This report analyses the results of our audits of the Health cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Health cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of Health cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for the financial statements of all Health cluster agencies.

The COVID-19 pandemic increased the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2020–21 was $250.2 million, of which $226.0 million were pandemic related.

A qualified audit opinion was issued on the Annual Prudential Compliance Statement. The basis of the qualification related to 19 instances (18 in 2018–19) of non-compliance relating to three of the 20 prudential requirements across five aged care facilities.

What the key issues were

The total number of matters we reported to management across the cluster increased from 112 in 2019–20 to 116 in 2020–21. Of the 116 issues raised in 2020–21, three were high risk (one in 2019–20) and 57 were moderate risk (47 in 2019–20). Nearly one half of the issues were repeat issues.

The three new high-risk issues identified were:

Hotel Quarantine (HQ) fees

The absence of a tailored debt recovery strategy, data integrity issues and uncertainties around future HQ arrangements increased risks around the recoverability of HQ fees from travellers.

COVID-19 inventories

Data errors and anomalies in the impairment model and difficulties forecasting key factors impacting the management of Personal Protective Equipment (PPE) increased uncertainty associated with the valuation and impairment of COVID-19 inventories.

COVID-19 vaccines

The Commonwealth did not provide information about the cost of vaccines provided to NSW free of charge, which required the performance of internal valuations to reflect the consumption of vaccines in the financial statements.

What we recommended

Hotel Quarantine (HQ) fees

Develop a tailored assessment methodology to estimate recoverability of HQ fees and work with Revenue NSW to develop a tailored debt recovery strategy.

COVID-19 inventories

Review the current stocktaking and impairment methodology to incorporate validation of data key to the management of COVID-19 related PPE.

COVID-19 vaccines

Work with the Commonwealth to obtain primary price information on COVID-19 vaccines.

This report provides Parliament and other users of the Health cluster’s 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 Health cluster (the cluster) for 2021.

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

Findings reported to management

The number of findings reported to management has increased, with 47.4 per cent of all issues being 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 cluster agencies. The Audit Office does this through our management letters, which include observations, implications, recommendations and risk ratings.

In 2020–21, there were 116 findings raised across the cluster (112 in 2019–20). 47.4 per cent of all issues were repeat issues (38.4 per cent in 2019–20).

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.

The table below describes the common issues identified across the cluster by category and risk rating.

Complexities arising from the COVID-19 response

The 2020–21 audit identified three new high-risk findings

COVID-19 has presented the cluster with several new accounting challenges. New and evolving matters arose from changes to operating conditions, which characterised the 2020–21 financial reporting period. Issues with a high degree of estimation uncertainty will require ongoing attention as the strategies employed to deal with the COVID-19 pandemic evolve.

Expected rate of recovery of outstanding Hotel Quarantine invoices

The estimation of the amount likely to be recovered is complicated not only by the uncertainties that exist regarding the assumptions those estimations rely upon, but also the debt collection processes and strategies put into place to manage the accumulated debtors' balance. Debt collection is not administered by the cluster, but rather Revenue NSW. We observed an absence of a methodology to assess the likelihood of recovery. Instead, Sydney Local Health District was relying on Revenue NSW to develop and execute on a collection strategy. Sydney Local Health District was using the same approach to hotel quarantine debts as it did to other Health receivables. As the approach to managing international borders evolves over time, so too will the cluster's need to develop robust estimation models to assess the likely collectability of debtors. 

Procurement, management and impairment of COVID-19 inventories

$656.2 million of COVID-19 inventories were procured in 2020–21, with $220.2 million consumed; $558.7 million impaired and a further $217.1 million written off. Estimates of the degree to which inventories are expired, not fit for purpose or are faulty is often based on management judgement at all stages in the procurement cycle.

With respect to the stocktaking methodology applied, the following issues were identified:

• discrepancies noted in the stock bin listing provided for audit
• discrepancies in the recount sheet generated
• inconsistent application of the stocktake methodology
• inconsistent labelling of quarantined stock
• a lack of an approach for validating stock expiry dates, which is a key input to the impairment calculations.

Although management had developed processes and a methodology to count as well as to assess the level of inventory that was not fit for purpose, ongoing attention to the operating environment that emerges post pandemic will be important in assessing the degree to which existing COVID-19 inventories can be integrated into a ‘business as usual’ model going forward. Further refinement of the key elements of the stocktaking methodology will also be required to ensure that key inputs upon which management relies to calculate the year-end inventory impairment provision can be appropriately validated.

Valuation and recognition of COVID-19 vaccines received from the Commonwealth Government

The 2020–21 financial reporting period saw the Commonwealth acquire COVID-19 vaccines and provide these to state jurisdictions to dispense to their communities. The vaccines, although provided free of charge require recognition. However, Health entities were not responsible for acquiring the vaccines and data on the vaccines' cost was not shared by the Commonwealth. Management undertook a valuation using publicly available data to estimate the value to attribute to the vaccine inventory; developed new systems and leveraged existing pharmacy systems to track physical quantities received from the Commonwealth and ultimately distributed to NSW citizens. As the response to the pandemic evolves, larger quantities, and new lines of vaccine stock will be dealt with, and policy settings will need to adapt when patterns of distribution of those vaccines (e.g., timing of third booster shots) emerge. The Ministry of Health will need to ensure that the valuations applied to the prices of inventory distributed and held in stock are as accurate as possible. This can be done through further refinement of the existing valuation methodology, obtaining price information from the Commonwealth and engaging specialist pharmaceutical valuers.

Emerging trends

Recognition of provisions without sufficient support

Several NSW Health entities raised accruals and provisions in 2020–21, which did not have an appropriate basis for recognition. Liabilities can only be recognised where there is a present obligation to make a payment arising from a past event. A number of these errors remain uncorrected in the financial statements of those entities as they are not material, individually or in aggregate to the financial statements as a whole. Increased training and guidance are required to ensure that treatment within the cluster is consistent and reflects events that have occurred and give rise to obligations.

Treatment of Commonwealth funding

In the 2020–21 and 2019–20 financial reporting periods, we observed prior period errors arising from the treatment of Commonwealth funding. These errors related to recognising revenue under funding agreements entered into with the Commonwealth in the incorrect period. The conditions of these funding arrangements, the transactional information requiring validation and the circumstances when revenue should be recognised are not always clear and can be complex. Early and continuous engagement with the Commonwealth is required to ensure that revenue recognition principles are consistently applied across the cluster.

Key repeat issues

Management of excessive annual leave

NSW Treasury guidelines stipulate annual leave balances exceeding 30 days are considered excess annual leave balances. Managing excess annual leave balances has been reported as an issue for the cluster for more than five years, with the average percentage of employees with excessive leave balances over the last five years being 36.1 per cent (35.5 per cent over five years covering 2015–16 to 2019–20).

The operational demands required to manage the COVID-19 pandemic have presented new challenges for the cluster in trying to manage its excessive leave balances. 39.2 per cent of employees now have excess leave balances at 30 June 2021 (35.4 per cent at 30 June 2020).

The state's leave policy C2020-12 Managing Accrued Recreation Leave Balances requires agencies to manage excessive leave balances to 30 days or less to maintain their workforces physical and mental health.

Accurate time recording

Forced-finalisation of time records by system administrators within HealthRoster remains an issue and we continue to observe time records forced-finalised by system administrators so pay runs can be finalised on a timely basis. During 2020–21, a total of two million (2.2 million in 2019–20) time records were force approved, which represents 5.7 per cent of total time records (6.9 per cent in 2019–20).

Existence, completeness and accuracy of key agreements

Delivery of major capital projects

Health Infrastructure (a division of the Health Administration Corporation) is responsible for the delivery of major capital projects with a budgeted spend of more than $10.0 million. Health Infrastructure oversee the planning, design, procurement, and construction phases. Capital works in progress are recognised in the financial statements of the health entity that intends to use those assets upon completion. The health entities recognise both the capital work in progress and the revenue associated with the capital funding from the Ministry for the construction of the assets. Capital funding is currently agreed with health entities as part of the annual Service Agreement. The assumption that the health entities control the assets during their construction is consistent with Health Infrastructure's role as an agent for the health entity and the Ministry's policy directive PD2020-033 'Management and control of Health Administration Corporation owned Real Property'.

We continued to observe a lack of clarity regarding agreements between Health Infrastructure, the Ministry and the cluster agency that will eventually receive the completed asset. This can lead to confusion and uncertainty around the rights and obligations of each party to the transaction.

Cross border patient funding arrangements

When patients require medical care in a jurisdiction where they are not generally domiciled, there are arrangements in place to provide funding to support cross border patient treatments. We have previously observed that agreements between NSW and other jurisdictions have not been finalised, and this continues to be the case. In the case of Victoria, no agreement has been finalised for the past seven years.

We continue to note that the cluster has long outstanding receivables and payables with other states. The absence of formal agreements between the states hampers the settlement of the debts relating to the treatment of cross border patients. The following table shows the status of Cross Border Agreements between NSW and other jurisdictions:

Albury Base Hospital

Albury Base hospital is located on the border of NSW and Victoria and services residents of both states. Documentation supporting the extension of the expired Intergovernmental Agreement 2009–2017 between NSW and Victoria in relation to the integration of health services in Wodonga and Albury could not be located.

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.

This report analyses the results of our audits of the Education cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Education cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Education cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued on the Department of Education (the department), the NSW Education Standards Authority and the NSW Skills Board's financial statements.

An 'other matter' paragraph was included in the Technical and Further Education Commission's (the TAFE Commission) audit opinion drawing attention to legislative non-compliance concerning financial delegations during the reporting year.

The number of misstatements identified in the financial statements of cluster agencies decreased from 14 in 2019–20 to seven.

What the key issues were

The department and the TAFE Commission revalued their land assets this year, recognising collective increases of $863.8 million.

The department and the TAFE Commission are not scheduled to perform comprehensive revaluations of their buildings until 2022–23. Construction costs, which are a key input in their current replacement cost valuation methodologies for buildings, may have increased by an estimated nine per cent since the last comprehensive revaluation in 2017–18 based on broad based indices used by the department and the TAFE Commission. While the estimated index increase indicates the fair value of buildings may exceed the carrying values, the use of such high-level indicators has a degree of estimation uncertainty due to the specialised nature of the assets. Therefore, both agencies did not adjust the values of their buildings.

The number of issues we reported to management decreased. Fifty per cent of issues were repeated from prior years.

Of the 11 newly identified moderate rated issues, seven related to internal control deficiencies, with six identified in procurement and payroll controls.

What we recommended

The department and the TAFE Commission reconsider policy settings governing the frequency of revaluations; and refine and consider the outcomes of interim fair value assessments to ensure asset carrying values reflect fair value at each balance date.

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

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

• financial reporting
• audit observations.

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 2021.

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

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

Findings reported to management

The number of findings reported to management has decreased. Fifty 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 28 findings raised across the cluster (33 in 2019–20). Fifty per cent of all issues were repeat issues (45 per cent in 2019–20).

The most common repeat issues related to weaknesses in controls over information technology general controls, application controls, and identified deficiencies in 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.

The table below describes the common issues identified across the cluster by category and risk rating.

The department continues to address recommendations to improve monitoring of privileged user access

Privileged users have higher levels of access to systems, and in some instances, may include access that can bypass segregation of duty controls. If reviews of access logs are not fully embedded in the control environment, the risk of unauthorised transactions occurring and not being detected in a timely manner is elevated.

In 2019–20 a high-risk issue was reported at the department relating to the inadequate monitoring and follow up of privileged user activity in its enterprise resource planning system – SAP. This year the department has largely addressed our findings by initiating a review of the identified instances of privileged user activity and establishing periodic oversight controls. There remains a need to improve the timeliness and completeness of these newly implemented controls.

Data analytics identified the root cause of internal control deficiencies in procurement and payroll

Our 2020–21 agency management letters identified seven new moderate risk internal control deficiency matters, of which six related to payroll and procurement.

To enhance our financial statement audit of the department we applied data analytics over elements of the department's procurement and payroll control processes. Our procedures, conducted over periods across the financial year, helped identify the following:

• a low level of compliance with procurement practices requiring the creation of purchase orders before invoices are received. The root cause was a lack of understanding by agency staff of the procurement processes
• transactions related to previous years being recorded in the current year. The root cause was a lack of understanding of the three-way matching process and the goods received/not invoiced facilities within SAP
• negative payments in fortnightly pay runs, predominantly representing deductions to recover salary payments made in error. The root cause was the lack of timeliness in notifying payroll for cessation of employment, or for employees undertaking secondments who should have been classified as being on leave without pay.

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.

This report analyses the results of our audits of the Regional NSW cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Regional NSW cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Regional NSW cluster (the cluster) agencies’ financial statement audits for the year ended 30 June 2021.

What we found

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

The number of misstatements identified in the financial statements of cluster agencies decreased from 27 in 2019–20 to seven in 2020–21.

The Department corrected an understatement of $82.2 million in prepaid income related to the Bushfire Clean-up Program.

What the key issues were

Local Land Services (LLS) undertook a comprehensive revaluation of asset improvements on land reserves used for moving stock (travelling stock reserves).

The revaluation process identified that improvements on land reserves, with a value of $93.0 million, had not been previously recognised in the financial statements. LLS corrected this error by restating the 2019–20 comparative balances in its 2020–21 financial statements.

The Forestry Corporation of NSW revalued its biological assets that comprise approximately 225,000 hectares of softwood plantations and 34,000 hectares of hardwood forests. The current year valuation resulted in $71.4 million decrement in the total biological assets from $824.9 million in 2019–20 to $753.5 million in 2020–21.

The number of matters reported to management decreased from 36 in 2019–20 to 19 in 2020–21. Twelve moderate risk issues were identified and 47 per cent of reported issues were repeat issues.

What we recommended

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

This report provides Parliament and other users of the Regional NSW 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 Regional NSW cluster for 2021.

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

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

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.

What the report is about

This audit assessed how effectively Transport for NSW (TfNSW) and Sydney Trains identify and manage their cyber security risks.

The NSW Cyber Security Policy (CSP) sets out 25 mandatory requirements for agencies, including implementing the Australian Cyber Security Centre’s Essential 8 strategies to mitigate cyber security incidents, and identifying the agency’s most vital systems, their ‘crown jewels’. 

The audited agencies have requested that we do not disclose detail of the significant vulnerabilities detected during the audit, as these vulnerabilities are not yet remediated. We provided a detailed report to the agencies in December 2020 outlining significant issues identified in the audit. We have conceded to the agencies' request but it is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

What we found

TfNSW and Sydney Trains are not effectively managing their cyber security risks.

Both agencies have assessed their cyber security risks as unacceptably high and both agencies had not identified all of the risks we detected during this audit – some of which are significant.

Both agencies have cyber security plans in place that aim to address cyber security risks. TfNSW and Sydney Trains have combined this into the Transport Cyber Defence Rolling Program, part of the Cyber Defence Portfolio (CDP). 

However, neither agency has reached its target ratings for the CSP and the Essential 8 and maturity is low in relation to significant risks and vulnerabilities exposed.

Further, neither agency is fostering a culture where cyber security risk management is an important and valued aspect of decision-making.

TfNSW is not implementing cyber security training effectively across the cluster with only 7.2% of staff having completed basic cyber security training.

What we recommended

TfNSW and Sydney Trains should:

• develop and implement a plan to uplift the Essential 8 controls to the agency's target state
• as a matter of priority, address the vulnerabilities identified as part of this audit and previously described in a detailed Audit Office report provided to both agencies
• ensure cyber security risk reporting to executives and the Audit and Risk Committee
• collect supporting information for the CSP self assessments 
• classify all information and systems according to importance and integrate this with the crown jewels identification process
• require more rigorous analysis to re-prioritise CDP funding 
• increase uptake of cyber security training.

TfNSW should assess the appropriateness of its target rating for each of the CSP mandatory requirements.

Department of Customer Service should:

• clarify the requirement for the CSP reporting to apply to all systems
• require agencies to report the target level of maturity for each mandatory requirement.

Response to requests by audited agencies to remove information from this report

In preparing this audit report, I have considered how best to balance the need to support public accountability and transparency with the need to avoid revealing information that could pose additional risk to agencies’ systems. This has involved an assessment of the appropriate level of detail to include in the report about the cyber security vulnerabilities identified in this audit.

In making this assessment, the audit team consulted with Transport for NSW (TfNSW), Sydney Trains, and Cyber Security NSW to identify content which could potentially pose a threat to the agencies’ cyber security.

In December 2020, my office also provided TfNSW and Sydney Trains with a detailed report of many of the significant vulnerabilities identified in this audit, to enable the agencies to address the cyber security risks identified. The detailed report was produced as a result of a 'red team' exercise, which was conducted with both agencies' knowledge and consent. The scope of this exercise reflected the significant input provided by both agencies. More information on this exercise is at page 12 of this report.

TfNSW and Sydney Trains have advised that in the six months from December 2020 and at the time of tabling this audit report, they have not yet remediated all the vulnerabilities identified. As a result, they, along with Cyber Security NSW, have requested that we not disclose all information contained in this audit report to reduce the likelihood of an attack on their systems and resulting harm to the community. I have conceded to this request because the vulnerabilities identified have not yet been remediated and leave the agencies exposed to significant risk.

It should be stressed that the risks identified in the detailed report exist due to the continued presence of these previously identified vulnerabilities, rather than due to their potential publication. The audited agencies, alone, are accountable for remediating these vulnerabilities and addressing the risks they pose.

It is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

That said, the conclusions drawn in this report are significant in terms of risk and remain valid, and the recommendations should be acted upon with urgency.

Cyber security risk is an increasing area of concern for governments in Australia and around the world. In recent years, there have been a number of high-profile cyber security attacks on government entities in Australia, including in New South Wales. Malicious cyber activity in Australia is increasing in frequency, scale, and sophistication. The Audit Office of New South Wales is responding to these risks with a program of audits in this area, which aim to identify the effectiveness of particular agencies in managing cyber risks, as well as their compliance with relevant policy.

Cyber Security NSW, part of the Department of Customer Service (DCS) releases and manages the NSW Cyber Security Policy (CSP). The CSP sets out 25 mandatory requirements for agencies, including making it mandatory for agencies to implement the Australian Cyber Security Centre Essential 8 Strategies to Mitigate Cyber Security Incidents (the Essential 8). The Essential 8 are key controls which serve as a baseline set of protections which agencies can put in place to make it more difficult for adversaries to compromise a system. Agencies are required to self-assess their maturity against the CSP and the Essential 8, and report that assessment to Cyber Security NSW annually.

The CSP makes agencies responsible for identifying and managing their cyber security risks. The CSP sets out responsibilities and governance regarding risk identification, including making agencies responsible for identifying their 'crown jewels', the agency's most valuable and operationally vital systems. Once these risks are identified, agencies are responsible for developing a cyber security plan to mitigate those risks.

This audit focussed on two agencies: Transport for NSW (TfNSW) and Sydney Trains. TfNSW is the lead agency for the Transport cluster and provides a number of IT services to the entire cluster, including Sydney Trains. This audit focussed on the activities of TfNSW's Transport IT function, which is responsible for providing cyber security across the cluster, as well as directly overseeing four of TfNSW's crown jewels. Sydney Trains is one of the agencies in the Transport cluster. While it receives some services from TfNSW, it is also responsible for implementing its own IT controls, as well as controls to protect its Operational Technology (OT) environment. This OT environment includes systems which are necessary for the operation and safety of the train network.

To test the mitigations in place and the effectiveness of controls, this audit involved a 'red team' simulated exercise. A red team involves authorised attackers seeking to achieve certain objectives within the target's environment. The red team simulated a determined external cyber threat actor seeking to gain access to TfNSW's systems. The red team also sought to test the physical security of some Sydney Trains' sites relevant to the agency's cyber security. The red team exercise was conducted with the knowledge of TfNSW and Sydney Trains.

This audit included the Department of Customer Service as an auditee, as they have ownership of the CSP through Cyber Security NSW. This audit did not examine the management of cyber risk in the Department of Customer Service.

This audit assessed how effectively selected agencies identify and manage their cyber security risks. The audit assessed this with the following criteria:

• Are agencies effectively identifying and planning for their cyber security risks?
• Are agencies effectively managing their cyber security risks?

Following this in-depth portfolio assessment, the Auditor-General for NSW will also table a report on NSW agencies' compliance with the CSP in the first quarter of 2021–22.

Agencies have assessed their cyber risks as being above acceptable levels

An agency's risk tolerance is the amount of risk which the agency will accept or tolerate without developing further strategies to modify the level of risk. Risks that are within an agency's risk tolerance may not require further mitigation and may be deemed acceptable, while risks which are above the agency's risk tolerance likely require further mitigation before they become acceptable to the agency.

Both agencies have defined their risk tolerance and have identified risks which are above this level, indicating that they are unacceptable to the agency. TfNSW has defined 'very high' risks as generally intolerable and 'high' risks as undesirable. Its risk tolerance is 'medium'. Sydney Trains has four classifications of risk: A, B, C and D. A and B risks are deemed 'unacceptable' and 'undesirable' respectively, while C risks are considered 'tolerable'. This aligns with the TfNSW definition of a medium risk tolerance.

Transport IT reported five enterprise-level cyber security risks through its enterprise risk reporting tool in September 2020, all of which relate to cyber security or have causes relating to cyber security. These risks are in aggregate form, rather than relating to specific vulnerabilities. At the time of the audit, one of these risks was rated as very high and the other four rated as high. At this time, Transport IT had identified a further seven divisional-level risks which were above the agency’s risk tolerance.

Similarly, Sydney Trains has identified one main cyber security risk in its IT enterprise-level risk register and another with a potential cyber cause. Both of these IT risks are deemed to have a residual risk of ‘unacceptable’.

Similarly, two cyber-related OT risks have been determined to be above the agency's risk tolerance. One risk is rated as 'unacceptable'. Another risk, while not entirely cyber rated, is rated 'undesirable' and is deemed to have some causes which may stem from a cyber-attack.

Agencies have assessed their current cyber risk mitigations as requiring improvement

In addition to the risk ratings stated above, at the time of the audit neither agency believed that its controls were operating effectively. Transport IT had rated the control environments for its cyber security enterprise risks as 'requires improvement'. Mitigations were listed in the risk register for these risks but, in some cases, they were unlikely to reduce the risk to the target state or by the target date. For example, one risk had actions listed as 'under review' and no further treatment actions listed, but a due date of July 2021, while another risk was being treated by the CDP with a due date of July 2021. The CDP identified in May 2020 that while the average risk identified as part of that program will be reduced to a medium level by this date, ten high risks will still remain. Given the delays in the program, this number may be higher. As such, it seems unlikely that the enterprise risk will be reduced to below a 'high' level by July 2021.

Sydney Trains’ IT and OT risk registers cross-reference controls and mitigations against the causes and consequences. The IT cyber security risk identified in the register had causes with no mitigations designed for them. Further, some of these causes did not have future mitigations designed for them. This risk also had controls in place which are identified as partially effective. For the unacceptable OT risk noted above, while there was a control designed for each of the potential causes, Sydney Trains had identified all of the controls in place as either partially effective or ineffective. This indicates that Sydney Trains was not effectively mitigating the causes of its cyber risks and, even where it had designed controls or mitigations, these were not always implemented to fully mitigate the cause of the risk.

Additional information on gaps in cyber mitigations which were exposed in the course of this audit has been detailed to both agencies. The Foreword of this report provides information about why this detail is not included here.

Essential 8 maturity is low across TfNSW and Sydney Trains and little progress was made in 2020

CSP mandatory requirement 3.2 states that agencies must implement the ACSC Essential 8. Agencies must also rate themselves against each of the Essential 8 on a maturity scale from zero to three and report this to Cyber Security NSW. A full list of the Essential 8 can be found in Exhibit 1. Both agencies have a low level of maturity against the Essential 8 not just in comparison to the targets they have set, but also in relation to the risks and vulnerabilities exposed. Both agencies have set target maturity ratings for the Essential 8 but none of the Essential 8 ratings across either agency are currently implemented to this level. Having a low level of Essential 8 maturity exposes both agencies to significant risks and vulnerabilities. Little progress was made between the 2019 and 2020 attestation periods.

Transport IT has set a target rating of three across all of the Essential 8. Sydney Trains has set a target rating of three for its IT systems. Sydney Trains had an interim target of two for its OT systems in 2020 and advised that this has since increased to three. It should be noted that not all the Essential 8 are applicable to OT systems.

None of the Essential 8 ratings across either agency are currently implemented to the target levels. Given that the Essential 8 provide the controls which are most commonly able to deter cyber-attacks, having maturity at a low level potentially exposes agencies to a cyber security attack.

Some work is underway across both TfNSW and Sydney Trains to improve the Essential 8 control ratings. The CDP provided some resources to the Essential 8 over 2019–20, with uplift focusing on specific systems. The CDP work in 2019 and 2020 relevant to the Essential 8 largely focussed on determining the current state of the Essential 8 and creating a target state roadmap. As a result, there was little improvement between the 2019 and 2020 attestation periods. The CDP has a workstream for the Essential 8 in its FY 2020–21 funding allocation, however as noted above in Exhibit 6 this was delayed as resources were redeployed to Project La Brea. Regardless, work on some specific aspects of the Essential 8 remain part of the 2020–21 CDP allocation, with workstreams allocated to improving three of the Essential 8. In addition, some work from Project La Brea should lead to an improvement in the Essential 8.

Sydney Trains' Cyber Uplift Program included a workstream which had in scope the uplift in the Essential 8 in IT. There were also other workstreams which aimed to improve some of the Essential 8 for OT systems. Work is also ongoing as part of the CDP to uplift these scores in Sydney Trains.

TfNSW and Sydney Trains have not reached their target maturity across the CSP mandatory requirements and TfNSW has not evaluated its cluster-wide target to ensure it is appropriate

Cyber Security NSW allows each agency to determine its target level of maturity for the first 20 CSP mandatory requirements. Agencies can tailor their target levels to their risk profile. Not reaching the target rating of the CSP mandatory requirements risks information and systems being managed inconsistently or not in alignment with good governance principles.

Sydney Trains has set its target level of maturity for IT and OT. All of Sydney Trains' target maturity levels are at least a three (defined), with a target of four (quantitatively managed) for many of the mandatory requirements. While Cyber Security NSW does not currently mandate a minimum level of maturity, in 2019 there was a requirement for each agency to target a minimum level of three.

Sydney Trains has not met its target ratings across the mandatory requirements.

The Transport Cyber Defence Rolling Program has a program KPI to ensure that the entire cluster reaches a minimum maturity level of three against all the CSP requirements by 2023. TfNSW has not reviewed its CSP mandatory requirement targets to determine if a three is desirable for all requirements or if a higher target level may be more appropriate. It is important for senior management to set cyber security objectives as a demonstration of leadership and a commitment to cyber security.

TfNSW has not met its target ratings across the mandatory requirements for its Group IT ISMS, which was the focus of this audit.

Both agencies claimed progress in their implementation of the mandatory requirements between 2019 and 2020. The audit did not seek to verify the self-assessed results from either agency.

Both agencies operate ISMS in line with the CSP

CSP mandatory requirement 3.1 requires agencies to implement an Information Security Management System (ISMS) or Cyber Security Framework (CSF), with scope at least covering systems identified as the agency's ‘crown jewels’. The ISMS or CSF should be compliant with, or modelled on, one or more recognised IT or OT standard. As noted in the introduction, an ISMS ‘consists of the policies, procedures, guidelines, and associated resources and activities, collectively managed by an organisation, in the pursuit of protecting its information assets.’ Both agencies operate an ISMS compliant with the CSP requirement.

As noted in the introduction, TfNSW operates four ISMS. The Transport IT ISMS is certified against ISO27001, the most common standard for ISMS certification. Three of TfNSW’s six crown jewels are managed within this ISMS. The other ISMS are not certified to relevant standards, though TfNSW claims that they align with relevant controls. This is sufficient for the purposes of the CSP.

Sydney Trains operates two ISMS, one for IT and another for OT. Neither of these are certified to relevant ISMS Standards, however there have been conformance reviews of both IT and OT with relevant standards. These ISMS cover all crown jewels in the agency.

There are currently 11 ISMS in operation across the Transport cluster. TfNSW has proposed moving towards a holistic approach to these ISMS, with the CDP Board responsible for governing the available security controls and directing agency IT and OT teams to implement these.

Agencies are not routinely conducting audits of third-party suppliers to ensure compliance with contractual obligations

CSP mandatory requirement 1.5 makes agencies accountable for the cyber risks of their ICT service providers and ensuring that providers comply with the CSP and any other relevant agency security policies. The ACSC has provided advice on what organisations should do when managing third party suppliers of ICT. The ACSC advises that organisations should use contracts to define cyber security expectations and seek assurance to ensure that these contract expectations are being met. While both agencies usually include specific cyber security expectations in contracts, neither is routinely seeking assurance that these expectations are being met.

The NSW Government has mandated the use of the 'Core& One' contract template for low-value IT procurements and the Procure IT contract template for high-value IT procurements. Both of these contracts contain space for the procuring agency to include cyber security controls for the contractor to implement. The Procure IT contract template also includes a right-to-audit clause which allows agencies to receive assurance around the implementation of these controls. TfNSW and Sydney Trains used the mandated contracts for relevant contracts examined as part of this audit.

TfNSW included security controls in all the contracts examined as part of this audit. Compliance with ISO27001 was the most commonly stated security expectation. Of the contracts examined as part of this audit, only one contract did not have a right-to-audit clause. This contract was signed in October 2016. While these clauses are in place, TfNSW rarely conducted these audits on its third-party providers. Of the eight TfNSW contracts examined in detail, only two of these had been audited to confirm compliance with the stated security controls.

Sydney Trains included security controls in all but one of the contracts examined as part of this audit. Sydney Trains did not require contractors to be compliant with ISO27001, but only required compliance with whole-of-government policies. Sydney Trains does not routinely conduct audits of its third-party suppliers, however it did conduct deep-dive risk analyses of its top ten highest risk IT suppliers. This involved a detailed review of both the suppliers' security posture and also the contract underpinning the relationship with the supplier.

The CDP funding for 2020–21 includes a workstream for strategic third-party contract remediation. This funding is to conduct some foundational work which will allow the CDP to make further improvements in future years. While this funding will not address gaps in contract requirements or management across all contracts, this workstream aims to reduce the risks posed by strategic suppliers covering critical assets. Similarly, work is currently underway as part of the CDP to conduct OT risk assessments for key suppliers to Sydney Trains in a similar way to the work undertaken for IT suppliers.

Sydney Trains has risk assessed its third-party suppliers but TfNSW has not done so

It is important to conduct a risk assessment of suppliers to identify high-risk contractors. This allows agencies to identify those contractors who may require additional controls stated in the contract, those who require additional oversight, and also where auditing resources are best targeted.

Sydney Trains has risk assessed all its IT suppliers and, as noted above, has conducted a deep-dive risk analysis of its top ten highest risk suppliers. TfNSW has not undertaken similar analysis of its key suppliers, however it has identified risks attached to each of its strategic suppliers and has documented these. As a result of not risk assessing its suppliers, TfNSW cannot take a targeted approach to its contract management.

TfNSW demonstrated poor records handling relating to the contracts examined as part of this audit

TfNSW was not able to locate one of the contracts requested as part of the audit's sample. Other documentation, such as contract management plans, could not be located for many of the other contracts requested as part of this audit. These poor document handling practices limits TfNSW's ability to effectively oversee service providers and ensure that they are implementing agreed controls. It also limits public transparency on the effectiveness of these controls.

The Transport cluster is not effectively implementing cyber security awareness training

Agencies are responsible for implementing regular cyber security education for all employees and contractors under mandatory requirement 2.1 in the CSP. TfNSW is responsible for delivering this training to the whole Transport cluster, including Sydney Trains. The Transport cluster has basic cyber awareness training available for all staff. TfNSW also offers additional training provided by Cyber Security NSW targeted at executives and executive assistants. While TfNSW has training available to staff, it is not delivering this effectively. TfNSW does not make training mandatory for most staff nor does it require staff to repeat training regularly. Even among those staff who have been assigned the training, completion rates are low, meaning that delivery is not effectively monitored. Cyber security training is important for building and supporting a cyber security culture.

TfNSW is responsible for creating and rolling out all forms of training to agencies within the Transport cluster. Both TfNSW and Sydney Trains have the same mandatory cyber awareness training that is automatically assigned to new starters. At the time of the audit, this training was not mandatory for ongoing staff. TfNSW does make additional cyber security training available to staff who can choose to undertake the training themselves, or can be assigned the training by their manager. All TfNSW cyber security training is delivered via online modules and it is the responsibility of managers to ensure that it is completed.

Cyber security training completion rates for both TfNSW and Sydney Trains are low. Only 13.5 per cent of staff across the Transport cluster had been assigned the Cyber Safety for New Starters training as of January 2021. Although this course is mandatory for new starters, only 53 per cent of staff assigned the Cyber Safety for New Starters training module had completed the course by January 2021. As a result, only 7.2 per cent of staff across the entire Transport cluster had completed this training at that time. In Sydney Trains, less than one per cent of staff had completed this training as at January 2021 and a further 7.6 per cent of staff have completed the 'Cyber Security: Beyond the Basics' training. These low completion rates indicate that TfNSW is not effectively rolling out cyber security training across the cluster.

In October 2020, the Department of Customer Service released 'DCS-2020-05 Cyber Security NSW Directive - Practice Requirement for NSW Government', which made annual cyber security training mandatory for all staff from 2021. In line with this requirement, TfNSW has advised that it will be gradually implementing mandatory annual training from July 2021 for all staff.

The Transport cluster undertakes activities to build a cyber-aware culture in accordance with the CSP, but awareness remains low

Increasing staff awareness of cyber security risks and maintaining a cyber secure culture are both mandatory requirements of the CSP. While TfNSW does undertake some activities to build a cyber aware culture, awareness of cyber security risks remains low. This can be demonstrated by the low training rates outlined above, and the 'Spot the Scammer' exercise, described in Exhibit 7. TfNSW is responsible for delivering these awareness raising activities across the cluster.

TfNSW frequently communicates with staff across the Transport cluster about various cyber security risks through multiple avenues. Both agencies use the intranet, emails and other awareness raising activities to highlight the importance for staff to be aware of the seriousness of cyber risks. Advice given on the intranet includes tips for spotting scammers on mobile phones, promoting the cluster-wide training courses, as well as various advice that staff could use when dealing with cyber risks in the workplace.

In addition to these awareness raising activities, TfNSW has also undertaken a cluster-wide phishing email exercise called 'Spot the Scammer'. This is outlined in Exhibit 7. This exercise was carried out in 2019 and 2020 and allowed the Transport cluster to measure the degree to which staff were able to identify phishing emails. As can be seen in Exhibit 7, the results of this exercise indicate that staff awareness of phishing emails remains low.

Appendix one – Response from agencies

Appendix two – Cyber Security Policy mandatory requirements

Appendix three – About the audit

Appendix four – Performance auditing

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

Parliamentary reference - Report number #353 - released (13 July 2021).

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

1. Financial reporting

2. Audit observations

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

• financial reporting
• audit observations.

The impacts of the COVID-19 pandemic on the cluster were significant and included changes to the operations of the health entities and increased revenue, expenditure, assets and liabilities.

As a part of this year's audits of health entities, we have considered:

• financial implications of the COVID-19 emergency at both health entity and cluster levels
• changes to agencies' operating models
• agencies' access to technology and the maturity of systems and controls to prevent unauthorised and fraudulent access to data.

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

The response to the COVID-19 pandemic primarily impacted the financial reporting of NSW Health through:

• additional revenue from the State government in the form of grants and stimulus payments
• additional revenue from the Commonwealth government under the National Partnership Agreement for COVID-19 to cover part of the cost of responding to the COVID-19 pandemic
• increased expenses, largely due to increased payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists and increased cleaning costs
• increased purchases of personal protective equipment.

Chapter one outlines the impacts of NSW Health’s response to the COVID-19 pandemic. This chapter outlines our other audit observations related to the financial reporting of agencies in the Health cluster for 2020.

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.

The primary impact of the COVID-19 pandemic on the effectiveness of the internal controls of NSW Health and health entities relates to the effectiveness of controls implemented by HealthShare relating to the stocktake of personal protective equipment inventories. Inventory managed by HealthShare increased by 2,746 per cent during 2019–20. HealthShare’s inventory controls did not maintain pace with the sudden, significant increase.

The impacts of NSW Health’s response to the COVID-19 pandemic are outlined in chapter one. This chapter outlines other observations and insights from our financial statement audits of agencies in the Health cluster.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations 

Appendix three – Financial data

Appendix four – Analysis of financial indicators 

Appendix five – Analysis of performance against budget

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.

Auditor-General’s Report to Parliament

Health 2020

11 December 2020

This corrigendum has been prepared to amend the following text within the Auditor-General’s Report to Parliament on Health 2020, dated 10 December 2020.

NSW Health emergency department treatment times

On page five the original text was as follows:

NSW Health also measures the percentage of patients whose clinical care in emergency departments is completed within four hours. The measure is used as an indicator of accessibility to public hospital services.

NSW Health aims to complete clinical care in the emergency department for 81 per cent of patients within four hours. In 2019–20 NSW Health reports it completed clinical care within four hours for 72.1 per cent of patients (a 7.3 per cent decrease from 2018–19).

At Western Sydney Local Health District, 59 per cent of patients were treated within the targeted timeframe. NSW Health attribute this to the profile of patients presenting in emergency departments and additional time taken processing COVID-19 patients to ensure staff safety.

The original text has now been changed to:

NSW Health also measures the percentage of patients with total time in the emergency department of four hours or less for each local health district. The measure is used as an indicator of accessibility to public hospital services.

The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.

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

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

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

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

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

This chapter outlines our:

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

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019, 2018 and 2017 recommendations

Appendix three – Management letter findings

Appendix four – Financial data

Copyright notice

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

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

The Regional NSW cluster aims to respond to regional issues, creating and preserving regional jobs, driving regional economy, growing existing and supporting emerging industries. The key areas of focus across the New South Wales (NSW) State is shown below:

MoG changes impact on Department of Regional NSW

The Department was created as result of the MoG changes during 2019–20. The Administrative Arrangements Order 2020, effective on 2 April 2020 created the Department of Regional NSW. These changes had a significant administrative impact on the cluster agencies. The MoG change resulted in a transfer of net assets ($446 million) and budget ($284 million) from DPIE to the newly created Department of Regional NSW on 2 April 2020. A summary of the MoG impacts on the Regional NSW cluster is shown below.

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

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

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

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

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

This chapter outlines our:

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

Appendix one - List of 2020 recommendations

Appendix two - Financial data

Copyright notice

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

This report analyses the results of our audits of financial statements of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

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

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

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

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

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

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

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

This chapter outlines our:

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

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

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 recommendations

Appendix three – Financial data

Appendix four – Management letter findings

Appendix five – Timeliness of financial reporting

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

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

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

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

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

Read the PDF report

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

1. Financial reporting 

2. Audit observations

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

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

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

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

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

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

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

This chapter outlines our:

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

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 and 2018 recommendations

Appendix three – Financial data

Copyright notice

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

The Auditor-General for New South Wales, Margaret Crawford today released her report on the findings and recommendations from the 2019–20 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector.

The bushfire and flood emergencies and the COVID‑19 pandemic continue to have a significant impact on the people and public sector of New South Wales. The scale of the government response to these events has been significant. The report focuses on the effectiveness of internal controls and governance processes, including relevant agencies’ response to the emergencies. In particular, the report focuses on:

• financial and information technology controls
• business continuity and disaster recovery planning arrangements
• procurement, including emergency procurement
• delegations that support timely and effective decision-making.

Due to the ongoing impact of COVID‑19 agencies have not yet returned to a business‑as‑usual environment. ‘Agencies will need to assess their response to the recent emergencies and update their business continuity, disaster recovery and other business resilience frameworks to reflect the lessons learnt from these events’ the Auditor-General said.

The report noted that special procurement provisions were put in place to allow agencies to better respond to the COVID-19 pandemic. The Auditor-General recommended agencies update their procurement policies to reflect the current requirements of the NSW Procurement Framework and the emergency procurement requirements.

Read the PDF report

This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2020. These 40 agencies constitute an estimated 85 per cent of total expenditure for all NSW public sector agencies.

1. Internal control trends

2. Information technology controls

3. Business continuity and disaster recovery planning

4. Procurement, including emergency procurement

5. Delegations

6. Status of 2019 recommendations

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

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

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

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

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency business continuity and disaster recovery planning arrangements.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of procurement agency procurement policies and procurement activity.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency compliance with financial and human resources delegations.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations

Appendix three – Cluster agencies

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© 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.