLEC 577 at 125. The Court stated, ‘While a reasonable time may vary on a case-by-case basis, a delay of 15 to 20 years in determining claims does not accord with any idea of reasonableness’.
NSW Treasury describes public sector governance as providing strategic direction, ensuring objectives are achieved, and managing risks and the use of resources responsibly with accountability.
Consistent with the NSW Treasury’s Risk Management Toolkit (TPP-12-03b), governance arrangements for Aboriginal land claim processes should ensure their effective facilitation and administration. That is, arrangements are expected to contribute to and oversee the performance of administrative processes and service delivery towards outcomes, and ensure that legal and policy compliance obligations are met consistent with community expectations of accountability and transparency.
DPC and DPE are responsible for governance and, in partnership with NSWALC, operational and information-sharing activities required to coordinate Aboriginal land claim processes. LALCs, statutory officers, government agencies, local councils, and other parties (such as native title groups and those with an interest in development on Crown land) need to be engaged so that these processes are coordinated effectively with risks managed – consistent with the intent of the Act, and other legislative requirements.
Policy commitments to Aboriginal people and communities made by the NSW Government in the OCHRE Plan and Closing the Gap priority reforms establish an expectation for culturally informed governance.
LALCs expressed a strong desire to have their voices heard so that outcomes in the Aboriginal land claim process are informed by LALC aspirations and consistent with the intent of the Act. The importance of respect and transparency were consistently raised. The following quotes are from our consultations with LALCs during this audit which illustrate the inherent cultural value of land being returned, as well as the importance of its social and economic value and potential. There’s batches of land in and around town. This land is significant…We want to get the land activated to encourage economic development, and promote the community…our job is to step up to create infrastructure, employment, maintenance and services and lead by example. One of the best things we were able to do is develop a long term 20-year plan and where Crown Land could directly see where land was transferred to us and it was going to things like education, housing, health and other social programs… There has been a claim lodged on a parcel of land that has long lasting cultural significance, a place that is very special to the Aboriginal community members and holds a lot of history. If the claim lodged was successful this land would be used to strengthen the cultural knowledge of the local youth, through placing signage that depicts stories that have been passed down by the Elders, cultural talks and tours and school group visits. This land, although not large in size, has a significant number of cultural trees and artefacts. Aboriginal families and members of the LALC that have lived in our town are very protective of the site and others surrounding it, respecting the importance of the cultural history of the site. There is one, which is a cultural one. We received a land claim that contained a cultural site. This is the high point: we were given back lands that contained rock engravings, carvings. A real diamond for us, especially as an urban based land council. At the heart of the ALRA is the ability to claim Crown Land…The slow determination of claims gets in the way of us doing what we want to do, which is focus on our communities and address our real needs which are about health, wellbeing and culture. If we could realise these rights, we can address all sorts of socio-economic needs. We would become an economic benefit to the state…If it was operating well there could be more caring for Country too. |
Source: Excerpts from NSW Audit Office interviews with LALC representatives, facilitated by Indigenous consultants.
The Crown Lands Minister, supported by DPE, is required to determine whether Aboriginal land claims meet the criteria to be ‘claimable Crown lands’ under section 36(1) of the Act. DPE staff within its Crown Lands division are responsible for assessing land claims and preparing recommendation briefs to the Crown Lands Minister, or their delegate, on determination outcomes. That is, on whether to grant or refuse the claim.38 DPE staff also make decisions about which land claims within the large number of undetermined claims should be processed first.
Appendix one – Response from agencies
Appendix two – About the audit
Appendix three – Performance auditing
Banner image used with permission.
Title: Forces of Nature
Artist: Lee Hampton – Koori Kicks Art
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 #365 - released 28 April 2022.