1. Financial reporting and controls

This report provides Parliament and other users of the Justice cluster agencies' financial statements with audit results, observations, conclusions and recommendations for:

• Financial reporting and controls
• Service delivery.

The commentary in this report covers the following cluster agencies:

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

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

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

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

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

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

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

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

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

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

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

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

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

There is limited teacher professional learning in the use of ICT

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

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

Greater monitoring and reporting on technology use in schools is required

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

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

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

By July 2018, the Department of Education should:

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

Appendix One - Response from the Agency

Appendix Two - About the audit

Appendix Three - Performance auditing

RMS’ SMC contract management includes most elements of good practice, including governance and dispute resolution mechanisms. However, key elements are missing which reduces its effectiveness.

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

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

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

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

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

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

The Stewardship Maintenance Contract

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

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

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

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

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

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

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

RMS' contract management approach and benefits realization

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

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

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

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

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

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

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

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

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

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

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

NSW Government priorities and road maintenance

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

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

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

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

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

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

The NSW Government introduced road maintenance contestability through Stewardship Maintenance Contracts

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

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

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

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

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

Other key features of the SMC include:

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

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

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

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

Roads and Maritime Services should, by September 2017:

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

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

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

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

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

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

3.  Improve its management of benefits realisation by:

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

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

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

Appendix One - Response from Roads and Maritime Services

Appendix Two - Better practice contract management framework

Appendix Three - About the audit

NorthConnex is a nine-kilometre tolled motorway tunnel between the M1 Pacific motorway at Wahroonga and the M2 Hills motorway at West Pennant Hills. The total cost for the project is $3.1 billion. NorthConnex will be funded through toll charges, and contributions from the NSW and Australian Governments of up to $405 million each. In January 2015, the NSW Roads Minister signed the final contracts for NorthConnex.

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

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

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

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

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

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

Appendix One - Response from Agency

Appendix Two - Governance Arrangements for NorthConnex

Appendix Three - About the Audit

The total value of security deposits held has increased from $500 million in 2005 to around $2.2 billion in 2016, covering around 450 mine sites in New South Wales.

While there have been substantial increases in total deposits held, mine rehabilitation security deposits are still not likely to be sufficient to cover the full costs of each mine's rehabilitation in the event of a default.

This audit was undertaken when the Department of Industry, Skills and Regional Development was responsible for ensuring land disturbed by mining activities is rehabilitated in accordance with the relevant development approval, including the administration of mining rehabilitation security deposits. On 1 April 2017, this responsibility was transferred to the Department of Planning and Environment (the Department).  

This audit assessed whether the Department maintains adequate security deposits to cover the liabilities associated with mine closures, including rehabilitation. Companies authorised by the Department to undertake mining activities must provide a security deposit to cover the full costs of rehabilitation in the event of default by the company. Rehabilitation is the treatment of disturbed land or water to establish a safe, stable, non-polluting and sustainable environment.

Mining companies must provide an estimate of rehabilitation costs for each site. The Department provides a Rehabilitation Cost Calculation tool to assist companies calculate the deposit amount. Companies are also required to ensure that the cost estimate is in accordance with the approved Mining Operations Plan (MOP). The MOP is intended to be a mine rehabilitation and closure plan, and forms the basis for the estimation of the security deposit. The Department reviews the estimates and determines the deposit for each site.  

Security deposits are an option of last resort. The Department has other legislative and regulatory tools which it normally uses to promote compliance with rehabilitation requirements before accessing a security deposit. It can direct action by the mining company, issue fines and even have the Minister revoke a mining lease. To date, the Department has never had to access a security deposit for a state significant development mine site.

Security deposits are close to calculated value and should be accessible if needed

The value of securities held by the Department aligns with the latest approved rehabilitation cost estimates. This contrasts with the situation found by investigations in Victoria and Queensland, where deposit amounts held fell below the calculated costs.

The security deposits are usually in the form of a bank guarantee or cash. The Department has obtained legal advice indicating that it should be able to claim on these bank guarantees if the need arises. As the guarantee is between the financial institution and the Department, if a mining company goes into liquidation the Department should still be able to access the funds.  

When the latest estimate of rehabilitation costs is higher than the existing deposit, the Department will request additional security. It has experienced extensive delays in obtaining additional security for some sites, increasing the risk that available funds will be insufficient if needed.

Rehabilitation cost estimates are not yet adequate, but improvements are planned

The Department’s policy is for security deposits to cover the full cost of rehabilitation. No discounts are provided to mining companies for past good behaviour or low likelihood of default, unlike in some other states. Discounting could undermine the policy position.  

Current security deposits are unlikely to cover the full cost of rehabilitation on each mine site. The Department provides a rehabilitation cost calculation tool to help mining companies calculate the cost of rehabilitation and the required deposit amount, but:

• several activities required to effect closure are not included and others underestimated
• it does not make provision for industry cost changes over time
• the rates used in the tool have not been updated since 2013
• it was not able to provide the basis for the rates and allowances in the tool.

The Department reviews cost estimates provided by mining companies, but its verification of the extent of rehabilitation work on which these estimates are based is limited. It relies instead on section 387C of the Mining Act 1992 which makes it an offence for mining companies to provide false or misleading information. It is not evident how the Department would establish that information provided was false or misleading without more verification work, and six of the 14 cost estimates we reviewed were not signed by the mine manager, making enforcement more difficult.  

The Department has developed a new calculation tool, and recently released it for industry consultation. The new tool should improve rehabilitation estimates. It updates rates and allowances, and includes additional items to better cover required rehabilitation tasks. While a substantial improvement, the new tool could be further improved by providing additional coverage for stakeholder engagement, additional planning approvals, insurance costs, and any additional design, research and verification work required for successful closure.

There is no financial assurance over long-term environmental risks

The Department does not hold any financial assurance to cover the costs associated with mitigating any future environmental degradation once a mine closes and the security deposit is relinquished to the mining company. Security deposits are probably not the appropriate mechanism to cover these long-term risks but the risk of potential post-closure environmental degradation still needs to be costed and covered. A fund to cover the state-wide risk, to which all mines would contribute, is a possible mechanism.

Rehabilitation and closure outcomes are vague, particularly for unplanned closure

Rehabilitation outcomes in the MOPs we reviewed were generally not specific. Any lack of specificity in MOPs translates into uncertainty about rehabilitation work required if a mining company defaults. Part of the problem is that rehabilitation outcomes established in planning approvals are usually not specific and may not address all closure requirements. The Department has recognised there is scope to improve the clarity and specificity of rehabilitation requirements in planning approvals, and has started a review focusing on open-cut mines.

Rehabilitation outcomes are even less specific in the event of an unexpected early closure because they will probably be different from that achievable from a planned closure.  

MOP guidelines do not cover management of some key closure matters, such as the requirements of environment protection licences issued by the Environment Protection Authority and the management of heritage sites during closure.

There were significant variations in quality of MOPs we reviewed and the way closure risks and uncertainties were identified and addressed. The Department plans to improve the quality of rehabilitation programs through enhanced guidance and oversight.

Monitoring is not adequate to effectively gauge rehabilitation progress

The Department was not able to show it has been monitoring operational mine sites effectively to gauge the progress of ongoing site rehabilitation and the management of closure risks. There was no protocol for site inspections and limited evidence of inspections for the sites we reviewed.

The Department receives annual environmental management reports from mining companies, with most describing the areas of disturbance and rehabilitation occurring at each mine site. The Department recently established procedures for reviewing these annual reports, and has developed a risk-based process for prioritising reviews.

Most annual reports we reviewed did not explain environmental changes over time, nor the risks to mine closure and the measures required to mitigate them. For example, analysis of changes to surface water and groundwater quality was limited despite its relevance for assessing future contamination risks.

The Department does not currently have adequate processes in place to effectively verify the reported areas of disturbance and rehabilitation. It is developing geographic information system-based tools to better measure areas of disturbance and rehabilitation, new rehabilitation guidelines, and a procedure for determining whether rehabilitation has been successful. These initiatives should improve the monitoring and reporting of rehabilitation progress at mine sites.

There is no mechanism to prevent a mine being in ‘care and maintenance’ indefinitely

The Department does not have a clear policy on the length of time and circumstances under which a mine can remain in ‘care and maintenance’. Indefinite postponement of rehabilitation and closure is therefore possible. 'Care and maintenance' is the period following temporary cessation of operations when infrastructure remains largely intact and the site continues to be managed. There are a range of valid reasons for a mining company to put a mine in ‘care and maintenance’, but it is also reasonable for the community to expect a limit to how long it has to wait for proper rehabilitation.

Mining operations make a significant contribution to the NSW economy, including over $1.3 billion in royalties each year. Around 400 mine sites throughout NSW provide over 40,000 jobs and are a major source of economic activity for many communities. Despite these benefits, it is important to ensure that mining companies fulfil their obligations to rehabilitate land disturbed as a result of mining activity.

We recommend that the Department should, by January 2018:

1. Improve the quality of rehabilitation and closure plans by:

• ensuring plans submitted by mining companies include robust mine rehabilitation and closure risk assessments
• clarifying the level of detail required in plans at each stage of a mine’s operation
• specifying how requirements set under other legislative instruments (e.g. environment protection licences, heritage assets) should be addressed.

2. Improve assurance that security deposits are sufficient by:

• ensuring its new cost calculation tool adequately covers all works needed for rehabilitation and closure
• increasing the contingency for uncertainties associated with mine rehabilitation and closure, at least until the mining company provides a detailed closure plan
• verifying the cost estimates for a sample of high risk sites annually
• ensuring that when mining companies are required to provide increased security deposits, they do so with minimal delay.

3. Enhance oversight of mine rehabilitation by:

• developing a protocol to ensure sufficient and adequate site inspections
• ensuring mining companies report performance against rehabilitation targets and environmental changes clearly, including an analysis of long-term surface water and groundwater trends in terms of levels, flow and quality
• improving how it determines the progress and success of mine rehabilitation
• developing clear policy and procedures for ensuring a mine cannot be put into ‘care and maintenance’ indefinitely.

4. Collaborate with relevant agencies to establish a financial assurance mechanism, such as a sinking fund, to cover the risk of long-term environmental degradation after mines are closed and security deposits returned.

Appendix One - Response from the Department

Appendix Two - About the audit

The Department of Education (Department) must provide students with a place in a government school if parents desire it. Over the next 15 years, the student population in NSW Government and non-government schools is projected to grow by 21 per cent to nearly 1.5 million students. Over 80 per cent of this is expected to be in the Sydney metropolitan area.

Improving education outcomes of students is a NSW State Priority. Research shows that well designed and maintained facilities improve student learning outcomes. A strategic objective of the 2014 State Infrastructure Strategy Update is to ‘equip growing urban and regional populations with the modern schools and training infrastructure required to deliver educational service for a competitive, innovative economy’. 

This audit assessed whether the Department has a strategy and implementation model to ensure it has sufficient fit-for-purpose student learning spaces when and where needed.

Asset planning and investment for much of the last decade has been deficient

Over the last decade, there has been chronic under-investment in NSW Government school infrastructure. This has affected both new works and maintenance of existing assets. Until recently, the Department did not have a high-level, long-term school asset strategic plan. The Department had limited understanding of the funds needed over the long term to provide the necessary school infrastructure to meet educational needs of students economically. It had no robust method to determine whether priorities were correct and assess whether the funding split between building, upgrading and maintaining was appropriate.  

Permanent classrooms in 37 per cent of government schools are fully utilised, and 180 schools are operating beyond their permanent classroom capacity. The utilisation rates vary between regions and districts. Demountables are being used for extended periods to cater for permanent student population growth. A significant increase in the number of demountables at some schools decreased student access to amenities and open play spaces. 

The Department now has a Plan to meet future needs

The Department recently developed a Strategic Plan designed to ensure that there are sufficient fit-for-purpose places for students where and when required up to 2031. The Strategic Plan outlines the:

• predicted demand for future learning spaces
• condition of existing infrastructure and additional infrastructure and maintenance required
• proposed new initiatives to deliver the required infrastructure economically
• proposed new cluster planning model to determine priorities and initiatives to be implemented at the school level
• funding needed to provide appropriate learning spaces where and when needed.

The Strategic Plan has been developed with the benefit of expert advice and has been reviewed extensively within the Department, by other key government agencies and experts. The review process examined the Strategic Plan’s assumptions, data quality, proposals and cost estimation approach. This process has increased assurance and improved the Strategic Plan, but has delayed implementation by approximately a year so far.

Many more learning spaces will be needed

The Strategic Plan identifies that over the next 15 years the student population in government schools will increase by 21 per cent and that the Department will need:

• 7,200 additional classrooms and to upgrade many existing classrooms to meet future teaching and learning needs
• to undertake much more planned maintenance, otherwise 40 per cent of existing government school buildings will be in such poor condition that learning outcomes could be compromised.

The Department proposes a new approach designed to minimise costs

Given the need for substantial additional infrastructure and maintenance, and underfunding over the last decade, the Department has sought to minimise costs while maintaining quality.

Initiatives proposed include an increase in the maximum number of students in new and redeveloped schools; a stronger emphasis on redeveloping existing schools; smaller, more intensely developed school sites; strengthening partnerships with the private sector to improve school assets; and school consolidation and sale of surplus land to reinvest in better facilities. We did not identify any additional options that could be proposed to make further cost saving under current operational policy settings.

The proposed new cluster planning model will assess schools in a region or district to identify the best way to deliver school assets to a cluster as a whole rather than individual schools. It will identify the most effective and efficient asset solution within a cluster of five to 15 schools.

It represents an improvement over the previous model which addressed infrastructure needs on a school-by-school basis. The initial focus of school cluster planning will be on areas of highest student growth.

The proposed new cluster planning model has potential to create efficiencies and economies of scale if implemented well. Cluster planning will determine which of the various initiatives should be implemented in the schools in the cluster. It recognises that solving enrolment trends in one school requires consideration of surrounding schools and seeks the optimum asset solution for identified schools.

Implementation will be a major challenge

Effective implementation will require good collaboration with other government agencies, non-government schools, the private sector and the community. The Department has been improving its consultation with other government agencies and the non-government school sector, and has developed models for collaborating with the community and private sector. The Strategic Plan proposes open access to information, which will be important for effective collaboration and partnerships.  

There are many risks to effective implementation, which could drive up costs. These include opposition from school communities, a reduction in the proportion of students educated in non-government schools, unexpected increases in land and construction costs, failure to sufficiently streamline the planning approval system or a blow-out in renovation costs in older schools.  

To provide and maintain the infrastructure needed up until 2031, the Department estimates it will need significantly more money than it receives now even if it implements its initiatives and cluster planning effectively. It would require much more again if it was to retain its current approach to planning and delivering school infrastructure.  

The current school infrastructure funding arrangement does not support effective long-term planning. A four-year commitment to education infrastructure funding does not provide the flexibility needed for the Department to manage its allocations and respond to changes in priorities or emerging challenges. The Health and Transport clusters receive a ten-year funding commitment, known as a capital planning limit.

Changing operational policies could increase school utilisation

Further significant cost savings are only likely if the Department changes some operational policies. Class size is a key determinant of the number of classrooms needed. Choice in school enrolment and the existence of single-sex, selective, sports or creative and performing arts schools all can lead to underutilisation of schools and classrooms because they are not accessible to all students.  

The Department of Education should:

1. regularly revisit and evaluate the Strategic Plan to keep it contemporary, refine it based on learnings, update cost estimates to reflect actual results, and respond to available funding

2. work with NSW Treasury to develop a framework for partnering with the private sector

3. align Total Asset Management plans with cluster plans as they are developed

4. closely consult and collaborate with communities on implementation of the Strategic Plan

5. continue to collaborate with key government agencies, local government, the non-government school sector and the private sector on implementation of the Strategic Plan

6. publish detailed information on the status of assets, current and projected enrolments, and planned school projects to support effective consultation and collaboration

7. seek a ten-year capital planning limit from NSW Treasury

8. advise the government on options to change operational policies and practices to reduce infrastructure requirements.

Appendix One - Response from the agency

Appendix Two - About the audit

Appendix Three - NSW school regions and districts

Appendix Four - School utilisation rate by district/region

Appendix Five - Single-sex, selective and specialist high schools in Sydney Region