Reports
Acquisition of 4–6 Grand Avenue, Camellia
The Auditor-General for New South Wales, Margaret Crawford, has today released a report on Transport for NSW’s (TfNSW) acquisition of 4–6 Grand Avenue in Camellia.
This audit, which was requested on 17 November 2020 by the Hon. Andrew Constance MP, the Minister for Transport and Roads, examined:
- whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
- whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.
The audit found that TfNSW conducted an ineffective process when it purchased 4–6 Grand Avenue, Camellia. The audit also found that TfNSW’s internal policies and procedures to guide the transaction were, and continue to be, insufficient.
The Auditor-General has made seven recommendations to address the issues identified in the report.
On 17 November 2020, the Hon. Andrew Constance MP, the Minister for Transport and Roads, requested this audit under section 27B(3)(c) of the Public Finance and Audit Act 1983.
On 15 June 2016, Transport for New South Wales (TfNSW) acquired 6.3 hectares of land at 4–6 Grand Avenue, Camellia, by agreement from Grand 4 Investments Pty Ltd. Grand 4 Investments was a business entity established by the owners of Billbergia Pty Ltd, a property development and investment company.
TfNSW paid Grand 4 Investments $53.5 million and assumed liability for addressing environmental issues and contamination associated with the site. This took place seven months after the vendor acquired the land as part of a competitive Expression of Interest process, in which TfNSW also participated, for $38.15 million.
TfNSW is the NSW Government agency responsible for most major transport infrastructure projects in New South Wales. TfNSW acquired the Camellia site for use as a stabling and maintenance depot to support the Parramatta Light Rail (PLR) project.
Consistent with the minister’s request, this audit assessed:
- whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
- whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.
In considering the effectiveness of the processes for this purchase, the audit considered:
- the requirements of the Land Acquisition (Just Terms Compensation) Act 1991 (the Act)
- the application of sound processes to manage risk to the NSW Government and to achieve value for money
- the application of disciplines associated with complex procurement, such as probity, in a NSW Government context.
The acquisition of the 4–6 Grand Avenue site in Camellia was consistent with a 2014 feasibility study for the PLR, but occurred before the completion of detailed project planning or an acquisition strategy.
TfNSW made two attempts to acquire the 4–6 Grand Avenue site in Camellia, and was successful on the second attempt. TfNSW recognised the risks associated with early acquisition and had high-level strategies in place should the site not be required.
The specific site had been identified in a feasibility study for the PLR commissioned by TfNSW in 2014 as one of several options in Camellia for a stabling and maintenance depot. However, TfNSW had not done any substantive analysis of the various options to identify a preferred location before the two opportunities to acquire 4–6 Grand Avenue were brought to TfNSW’s attention by the landowners (or their agents). On both occasions, TfNSW chose to actively pursue acquisition in advance of any such analysis.
The acquisition was also not informed by a Property Acquisition Strategy, which TfNSW policy recommends in order to guide the process and manage acquisition specific risks.
In 2015, TfNSW identified that it would require a stabling and maintenance depot in the Camellia area for the Parramatta Light Rail
In 2014, TfNSW commissioned an external engineering consultancy to undertake a feasibility design study for the Parramatta Light Rail - the Parramatta Transport Corridor Strategy Feasibility Design study (herein referred to as ‘the feasibility study’). In early 2015, TfNSW received the feasibility study, which was one of several key sources that informed the development of business cases for the PLR.
The feasibility study recommended that TfNSW should consolidate the maintenance and cleaning operations with overnight stabling facilities on one site. The study noted that the optimal location for any such site would be in close proximity to the proposed network, and noted that the site must have access to road connections to accommodate access for cars and trucks.
The study found that a centrally located stabling and maintenance facility would be required for all routes serving the Parramatta CBD, and that the Camellia industrial area was a preferred location for such a facility. The study noted that the Camellia area was contaminated.
The feasibility study notes that its conclusions were based on assumptions about the light rail system adopted and decisions made by the future operator of the system, who had not yet been selected or appointed.
TfNSW's decision to progress a potential acquisition in 2015 considered the risk that the site may not be required
TfNSW's FIC was responsible for making decisions on funding allocations at a whole of program level within TfNSW. FIC was also responsible for approving ‘high-risk/high-value’ variations to program budgets. Members of the FIC included:
- Secretary of Transport for NSW
- Deputy Secretary, Infrastructure and Services
- Deputy Secretary, Freight, Strategy and Planning
- Deputy Secretary, Customer Services
- Deputy Secretary Finance and Investment
- Deputy Secretary People and Corporate Services.
An April 2015 submission, from the then Deputy Director-General to the agency’s FIC, sought authorisation and funding approval to participate in an Expression of Interest sale process. It noted the risk that the project may not go ahead. The submission advised that:
By acquiring a strategic site now, it reduces the risk of having to pay an improved value or a value that may be subject to rapidly improving land values due to changes in land use and rezoning.
The property can be acquired for the project, held strategically and income generated by leasing the site as hardstand 1 space until the project requires the land for the Parramatta Light Rail project.
If the project does not proceed in the medium to longer term, the property can be sold at a premium to what has been paid today as property fundamentals improve.
This submission acknowledged the risks associated with environmental contamination and proposed that these risks would be managed by negotiating a contract where the remediation and associated expenses would be at the landowner’s cost.
TfNSW assessed the 4–6 Grand Avenue site as one of several sites in Camellia that was a feasible location for a stabling and maintenance facility
The Departmental feasibility study assessed six potential sites for a stabling and maintenance facility, including 4–6 Grand Avenue, noting strengths and weaknesses of each site. A different site on Grand Avenue was assessed as the ‘base case’ option (1 Grand Avenue). The study’s comments on the 4–6 Grand Avenue site included the following:
With an area of approximately 63,000m2, this site has sufficient space for a depot with the required stabling yard and maintenance facilities. The location allows for good road access and LRT [light rail transit] access would be from Grand Avenue, which may require a road crossing or signalised intersection. The site has been used for general industrial uses; however the land has been cleared and is currently undergoing remediation 2. The site is not affected by flooding based on one in 100-year flood data.
In early 2015, once the opportunity to acquire 4–6 Grand Avenue emerged, TfNSW commissioned a specific feasibility study of the 4–6 Grand Avenue site. The feasibility studies clearly documented the existence of environmental contamination. In April 2015, the report concluded:
Given the limitations of this report and within the parameters that have been set it is concluded that from a spatial and geographic perspective the site at 6 Grand Avenue would be suitable as a stabling and maintenance depot for the Parramatta light rail project. There are few engineering and environmental constraints that would affect the feasibility level analysis of this site and all issues identified, within this desk study, are considered to be resolvable. However this being said there is a significant amount of work necessary to reach the final layout and definition of the stabling and maintenance depot. There are numerous items which require further consideration and conformation; planning approvals could impose restrictions on building heights, noise mitigation measures, light and visual impact requirements all of which can have significant impacts on the spatial requirements of any stabling and maintenance depot.
The acquisition of 4–6 Grand Avenue was not informed by a Property Acquisition Strategy
For major projects, TfNSW typically requires the project team to complete a Property Acquisition Strategy, which is intended to guide both process as well as specific acquisition issues expected to be faced during the project. The Property Acquisition Strategy is not a mandated document but is a recommended tool to support property acquisition as part of major projects.
TfNSW did not have a Property Acquisition Strategy in place to guide the 2015 Expression of Interest process. On 6 November 2015, the then Project Director for the PLR project emailed the property team, noting a need to develop a Property Acquisition Strategy to close off the scoping design and preliminary business case.
In January 2016, TfNSW developed a draft Property Acquisition Strategy for the Parramatta Light Rail Project, although it was silent on the potential sites for the stabling and maintenance facility.
TfNSW focussed on 4–6 Grand Avenue because it was available and aligned to TfNSW's strategic interests
In early 2015, officials commenced monitoring the market for industrial real estate in the Camellia area and surrounds for possible sites for a stabling and maintenance facility.
In March 2015, then owner of the site, Akzo Nobel Pty Limited released the 4–6 Grand Avenue site through an Expression of Interest process managed by CBRE.
TfNSW’s then Deputy Director-General, Planning, sought approval from FIC to lodge an Expression of Interest up to $30.0 million. Approval was sought on the basis that it would ‘provide certainty for the Parramatta Light Rail project by allowing for a depot site in a suitable location and potentially avoid higher costs or longer timeframes associated with compulsory acquisition following completion of the project’s business case’. FIC approved the request at its meeting on 9 April 2015.
At this time, TfNSW had not conducted any analysis of financial or operational benefits and costs of the potential sites identified in earlier feasibility studies. TfNSW staff advised us that the decision to participate in the Expression of Interest process for 4–6 Grand Avenue was because it was available. There is no documentation substantiating this statement, which TfNSW staff provided verbally as part of this audit.
In November 2015, TfNSW was advised that it was unsuccessful in the Expression of Interest process and that Grand 4 Investments (a related entity of Billbergia) had purchased 4–6 Grand Avenue. TfNSW did not conduct any further analysis of alternative potential sites in Camellia between this date and commencing discussions with Grand 4 Investments in April 2016. In that time there had been some movement on other properties that were included in the feasibility study, including 37–39a Grand Avenue being under offer in September 2015.
In March 2016, TfNSW approached CBRE to organise a meeting with Grand 4 Investments. On 1 April 2016, TfNSW met with Grand 4 Investments.
TfNSW advises that a perceived benefit of the 4–6 Grand Avenue site was that it was not subject to other uses or leaseholds that would increase the cost of compulsory acquisition. Officers involved in the acquisition advised that other nominated sites in the feasibility study were subject to other uses or leaseholds.
2 Officers familiar with the acquisition could not confirm the nature of remediation being undertaken, but noted that the previous landowner had cleared buildings from the site, which may have been considered part of remediation.
TfNSW's independent valuation, which it commissioned and received after the acquisition, specifically excluded consideration of environmental contamination risk. As a result, TfNSW is exposed to the risk that the acquisition was not fully compliant with the Land Acquisition (Just Terms Compensation) Act 1991 (the Act) because it did not use an accurate estimate of market value during negotiations. That said, the acquisition of 4–6 Grand Avenue by agreement was consistent with preferred processes described in the Act.
TfNSW acquired the site from the landowner by agreement, and this is consistent with provisions in the Act. Obtaining approval for compulsory acquisition should negotiations for agreement break down is also consistent with the Act. That said, TfNSW did not at any time assess whether a compulsory acquisition could have resulted in acquisition at a lower cost than what was negotiated by agreement.
Despite the high risks associated with the acquisition, TfNSW did not commission a formal valuation in time to inform the negotiation and purchase. Instead, TfNSW relied on internal advice to estimate market value, but did not obtain a formal valuation from those advisors. For high-risk transactions, the greater expertise and arm's-length independence of an external specialist valuer should be preferred over an agency's own staff.
On 15 June 2016, the settlement date for the acquisition, TfNSW commissioned a formal independent valuation of the site. On 23 November 2016, TfNSW received the final formal valuation report. By not obtaining a formal independent valuation of the property in advance of acquisition to inform the acquisition value, TfNSW exposed itself to non-compliance with the Act by not establishing the market value as the basis for the acquisition price. TfNSW also breached its own internal policies.
TfNSW instructed the valuer to conduct its valuation within the following parameters:
- Market valuation on an ‘as is’ basis – market value based on the methodology described in the Act. This approach valued the site at $25.0 million.
- Market valuation on a speculative development basis – market value based on the financial value of the vendor's intended use of the site which, in this case, involved leasing the site for industrial use. This approach valued the site at $52.0 million, and TfNSW advised us this valuation supported the purchase price.
- Disregard the impact of environmental contamination – TfNSW specifically instructed the independent valuer to disregard any known (or unknown) site contamination. As TfNSW knew of the significant environmental contamination affecting the site, this parameter resulted in a valuation that overstated the value of the site as it did not consider the cost of environmental remediation. The valuer applied this assumption for both market valuation approaches.
Additionally, as the independent valuer completed the valuation after the purchase was finalised, there is a risk that the valuation may have been influenced by the known purchase price.
TfNSW's failure to acquire a formal valuation and an assessment of the financial impact of environmental remediation before it purchased 4–6 Grand Avenue represents ineffective administration and governance.
TfNSW acquired the site at a time when there was demand and increasing prices for industrial property in the area. However, TfNSW did not effectively assess and manage the risks associated with the acquisition, and gaps in process led to increased risk. Briefings to decision-makers did not contain important information, and we found no evidence that gaps in advice were queried or explored by decision-makers.
TfNSW did not have plans or advice in place to assist in managing risk, such as:
- a property acquisition plan
- a comprehensive and up-to-date risk management plan
- a negotiation strategy, or any authorisation limit or minimal acceptable position
- an independent professional evaluation
- external expert advice (with the exception of legal advice relating to the contract of sale).
TfNSW was aware of contamination issues affecting the land and had access to considerable information about the environmental conditions, such as site environmental audit reports and information on the NSW Environment Protection Authority's contaminated land register. However, TfNSW had not analysed specific technical information about the contamination and therefore was not aware of the risk implications and cost for remediation. Despite this, TfNSW changed its position from not accepting the risks and costs of contamination, to acquiring the site unconditionally. The basis for this decision is unclear and undocumented.
Briefing to senior leaders on the acquisition was silent on a number of important matters that would have been important for approvers to consider, including:
- an explanation of the 40 per cent increase in purchase price between November 2015 and May 2016, and a 165 per cent increase from TfNSW’s offer in April 2015
- the contamination risks associated with the site and an evidence-based estimate of potential costs to remediate the site
- advice that an independent valuation had not been obtained, inconsistent with TfNSW policy.
Consideration of the acquisition by FIC was based on a summary business paper and was managed out-of-session, thereby removing the ability for comprehensive consideration of the acquisition proposal and its risks.
The probity management controls and assurances in place for the acquisition of the 4–6 Grand Avenue site were insufficient. These insufficiencies were exacerbated by the probity risk profile of the transaction.
The 4–6 Grand Avenue acquisition was a high-risk/high-value transaction, undertaken in a volatile property market in a short timeframe under pressure from Grand 4 Investments. TfNSW was engaging in a direct negotiation in advance of detailed planning for the acquisition, or the PLR as a whole. These circumstances contribute to heightened probity risk.
TfNSW did not establish a probity plan and sought no probity support throughout the acquisition. Also, with one exception, the staff involved in the acquisition did not complete conflict of interest declarations.
TfNSW was aware of the potential for probity or integrity issues with the transaction when it commissioned an internal audit in connection with the transaction in 2019. Internal discussions considered whether a misconduct investigation may be more appropriate, however no such investigation was undertaken.
TfNSW's insufficient probity practices, in addition to its failure to keep complete or comprehensive records of negotiations or decisions, reduce transparency of the process and its outcome and expose TfNSW to a greater risk of misconduct, corruption and maladministration.
At the time of the transaction, the TfNSW policy framework was not sufficiently risk-focussed and did not provide clarity on when officers ought to apply specific guidance or procedures. TfNSW's policies and procedures are more focussed on acquiring land to meet project needs and timeframes, and less on assuring value for money and managing risks.
At the time of its acquisition of 4–6 Grand Avenue, TfNSW had property acquisitions policies and procedures in place. Each of these were broadly sound in their content and intent. However, they lacked specificity on how or when to apply guidance, and when risk levels should elevate the importance of recommended guidance.
TfNSW's key guidance was principles based and relied on agency staff using their experience and expertise to apply guidance according to the circumstances of an individual transaction. This guidance was not duly applied in the acquisition of 4–6 Grand Avenue, Camellia. In addition, TfNSW does not have quality or control assurance to identify when TfNSW officers did not apply important policies or processes.
The primary focus of the TfNSW’s property acquisition guidance is to achieve vacant possession of land in a timeframe that meets the need of the relevant transport project. There is less specific focus on the need to meet the requirements of the NSW Government financial management framework.
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
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Parliamentary reference - Report number #349 - released (18 May 2021).
Delivering school infrastructure
The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the planning and delivery of new, redeveloped and upgraded public schools.
School Infrastructure NSW has identified the need to accommodate an additional 180,000 enrolments in public schools by 2039 with a large portion of this growth expected in metropolitan Sydney. It has also identified that around 34,000 teaching spaces will require upgrading to be fit-for-purpose.
Although School Infrastructure NSW has developed a long-term strategic plan that advises government of ongoing funding requirements, it has not presented a list of priorities to meet those needs. Developing a longer-term list of priorities would help signal the areas of greatest need and allow more time to develop the best options to meet those needs.
The audit found that School Infrastructure NSW has focused on delivering existing projects, election commitments and other government announcements. This has diverted attention from identifying and delivering projects that would have better met present and future needs.
The report makes eight recommendations to improve long-term planning for future needs, strengthen the quality of estimated project costs and benefits, and embed a continuous improvement program.
In 2016, the Department of Education prepared a School Assets Strategic Plan (2016 SASP) which outlined long-term funding needs to support the expected growth in enrolments to 2031. Following the release of the 2016 SASP, the NSW Government substantially increased funding for new and upgraded schools from $2.4 billion in the 2016–17 State Budget to $4.2 billion in 2017–18.
In 2017, the Department of Education established School Infrastructure NSW (SINSW) to lead the delivery of the 2016 SASP and the 123 new projects announced in the 2017–18 Budget. This significantly larger program of work required rapid development of internal capacity, governance arrangements, and project management systems. This needed to be done at the same time as scoping and planning for the list of announced projects.
As there are limited funds available to meet growing needs across the State, it is important that SINSW has effective methods to prioritise projects to communities with the greatest need. To ensure that projects deliver value for money, business cases need to have robust estimates of project costs and benefits. Business cases also need to account for the inherent risks in delivering infrastructure projects. Unplanned cost escalations can reduce the number of new or modernised classrooms SINSW can deliver. Unforeseen delays may also impact families who make significant life choices based on their expectations that a school will open at the beginning of the school year.
The objective of this audit was to assess the effectiveness of planning and delivery of new, upgraded and redeveloped schools to meet demand for public school education in New South Wales. To address this objective, the audit examined whether the Department:
- has effective procedures for planning and prioritising school capital works to meet present and future demands
- develops robust business cases for school capital works that reliably inform decision-making
- has effective program/project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.
The audit examined business cases for 12 projects as case studies. These include a mix of projects initiated before and after the establishment of SINSW.
This audit commenced in June 2020 and examined strategies and demographic projections developed prior to the emergence of COVID-19. This audit did not examine potential longer-term impacts of COVID-19 on future demands for public school education.
ConclusionSchool Infrastructure NSW has been focused on delivering existing projects, election commitments and other government announcements. This has diverted attention from identifying and delivering projects that would have better met present and future student and classroom needs. While it has developed a long-term strategic plan that advises government of ongoing funding requirements, it has not presented a list of priorities to meet these needs. In its first years of operation, SINSW has focused on delivering existing projects and the 123 new projects announced in the 2017–18 Budget. Further NSW Government announcements in the 2018–19 Budget, election commitments in the 2019–20 Budget, and announcements in the 2020–21 Budget, made up the majority of new projects, rather than projects prioritised by SINSW. In early 2020, SINSW advised the NSW Government that the currently funded infrastructure program would not meet forecast classroom requirements for 2023 and beyond. The School Asset Strategic Plan 2020 estimates the annual level of investment needed over the next 20 years to meet growth, update and upgrade facilities to meet compliance obligations. However, SINSW’s ten-year Capital Investment Plans for 2018–19, 2019–20 and 2020–21 only identified priorities over a two-year horizon. Developing a longer-term pipeline of priorities would signal the areas of greatest need and allow greater scope to consider a range of options to best meet those needs. SINSW has made progress in planning across geographic areas but needs to better prioritise which projects move forward. Given the current and projected needs for new classrooms, it is vital that SINSW provides long-term advice based on thorough state-wide analysis to help prioritise projects that best meet this demand. SINSW has improved its capabilities, processes, and systems to support planning in ‘School Community Groups’, which are clusters of between 5 to 15 schools in a geographic area. This addresses a key direction identified in the School Assets Strategic Plan 2016. It has developed a planning tool which allows it to prioritise School Community Groups based on weighted criteria. It has also developed an approach to identify potential projects within School Community Groups but has not yet put in place a structured process to prioritise which projects move to the business case stage to seek funding for delivery. Business cases we examined established service needs, but several had shortcomings in scope definition, cost estimation and risk identification. Most business cases we examined demonstrated the service need and consultation with stakeholders helped to incorporate educational requirements. Common templates and specific cost-benefit guidance developed in partnership with NSW Treasury has helped to promote consistency across business cases. However, there were shortcomings in several business cases we reviewed. Business cases for projects already announced by government presented a limited number of options, and the process for eliminating other options was not transparent. Cost increases and contingency drawdowns for several projects indicate that scoping, costing and risk assessments could be improved, especially for complex projects. Standard program management systems and governance arrangements support project delivery, however, there is scope for better ongoing oversight of benefits. SINSW applies standard governance arrangements to projects based on their size. Higher value projects have executive oversight while lower value projects are overseen on a regional basis. SINSW has improved its project management systems to provide more consistent data and greater transparency to senior management over project status, cost and use of contingencies. SINSW has worked with NSW Treasury to define a consistent set of benefits for new and redeveloped schools. Estimated benefits are currently based on international contexts but SINSW advises it is undertaking further research to improve the evidence base in this area. The current approach to ongoing monitoring, reporting and evaluation of project benefits places responsibility on the infrastructure delivery team. This team is not the most appropriate area to monitor ongoing benefits, which are expected to accrue many years after delivery and depend on actions in other areas of the Department. |
1. Key findings
SINSW delivered projects against an established program of works in its first years of operation
At establishment, SINSW inherited a portfolio of existing projects and 123 new projects announced as part of the 2017–18 Budget (to commence over 2017–18 and 2018–19). It has progressively worked through individual project planning to deliver against these projects.
The 2018–19 Budget funded two new projects that had not already been announced. Both projects were identified by SINSW as a priority. The 2018–19 Budget also allocated funding for 'planning' 22 new projects. Seventeen of the 22 projects had been identified by SINSW as a priority.
SINSW identified 31 new priority projects in its Capital Investment Plan for 2019–20. Thirteen of these projects were funded in that year with a further 27 projects included as election commitments. SINSW identified 20 new projects in its Capital Investment Plan for 2020–21 but only two of these were funded. SINSW advised this was due to a constrained budget environment.
There is an anticipated shortfall of classrooms based on the current funded program
Despite increased funding since 2017–18, SINSW advised the NSW Government in early 2020 that the currently funded infrastructure program would not meet forecast classroom requirements for 2023 and beyond. Accordingly, it is vital that new funding is prioritised to projects which best meet demand.
SINSW only identified specific priorities over a two-year horizon in its Capital Investment Plans for 2018–19, 2019–20 and 2020–21. The School Assets Strategic Plan 2016 and the 2020 update make the case for sustained funding for school building and redevelopment. These plans estimate annual funding requirements and show geographic areas with increasing forecast enrolments. Detailing how priorities over a ten-year timeframe fit within a ten-year capital planning limit would create more certainty about meeting growth demands.
There has been progress in formalising prioritisation frameworks, data tools and supporting governance arrangements
SINSW committed to planning for new and redeveloped schools in 'School Community Groups' in the School Assets Strategic Plan 2016. This is a new way of planning which considers the educational needs over a defined geographical area. It has developed a planning tool to prioritise School Community Groups based on weighted criteria. It has also established governance frameworks to improve transparency over decisions to reprioritise this list.
SINSW has refined its approach to planning in School Community Groups over the past four years. It now prepares Service Needs Reports to investigate needs, identify projects, prioritise, determine scope and timing, and assess non-capital options. SINSW has yet to finalise arrangements for how needs identified in Service Needs Reports progress to the strategic business case stage.
Projects announced prior to developing a business case have less opportunity to consider a range of options to meet the service needs
Business cases for projects already announced by government (or announced for planning) go through the same process of determining the service need and impacts on surrounding schools. However, for some announced projects, the range of options considered in the business case is influenced by the parameters of the announcement. This makes it more difficult to genuinely pursue alternate options that could better meet the identified service need.
Projects identified by SINSW have a more rigorous process of considering options. Service Needs Reports explore a wide range of asset and non-asset interventions across the School Community Group. Options are narrowed as the projects move through the strategic and final business case stages. SINSW uses its Investment Review Committee to engage key stakeholders early in the process so that they are informed about how non-asset solutions have been considered and why SINSW is progressing the business case for a capital solution for particular projects.
Several business cases underestimated project costs and risks, leading to scope and budget increases
Several business cases we reviewed did not adequately identify the initial scope requirements, project-specific risks or the likely project cost. For two business cases, this appeared to be due to an attempt to fit the project within a predetermined amount. Announcing a project’s scope, budget and timeframe before proper planning increases risks to successful delivery against expectations.
Several of the projects we examined required drawdowns on contingency funds due to inadequate consideration of scope, costs and project risks at the planning stage. Contingency funds are intended for unanticipated extra costs rather than those that could have or should have been identified at the planning stage.
Guidance on benefit calculations has provided a consistent framework for business cases
Business cases we examined presented a consistent set of benefits based on guidance developed in partnership with NSW Treasury. Following this guidance helps to compare cost-benefit analyses across business cases. However, the evidence for the estimated benefits is based on contexts outside of NSW. SINSW has the tools and data sources to calculate benefits more suited to the context of particular schools. Doing so would improve the accuracy of cost-benefit analyses. SINSW advised that it is currently updating the guidance in partnership with NSW Treasury.
SINSW involves school principals, executives and teaching staff in developing education rationales when commencing projects. These documents help align projects with education outcomes. They also provide a baseline for post-occupancy evaluation, which is important to determine whether the new school infrastructure is being used in the ways that were anticipated in the business case.
SINSW could elevate its existing assurance review process to consolidate lessons learned
SINSW engages external peer reviewers to conduct assurance reviews on its projects at multiple stages of planning and delivery. It has established a Community of Practice for external reviewers to keep them up to date on new developments and requirements. Higher value projects are also subject to review by Infrastructure NSW under the Investor Assurance Framework.
By looking at all projects at all stages, assurance reviews can identify systematic issues across the full portfolio of projects. A recent assurance review analysed common findings from reviews of strategic and final business cases. This provides a helpful way to improve internal processes. SINSW advised that it is implementing a continuous improvement program, which will be able to take findings from assurance reviews to build organisational capabilities.
2. Recommendations
By September 2021, the Department of Education should:
- finalise the investment prioritisation approach with agreement from key stakeholders
- finalise and update on an ongoing basis a ten-year list of priorities to meet the forecast demand for new classrooms and contemporary fit for purpose learning environments, which identifies individual projects and programs in the short-term and priority geographic areas and programs in the medium-term
- seek a ten-year Capital Planning Limit from NSW Treasury to ensure the needs identified in the ten-year list of priorities are met and are coordinated with the forward capital programs of other agencies
- improve the quality of data on cost benchmarks that underpin the annual ten-year Capital Investment Plan and updates to the School Assets Strategic Plan
- embed an evidence-based cost benefit analysis framework for school investment, in consultation with NSW Treasury, by:
- validating benefits estimated in previous business cases with actual results
- building the evidence base in relation to contemporary learning environments
- regularly share data on forecast needs with relevant planning agencies to promote strategic opportunities for servicing education needs
- implement the continuous improvement program for service planning, options assessment, business case development, project delivery and handover. The program should be informed by findings from assurance reviews, post-occupancy evaluations and project lessons learned
- establish benefits realisation processes and practices that:
- ensure business cases set baselines and targets for benefits
- review benefits during delivery, prior to handover and as part of Post Occupancy Evaluations
- identify which part(s) of the Department are best placed to develop, manage and evaluate benefits on an ongoing basis.
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Note: The Department's formal response to this report at Appendix one states that while it 'supports the recommendations, it considers the proposed six-month timeframe to be an unreasonably short period for a large and complex organisation to effectively implement many of these recommendations'. It suggests 12 months would be needed to implement the recommendations. The recommendations stemming from this audit are core business for SINSW. The Audit Office considers it important for SINSW to place priority on implementing the recommendations in time to inform the 2022–23 budget cycle. Extending the deadline to April 2022 would place action outside of that budget cycle. |
There have been significant increases in funding for education infrastructure since the 2017–18 Budget and further growth in demand for places in schools is forecast. SINSW has the challenge, not only of meeting the need for new classrooms due to population growth, but also upgrading facilities to enable modern teaching techniques. In addition, community expectations of what constitutes a vibrant and successful school community continues to increase.
Given growing demand and budget constraints, projects must be selected to best meet the needs of the community and planning and prioritisation are vital. SINSW has been progressing planning for announced projects as well as implementing a new type of strategic state-wide planning and prioritisation, cluster planning, where options are developed for School Community Groups.
The primary role of a business case is to reliably inform an investment and/or policy decision. Over the period of review, the NSW Government's guidelines for business cases have established this requires recommendations based on convincing arguments, sufficient evidence, and accurate costing of alternatives and expected benefits. Business case guidelines are underpinned by guides for economic appraisal and cost-benefit analysis.
As SINSW moves to prioritise business cases for interventions in School Community Groups, it will increasingly need to demonstrate rigour in its assessment of all options. It will also need to ensure that scope identification, cost and risk planning and the setting of contingencies are accurate. This will help decision-makers better understand, plan for and manage the investment required to meet the demand for school infrastructure.
For this audit, we examined business cases and related documentation for 12 projects. Several of these projects were developed before School Infrastructure NSW was established in mid-2017.
Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.
SINSW's guidance similarly highlight the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by SINSW that can be tailored to the planning and delivery of school infrastructure projects.
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
Copyright Notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #347 - released (8 April 2021).
Auditor-General’s Report to Parliament on Delivering School Infrastructure
This corrigendum has been prepared to amend the following text within my Auditor-General’s Report to Parliament on Delivering School Infrastructure, dated 8 April 2021.
On page two, the original text was as follows:
Further NSW Government announcements in the 2018–19 Budget and election commitments in the 2019–20 Budget made up the majority of new projects, rather than projects prioritised by SINSW.
The original text has now been changed to
Further NSW Government announcements in the 2018–19 Budget, election commitments in the 2019–20 Budget, and announcements in the 2020–21 Budget, made up the majority of new projects, rather than projects prioritised by SINSW.
On page three, the original text was as follows:
The 2018–19 Budget funded three new projects that had not already been announced. One of the three projects was identified by SINSW as a priority.
The original text has now been changed to:
The 2018–19 Budget funded two new projects that had not already been announced. Both projects were identified by SINSW as a priority.
On page three the original text was as follows:
SINSW identified 33 priority projects in its Capital Investment Plan for 2019–20.
The original text has now been changed to
SINSW identified 31 new priority projects in its Capital Investment Plan for 2019–20.
On page eleven, in Exhibit 4, the original text was as follows:
The 2018–19 NSW Budget announced funding for an additional 43 new and upgraded schools to commence works in 2018–19. Of the 43 projects:
• 1 was identified by SINSW as a priority in its Capital Investment Plan (SINSW requested funding for one new project)
• 40 had already been announced
• 2 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).
The original text has now been changed to:
The 2018–19 NSW Budget announced funding for an additional 42 new and upgraded schools to commence works in 2018–19. Of the 42 projects:
• 2 were identified by SINSW as a priority in its Capital Investment Plan (SINSW requested funding for two new projects)
• 40 had already been announced.
On page eleven, the original text was as follows:
The 2019–20 NSW Budget announced funding for an additional 40 new and upgraded schools as election commitments. Of the 40 election commitment projects:
• 13 were identified by SINSW as priorities in its Capital Investment Plan (SINSW requested funding for a total of 33 new projects)
• 27 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).
The original text has now been changed to:
The 2019–20 NSW Budget announced funding for an additional 40 new and upgraded schools as election commitments. Of the 40 election commitment projects:
• 13 were identified by SINSW as priorities in its Capital Investment Plan (SINSW requested funding for a total of 31 new projects)
• 27 were new announcements (not identified as a priority by SINSW in its Capital Investment Plan).
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.
One TAFE NSW modernisation program
The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the management of the One TAFE NSW modernisation program.
In 2016, the Government released 'A Vision for TAFE NSW' which stated that TAFE NSW needed to become more flexible, efficient and competitive. It set out the need to progressively reduce significant cost inefficiencies, including by moving away from separate institutes to a single institute model. TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision.
The Auditor General found that the One TAFE NSW modernisation program did not deliver against its key objectives within planned timeframes. The modernisation program originally aimed to realise $250 million in annual savings from 2018–19. Because of project delays and higher than expected transition costs, TAFE NSW did not meet the original savings target. TAFE NSW has made progress on key elements of the program and anticipates that savings will be realised in coming years.
The report makes two recommendations to improve governance arrangements for delivering on commercial objectives and increasing transparency of non commercial activities.
The report also identifies a series of lessons for future government transformation programs.
TAFE NSW is the public provider of Vocational Education and Training (VET) in New South Wales. In 2018, TAFE NSW enrolled 436,000 students in more than 1,200 courses at around 130 locations across the State.
There have been major policy changes impacting TAFE NSW over the past decade. Under the Smart and Skilled reform, TAFE NSW started to compete with other Registered Training Organisations (RTOs) for a share of the student market.
In 2016, the NSW Government released 'A Vision for TAFE NSW'. The Vision stated that a failure to adapt to market circumstances had left TAFE NSW with unsustainable costs and inefficiencies. To address this, TAFE NSW needed to become more flexible, efficient and competitive. It set out that TAFE NSW must progressively reduce significant cost inefficiencies, including by moving away from a model of separate institutes to a One TAFE NSW model. The NSW Government set TAFE NSW a target to achieve savings through implementing the Vision.
TAFE NSW established the One TAFE NSW modernisation program to deliver on that vision. The program initially aimed to deliver savings of $250 million per year from 2018–19, but this target was reviewed and updated as the program was being delivered.
This audit assessed whether TAFE NSW effectively managed the One TAFE NSW modernisation program to deliver on the NSW Government's vision for TAFE NSW. In making this assessment, the audit examined whether:
- delivery of the program was well planned
- the program was driven by sound governance arrangements
- TAFE NSW is making progress against the intended outcomes of the program.
The audit focused on the effectiveness of planning, governance and reporting arrangements. It examined five projects within the overall modernisation program as case studies.
Conclusion
The One TAFE NSW modernisation program was an ambitious plan to deliver on the NSW Government’s vision for TAFE NSW, while achieving ongoing savings. Several factors contributed to TAFE NSW not effectively managing the program to deliver on planned timeframes and objectives. These factors include unclear expectations of the primary role of TAFE NSW, unrealistic timeframes, undertaking a large number of complex projects concurrently, governance arrangements that were not fit-for-purpose and poor-quality data.
Planning for the modernisation program and its projects was driven by top-down savings targets and pre-determined timeframes. This led to TAFE NSW attempting to deliver a large number of programs concurrently within tight timeframes. Program management capability was underdeveloped at the commencement of the program and this affected the quality of planning for delivery.
There was a lack of clarity around TAFE NSW's primary purpose. Part of the NSW Government's vision for TAFE NSW was for it to be more commercial, competitive and efficient. These objectives were not fully supported by existing legislation. The commercial objectives of the modernisation program conflicted with legislated social objectives for TAFE NSW. TAFE NSW did not have the autonomy to operate like a government-owned business in a market environment. And while TAFE NSW received separate funding to support students facing disadvantage this did not cover the costs of other non-commercial activities undertaken for social purposes, such as delivering uneconomic courses. The role of the TAFE Commission Board was ambiguous during the initial years of the program, which increased reporting requirements and blurred accountabilities for decision-making.
TAFE NSW's Strategic Plan 2016-22 nominated ten key milestones for delivery by January 2019. TAFE NSW has made progress against several important milestones, including that TAFE ‘is a single TAFE NSW brand’ and has 'industry specific TAFE NSW SkillsPoints'. Other key elements have yet to be delivered, including that TAFE NSW achieves 'integrated enterprise-wide business systems'. Because of delays to projects and higher than expected transition costs, TAFE NSW reported that it did not meet the originally targeted $250 million in annual savings for 2018–19 (which was reviewed and updated as the program was being delivered).
Appendix one – Response from agency
Appendix two – About the audit
Appendix three – Performance auditing
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #346 - released 17 December 2020
Procurement management in Local Government
The Auditor‑General for New South Wales, Margaret Crawford, released a report today examining procurement management in Local Government.
The audit assessed the effectiveness of procurement management practices in six councils. All six councils had procurement management policies that were consistent with legislative requirements, but the audit found compliance gaps in some councils. The audit also identified opportunities for councils to address risks to transparency and accountability, and to ensure value for money is achieved when undertaking procurement.
The Auditor‑General recommended that the Department of Planning, Industry and Environment review the Local Government (General) Regulation 2005 and publish updated and more comprehensive guidance on procurement management for the Local Government sector. The report also generated insights for the Local Government sector on opportunities to strengthen procurement practices.
Effective procurement is important in ensuring councils achieve their objectives, demonstrate value for money and deliver benefits to the community when purchasing goods and services. Procurement also comes with risks and challenges in ensuring the purchased goods and services deliver to expectations. The risks of fraud and conflicts of interest also need to be mitigated.
The legislative requirements related to procurement in the Local Government sector are focused on sourcing and assessing tender offers. These requirements are included in the Local Government Act 1993 (the Act), the Local Government Amendment Act 2019 (the Amendment), the Local Government (General) Regulation 2005 (the Regulation), the Tendering Guidelines for NSW Local Government 2009 (the Tendering Guidelines), the Government Information (Public Access) Act 2009 (the GIPA Act) and the State Records Act 1998.
General requirements and guidance relevant to councils are also available in the Model Code of Conduct for Local Councils in NSW 2018 (the Model Code), the NSW Government Procurement Policy Framework 2019 and in publications by the Independent Commission Against Corruption (ICAC).1
Individual councils have developed their own procurement policies and procedures to expand on the legislative requirements. Understandably, these vary to reflect each council’s location, size and procurement needs. Nevertheless, the general principles of effective procurement management (such as transparency and accountability) and risk-mitigating practices (such as segregation of duties and the provision of training) are relevant to all councils.
The Audit Office of New South Wales Report on Local Government 2018 provided a sector-wide summary of aspects of procurement management in Local Government (see Section 2.1 of this report). This audit builds on this state-wide view by examining in detail the effectiveness of procurement management practices in six councils. This report also provides insights on opportunities to strengthen procurement management in the sector.
The selected councils for this audit were Cumberland City Council, Georges River Council, Lockhart Shire Council, Tweed Shire Council, Waverley Council and Wollongong City Council. They were selected to provide a mix of councils of different geographical classifications, sizes, priorities and levels of resourcing.
All six councils had procurement management policies and procedures that were consistent with the legislative requirements for sourcing and assessing tender offers. Their policies and procedures also extended beyond the legislative requirements to cover key aspects of procurement, from planning to completion. In terms of how these policies were applied in practice, the six councils were mostly compliant with legislative requirements and their own policies and procedures, but we found some gaps in compliance in some councils and made specific recommendations on closing these gaps.
There were also opportunities for councils to improve procurement management to mitigate risks to transparency, accountability and value for money. Common gaps in the councils’ procurement management approaches included not requiring procurement needs to be documented at the planning stage, not providing adequate staff training on procurement, not requiring procurement outcomes to be evaluated, and having discrepancies in contract values between contract registers and annual reports. These gaps expose risks to councils’ ability to demonstrate their procurements are justified, well managed, delivering to expectations, and achieving value for money. Chapter three of this report provides insights for the audited councils and the Local Government sector on ways to address these risks
Recommendations
- By June 2022, the Department of Planning, Industry and Environment should:
- publish comprehensive and updated guidance on effective procurement practices – including electronic tender submissions and procurements below the tender threshold
- review and update the Local Government (General) Regulation 2005 to reflect the increasing use of electronic tender submissions rather than paper copies.
- By December 2021, the six audited councils should consider the opportunities to improve procurement management in line with the improvement areas outlined in chapter three of this report.
- Cumberland City Council should immediately:
- ensure contract values are consistent between the contract register and the annual report
- introduce procedures to ensure supplier performance reviews are conducted as per the council’s policy
- Georges River Council should immediately:
- ensure contract values are consistent between the contract register and the annual report
- introduce procedures to ensure all the steps up to the awarding of a contract are documented as per the council’s policy
- introduce procedures to ensure outcome evaluations are conducted as per the council’s policy.
- Lockhart Shire Council should immediately:
- include additional information in the council’s contract register to ensure compliance with Section 29(b), (f), (g), (h) and (i) of the GIPA Act
- ensure contract values are consistent between the contract register and the annual report.
- Waverley Council should immediately ensure contracts are disclosed in the annual report as per Section 217(1)(a2) of the Regulation.
While all six councils had procurement policies in place and were generally compliant with legislative requirements, this report has identified common gaps in processes and practices that expose risks to transparency, accountability and value for money.
This section discusses how councils can mitigate risks and ensure the best outcomes are achieved from their procurements.
Documented justification of procurement needs
The ICAC notes that determining what goods and services an agency requires is the first step of procurement, and the scope for corruption in how need is determined is significant. Without documenting how procurement needs have been justified, councils cannot demonstrate that they fulfill business needs, nor how the procurements may link to the councils’ strategic plans to deliver to the community.
This audit found that none of the six councils’ policies required them to document justification of procurement needs, and none did so consistently in practice. Councils can address this gap by building into their procurement planning process a requirement for staff to document the justification of procurement needs. For higher value procurements, this could be extended to include analysis of options, an assessment of risks and defining intended outcomes. Similarly, clearly establishing and documenting how relevant procurements relate to a council’s community strategic plans or operational plans helps ensure transparency.
Although a formal business case may not be required for many procurements (for example, low-value procurements or routine replacements), some form of documented justification for the expenditure should still be kept on record to demonstrate that the procurement relates to business purposes and is needed.
Segregation of duties
Segregation of duties is an effective control for reducing risks of error, fraud and corruption in procurement. It works on the principle that one person should not have end-to-end control of a procurement. Effective segregation of duties also often involves managerial or independent oversight that is built into the process. Four of the audited councils (Cumberland City Council, Georges River Council, Lockhart Shire Council and Wollongong City Council) appropriately addressed segregation of duties in their procurement frameworks. For example:
-
All procurements in Cumberland City Council required a delegated officer’s approval before commencing, and the requisitioning department is responsible for ensuring the completion of the goods, works or services associated with each contract. For contracts over $50,000, a specific ‘Authority to Procure’ form had to be completed by the requesting staff, signed by an approver and then forwarded to the procurement team.
- Reflecting its small size, all procurements in Lockhart Shire Council were managed by one senior staff member. Nevertheless, this staff member had to bring contract management plans to the rest of the Executive Leadership Team for review and discussion, with large contracts such as those above the tender threshold referred to Council for approval.
The ICAC notes that segregation of duties helps to control discretion, which has particular risk implications for some types of procurement.2 This includes those involving low-value and high-volume transactions, restricted tenders, long-standing procurements and ‘pet projects’ (projects advocated by individual staff members). In cases where corruption risks are low, ICAC notes that monitoring staff’s involvement in procurement may be a cost-effective alternative to total segregation of duties.
Assessment of supplier performance
Councils need to monitor and assess supplier performance to ensure suppliers deliver the goods and services as agreed. The audit found that all six councils consistently monitored progress in capital works and for externally funded projects. Contract monitoring in these cases included ensuring timelines, funding, and legislative requirements were met. This is positive, as capital works made up the bulk of procurements (in terms of volume) in all of the audited councils.
That said, in all six councils, the level of scrutiny was lower for other types of procurements, and there is scope for improvement. For instance, the approach to monitoring capital works or externally funded projects could be replicated across other procurements of a similar nature and value. Conducting assessments and keeping records of supplier performance on all procurements does not need to be onerous, but instead provides useful information to inform future decision-making—including by helping ensure supplier pricing remains competitive, and avoiding re-engaging underperforming suppliers.
The NSW Government Procurement Policy Framework requires that NSW Government agencies establish systems and processes jointly with the suppliers to ensure compliance with contract terms and performance requirements. It also advises that agencies should drive continuous improvement and encourage innovation in coordination with suppliers and key stakeholders.
Centralised contract register
Centrally registering a contract provides improved transparency of procurement activities and facilitates monitoring and compliance checks. While councils are already required to maintain a contract register for all contracts above the reporting threshold (as per the GIPA Act), given the threshold is set at a relatively high benchmark ($150,000), there is merit in councils extending the practice to procurements below the reporting threshold. A central and comprehensive register of contracts helps avoid duplication of procurements and re-contracting of underperforming suppliers.
Three of the audited councils (Georges River Council, Tweed Shire Council and Wollongong City Council) had contract register policies that applied to procurements below the reporting threshold during the audited period. For example, Georges River Council required contracts valued at $10,000 or above to be registered with the procurement team, and Tweed Shire Council had a threshold of $50,000.
Evaluation of community outcomes and value for money
Councils may be progressing procurements to fulfill their strategic and business plans, or using them to fulfill commitments to the community. In these instances, outcomes evaluation is an important way to demonstrate to the community that the intended benefits and value for money have been delivered.
Five of the six audited councils did not require evaluations of community outcomes and value for money. While Georges River Council required contracts valued at $50,000 or more to be monitored, evaluated and reported on at least annually throughout the contract and also at its conclusion, in the procurements we examined the only ‘outcome evaluations’ that the council had conducted were community surveys that did not refer to individual procurements. Councils can miss opportunities to understand the impact of their work on the local community if evaluations of procurement outcomes are not completed. Evaluation findings are also valuable in guiding future resource allocation decisions.
Value for money in the procurement of goods and services is more than just having the specified goods delivered or services carried out. The NSW Government Procurement Policy Framework requires that state government agencies track and report benefits to demonstrate how value for money is being delivered. The framework notes that value for money is not necessarily the lowest price, nor the highest quality good or service, but requires a balanced assessment of a range of financial and non-financial factors, such as: quality, cost, fitness for purpose, capability, capacity, risk, total cost of ownership or other relevant factors.
Procurement training
Effective procurement management relies on the capability of staff involved in various stages of the process. Guidance can be provided through training, which is an important element of any procurement management framework. It ensures that staff members are aware of the councils' policies and procedures. If structured appropriately and provided in a timely manner, training can help to standardise practices, ensure compliance, reduce chances of error, and mitigate risks of fraud or corruption.
The ICAC notes that effective procurement management depends on the competence of staff undertaking procurements and the competence of those who oversee procurement activities. As the public sector is characterised by varying levels of procurement expertise, the ICAC notes that the sector would benefit from a structured approach to training and the application of minimum standards.3
At the time of this audit, only Wollongong City Council addressed staff training requirements in its procurement management framework. Exhibit 8 details its approach.
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Two of the audited councils have now also introduced procurement training:
- Georges River Council implemented online training, which is mandatory for new staff and serves as refresher training for existing staff. The council also provides in-person training for selected staff (covering contract management, contract specification writing and contractor relationship management) and has developed quick reference cards for all staff to increase awareness of the council's procurement processes.
- Tweed Shire Council implemented mandatory online training for all staff members. The training covers the council's procurement policy and protocol as well as relevant legislation. It is linked to relevant council documents such as the Procurement Toolkit on the council's intranet, and includes a quiz for which training participants must score at least 80 per cent to have the training marked as completed.
Appendix one – Responses from councils and the Department of Planning, Industry and Environment
Appendix two – Councils’ procurement contracts
Appendix three – About the audit
Appendix four – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #345 - released 17 December 2020
Central Agencies 2020
This report analyses the results of our audits of the financial statements of the Treasury, Premier and Cabinet, Customer Service cluster agencies (central agencies), and the Legislature for the year ended 30 June 2020. The table below summarises our key observations.
1. Financial reporting
| Audit opinions and timeliness of reporting |
Unqualified audit opinions were issued on the 2019–20 financial statements of central agencies and the Legislature. The audit opinion on the Social and Affordable Housing NSW Fund's compliance with the payment requirements of the Social and Affordable Housing NSW Fund Act 2016 was qualified. All agencies met statutory deadlines for submitting |
| Agencies were financially impacted by recent emergency events | The NSW Government allocated $1.4 billion to provide small business support and bushfire recovery relief, support COVID-19 quarantine compliance management, recruit more staff to respond to increased customer demand, and meet additional COVID-19 cleaning requirements. Agencies spent $901 million (64 per cent of the allocated funding) for the financial year ended 30 June 2020. NSW Self Insurance Corporation reported an increase of $850 million in its liability for claims related to emergency events. |
| AASB 16 'Leases' resulted in significant changes to agencies' financial position | The implementation of new accounting standards was challenging for many agencies. The New South Wales Government Telecommunications Authority was not well-prepared to implement AASB 16 'Leases' and had not completely assessed contracts that contained leases. This resulted in understatements of leased assets and liabilities by $56 million which were subsequently corrected. |
| Implementation of new revenue standards | NSW Treasury did not adequately implement the new revenue standard AASB 1058 ‘Income of Not-for-Profit Entities’ for the Crown Entity. This resulted in understatements of $274 million in opening equity and $254 million to current year revenue, which have been corrected in the final financial statements. |
2. Audit observations
| Management letter findings and repeat issues | Our 2019–20 audits identified nine high risk and 122 moderate risk issues across central agencies and the Legislature. The high risk issues were identified in the audits of:
High risk findings include:
Of the 122 moderate risk issues, 36 per cent were repeat issues. The most common repeat issue related to weaknesses in controls over information technology user access administration, which increases the risk of inappropriate access to systems and records. |
| Grants administration for disaster relief | Service NSW delivers grants responding to emergency events on behalf of other NSW Public Sector agencies. Since the first grant program commenced in January 2020, Service NSW processed approximately $791 million to NSW citizens and businesses impacted by emergency events for the financial year ended 30 June 2020. A performance audit of grants administration for disaster relief is planned for 2020–21. It will assess whether grants programs administered under the Small Business Support Fund were effectively designed and implemented to provide disaster relief. |
| Internal controls at GovConnect NSW service providers require enhancement |
GovConnect NSW provides transactional and information technology services to central agencies. It engages an independent service auditor (service auditor) from the private sector to perform annual assurance reviews of controls at service providers, namely Infosys, Unisys and the Department of Customer Service (DCS). The service auditor issued:
These may impact on the ability of agencies to detect and respond to a cyber incident. Recommendation: We recommend DCS work with GovConnect service providers to resolve the identified control deficiencies as a matter of priority. |
| The NSW Public Sector's cyber security resilience needs to improve |
The NSW Cyber Security Policy requires agencies to provide a maturity self-assessment against the Australian Cyber Security Centre (ACSC) Essential 8 to the head of the agency and Cyber Security NSW annually. Completed self-assessment returns highlighted limited progress in implementing the Essential 8. Repeat recommendation: Cyber Security NSW and NSW government agencies need to prioritise improvements to their cyber security resilience as a matter of urgency |
| Three Insurance and Care NSW (icare) entities had net asset deficiencies at 30 June 2020 | The Workers Compensation Nominal Insurer, NSW Self Insurance Corporation and the Lifetime Care and Support Authority of NSW all had negative net assets at 30 June 2020. These icare entities did not hold sufficient assets to meet the estimated present value of all of their future payment obligations at 30 June 2020. The deterioration in net assets was largely due to increases in outstanding claims liabilities. Notwithstanding the overall net asset deficiencies, the financial statements for these entities were prepared on a going concern basis. This is because future payment obligations are not all due within the next 12 months. Settlement is instead expected to occur over years into the future, depending on the nature of the benefits provided by each scheme. |
| icare has not been able to demonstrate that its allocation of costs reflects the actual costs incurred by the Workers Compensation Nominal Insurer and other schemes |
Costs are incurred by icare as the 'service entity' of the statutory scheme it administers, and then subsequently recovered from the schemes through 'service fees'. In the absence of documentation supported by robust supporting analysis, there is a risk of the schemes being overcharged, and the allocation of costs being in breach of legislative requirements. Recommendation: icare should ensure its approach to allocating service fees to the Workers Compensation Nominal Insurer and the other schemes it manages, is transparent and reflects actual costs. |
| icare did not comply with GIPA requirements | icare did not comply with the Government Information (Public Access) Act 2009 (GIPA) contract disclosure requirements in 2019–20 and has not complied for several years. A total of 417 contracts were identified by management as not having been published on the NSW Government’s eTendering website. The final upload of these past contracts occurred on 20 August 2020. |
| Implementation of Machinery of Government (MoG) changes | MoG changes impacted the governance and business processes of some agencies. Our audits identified and reported areas for improvement in the consolidation of corporate functions following MoG implementation processes at Infrastructure NSW and in the Customer Service cluster. |
This report provides Parliament and other users of NSW Government central agencies' financial statements and the Legislature's financial statements with the results of our financial audits, observations, analyses, conclusions and recommendations.
Emergency events, such as bushfires, floods and the COVID-19 pandemic significantly impacted agencies in 2019–20. Our findings on nine agencies that were most impacted by recent emergency events are included throughout this report.
Refer to Appendix one for the names of all central agencies and Appendix four for the nine agencies most impacted by emergency events.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely. This chapter outlines our audit observations on the financial reporting of central agencies and the Legislature for 2020, including the financial implications from recent emergency events.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines:
- our observations and insights from the financial statement audits of agencies in the central agencies and the Legislature
- our assessment of how well agencies adapted their systems, policies, procedures and governance arrangements in response to recent emergencies.
Section highlights
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Health 2020
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
| Financial reporting |
Unqualified financial audit opinions The financial statements of NSW Health and its 25 controlled entities received unqualified opinions. The number of corrected and uncorrected misstatements increased from the prior year. Misstatements related predominantly to the implementation of new accounting standards, asset revaluations and accounting for new revenue streams to cover the cost of HSW Health’s response to the COVID-19 pandemic. Qualified compliance audit opinion We issued a qualified audit opinion for the Ministry of Health’s Annual Prudential Compliance Statement for aged care facilities operated by NSW Health. We identified 18 instances of material non-compliance with the Fees and Payments Principles 2014 (No. 2) (the Principles) in 2019–20 (30 in 2018–19). |
| Financial performance |
NSW Health received an additional $3.3 billion in funding to cover costs associated with its response to the COVID-19 pandemic. The impacts of the COVID-19 pandemic on the cluster were significant for health entities and included changes to operations, increased revenues, expenditure, assets and liabilities. Cancellation of elective surgery and decreased emergency department presentations meant that despite the pandemic, activity levels at many health entities decreased. Health Pathology and HealthShare were notable exceptions. In the period to the 30 June 2020, NSW Health reported that over 900,000 COVID-19 tests were conducted. Health Pathology conducted over 500,000 of these tests. Health Pathology's surge requirements were enhanced through arrangements with 13 private sector providers. HealthShare purchased $864.2 million of personal protective equipment. Overall, NSW Health recorded an operating surplus of $3.1 billion in 2019–20, an increase of $2.0 billion from 2018–19. As in previous years, the surplus largely resulted from additional revenue received to fund capital projects including the construction of new facilities, upgrades and redevelopments. In 2019–20 additional Commonwealth and State funding for the purchase and stockpiling of personal protective equipment also contributed to the operating surplus. |
| Overtime payments | The Ambulance Service of NSW’s (NSW Ambulance) reduced their overtime payments to $79.7 million in 2019–20 ($83.1 million in 2018–19). Overtime payments in 2019–20 included $6.8 million related to the response to the 2019–20 bushfire season. NSW Ambulance overtime payments represent 16.8 per cent of total overtime payments in the cluster. |
2. Audit observations
| Internal control deficiencies |
We identified more internal control deficiencies in 2019–20. The number of repeat issues from prior years also remains high. NSW Health addressed 18 out of the 25 information system control deficiencies during the year. Several key agreements lacked formal documentation. This included agreements between the Ministry and health entities, between health entities and agencies in other clusters and between the Ministry and health departments in other jurisdictions. |
| Infrastructure delivery | NSW Health had 44 ongoing major capital projects at 30 June 2020 with a total revised budget of $12.3 billion. The revised total budget of $12.3 billion is $2.0 billion more than the original budget. NSW Health revises budgets when it combines project stages. |
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.
Section highlights
- Unqualified audit opinions were issued for all health entities’ financial statements, although more misstatements were identified than last year.
- NSW Health recorded an operating surplus of $3.1 billion, an increase of $2.0 billion from 2018–19. This is largely due to additional capital grants for new facilities, upgrades and redevelopments and additional Commonwealth and State funding for the purchase of personal protective equipment.
- NSW Health’s expenses increased by 5.5 per cent in 2019–20 (7.0 per cent in 2018–19) despite the impact of the COVID-19 pandemic. The primary causes for the growth in expenses are increases in:
- employee related expenses due to higher employee numbers, increased overtime and a 2.5 per cent award increase
- payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists
- payments to private health operators due to the first full year of operation of the Northern Beaches hospital.
- The Ambulance Service of NSW (NSW Ambulance) continued to report higher overtime payments than other health entities. However, despite the response to the 2019–20 bushfire season, their overtime payments were lower than last year. NSW Ambulance paid $79.7 million in overtime payments in 2019–20 ($83.1 million in 2018–19).
- A qualified audit opinion was issued for the Ministry of Health’s Annual Prudential Compliance Statement for aged care facilities operated by NSW Health. There were 18 instances of material non-compliance with the Fees and Payments Principles 2014 (No. 2) (the Principles) in 2019–20 (30 in 2018–19)
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.
Section highlights
- The number of internal control deficiencies has increased since 2018–19. More than a third of control deficiencies are repeat issues.
- Control deficiencies that relate to managing employees’ leave and employee’s time recording continue to be difficult for entities to resolve, particularly during the ongoing response to the COVID-19 pandemic.
- Several key agreements were undocumented. These included agreements between the Ministry and the health entities, between health entities, and between the Ministry and entities in other clusters and jurisdictions. These related to:
- a loan arrangement between the Ministry and HealthShare for $319 million.
- Northern Sydney Local Health District's use of land and buildings owned by the Graythwaite Charitable Trust
- agreements for the treatment of New South Wales residents while they are interstate, and interstate residents receiving treatment while they are in New South Wales from Queensland, Victoria, South Australia and the ACT for both 2019–20 and 2018–19.
- NSW Health reported that they completed nine major capital projects during 2019–20. As at 30 June 2020 there were 44 ongoing major capital health projects in NSW. The revised capital budget for these projects in total was $2.0 billion more than the original budget of $10.3 billion. NSW Health reported the budget revisions are largely the result of combining project stages.
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.
| Local Health Districts | Target % (2019–20) | Actual % (2019–20) |
| Central Coast | 77.0 | 59.9 |
| Far West | 90.2 | 86.6 |
| Hunter New England | 81.0 | 72.5 |
| Illawarra Shoalhaven | 79.0 | 60.2 |
| Mid North Coast | 82.0 | 76.7 |
| Murrumbidgee | 85.3 | 81.9 |
| Nepean Blue Mountains | 79.0 | 65.5 |
| Northern NSW | 81.0 | 78.2 |
| Northern Sydney | 79.0 | 73.9 |
| South Eastern Sydney | 78.0 | 70.3 |
| South Western Sydney | 78.0 | 61.2 |
| Southern NSW | 85.0 | 83.0 |
| Sydney | 76.0 | 70.9 |
| Sydney Children’s Hospitals Network | 80.0 | 72.1 |
| Western NSW | 85.9 | 81.0 |
| Western Sydney | 78.0 | 59.0 |
| St Vincent's Health Network* | 75.0 | 65.4 |
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.
Transport 2020
1. Financial Reporting |
|
| Audit opinion | Unmodified audit opinions issued for the financial statements of all Transport cluster entities. |
| Quality and timeliness of financial reporting | All cluster agencies met the statutory deadlines for completing the early close and submitting the financial statements. Transport cluster agencies continued to experience some challenges with accounting for land and infrastructure assets. The former Roads and Maritime Services and Sydney Metro recorded prior period corrections to property, plant and equipment balances. |
| Impact of COVID-19 on passenger revenue and patronage | Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19. The Transport cluster received additional funding from NSW Treasury during the year to support the reduced revenue and additional costs incurred such as cleaning on all modes of public transport and additional staff to manage physical distancing. |
| Completion of the CBD and South East Light Rail | The CBD and South East Light Rail project was completed and commenced operations in this financial year. At 30 June 2020, the total cost of the project related to the CBD and South East Light Rail was $3.3 billion. Of this total cost, $2.6 billion was recorded as assets, whilst $700 million was expensed. |
2. Audit Observations |
|
| Internal control | While internal controls issues raised in management letters in the Transport cluster have decreased compared to the prior year, control weaknesses continue to exist in access security for financial systems. We identified 56 management letter findings across the cluster and 43 per cent of all issues were repeat issues. The majority of the repeat issues relate to information technology controls around user access management. There were three high risk issues identified - two related to financial reporting of assets and one for implementation of TAHE (see below). |
| Agency responses to emergency events | Transport for NSW established the COVID-19 Taskforce in March 2020 to take responsibility for the overall response of planning and coordination for the Transport cluster. It also implemented the COVIDSafe Transport Plan which incorporates guidance on physical distancing, increasing services to support social distancing and cleaning. |
| RailCorp transition to TAHE | On 1 July 2020, RailCorp was renamed Transport Asset Holding Entity of New South Wales (TAHE) and converted to a for-profit statutory State-Owned Corporation. TAHE is a commercial for-profit Public Trading Entity with the intent to provide a commercial return to its shareholders. A plan was established by NSW Treasury to transition RailCorp to TAHE which covered the period 1 July 2015 to 1 July 2019. A large portion of the planned arrangements were not implemented by 1 July 2020. As at the time of this report, the TAHE operating model, Statement of Corporate Intent (SCI) and other key plans and commercial agreements are not finalised. The State Owned Corporations Act 1989 generally requires finalisation of an SCI three months after the commencement of each financial year. However, under the Transport Administration Act 1988, TAHE received an extension from the voting shareholders, the Treasurer and Minister for Finance and Small Business, to submit its first SCI by 31 December 2020. In accordance with the original plan, interim commercial access arrangements were supposed to be in place with RailCorp prior to commencement of TAHE. Under the transitional arrangements, TAHE is continuing to operate in accordance with the asset and safety management plans of RailCorp. The final operating model is expected to include considerations of safety, operational, financial and fiscal risks. This should include a consideration of the potential conflicting objectives of a commercial return, and maintenance and safety measures. This matter has been included as a high risk finding in our management letter due to the significance of the financial reporting impacts and business risks for TAHE. Recommendation: TAHE management should:
Resolution of the above matters are critical as they may significantly impact the financial reporting arrangements for TAHE for 2020–21, in particular, accounting policies adopted as well as measurement principles of its significant infrastructure asset base. |
| Completeness and accuracy of contracts registers | Across the Transport cluster, contracts and agreements are maintained by the transport agencies using disparate registers. Recommendation (repeat): Transport agencies should continue to implement a process to centrally capture all contracts and agreements entered. This will ensure:
|
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.
Section highlights
|
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our:
- observations and insights from our financial statement audits of agencies in the Transport cluster
- assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.
Section highlights
|
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.
Planning, Industry and Environment 2020
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
|
Audit opinions |
There are 45 separate entities in the cluster. Unqualified audit opinions were issued for 38 cluster agencies' 30 June 2020 financial statements audits. Four financial statements audits are still ongoing, and three agencies were not subject to audit due to NSW Treasury reporting exemptions. |
|
Timeliness of financial reporting |
The majority of cluster agencies subject to statutory reporting deadlines met the revised timeline for submitting financial statements. Twenty‑four of the 26 cluster agencies required to submit early close financial statements met the revised timeframe. Due to issues identified during the audit, 13 financial statements audits were not completed and audit opinions not issued by the statutory deadline. |
|
Implementation of AASB 16 'Leases' |
Significant deficiencies were identified in Property NSW's lease data maintenance and lease calculations. Recommendation (partially repeat): Property NSW should:
Our audits of the cluster agencies identified there was a lack of thorough quality assurance over the accuracy of lease information provided by Property NSW. Recommendation: The Department and cluster agencies should:
|
|
Unprocessed Aboriginal land claims continued to increase |
In 2019–20, the Department resolved an additional 468 Aboriginal land claims compared to the prior year. However, the total number of unprocessed Aboriginal land claims increased by 914 to 36,769 at 30 June 2020. The number of claims remaining unprocessed for more than ten years after lodgement increased by 10.9 per cent from last year. Until claims are resolved, there is an uncertainty over who is entitled to the land and the uses and activities that can be carried out on the land. Auditor-General's Reports to Parliament since 2007 have recommended action to address the increasing number of unprocessed claims. To date, the Department has not been able to resolve this issue. During 2020–21, a performance audit will assess the effectiveness and efficiency of the administration of Aboriginal land claims. |
|
Financial reporting of Crown land managers |
The Department will need to provide additional support and guidance to help Crown land managers (CLMs) meet their financial reporting obligations. Recommendation: The Department should:
During 2019–20, NSW Treasury established the reporting exemption criteria for the CLMs. Based on available information, the Department determined 31 CLMs would not meet the exemption criteria and therefore are required to prepare annual financial statements. |
2. Audit observations
|
Internal controls |
Six high‑risk issues were identified across the cluster in 2019–20:
One in three internal control issues identified and reported to management in 2019–20 were repeat issues. Recommendation: Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing high‑risk and repeat issues. |
|
Agencies response to recent emergencies |
The unprecedented bushfires and COVID‑19 pandemic presented challenges for the cluster. Agencies established taskforces or response teams to respond to these emergencies. With more staff working from home, agencies implemented protocols and procedures to manage risks associated with the remote working arrangements, and also needed to address certain technology issues. The Department is responsible for the new Planning System Acceleration Program, which aims to fast‑track planning assessments, boost the State's economy and keep people in jobs during COVID‑19 pandemic. Between April and October 2020, the Department announced and determined 101 major projects and planning proposals. |
|
Recognition of Crown land |
Crown land is an important asset of the State. Management and recognition of Crown land assets is weakened when there is confusion over who is responsible for a particular Crown land parcel. Auditor-General's Reports to Parliament since 2017 have recommended that the Department should ensure the database of Crown land is complete and accurate. Whilst the Department has commenced actions to improve the database, this remained an issue in 2019–20. Recommendation (repeat issue): The Department should prioritise action to ensure the Crown land database is complete and accurate. This allows state agencies and local councils to be better informed about the Crown land they control. |
|
Implementation of Machinery of Government (MoG) changes |
Since its creation on 1 July 2019, the Department has largely established its governance arrangements, including setting up the Audit and Risk Committee and internal audit function for the Department and relevant cluster agencies. The Department still operated three main financial reporting systems in 2019–20, and has commenced the process to consolidate some of the systems. The recent Regional NSW MoG change led to the transfer of $446 million net assets and $284 million 2019–20 budget from the Department to the newly created Department of Regional NSW on 2 April 2020. |
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.
Section highlights
The Department has not yet developed a statutory reporting framework for Crown land managers and will need to provide additional resources to help Crown land managers meet their financial reporting obligations. |
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.
Section highlights
|
Waste levy and grants for waste infrastructure
The Auditor-General for New South Wales, Margaret Crawford, released a report today that examined the effectiveness of the waste levy and grants for waste infrastructure in minimising the amount of waste sent to landfill and increasing recycling rates.
The audit found that the waste levy has a positive impact on diverting waste from landfill. However, while the levy rates increase each year in line with the consumer price index, the EPA has not conducted a review since 2009 to confirm whether they are set at the optimal level. The audit also found that there were no objective and transparent criteria for which local government areas should pay the levy, and the list of levied local government areas has not been reviewed since 2014.
Grant funding programs for waste infrastructure administered by the EPA and the Environmental Trust have supported increases in recycling capacity. However, these grant programs are not guided by a clear strategy for investment in waste infrastructure.
The Auditor-General made six recommendations aimed at ensuring the waste levy is as effective as possible at meeting its objectives and ensuring funding for waste infrastructure is contributing effectively to recycling and waste diversion targets.
Overall, waste generation in New South Wales (NSW) is increasing. This leads to an increasing need to manage waste in ways that reduce the environmental impact of waste and promote the efficient use of resources. In 2014, the NSW Government set targets relating to recycling rates and diversion of waste from landfill, to be achieved by 2021–22. The NSW Waste and Resource Recovery (WARR) Strategy 2014–21 identifies the waste levy, a strong compliance regime, and investment in recycling infrastructure as key tools for achieving these waste targets.
This audit assessed the effectiveness of the NSW Government in minimising waste sent to landfill and increasing recycling rates. The audit focused on the waste levy, which is paid by waste facility operators when waste is sent to landfill, and grant programs that fund infrastructure for waste reuse and recycling.
The waste levy is regulated by the Environment Protection Authority (EPA) and is generally paid when waste is disposed in landfill. The waste levy rates are set by the NSW Government and prescribed in the Protection of Environment Operations (Waste) Regulation 2014. As part of its broader role in reviewing the regulatory framework for managing waste and recycling, the EPA can provide advice to the government on the operation of the waste levy.
The purpose of the waste levy is to act as an incentive for waste generators to reduce, re-use or recycle waste by increasing the cost of sending waste to landfill. In 2019–20, around $750 million was collected through the waste levy in NSW. The government spends approximately one third of the revenue raised through the waste levy on waste and environmental programs.
One of the waste programs funded through the one third allocation of the waste levy is Waste Less, Recycle More (WLRM). This initiative funds smaller grant programs that focus on specific aspects of waste management. This audit focused on five grant programs that fund projects that provide new or enhanced waste infrastructure such as recycling facilities. Four of these programs were administered by the Environmental Trust and one by the EPA.
Conclusion
The waste levy has a positive impact on diverting waste from landfill. However, aspects of the EPA's administration of the waste levy could be improved, including the frequency of its modelling of the waste levy impact and coverage, and the timeliness of reporting. Grant funding programs have supported increases in recycling capacity but are not guided by a clear strategy for investment in waste infrastructure which would help effectively target them to where waste infrastructure is most needed. Data published by the EPA indicates that the NSW Government is on track to meet the recycling target for construction and demolition waste, but recycling targets for municipal solid waste and commercial and industrial waste are unlikely to be met.
Waste levy
The waste levy rate, including a schedule of annual increases to 2016, was set by the NSW Government in 2009. Since 2016, the waste levy rate has increased in line with the consumer price index (CPI). The EPA has not conducted recent modelling to test whether the waste levy is set at the optimal level to achieve its objectives. The waste levy operation was last reviewed in 2012, although some specific aspects of the waste levy have been reviewed more recently, including reviews of waste levy rates for two types of waste. The waste levy is applied at different rates across the state. Decisions about which local government areas (LGAs) are subject to the levy, and which rate each LGA pays, were made in 2009 and potential changes were considered but not implemented in 2014. Currently, there are no objective and transparent criteria for determining which LGAs pay the levy. The EPA collects waste data from waste operators. This data has improved since 2015, but published data is at least one year out of date which limits its usefulness to stakeholders when making decisions relating to waste management.
Grants for waste infrastructure
All state funding for new and enhanced waste infrastructure in NSW is administered through grants to councils and commercial waste operators. The government's Waste and Resource Recovery (WARR) Strategy 2014–21 includes few priorities for waste infrastructure and there is no other waste infrastructure strategy in place to guide investment. The absence of a formal strategy to guide infrastructure investment in NSW limits the ability of the State Government to develop a shared understanding between planners, councils and the waste industry about waste infrastructure requirements and priorities. The Department of Planning, Industry and Environment is currently developing a 20-year waste strategy and there is an opportunity for the government to take a more direct role in planning the type, location and timing of waste infrastructure needed in NSW.
The grants administration procedures used for the grant programs reviewed in this audit were well designed. However, we identified some gaps in risk management, record-keeping and consistency of information provided to applicants and assessment teams. In four of the five programs we examined, there was no direct alignment between program objectives and the NSW Government's overall waste targets.
Achievement of the 2014–21 state targets for waste and resource recovery (WARR targets) is reliant in part on the availability of infrastructure that supports waste diversion and recycling. The state WARR targets dependent on waste infrastructure are:
- Increase recycling rates to 70 per cent for municipal solid waste and commercial and industrial waste, and 80 per cent for construction and demolition waste.
- Increase waste diverted from landfill to 75 per cent.
A further target — manage problem waste better by establishing or upgrading 86 drop-off facilities or services for managing household problem wastes state-wide — is dependent on accessible community waste drop-off facilities across NSW.
Exhibit 7 identifies the five grant programs that provide funding for new or enhanced waste infrastructure to increase capacity for reuse or recycling of waste. All five of these programs were examined in the audit.
In addition to the grant programs shown in Exhibit 7, other programs provide funding for infrastructure, but at a smaller scale. Examples of these include:
- Bin Trim which provides rebates to small businesses for small scale recycling equipment such as cardboard and soft plastic balers.
- Litter grants which provide funding for litter bins.
- Weighbridges grants for installation of a weighbridge at waste facilities.
- Landfill consolidation and environmental improvement grants for rural councils to replace old landfills with transfer stations or to improve the infrastructure at landfill sites.
Appendix one – Responses from audited agencies
Appendix two – About the audit
Appendix three – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #343 - released 26 November 2020
Education 2020
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.
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
| Audit opinions | Unqualified audit opinions were issued for all cluster agencies' 30 June 2020 financial statements audits. |
| New accounting standards |
Agencies implemented three new accounting standards during the year. Our financial statement audits of the Department of Education (the Department) and NSW Education Standards Authority (NESA) identified issues with the leasing information provided by Property NSW (PNSW). Despite the outsourcing arrangement, both the Department and NESA remain ultimately responsible for the completeness and accuracy of this information, which would have benefited from a more thorough quality assurance, validation and review process before they placed reliance upon it. Recommendation: We recommend the Department and NESA:
|
| Changes were made to the financial reporting requirements this year to account for the impact of the pandemic |
Emergency legislation was enacted during the year in response to the COVID-19 pandemic. The legislation revised the statutory reporting deadlines for agencies to submit their financial statements and allowed the Treasurer to continue authorising payments from the consolidated fund until the enactment of the 2020–21 budget. All cluster agencies prepared their financial statements on a going concern basis and submitted their financial statements within the revised statutory deadlines. The State provided $159.0 million in stimulus funding to support the operations of cluster agencies during emergency events. Nearly half of this funding was to support cleaning activities by the Department and the Technical and Further Education Commission (the TAFE Commission) during the COVID-19 pandemic. |
| Quality and timeliness of financial reporting |
The number of monetary misstatements identified in agencies' financial statements decreased to 14 (23 in 2018–19). While the number of corrections made to the financial statements after the submission date increased to eight (two in 2018–19), it is important to note these corrections provide parliament and other users of the financial statements increased confidence in the accuracy and presentation of agencies' performance and financial position. |
| Sustainability of cluster agencies | The TAFE Commission's enrolments declined, and operating margins reduced, both being impacted by the COVID-19 pandemic. |
2. Audit observations
| Internal control deficiencies |
We identified 33 internal control issues, including 15 findings that were repeated from previous years. 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. Repeat findings relate to ongoing deficiencies in information technology controls and management policies, practices and procedures. Recommendation: Cluster agencies should:
|
| Agency responses to emergency events |
The Department established a separate bushfire relief directorate and COVID-19 Taskforce to assist and support school communities in response to recent emergencies. Other cluster agencies have established committees or response teams to oversee and address all aspects of the impact of COVID-19. |
| Schools review 2019 | We continue to identify instances of non-compliance in relation to cash management and procurement at schools. |
| Use of purchasing cards at the Department of Education |
Since 2015, the NSW Government has encouraged the use of purchasing cards by public sector agencies. Purchasing cards are efficient to transact low value, high volume procurement of goods and services, but the use must be effectively monitored. Our review of the Department's purchasing cards identified weaknesses in its oversight and monitoring controls, including the issue and cancellation of purchasing cards Opportunities exist for the Department to better monitor card use. Tools such as data analytics are an efficient and effective detective control to identify irregular activity or misuse by cardholders. Recommendation: The Department should:
|
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.
Section highlightsUnqualified audit opinions were issued on the financial statements of cluster agencies.
All cluster agencies met the revised statutory deadlines for completing early close procedures and submitting their financial statements. Emergency legislation allowing the Treasurer to continue authorising payments from the consolidated fund under the existing Appropriations Act enabled cluster agencies to prepare financial statements on a going concern basis.
|
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.
Section highlights
|
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.
