What the report is about

The movement of freight contributes $66 billion annually to the NSW economy. Two thirds of all freight in NSW moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036.

This audit assessed the effectiveness of transport agencies in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

What we found

Transport agencies do not have strategies or targets in place to improve the efficiency or capacity of the metropolitan shared rail network for freight.

The transport agencies acknowledge that they do not have sufficient information to achieve the most efficient freight outcomes and they do not know how to use the shared rail network to maximise freight capacity without compromising passenger rail services.

The Freight and Ports Plan 2018-2023 contains one target for rail freight - to increase the use of rail at Port Botany to 28 per cent by 2021. However, Transport for NSW (TfNSW)'s data indicates this target will not be met.

Sydney Trains records data on train movements and collects some data on delays and incidents. TfNSW collects data for the construction of the Standard Working Timetable and third-party contracts.

However, a lack of clarity around what data is gathered and who has ownership of the data makes data sharing difficult and limits its analysis and reporting.

The Freight and Ports Plan 2018-2023 includes the goal of 'Reducing avoidable rail freight delays', but the transport agencies do not have any definition for an avoidable delay and, as a result, do not measure or report them.

TfNSW and Sydney Trains are appointed to manage and deliver the Transport Asset Holding Entity of New South Wales (TAHE)'s obligations to allow rail freight operators to use the shared rail network. There are no performance measures in rail freight operator contracts or inter-agency agreements. This limits transport agencies' ability to improve performance.

TfNSW’s Freight Branch is working on four freight-specific strategies; a review of the Plan, a freight rail strategy, a port efficiency strategy and a freight data strategy.

TfNSW has not yet determined the timeframes or intended outcomes of these strategies.

What we recommended

Transport agencies should:

• commit, as part of the review of Future Transport 2056, to delivering the freight-specific strategies currently in development and develop whole-of-cluster accountability for this work including timeframes, specific targets and clear roles and responsibilities 
• improve the collection and sharing of freight data
• develop a plan to reduce avoidable freight delays
• systematically collect data on the management of all delays involving and/or impacting rail-freight
• develop and implement key performance indicators for the agreements between the transport agencies.

The movement of freight contributes $66.0 billion annually to the New South Wales economy — or 13 per cent of the Gross State Product. Two thirds of all freight in New South Wales moves through Greater Sydney, and the volume of freight moving through Greater Sydney is expected to increase by 48 per cent by 2036. This increasing demand is driven by increasing population and economic growth.

The sequence of activities required to move goods from their point of origin to the eventual consumer (the supply chain) is what matters most to shippers and consumers. Road can provide a single-mode door-to-door service, whereas conveying goods by rail typically involves moving freight onto road at some point. In Greater Sydney, 80 per cent of all freight is moved on road. Freight often passes through intermodal terminals (IMTs) as it transitions from one mode of transport to the next.

In 2016, Transport for NSW (TfNSW) released Future Transport 2056 - the NSW Government's 40-year vision for transport in New South Wales, which is intended to guide investment over the longer term. In Future Transport 2056, TfNSW noted that New South Wales will struggle to meet increasing demand for freight movements unless rail plays a larger role in the movement of freight.

Sydney Trains manages the metropolitan shared rail network, which is made up of rail lines that are used by both passenger and freight trains. The Transport Administration Act 1988 requires that, for the purposes of network control and timetabling, NSW Government transport agencies give ‘reasonable priority’ to passenger trains on shared lines. As the Greater Sydney population and rail patronage continue to grow, so too will competition for access to the shared rail network. See Appendix two for details of the area encompassed by Greater Sydney.

Freight operators can also use dedicated rail freight lines operated by the Australian Rail Track Corporation (ARTC - an Australian Government statutory-owned corporation). As the metropolitan shared rail network connects with dedicated freight lines, freight operators often use both to complete a journey.

TfNSW, Sydney Trains and the Transport Asset Holding Entity (TAHE) work in conjunction with other rail infrastructure owners and private sector entities, including port operators, privately operated IMTs and freight-shipping companies. TfNSW and Sydney Trains are responsible for managing the movement of freight across the metropolitan shared rail network. TAHE is the owner of the rail infrastructure that makes up the metropolitan shared rail network. The NSW Government established TAHE, a NSW Government state-owned corporation, on 1 July 2020 to replace the former rail infrastructure owner - RailCorp. The Auditor-General for New South Wales has commenced a performance audit on TAHE which is expected to table in 2022.

On 1 July 2021, TAHE entered into new agreements with TfNSW and Sydney Trains to operate, manage and maintain the metropolitan shared rail network. Until 30 June 2021, and in accordance with TAHE's Implementation Deed, TAHE operated under the terms of RailCorp's existing arrangements and agreements.

This audit assessed the effectiveness of TfNSW, Sydney Trains and TAHE in improving the use of rail freight capacity in Greater Sydney, and to meet current and future freight demand.

The audit focused on:

• the monitoring of access to shared rail lines
• the management of avoidable delays of rail freight movements
• steps to increase the use of rail freight capacity in Greater Sydney.

Appendix one - Response from agencies

Appendix two - The Greater Sydney region

Appendix three - TfNSW strategic projects 

Appendix four - Sydney Trains path priority principles 

Appendix five - Sydney Trains delay management

Appendix six - About the audit 

Appendix seven - 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 #357 - released (19 October 2021).

What the report is about

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and NSW Treasury have supported state agencies to manage climate risks to their assets and services.

Climate risks that can impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. Impacts can include damage to transport, communications and energy infrastructure, increases in hospital admissions, and making social housing or school buildings unsuitable.

NSW Treasury estimates these risks could have significant costs.

What we found

DPIE and NSW Treasury’s support to agencies to manage climate risks to their assets and services has been insufficient.

In 2021, key agencies with critical assets and services have not conducted climate risk assessments, and most lack adaptation plans.

DPIE has not delivered on the NSW Government commitment to develop a state-wide climate change adaptation action plan. This was to be complete in 2017.

There is also no adaptation strategy for the state. These have been released in all other Australian jurisdictions. The NSW Government’s draft strategic plan for its Climate Change Fund was also never finalised.

DPIE’s approach to developing climate projections is robust, but it hasn’t effectively educated agencies in how to use this information to assess climate risk.

NSW Treasury did not consistently apply dedicated resourcing to support agencies' climate risk management until late 2019.

In March 2021, DPIE and NSW Treasury released the Climate Risk Ready NSW Guide and Course. These are designed to improve support to agencies.

What we recommended

DPIE and NSW Treasury should, in partnership:

• enhance the coordination of climate risk management across agencies
• implement climate risk management across their clusters.

DPIE should:

• update information and strengthen education to agencies, and monitor progress
• review relevant land-use planning, development and building guidance
• deliver a climate change adaptation action plan for the state.

NSW Treasury should:

• strengthen climate risk-related guidance to agencies
• coordinate guidance on resilience in infrastructure planning
• review how climate risks have been assured in agencies’ asset management plans.

According to the Intergovernmental Panel on Climate Change in 2021, each of the last four decades has been successively warmer and surface temperatures will continue to increase until at least the mid-century. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Bureau of Meteorology (BoM) have reported that extreme weather across Australia is more frequent and intense, and there have been longer-term changes to weather patterns. They also report sea levels are rising around Australia increasing the risk of inundation and damage to coastal infrastructure and communities.

According to the Department of Planning, Industry and Environment (the department), in New South Wales the impacts of a changing climate, and the risks associated with it, will be felt differently across regions, populations and economic sectors. The department's climate projections indicate the number of hot days will increase, rainfall will vary across the state, and the number of severe fire days will increase.

The NSW Government is a provider of essential services, such as health care, education and public transport. It also owns and manages around $365 billion in physical assets (as at June 2020). More than $180 billion of its assets are in major infrastructure such as roads and railway lines.

In NSW, climate risks that could directly impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. In recent years, natural hazards exacerbated by climate change have damaged and disrupted government transport, communications and energy infrastructure. As climate risks eventuate, they can also increase hospital admissions when people are affected by poorer air quality, and make social housing dwellings or schools unsafe and unusable during heatwaves. The physical impacts of a changing climate also have significant financial costs. Taking into account projected economic growth, NSW Treasury has estimated that the fiscal and economic costs associated with natural disasters due to climate change will more than triple per year by 2061.

The department and NSW Treasury advise that leading practice in climate risk management includes a process that explicitly identifies climate risks and integrates these into existing risk management, monitoring and reporting systems. This is in line with international risk management and climate adaptation standards. For agencies to manage the physical risks of climate change to their assets and services, leading practice identified by the department means that they need to:

• use robust climate projection information to understand the potential climate impacts
• undertake sound climate risk assessments, within an enterprise risk management framework
• implement adaptation plans that reduce these risks, and harness opportunities.

Adaptation responses that could be planned for include: controlling development in flood-prone locations; ensuring demand for health services can be met during heatwaves; improving thermal comfort in schools to support student engagement; proactive asset maintenance to reduce disruption of essential services, and safeguarding infrastructure from more frequent and intense natural disasters.

According to NSW Treasury policy, agencies are individually responsible for risk management systems appropriate to their context. The department and NSW Treasury have key roles in ensuring that agencies are supported with robust information and timely, relevant guidance to help manage risks to assets and services effectively, especially for emerging risks that require coordinated responses, such as those posed by climate change.

This audit assessed whether the department and NSW Treasury are effectively supporting NSW Government agencies to manage climate risks to their assets and services. It focused on the management of physical risks to assets and services associated with climate change.

Appendix one – Response from agencies

Appendix two – Timeline of key activities 

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 #355 - released (7 September 2021).

What the report is about

This report examines the effectiveness of the Fast-tracked Assessment Program, administered by the Department of Planning, Industry and Environment (DPIE) between April 2020 and October 2020. 

The program aimed to support the construction industry during the COVID-19 crisis by accelerating the final assessment stages for planning proposals and development applications. 

DPIE selected projects and planning proposals for fast tracked assessment that demonstrated the potential to:

• deliver jobs
• progress to the next stage of development within six months of determination
• deliver public benefit.

The audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls.

What we found

Through tranches three to six of the program, DPIE successfully accelerated the final stages of 53 assessments. DPIE reported that 89 per cent of these proceeded to the next stage of development within six months.

Assessment of projects and planning proposals was compliant with legislation and other requirements. However, the audit found gaps in DPIE's management of conflicts of interest.

DPIE has not evaluated or costed the program and is not able to demonstrate the extent to which it provided support to the construction industry during COVID-19. 

Aspects of the program have been incorporated into longer term reforms to create a new level of transparency over the progress and status of planning assessments. 

What we recommended

DPIE should:

• strengthen controls over conflicts of interest 
• evaluate the Fast-tracked Assessment Program.

In April 2020, the Department of Planning, Industry and Environment (DPIE) introduced programs aimed at providing immediate support to the construction industry during the COVID-19 crisis. One of these was the Fast-tracked Assessment Program. This program identified planning proposals and development applications (DAs), across six tranches, that were partially-assessed and could be accelerated to determination.

In accordance with the program objectives, the planning proposals and DAs selected for fast-tracked assessment had to:

• deliver jobs – particularly in the construction industry
• be capable of progressing to the next stage of development within six months of determination
• deliver public benefit.

At the same time, the Fast-tracked Assessment Program was to lay a foundation for future reform of the planning system by piloting changes in the assessment process that could be adopted in the medium to long term.

This audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls. The audit focused on tranches three to six of the program, which were determined between July 2020 and October 2020. The rationale for focusing on these four tranches was that the program design had been slightly modified after the first two tranches to address identified risks.

Appendix one – Response from agency

Appendix two – Planning determination pathways

Appendix three – About the audit

Appendix four – Performance auditing

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

Parliamentary reference - Report number #354 - released (27 July 2021).

Water regulation aims to achieve sustainable environmental, economic and social outcomes from the management of water resources, consistent with the Water Management Act 2000. Following recommendations from reviews into water theft, reforms were made to strengthen water regulation, compliance and enforcement – including the establishment of the Natural Resources Access Regulator (NRAR) in 2018. The Department of Planning and Environment shares responsibility for issuing water access licences and approvals with the state-owned corporation, WaterNSW.

This audit could assess how effectively the Department, WaterNSW and NRAR are undertaking relevant planning, licensing and regulatory functions to ensure secure, sustainable and transparent water sharing in New South Wales. This topic could also consider how effectively the Department has implemented reforms to enhance water metering technology and rules, and the efficacy of NRAR’s activities to support this program.

What the report is about

The report examined whether Transport for NSW (TfNSW) and Infrastructure NSW (INSW) effectively assessed and justified major scope changes to the WestConnex project since 2014.

What we found

NSW Government decisions to fund WestConnex-related projects outside WestConnex's $16.812 billion budget have reduced transparency and understate the full cost of WestConnex.

The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency over the cost of the road component of Sydney Gateway. $1.76 billion of the cost to complete Sydney Gateway is funded outside the WestConnex budget.

Network integration costs, currently estimated at $2.3 billion, are also funded outside the WestConnex budget. Many of these costs are directly attributable to WestConnex and ought to be included in the reported budget.

The Parramatta Road Urban Amenity Improvement Program, costing $198 million, should also be included as part of the WestConnex reported budget.

Decisions to exclude or remove these elements from WestConnex without justification have seen $4.26 billion of projects funded outside the $16.8 billion budget.

Positively, robust analysis was used to develop and incorporate design improvements into the 2015 WestConnex Updated Strategic Business Case.

The separate components of WestConnex underwent all required assurance reviews. However, the NSW Government's assurance framework does not require ongoing ‘whole-of-program’ assurance for large and complex projects like WestConnex. The absence of a holistic review of WestConnex allows for some costs and benefits to avoid scrutiny.

What we recommended

TfNSW should:

• review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects
• ensure that estimated costs and benefits of works which are reasonably required to meet consent conditions are included in business cases for complex large infrastructure projects
• establish centralised and project specific record keeping for major infrastructure projects.

Infrastructure NSW should provide transparent whole of program assurance on total costs and benefits when complex projects are split into sub-projects.

Government should consider enhancing public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole-of-program level.

WestConnex

WestConnex is a 33 km motorway network that will link the western and south‑western suburbs with the Sydney CBD and the Airport and Port Botany precinct. It will also connect with proposed future motorway links to the north shore, northern beaches, and southern Sydney. The project is being delivered in three stages, with completion scheduled for 2023.

When first conceived by Infrastructure NSW (INSW) in 2012, WestConnex was described as a single integrated concept. In August 2013, government approved a business case for an integrated concept of WestConnex, with an estimated cost of $14.881 billion (in nominal outturn costs). Transport for NSW (TfNSW) is the government agency (sponsor agency) accountable for the delivery of WestConnex in accordance with the business case. In August 2014, the NSW Government established the Sydney Motorway Corporation to fund, deliver and operate WestConnex.

In November 2015, the NSW Government publicly released an updated WestConnex business case with greater detail and design enhancements, which increased the estimated cost to $16.812 billion.

Subsequent to this update, further changes were made to the design, including realignment of the M4 to M5 Link connection to the Western Harbour Tunnel project, an expanded interchange at Rozelle, the deletion of the Camperdown Intersection, and the addition of the Iron Cove Link. The reported budget for WestConnex was not changed as a result of these design updates.

To fund WestConnex, Sydney Motorway Corporation consolidated a concessional loan of $2 billion from the Australian Government, private sector debt and equity funding from the State. The Australian Government also provided a $1.5 billion contribution to the State to partially fund construction of WestConnex.

In August 2018, the NSW Government sold 51 per cent of its stake in Sydney Motorway Corporation for $9.26 billion. At the time of writing, the NSW Government is in the process of selling its remaining 49 per cent stake of Sydney Motorway Corporation.

About this audit

In the course of delivering a complex major infrastructure project, it is reasonable to expect changes to the original design and scope. Changes may occur as the design moves from a high‑level concept to a detailed design for project delivery, as new risks or issues are identified, as demands change, or as other interdependent projects are approved. Changes can also occur in response to potential cost or delivery overruns which arise as a result of planning deficiencies. Where design and scope changes significantly change the project costs and/or expected benefits, the justification for these changes should be robust and transparent.

Following our 2014 performance audit, 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF) to improve accountability and transparency over major projects that are developed, procured, or delivered by government agencies. Under the framework, TfNSW, as project sponsor, is responsible for ensuring the WestConnex project meets all IIAF requirements. These include ensuring the project remains strategically aligned and viable, and benefits are on track. INSW is responsible for coordinating the assurance review process and reporting directly to NSW Cabinet on project delivery against time, budget and risks to project delivery.

The objective of this performance audit is to assess whether TfNSW and INSW effectively assessed and justified major scope changes to the WestConnex project since 2014.

1. Key findings

Government decisions to fund WestConnex related projects outside of WestConnex's $16.812 billion reported budget have reduced transparency over costs and understate the full cost of WestConnex

In 2015, the work required to integrate WestConnex with existing roads ('network integration') was funded as a separate project with an estimated cost of $1.534 billion outside the 2015 WestConnex budget of $16.812 billion. TfNSW then created the Network Integration Program to respond to the conditions of planning approval for WestConnex. The current estimated cost to deliver all network integration works is $2.3 billion.

Since the 2015 WestConnex Business Case, the NSW Government has removed several elements from the scope of WestConnex and funded them as separate projects, while keeping the published WestConnex budget at an estimated $16.812 billion. Projects removed include:

• Sydney Gateway, currently costed at $2.56 billion (with an $800 million contribution from WestConnex)
• Parramatta Road Urban Amenity Improvement Program, costed at $198 million in late 2018 and funded though new funding to the Greater Sydney Commission.

Together, these projects represent costs of $4.26 billion that are not included in the WestConnex budget, but are required for WestConnex to achieve the objectives of the 2013 and 2015 WestConnex Business Cases. The costs of these elements in supporting the objectives of WestConnex is not tracked centrally, and there is no single point of oversight over them. Exhibit 1 compares total WestConnex forecast costs (including related projects) between November 2015 and April 2021.

Many network integration costs are directly attributable to WestConnex and ought to be included in the reported budget for WestConnex

Prior to 2015, the scope of WestConnex included enabling works needed before or during construction, as well as funding for future works to address any adverse traffic outcomes created by WestConnex which become apparent after its opening. These works are also known as network integration works.

When government approved the 2015 WestConnex Business Case, it noted that the project would require $1.534 billion for network integration works to address the impacts of WestConnex on the road network. However, the WestConnex project budget of $16.812 billion did not include funding for network integration works. Instead, Roads and Maritime Services (RMS, now TfNSW) was to fund network integration through its normal budget allocation.

It is important to recognise these costs as part of the total WestConnex project cost because:

• TfNSW created the Network Integration Program to respond to network traffic and transport elements of the planning conditions of approval for WestConnex granted by the then NSW Department of Planning and Environment under the Environment, Planning and Assessment Act 1979.
• NSW Treasury guidelines for business cases note that accurate cost estimates include assessment of the financial impact of meeting the conditions of planning approval.
• Travel time and vehicle operating cost benefits attributed to the WestConnex project in the 2015 WestConnex Business Case assume that some network integration works, then costed at $373 million, were in place.

Refer to Appendix two for more detail on network integration works.

Some of the projects in the WestConnex Network Integration Program provide community and place benefits, such as parklands and cycleways. These benefits have not been attributed to WestConnex. Additionally, some network integration works are likely to deliver additional traffic related benefits to WestConnex. As the Network Integration Program’s primary purpose is to meet the conditions of planning approval for WestConnex, TfNSW should attribute all the costs and benefits of the program to WestConnex.

To September 2021, the total funded cost of the Network Integration Program is approximately $2.077 billion. TfNSW estimates that it will need a further $222 million to complete all expected network integration works.

The NSW Government's decision to separate Sydney Gateway from WestConnex has reduced transparency and accountability for TfNSW's underestimation of the cost of the road component of Sydney Gateway

Sydney Gateway is a high‑capacity connection between the new St Peters Interchange and the Sydney Airport and Port Botany precinct. It includes a road and rail components. The road component was included in the scope of WestConnex in the 2015 WestConnex Business Case. The November 2015 design, which TfNSW costed at $800 million, involved separate roadways from the St Peters Interchange to the International terminal, and to the domestic terminals and Mascot airport precinct.

By October 2016, TfNSW was aware that the $800 million budget for Sydney Gateway was insufficient and revised the forecast cost for the road component to $1.8 billion. The original cost estimate did not sufficiently consider the cost of:

• constructing a complex design adjacent to the airport precinct
• obtaining access to land required for the project
• managing environmental contamination.

On 9 August 2017, the then Minister for WestConnex announced that the Sydney Gateway project was not part of WestConnex.

The 2015 WestConnex Business Case notes that material changes to the WestConnex budget, funding, scope, or timeframe are subject to Cabinet approval processes. It states that, when seeking approval for material changes, the portfolio Minister will make a submission to the relevant Cabinet Committee. Changes in project scope required the approval of the then Cabinet Committee on Infrastructure and should have been endorsed by the WestConnex Interdepartmental Steering Committee.

TfNSW and the NSW Department of Premier and Cabinet (DPC) assert that there is no documentation to support the government’s decision to separate Sydney Gateway from the WestConnex Program, or the WestConnex Interdepartmental Steering Committee's endorsement of a submission to Cabinet seeking approval for the separation.

The established governance processes for major scope changes were not followed in this instance. The lack of transparency regarding government's decision to separate Sydney Gateway from WestConnex also reduces visibility of TfNSW's underestimation of the cost of delivering the road component of Sydney Gateway.

The November 2018 Final Business Case for Sydney Gateway, which was approved by the government, included an estimate of $2.45 billion (nominal outturn cost) for the road component. This estimate included an $800 million contribution from WestConnex. A more recent estimate (late 2020) for this project is $2.56 billion (nominal outturn cost).

The Parramatta Road Urban Amenity Improvement Program should be included as part of the WestConnex budget

A specific objective of the 2015 WestConnex Business Case was the creation of opportunities for urban renewal along and around Parramatta Road. The business case included an allocation of $198 million in the $16.812 billion WestConnex budget for the Parramatta Road Urban Amenity Improvement program, designed to implement aspects of the objective. In November 2018, the NSW Government removed the Parramatta Road Urban Amenity Improvement Program from the WestConnex program of works and reallocated the $198 million (inside the $16.812 billion WestConnex budget) for urban renewal works around the Rozelle Interchange. As part of this decision, government approved new funding of $198 million to the Greater Sydney Commission for the urban amenity program, outside the $16.812 billion WestConnex budget. This understates the cost of WestConnex meeting its objectives by $198 million.

There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects

In August 2015, INSW conducted its first Gateway Review of WestConnex as a program consisting of composite projects. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or mega‑project. This is not inconsistent with the IIAF and all WestConnex related projects, including Sydney Gateway and the Network Integration Program, have undergone independent assurance reviews as individual projects under the IIAF.

Once a program like WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to provide independent assurance on the program as a whole until it is completed. This is then done as part of the Gateway review for benefits realisation, which examines whether project benefits are being measured and meet expectations. These individual projects are, in themselves, significant in scale and complexity. While addressing them as discrete components for the purposes of the assurance review process can be justified, the absence of strategic, holistic reviews of WestConnex allows for total costs and benefits to become opaque and avoid scrutiny. Programs of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.

There is a lack of public transparency on the total costs and benefits of the WestConnex project

Prior to 2018, the Audit Office provided assurance on costs borne and levied by Sydney Motorway Corporation and its controlled entities. Since the NSW Government sold 51 per cent of its stake in WestConnex in August 2018, the Auditor‑General no longer has the mandate to provide this assurance. The Audit Office is also unable to provide any assurance regarding the performance of tolling concessions.

This means that the total costs of WestConnex, including those levied on road users through tolling, are not reported alongside the full cost of delivering the project. This information, and independent assurance over that information, would provide transparency and context to the outcome of government's sale of its interest in WestConnex.

To enhance the transparency of existing infrastructure assurance processes, government could consider requiring large and complex infrastructure programs to undergo periodic review at a whole‑of‑program level. This could take the form of annual reports to Parliament on the total costs and benefits of selected large and complex projects by the responsible agency. The reports could include an assessment of the cost to government and cost to the community of funding and financing. Independent assurance of the agency report would provide Parliament with greater confidence that infrastructure is delivered economically and providing value for money for the people of NSW.

The Australian National Audit Office provides similar assurance on selected Department of Defence acquisition projects as part of its annual Major Projects Report.

Design enhancements included in the 2015 WestConnex Updated Strategic Business Case were supported by robust analysis

The 2015 WestConnex Business Case contained more detail than the 2013 WestConnex business case. Design enhancements were made as a result of modelling analysis conducted over the two years since the 2013 business case. Enhancements included a full underground link between Kingsgrove and St Peters as part of the New M5 and re‑alignment of the M4‑M5 link tunnel (Stage 3) to include the Rozelle Interchange. The Rozelle Interchange will provide a direct connection to the Anzac Bridge and Victoria Road, and will enable a connection to the proposed Western Harbour Tunnel and Beaches Link. A map and description of these elements can be found at Exhibits 2 and 3 of this report.

In 2016, TfNSW revised the design of the M4‑M5 Link and Rozelle to address traffic and integration issues

As part of preparing the 2015 WestConnex Business Case, TfNSW prepared a Project Definition and Delivery Report (PDDR) for the M4‑M5 Link. This report describes the scope of the project, including a high‑level concept design. TfNSW identified limitations with the proposed design of the M4‑M5 in the PDDR, which it would need to address as the project moved to a detailed design stage. In particular, these limitations included:

• poor integration with the Bays Precinct masterplan
• traffic capacity constraints on Victoria Road and Anzac Bridge
• construction complexity.

Following a comprehensive review in mid‑2016, TfNSW changed the design of the M4‑M5 Link and Rozelle Interchange to address these limitations. These changes included:

• deletion of the Camperdown intersection to improve traffic conditions on Parramatta Road
• a fully underground and larger Rozelle Interchange with 10‑hectare dedicated parklands
• a toll‑free tunnel link from Iron Cove Bridge to Anzac Bridge
• increasing the lanes in the dual tunnels from three to four each way.

TfNSW documented, but did not publish, the rationale for the design changes, including how the changes addressed the limitations of the previous design while providing increased community benefit through the creation of open space. TfNSW undertook cost comparison studies which estimated that these changes would have a neutral impact on the estimated project cost while achieving the same or improved benefits.

TfNSW's record‑keeping systems for large infrastructure investments negatively impact accountability and transparency

In response to our formal requests for relevant information, made during the conduct of this audit, TfNSW advised that complete and valid records of key decision‑making processes, analysis and advice were unavailable. Additionally, TfNSW often provided information that was incomplete or unverifiable (for instance, unsigned briefing notes). This is not consistent with accepted governance practices and does not comply with the requirements of the State Records Act 1998.

We also requested that TfNSW provide a list of relevant documents held by the Sydney Motorway Corporation (SMC). While TfNSW acknowledged that SMC may hold material relevant to the audit, TfNSW did not have a list or description of these documents. As SMC is now a majority privately held entity, both the Audit Office and TfNSW have limited power to require SMC to provide documentation.

The delivery timeframe for large and complex infrastructure projects such as WestConnex frequently exceeds five years, and some projects can take over a decade to deliver. These projects represent a significant investment of public resources and government agencies should expect independent review and assurance activities such as performance audits. The establishment of dedicated record keeping facilities for major infrastructure projects, such as data rooms, would improve transparency and accountability. This would ensure that the use of public resources is fully auditable in line with public expectations and the requirements of the Government Sector Finance Act 2018, the State Records Act 1998 and the Public Finance and Audit Act 1983.

2. Recommendations

By December 2021, TfNSW should:

1. review the impact of scope changes on project objectives, costs and benefits for complex infrastructure projects

2. when preparing business cases for complex large infrastructure projects, ensure that the estimated costs and benefits of works which are reasonably expected to meet consent conditions are included in the overall project cost and its benefits (as per Treasury guidelines)

3. establish and maintain centralised and project‑specific record keeping, including through dedicated project data rooms, to ensure major infrastructure projects can readily be subject to external oversight and assurance.

By June 2022, INSW should:

4. provide transparent whole‑of‑program assurance on total costs and benefits throughout the project life‑cycle when complex projects are split into sub‑projects.

By June 2022, NSW Government should:

5. consider enhancing the public transparency of existing infrastructure assurance processes by requiring that large complex infrastructure programs undergo periodic review at a whole‑of‑program level. This could take the form of reports to Parliament on the total costs and benefits on selected large and complex projects by the responsible agency, including cost to government and cost to community of funding and financing, as well as an accompanying independent assessment of the agency report.

Following our 2014 performance audit report 'WestConnex: Assurance to the government', the NSW Government established the Infrastructure Investor Assurance Framework (IIAF). INSW is responsible for the development, implementation and administration of the IIAF. The assurance framework involves gateway reviews, health checks, deep dive reviews, and project monitoring and reporting at various stages in the lifecycle of a project. The main aims of the IIAF are to help ensure major infrastructure projects are delivered on time and on budget, and to ensure that reports are regularly monitored by the Cabinet of the NSW Government. The IIAF gateway review process is compulsory for all significant investments and expenditure under the NSW Treasury Gateway Policy.

In accordance with the IIAF, INSW is responsible for the following:

• providing a dedicated Assurance Team including Gateway Review Managers to coordinate Reviews
• determining appropriate expert reviewers, and manages scheduling, commissioning and administration of Assurance Review reports. Infrastructure NSW is independent of the Expert Review Team
• monitoring Tier 1 – High Profile/High Risk projects, Tier 2 and Tier 3 (if required) project performance through independent Assurance Reviews
• providing independent analysis and advice on key risks and any corrective actions recommended for Tier 1 – High Profile/High Risk, Tier 2 and Tier 3 projects
• escalating projects to Infrastructure Investor Assurance Committee (IIAC) and Cabinet where projects present ‘red flag issues’ and where corrective action is needed
• working with delivery agencies to register all capital projects with an estimated cost greater than $10.0 million and ensures they are risk profiled and assigned a risk‑based project tier with an endorsed IIAF Project Registration report
• preparing forward looking annual Cluster Assurance Plans
• maintaining and continuously improves the IIAF process
• reporting to the IIAC, Cabinet and Infrastructure NSW Board
• regularly report to NSW Treasury on the performance of the IIAF.

In relation to WestConnex, TfNSW is the sponsor agency responsible for meeting relevant IIAF requirements, including:

• registering and risk profiling projects
• IIAF gateway, health check, and deep dive assurance reviews
• regular reporting.

Under the IIAF, it is mandatory for all capital projects valued over $10.0 million to be registered with INSW. Capital projects can be registered either as a program (comprising of a group of related projects or activities) or as a project (which may or may not be part of a program).

According to the IIAF, programs tend to have a lifespan of several years and aim to deliver outcomes and benefits related to an organisation's strategic objectives. Projects tend to have a shorter lifespan, and deal with outputs. Projects can, however, be grouped under a single program if they are similar in nature or if they are aimed at collectively achieving a strategic objective. Complex projects can be delivered in multiple stages, under different contracts, and across different time periods.

The last assurance review of the entire WestConnex program of works as a whole was in 2015

INSW conducted the first IIAF gateway review of WestConnex in August 2015. TfNSW developed a draft WestConnex Updated Strategic Business Case to consolidate the latest analysis on WestConnex, and to confirm that the project remained fit for purpose, economically viable, and financially deliverable. The review followed a recommendation in our 2014 performance audit report that business cases be thoroughly revisited.

During September 2015, INSW conducted additional informal reviews to identify strategic risks associated with public release of the WestConnex business case. Subsequently, INSW gave the Premier of NSW its views on the draft business case, including the following points:

• The $398 million budget for Sydney Gateway was insufficient to meet the benefits claimed in the business case for a ‘functional’ connection to Sydney Airport and Port Botany. INSW studies indicate a future‑proof solution would require a minimum spend of $755 million.
• Enabling works for WestConnex estimated at $1.534 billion were excluded from the cost of WestConnex. Significant work remained for RMS to identify mitigation measures to address planning approvals and network performance issues.
• Enabling works (a Southern Connector), an access ramp and surface road improvements within St Peters were excluded from the draft 2015 business case despite their inclusion in the WestConnex scope in the 2014–15 State Budget.
• The overall cost of works not funded within the WestConnex budget ranged from $2.011 billion to $2.196 billion. This included the enabling works, access ramp and surface road improvements and the shortfall for Sydney Gateway.

All WestConnex related projects, including Sydney Gateway have undergone independent assurance reviews under the IIAF

Since INSW submitted the first WestConnex progress update report to Cabinet in June 2015, INSW has been reporting monthly on the different stages of the WestConnex Program, including Sydney Gateway, as the projects were registered with INSW as High‑Profile, High‑Risk projects. Separate reporting enabled INSW to report and review each stage with more detailed scrutiny, compared to the reporting and reviewing at a program level.

WestConnex Stage 2 (New M5) underwent both mandatory and non‑mandatory reviews at key points in the project lifecycle. Three mandatory gateway reviews – at Gate 2 (Final business case), Gate 3 (Readiness for market), and Gate 4 (Tender evaluation) – were conducted by TfNSW before the introduction of IIAF. Four non‑mandatory health check reviews and one non‑mandatory deep dive review were conducted after the introduction of the IIAF managed by INSW.

Similarly, WestConnex Stage 3 projects – M4‑M5 link, M4‑M5 Tunnels, and Rozelle Interchange – also underwent mandatory and non‑mandatory reviews at key points in their lifecycle under IIAF.

The M4‑M5 Link had two mandatory gateway reviews and one non‑mandatory health check review under IIAF. These reviews were conducted before Stage 3 was split into two stages, due to major design changes to the Rozelle Interchange and the M4‑M5 tunnels.

The M4‑M5 tunnels had two mandatory gateway reviews (at Gates 3 and 4), one non‑mandatory health check review, and one non‑mandatory deep dive review under IIAF.

Rozelle Interchange also underwent three mandatory gateway reviews at Gate 3 (part 1), Gate 3 (part 2), and Gate 4, two non‑mandatory health check reviews, and one non‑mandatory deep dive review under IIAF.

Since mid‑2017, the Sydney Gateway project has undergone required independent assurance reviews, as well as a number of optional assurance reviews

In November 2016, INSW conducted a mandatory Gate 1 gateway review on a strategic business case for the Sydney Gateway Project. TfNSW did not proceed with this business case. Following the separation of Sydney Gateway from WestConnex in mid‑2017, TfNSW developed a new business case for Sydney Gateway. It has undergone the required Gate 1, Gate 2, and Gate 3 gateway reviews, as well as two non‑mandatory health check reviews, and three non‑mandatory deep dive reviews under IIAF.

Network integration works have undergone all IIAF required assurance reviews

TfNSW completed a strategic business case for the Network Integration Program in August 2020, and INSW completed a gateway review in November 2020. This is despite network integration projects starting as early as 2015, with $645 million having been spent by June 2020. The strategic business case included a prioritisation process for completing remaining works in the program. Prior to November 2020, TfNSW registered individual network integration projects with INSW, and these projects have undergone gateway reviews where required.

The Network Integration Program strategic business case does not include Rozelle interchange network integration works ($353 million) and additional network integration works to settle a contractor claim adjacent to St Peters Interchange ($190 million). These were excluded from the business case on the basis they had already been approved by government, and as such were not subject to the prioritisation elements of the business case. TfNSW has not developed separate business cases for these works, although the scope of the St Peters Interchange works was developed through a negotiated process.

TfNSW did not prepare business cases for some network integration works which have commenced, including the $323 million Campbell Road/Euston Road works

Prior to its development of the August 2020 strategic business case, TfNSW did not prepare business cases for many network integration works that have commenced, and in some instances were completed, before 2019. Significantly, TfNSW did not prepare a business case for the Campbell Road/Euston Road works, which cost $323 million and have been completed.

In 2016, TfNSW’s Business Case Policy requires the creation of business cases for capital projects costing over $1.0 million. At the time of writing this report, TfNSW’s draft policy requires full business cases for capital projects costing $10.0 million or more.

There is no requirement for ongoing ‘whole‑of‑program’ assurance of the WestConnex program of works, including related projects

INSW conducted its first gateway review of WestConnex (as a program, which consisted of composite projects) in August 2015. Following that review, TfNSW registered each of the components of WestConnex with INSW as individual projects, rather than keeping WestConnex registered as a program or complex project. The IIAF allows this to occur.

Separate registration enabled INSW to report and review each stage with more scrutiny compared to whole‑of‑program level review.

Such an approach has merit, considering the individual stages (and components of these stages) are multi‑million dollar works in their own right. Each project has its own timing for gateway reviews at stages such as 'Readiness for Market' and 'Tender Evaluation'.

Once a program such as WestConnex is broken down into its composite parts, there is no requirement for the sponsor agency (TfNSW) or INSW to conduct independent assurance on the program of works as a whole until the whole program is completed as part of the Benefits Realisation (Gate 6) gateway review. The absence of strategic, holistic reviews of projects of the scale and complexity such as WestConnex during their delivery allows for total costs and benefits to become opaque and avoid scrutiny. Projects of this scale require greater ongoing transparency on total costs and benefits in order to ensure confidence they will meet intended objectives within budget.

INSW has advised us that it has prepared a proposal to expand its assurance function to include whole‑of‑program review of inter‑related infrastructure projects.

Appendix one – Responses from agencies

Appendix two – Network integration works

Appendix three – About the audit

Appendix four – Performance auditing

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

Parliamentary reference - Report number #351 - released (17 June 2021).

What the report is about

Results of the local government sector council financial statement audits for the year ended 30 June 2020.

What we found

Unqualified audit opinions were issued for 127 councils, 9 county councils and 13 joint organisation audits in 2019–20. A qualified audit opinion was issued for Central Coast Council.

Councils were impacted by recent emergency events, including bushfires and the COVID-19 pandemic. The financial implications from these events varied across councils. Councils adapted systems, processes and controls to enable staff to work flexibly.

What the key issues were

There were 1,435 findings reported to councils in audit management letters.

One extreme risk finding was identified related to Central Coast Council’s use of restricted funds for general purposes.

Fifty-three high risk matters were identified across the sector:

• 21 high risk matters relating to asset management
• 14 high risk matters relating to information technology
• 7 high risk matters relating to financial reporting
• 4 high risk matters to council governance procedures
• 3 high risk matters relating to financial accounting
• 3 high risk matters relating to purchasing and payables
• 1 high risk matter relating to cash and banking.

More can be done to reduce the number of errors identified in financial reports. 61 councils required material adjustments to correct errors in previous audited financial statements.

Rural fire fighting equipment

Sixty-eight councils did not record rural fire fighting equipment worth $119 million in their financial statements.

The NSW Government has confirmed these assets are not controlled by the NSW Rural Fire Service and are not recognised in the financial records of the NSW Government.

What we recommended

The Office of Local Government should communicate the State's view that rural firefighting equipment is controlled by councils in the local government sector, and therefore this equipment should be properly recorded in their financial statements.

Central Coast Council

A qualified opinion was issued for Central Coast Council (the Council) relating to two matters.

Council did not conduct the required revaluation to support the valuation of roads.

Council also disclosed a prior period error relating to restrictions of monies collected for their water, sewer, and drainage operations, which, based on the NSW Crown Solicitor’s advice, should be considered a change in accounting policy.

What we recommended

The Office of Local Government should clarify the legal framework relating to restrictions of water, sewerage and drainage funds (restricted reserves) by either seeking an amendment to the relevant legislation or by issuing a policy instrument to remove ambiguity from the current framework.

Further information

Please contact Ian Goodwin, Deputy Auditor-General on 9275 7347 or by email.

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

This chapter outlines audit observations related to the financial reporting of councils and joint organisations.

Recent emergency events, including drought, bushfires, floods and the COVID-19 pandemic have impacted councils.

This chapter will provide insights into how these events have impacted councils, including:

• financial implications of the emergency events
• changes to councils' operating models, processes and controls
• accessibility to technology and the maturity of councils' systems and controls to prevent unauthorised and fraudulent access to data
• receipt and delivery of stimulus packages or programs at short notice.

Recent emergency events significantly impacted councils

Recent emergencies, including drought, bushfires, floods and the COVID-19 pandemic have brought particular challenges for councils and their communities.

A strong system of internal controls enables councils to operate effectively and efficiently, produce reliable financial reports, comply with laws and regulations and support ethical government.

This chapter outlines the overall trends in governance and internal control findings across councils, county councils and joint organisations in 2019–20. It also includes the findings reported in the 2018–19 audits of Hilltops, MidCoast and Murrumbidgee councils as these audits were finalised after the Report on Local Government 2019 was published.

Financial audits focus on key governance matters and internal controls supporting the preparation of councils' financial statements. Audit findings are reported to management and those charged with governance through audit management letters.

Total number of findings reported in audit management letters decreased

In 2019–20, 1,435 findings were reported in audit management letters (2018–19: 1,985 findings). An extreme risk finding was also identified this year related to Central Coast Council's use of restricted funds. The total number of high-risk findings decreased to 53 (2018–19: 82 high-risk findings).

Findings are classified as new, repeat or ongoing findings, based on:

• new findings were first reported in 2019–20 audits
• repeat findings were first reported in prior year audits, but remain unresolved in 2019–20
• ongoing findings were first reported in prior year audits, but the action due dates to address the findings are after 2019–20.

Findings are categorised as governance, financial reporting, financial accounting, asset management, purchases and payables, payroll, cash and banking, revenue and receivables, or information technology. The high-risk and common findings across these areas are explored further in this chapter.

Audit Office’s work plan for 2020–21 onwards

Focus on local council's response and recovery from recent emergencies

Local councils and their communities will continue to experience the effects of recent emergency events, including the bushfires, floods and the COVID 19 pandemic for some time. The full extent of some of these events remain unclear and will continue to have an impact into the future. The recovery is likely to take many years.

The Office of Local Government (OLG) within the Department of Planning, Industry and Environment is working with other state agencies to assist local councils and their communities to recover from these unprecedented events.

These events have created additional risks and challenges, and changed the way that councils deliver their services.

We will take a phased approach to ensure our financial and performance audits address the following elements of the emergencies and the Local Government's responses:

• local councils' preparedness for emergencies
• its initial responses to support people and communities impacted by the 2019–20 bushfires and floods, and COVID-19
• the governance and oversight risks that arise from the need for quick decision making and responsiveness to emergencies
• the effectiveness and robustness of processes to direct resources toward recovery efforts and ensure good governance and transparency in doing so
• the mid to long-term impact of government responses to the natural disasters and COVID-19
• whether government investment has achieved desired outcomes.

Planned financial audit focus areas in Local Government

During 2020–21, the financial audits will focus on the following key areas:

• cybersecurity, including:
  • cybersecurity framework, policies and procedures
  • assessing the controls management has to address the risk of cybersecurity incidents
  • whether cybersecurity risks represent a risk of material misstatement to council's financial statements
• budget management
• financial sustainability
• quality and timeliness of financial reporting
• infrastructure, property, plant and equipment
• information technology general controls.

Audit, risk and improvement committees

All councils are required to have an audit, risk and improvement committee by March 2022

The requirement for all councils to establish an audit, risk and improvement committee was deferred by 12 months to March 2022 due to the COVID 19 pandemic.

Audit, risk and improvement committees are an important contributor to good governance. They help councils to understand strategic risks and how they can mitigate them. An effective committee helps councils to build community confidence, meet legislative and other requirements and meet standards of probity, accountability and transparency.

Local Government elections

Local Government elections were postponed for one year due to the COVID 19 pandemic

The Local Government elections were deferred for one year due to the COVID 19 pandemic and will now be held on 4 September 2021. As the statutory deadline for the 2020–21 financial statements is 30 October 2021, some of the newly elected councillors will be required to endorse them.

Implementation of AASB 1059

Accounting standards implementation continue next year

AASB 1059 is effective for councils for the 2020–21 financial year.

A service concession arrangement typically involves a private sector operator that is involved with designing, constructing or upgrading assets used to provide public services. They then operate and maintain those assets for a specified period of time and is compensated by the public sector entity in return. Examples of potential service concession arrangements impacting councils include roads, community housing, childcare services and nursing homes.

AASB 1059 may result in councils recognising more service concession assets and liabilities in their financial statements.

Appendix one – Response from the Department of Planning, Industry and Environment

Appendix two – NSW Crown Solicitor’s advice

Appendix three – Status of 2019 recommendations

Appendix four – Status of audits

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

The Auditor-General for New South Wales, Margaret Crawford, 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.

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. 

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 #349 - released (18 May 2021).

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.

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:

1. finalise the investment prioritisation approach with agreement from key stakeholders
2. 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
3. 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
4. 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
5. 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
6. regularly share data on forecast needs with relevant planning agencies to promote strategic opportunities for servicing education needs
7. 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
8. 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.

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.  

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

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

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

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

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

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

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

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

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

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

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

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

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

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

Parliamentary reference - Report number #346 - released 17 December 2020

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.

Recommendations

1. By June 2022, the Department of Planning, Industry and Environment should:
   1. publish comprehensive and updated guidance on effective procurement practices – including electronic tender submissions and procurements below the tender threshold
   2. review and update the Local Government (General) Regulation 2005 to reflect the increasing use of electronic tender submissions rather than paper copies.
2. 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.
3. Cumberland City Council should immediately:
   1. ensure contract values are consistent between the contract register and the annual report
   2. introduce procedures to ensure supplier performance reviews are conducted as per the council’s policy
4. Georges River Council should immediately:
   1. ensure contract values are consistent between the contract register and the annual report
   2. introduce procedures to ensure all the steps up to the awarding of a contract are documented as per the council’s policy
   3. introduce procedures to ensure outcome evaluations are conducted as per the council’s policy.
5. Lockhart Shire Council should immediately:
   1. 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
   2. ensure contract values are consistent between the contract register and the annual report.
6. 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.

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