Reports
Actions for Central Agencies 2019
Central Agencies 2019
The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of NSW Government central agencies, namely the Premier and Cabinet, Treasury and Customer Service clusters. There are 191 agencies in these clusters, including government financial, superannuation and insurance entities.
Unqualified audit opinions were issued on the financial statements for all agencies in the clusters. There were two high risk and 99 moderate risk audit findings on internal controls. Of these, 31 percent were repeat issues, and most related to weaknesses in information technology access controls.
The report notes a number of audit observations including:
- a qualified opinion on information technology internal controls at an outsourced service provider
- self-insurance losses of $1.4 billion partly due to unfavourable movements in the risk free discount rate, and increases in workers compensation claims, including psychological injury claims
- a shortfall (unfunded liability) of $637 million at 30 June 2019 in the Home Building Compensation Fund, due to premiums not being sufficient to meet costs of the scheme
- agencies self-assessed against the Australian Cyber Security Centre’s ‘Essential 8’ cyber risk mitigation strategies for the first time in 2018-19. Based on their own self assessments, more work needs to be done to improve cyber security resilience.
This report analyses the results of our financial statement audits of the Treasury, Premier and Cabinet and Customer Service clusters for the year ended 30 June 2019. Our key observations are summarised below.
This report provides parliament and other users of the NSW Government's central agencies and their cluster agencies financial statements with the results of our audits, observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- government financial services.
Central agency clusters were significantly impacted by Machinery of Government changes which took effect on 1 July 2019. This report is focussed on agencies now in the Treasury, Premier and Cabinet and Customer Service clusters. Some of these agencies may have been in another cluster during 2018–19. Please refer to the section on Machinery of Government changes for more details.
Central agencies and their key responsibilities are set out below.
Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions and they are given effect by Administrative orders.
The MoG changes announced following the NSW State election on 23 March 2019 significantly impacted Central Agencies’ clusters through Administrative Changes Orders issued on 2 April 2019 and 1 May 2019. These orders took effect on 1 July 2019.
Section highlights
Significant impacts of the 2019 MoG changes included:
- abolishing the former Department of Finance, Services and Innovation, and creating the Department of Customer Service as the principal agency within the newly established Customer Service cluster
- transferring Jobs for NSW, Destination NSW and the Western City and Aerotropolis Authority into the Treasury cluster
- transferring Arts and Culture entities and Aboriginal Affairs NSW into the Premier and Cabinet cluster
- new responsibilities, risks and challenges for each cluster
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations on the 2019 financial reporting of agencies in the Treasury, Premier and Cabinet, and Customer Service clusters.
Section highlights
- Unqualified audit opinions were issued on the 30 June 2019 financial statements of all agencies within the three clusters, and the Legislature.
- The NSW Self Insurance Corporation (Corporation) 2018–19 financial statements did not include an estimate of the liability for unreported incidents of abuse that have occurred within NSW Government institutions. This is because the Corporation’s financial exposure could not be reliably measured at 30 June 2019. The exposure was instead disclosed as an unquantified contingent liability in the financial statement notes. This liability may be material to the Corporation and the Total State Sector financial statements.
- We recommend management and those charged with governance review instructions provided to management experts each year, along with other significant accounting judgements.
- Agencies will be implementing the requirements of new accounting standards shortly. These could significantly impact their financial positions and operating results. We noted instances where agencies need to do more work on their impact assessments to minimise the risk of errors in the 2019–20 financial statements.
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Treasury, Premier and Cabinet and Customer Service clusters.
Section highlights
- The 2018–19 audits found two high risk and 99 moderate risk issues across the agencies. Of these, 31 per cent were repeat issues. The most common repeat issue related to weaknesses in controls over information technology user access administration.
- NSW Government agency self-assessment results show that the NSW Public Sector's cyber security resilience needs urgent attention.
- GovConnect received a qualified opinion from the auditor of their service provider, Unisys, over weaknesses in information technology controls.
- Crown revenues from taxes, fines and fees continued to increase, but this was offset by decreases in stamp duty on property sales.
- The CTP reform resulted in green slip refunds of $198 million to vehicle owners. Unclaimed refunds are to be returned to motorists through a reduction in green slip premiums.
Background
This chapter outlines our audit observations, conclusions and recommendations specific to NSW Government agencies providing financial services.
Section highlights
- Last year's Auditor-General's Report to Parliament recommended Treasury consult with STC Pooled Fund and PCS Fund Trustees to prescribe prudential standards and requirements. Treasury has not taken specific action to address this recommendation.
We recommend Treasury formally assess the merits of implementing prudential standards and supervision arrangements, after considering the risks, benefits and costs to scheme members. - The NSW Self Insurance Corporation did not include an estimate of the liability for unreported incidents of abuse that have occurred within NSW Government institutions because it could not be reliably measured at 30 June 2019. The amounts involved could be material to the Corporation's and Total State Sector's financial statements.
- Insurance scheme liabilities were significantly impacted by unfavourable movements in economic assumptions, including a decrease in the risk free discount rate, and adverse changes in non-economic assumptions, such as higher medical costs.
Appendix one – Timeliness of financial reporting by agency
Appendix two – Management letter findings by agency
Appendix three – Status of 2018 recommendations
Appendix four – Cluster agencies
Appendix five – Financial data
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Transport 2019
Transport 2019
This report details the results of the financial audits of NSW Government's Transport cluster for the financial year ended 30 June 2019. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Transport cluster.
Unqualified audit opinions were issued for all agencies' financial statements. However, valuations of assets continue to create challenges across the cluster. The Audit Office identified some deficiencies in relation to asset valuations at Transport for NSW, Roads and Maritime Services, Rail Corporation New South Wales and Sydney Metro.
The Audit Office noted an increase in findings on internal controls across the Transport cluster. Key themes related to information technology, asset management and employee leave entitlements. The report also highlights the status of significant infrastructure projects across the Transport cluster.
The report makes several recommendations including:
- agency finance teams need to be consulted on major business decisions and commercial transactions at the time of their execution to assess the financial reporting impacts
- the Department of Transport should ensure consistent accounting policies are applied across its controlled entities.
This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2019. The table below summarises our key observations.
1. Machinery of Government changes
Transport for NSW, as the lead agency, will absorb the functions of Roads and Maritime Services |
The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW) as part of the Machinery of Government changes. This change was not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019. The Act dissolves RMS and transfers the assets, rights and liabilities of RMS to TfNSW. As at the date of this Report, the Act is not yet in force. Transport is considering the impact of the changes on its operating model and financial reporting. |
2. Financial reporting
Audit opinions |
Unqualified audit opinions were issued on the 2018–19 financial statements of all agencies in the Transport cluster. TfNSW and Sydney Metro obtained a three-week extension from NSW Treasury to submit their financial statements for audit to resolve accounting issues surrounding the valuation of property, plant and equipment. The Department of Transport reported total consolidated property, plant and equipment of $158 billion at 30 June 2019. In 2018–19, there were issues with asset valuations at TfNSW, RMS, Sydney Metro and Rail Corporation New South Wales (RailCorp), resulting in adjustments after the submission of financial statements for audit and the correction of a prior period error. |
Preparedness for new accounting standards |
Agencies across the cluster are progressing in their implementation of the new accounting standards. Transport cluster agencies need to improve their contracts registers to ensure they have a complete list of contracts and agreements to assess the impact of the new accounting standards. |
Valuation of assets remains a challenge in the Transport cluster |
Whilst agencies complied with the requirements of the accounting standards and NSW Treasury policies on valuations, the Audit Office identified some deficiencies in relation to asset valuations across the cluster.
Sydney Metro North West officially opened in May 2019 and reported total assets of $9.1 billion. Sydney Metro derecognised $322 million in assets constructed to facilitate its operation but transferred to councils and utilities. |
Inconsistent accounting policies across the Transport cluster |
There was an inconsistency identified in the cluster relating to the valuation of substratum land. In 2018–19, RailCorp derecognised $109 million of substratum land to ensure consistency in its approach with other Transport agencies. As the parent entity, the Department of Transport needs to ensure accounting policies are consistently applied across all controlled entities for consolidation purposes. Inconsistencies in the application of accounting standards across agencies will impact comparability of financial reporting and decision making across the Transport cluster. |
Revenue growth |
Public transport passenger revenue increased by $89.0 million (5.9 per cent) in 2018–19, and patronage increased by 37.8 million (4.9 per cent) across all modes of transport based on data provided by TfNSW. The increase in revenue is mainly due to an increase in patronage as well as the annual increase in fares. |
Negative Opal cards |
Negative balance Opal cards resulted in $2.9 million in revenue not collected in 2018–19 ($10.4 million since the introduction of Opal). In January 2019, Transport made a change to the Sydney Airport stations to prevent customers with high negative balances exiting the station. In addition, in late 2018, Transport increased the minimum top up values for new cards at the airport stations. |
3. Audit observations
Internal controls | There was an increase in findings on internal controls across the Transport cluster. Key themes relate to information technology, employee leave entitlements and asset management. Twenty-nine per cent of all issues were repeat issues. The majority of the repeat issues related to information technology controls. |
Write-off of assets | In addition to a $322 million derecognition of assets transferred to councils and utilities by Sydney Metro and a $109 million derecognition of substratum land at RailCorp, the Transport cluster wrote-off $278 million of assets related to roads, bridges, maritime assets, traffic signals and controls network. These mainly related to roads, bridges, maritime assets, traffic signals and the control network where new infrastructure assets substantially replaced an existing asset as part of construction activities. |
Transport Asset Holding Entity (TAHE) |
TAHE was established to be a dedicated asset manager for the delivery of public transport asset management. The Transport Administration Amendment (Transport Entities) Act 2017 will transition RailCorp into TAHE. RailCorp is now expected to transition to TAHE from 1 July 2020 (previously 1 July 2019). Several working groups have been considering various aspects of the TAHE transition including its status as a for profit Public Trading Enterprise, the operating model and the impact of the new accounting standards AASB 16 'Leases' and AASB 1059 'Service Concession Arrangements: Grantors'. The considerations of these aspects identified several challenges in the implementation of TAHE which has led to the revised transition date. Given the delays in implementation, it is important to clarify the intent of the TAHE model. |
Excess annual leave |
Twenty-six per cent of Transport employees have annual leave balances exceeding 30 days. Of the employees with excess leave balances, 732 (10.3 per cent) did not take any annual leave in 2018–19.
|
Completeness and accuracy of contracts registers |
There are no centralised processes to record all significant contracts and agreements in a register across the Transport cluster.
|
This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
This cluster was impacted by the Machinery of Government changes on 1 July 2019. The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW). This report is focused on the Transport cluster prior to these changes. Please refer to the section on Machinery of Government changes for more details.
Machinery of Government refers to how the government organises the structures and functions of the public service. Machinery of Government changes are where the government reorganises these structures and functions, and are given effect by Administrative orders.
The Transport cluster was impacted by recent Machinery of Government changes. These changes were announced by the Department of Premier and Cabinet but were not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. It was the intention of government to transfer the functions of the RMS into TfNSW. This requires legislative changes to the Transport Administration Act 1988 No. 109.
Section highlights
Under the Machinery of Government changes, the NSW Government will transfer the functions of RMS into TfNSW.
- The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019.
- The Act will dissolve RMS and transfer its functions, assets, rights and liabilities to TfNSW.
- As at the date of this report, the Act is not yet in force.
- There are risks and challenges for asset and liability transfers, governance and retention of knowledge.
- As of 1 July 2019, administrative arrangements (delegations and reporting line changes) were put in place to enable TfNSW and RMS to operate within a single management structure, while still remaining as separate legal entities.
- Transport is working on a number of options as to how to implement the changes.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2019.
Section highlights
- Unqualified audit opinions were issued on all agencies' financial statements.
- RMS required an extension from NSW Treasury for their early close procedures.
- TfNSW and Sydney Metro required extensions to submit their year-end financial statements.
- Valuation of assets remains a challenge across the cluster.
- There remains Opal cards with negative balances.
- Sydney Metro derecognised assets of $322 million in relation to assets constructed for third parties.
- Inconsistencies in the application of accounting policies across cluster agencies impact comparability of financial reporting across the Transport cluster.
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport cluster.
Section highlights
- There was an increase in findings on internal controls across the Transport cluster. Twenty-nine per cent of all issues were repeat issues.
- Transport entities wrote-off over $278 million of assets which were replaced by new assets or technology.
- Twenty-six per cent of Transport employees have excess annual leave.
- There are no processes to ensure all significant contracts and agreements are captured by agencies in a centralised register.
Appendix one – Timeliness of financial reporting by agency
Appendix two – Management letter findings by agency
Appendix three – List of 2019 recommendations
Appendix four – Status of 2017 and 2018 recommendations
Appendix five – Cluster agencies
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Internal Controls and Governance 2019
Internal Controls and Governance 2019
This report covers the findings and recommendations from the 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector. The 40 agencies selected for this report constitute around 84 per cent of total expenditure for all NSW public sector agencies.
The report provides insights into the effectiveness of controls and governance processes across the NSW public sector. It evaluates how agencies identify, mitigate and manage risks related to:
- financial controls
- information technology controls
- gifts and benefits
- internal audit
- contingent labour
- sensitive data.
The Auditor-General recommended that agencies do more to prioritise and address vulnerabilities in their internal controls and governance. The Auditor-General also recommended agencies increase the transparency of their management of gifts and benefits by publishing their registers on their websites.
This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2019.
1. Internal control trends
New, repeat and high risk findings |
There was an increase in internal control deficiencies of 12 per cent compared to last year. The increase is predominately due to a 100 per cent increase in repeat financial and IT control deficiencies. Some agencies attributed the delay in actioning repeat findings to the diversion of staff from their regular activities to implement and operationalise the recent Machinery of Government changes. As a result, actions to address audit recommendations have been deferred or re prioritised, as the changes are implemented. Agencies need to ensure they are actively managing the risks associated with having these vulnerabilities in internal control systems unaddressed for extended periods of time. |
Common findings |
A number of findings were common to multiple agencies. These findings often related to areas that are fundamental to good internal control environments and effective organisational governance, such as:
|
2. Information technology controls
IT general controls |
We examined information security controls over key financial systems that support the preparation of agency financial statements. We found:
We also found 20 per cent of agencies had deficient IT program change controls, mainly related to segregation of duties in approval and authorisation processes, and user acceptance testing of program changes prior to deployment into production environments. User acceptance testing helps identify potential issues with software incompatibility, operational workflows, absent controls and software issues, as well as areas where training or user support may be required. |
3. Gifts and benefits
Gifts and benefits registers |
All agencies had a gifts and benefits policy and 90 per cent of agencies maintain a gifts and benefits register. However, 51 per cent of the gifts and benefits registers we examined contained incomplete declarations, such as missing details for the approving officer, value of the gift and/or benefit offered and reasons supporting the decision. In some cases, gaps in recorded information meant the basis for decisions around gifts and benefits was not always clear, making it difficult to determine whether decisions in those instances were appropriate, compliant with policy and were not direct or indirect inducements to the recipients to favour suppliers or service providers. Agencies should ensure their gifts and benefits register includes all key fields specified in the Public Service Commission's minimum standards for gifts and benefits. Agencies should also perform regular reviews of the register to ensure completeness and ensure any gift or benefit accepted by a staff member meets the public's expectations for ethical behaviour. |
Managing gifts and benefits |
We found opportunities to improve gifts and benefits processes and enhance transparency. For example, only three per cent of agencies publish their gifts and benefits registers on their websites. Agencies can improve management of gifts and benefits by:
|
Reporting and monitoring |
Only 35 per cent of agencies reported trends in the number and nature of gifts and benefits recorded in their registers to the agency's senior executive management and/or a governance committee. Agencies should regularly report to the agency executive or other governance committee on trends in the offer and acceptance of gifts and benefits. |
4. Internal audit
Obtaining value from the internal audit function |
Agencies have established and maintained internal audit functions to provide assurance on the effectiveness of agency controls and governance systems. However, we identified areas where agencies' internal audit functions could improve their processes to add greater value. For example, only 73 per cent of CAEs regularly attend meetings of the agency board or executive management committee. Internal audit functions can add greater value by involving the CAE more extensively in executive forums as an observer. Internal audit functions should also consider producing an annual report on internal audit. An annual report allows the internal audit function to report on their performance and add value by drawing to the attention of audit and risk committees and senior management strategic issues, thematic trends and emerging risks. |
Role of the Chief Audit Executive |
Forty-five per cent of agencies assigned responsibilities to the Chief Audit Executive (CAE) that were broader than internal audit, but 17 per cent of these had not documented safeguards to protect the independence of the CAE. The reporting lines and status of the CAE at some agencies also needs review. At two agencies, the CAE reported to the CFO. Agencies should ensure:
|
Quality assurance and improvement program |
Thirty-five per cent of agencies did not have a documented quality assurance and improvement program for its internal audit function. The policy and the International Standards for the Professional Practice of Internal Auditing require agencies to have a documented quality assurance and improvement program. The results of this program should be reported annually. Agencies should ensure there is a documented and operational Quality Assurance and Improvement Program for the internal audit function that covers both internal and external assessments. |
5. Managing contingent labour
Obtaining value for money from contingent labour |
According to NSW Procurement data, spend on contingent labour has increased by 75 per cent over the last five years, to $1.5 billion in 2018–19. Improvements in internal processes and a renewed focus on agency monitoring and oversight of contingent labour can help ensure agencies get the best value for money from their contingent workforces. Agencies can improve their management of contingent labour by:
We also found 57 per cent of the 23 agencies we examined with contingent labour spend of more than $5 million in 2018–19 have implemented the government's vendor management system and service provider 'Contractor Central'. |
6. Managing sensitive data
Identifying and assessing sensitive data |
Sixty-eight per cent of agencies maintain an inventory of their sensitive data and where it resides. However, these inventories are not always complete and risks may be overlooked. Agencies can improve processes to manage sensitive data by:
|
Managing data breaches |
Eighty-eight per cent of agencies have established policies to respond to potential data breaches when they are identified and 70 per cent of agencies maintain a register to record key information in relation to identified data breach incidents. Agencies should maintain a data breach register to effectively manage the actions undertaken to contain, evaluate and remediate each data breach. |
This report covers the findings and recommendations from our 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies (refer to Appendix three) in the NSW public sector. The 40 agencies selected for this volume constitute around 84 per cent of total expenditure for all NSW public sector agencies.
Although the report includes several agencies that have changed as a result of the Machinery of Government changes that were effective from 1 July 2019, its focus on sector wide issues and insights means that its findings remain relevant to NSW public sector agencies, including newly formed agencies that have assumed the functions of abolished agencies.
This report offers insights into internal controls and governance in the NSW public sector
This is the third report dedicated to internal controls and governance at NSW State Government agencies. The report provides insights into the effectiveness of controls and governance processes in the NSW public sector by:
- highlighting the potential risks posed by weaknesses in controls and governance processes
- helping agencies benchmark the adequacy of their processes against their peers
- focusing on new and emerging risks, and the internal controls and governance processes that might address those risks.
Without strong governance systems and internal controls, agencies increase the risks associated with effectively managing their finances and delivering services to citizens. For example, if they do not have strong information technology controls, sensitive information may be at risk of unauthorised access and misuse.
Areas of specific focus of the report have changed since last year
Last year's report topics included transparency and performance reporting, management of purchasing cards and taxi use, and fraud and corruption control. We are reporting on new topics this year and re-visiting agency management of gifts and benefits, which we first covered in our 2017 report. Re-visiting topics from prior years provides a baseline to show the NSW public sectors’ progress implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.
Our audits do not review all aspects of internal controls and governance every year. We select a range of measures and report on those that present heightened risks for agencies to mitigate. This year the report focusses on:
- internal control trends
- information technology controls, including access to agency systems
- protecting sensitive information held within agencies
- managing large and diverse workforces (controls around employing and managing contingent workers)
- maintaining an ethical culture (management of gifts and benefits)
- effectiveness of internal audit function and its oversight by Audit and Risk Committees.
The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, internal controls and audit observations are included in the individual 2019 cluster financial audit reports, which will be tabled in parliament from November to December 2019.
Internal controls are processes, policies and procedures that help agencies to:
- operate effectively and efficiently
- produce reliable financial reports
- comply with laws and regulations
- support ethical government.
This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.
Key conclusions and sector wide learnings
- out of date policies or an absence of policies to guide appropriate decisions
- poor record keeping and document retention
- incomplete or inaccurate centralised registers or gaps in these registers.
Policies, procedures and internal controls should be properly designed, be appropriate for the current organisational structure and its business activities, and work effectively.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage key financial systems.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage gifts and benefits.
Key conclusions and sector wide learnings
We found most agencies have implemented the Public Service Commission's minimum standards for gifts and benefits. All agencies had a gifts and benefits policy and 90 per cent of agencies maintained a gifts and benefits register and provided some form of training to employees on the treatment of gifts and benefits.
Based on our analysis of agency registers, we found some areas where opportunities existed to make processes more effective. In some cases, gaps in recorded information meant the basis for decisions around gifts and benefits was not always clear, making it difficult to determine whether decisions in those instances were appropriate and compliant with policy. Fifty-one per cent of the gifts and benefits registers reviewed contained declarations where not all fields of information had been completed. Seventy-seven per cent of agencies that maintained a gifts and benefits register did not include all key fields suggested by the minimum standards.
Areas where agencies can improve their management of gifts and benefits include:
- ensuring agency policies comprehensively cover the elements necessary to make it effective in an operational environment, such as identifying risks specific to the agency and actions that will be taken in the event of a policy breach
- establishing and publishing a statement of business ethics on the agency's website to clearly communicate expected behaviours to clients, customers,suppliers and contractors
- updating gifts and benefits registers to include all key fields suggested by the minimum standards, as well as performing regular reviews of the register to ensure completeness
- providing on-going training, awareness activities and support to employees, not just at induction
- regularly reporting gifts and benefits to executive management and/or a governance committee such as the audit and risk committee, focussing on trends in the number and types of gifts and benefits offered to and accepted by agency staff
- publishing their gifts and benefits registers on their websites to demonstrate a commitment to a transparently ethical environment.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency internal audit functions.
Key conclusions and sector wide learnings
We found agencies have established and maintained internal audit functions to provide assurance on the effectiveness of agency controls and governance systems as required by TPP15-03 'Internal Audit and Risk Management Policy for the NSW Public Sector'. However, we identified areas where agencies' internal audit functions could improve their processes to add greater value, including:
- documenting and implementing safeguards to address conflicting roles performed by the Chief Audit Executive (CAE)
- ensuring the reporting lines for the CAE comply with the NSW Treasury policy, and the CAE reports neither functionally or administratively to the finance function or other significant recipients of internal audit services
- involving the CAE more extensively in executive forums as an observer
- documenting a Quality Assurance and Improvement Program for the internal audit function and performing both internal and external performance assessments to identify opportunities for continuous improvement
- reporting against key performance indicators or a balanced scorecard and producing an annual report on internal audit to bring to the attention of the audit and risk committee and senior management strategic issues, thematic trends and emerging risks that may require further attention or resources.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to on-board, manage and off-board contingent labour.
Key conclusions and sector wide learnings
Agencies have implemented controls to manage contingent labour and most agencies have some level of reporting and oversight of contingent labour at an executive level. However, the increasing trend in spend on contingent labour warrants a renewed focus on agency monitoring and oversight of their use of contingent labour. Over the last five years spend on contingent labour has increased by 75 per cent, to $1.5 billion in 2018–19.
There are also some key gaps that limit the ability of agencies to effectively manage contingent labour. Key areas where agencies can improve their management of contingent labour include:
- preparing workforce plans to inform their resourcing strategy, and confirm prior to engaging contingent labour, that this solution aligns with the strategy and best meets business needs
- involving agency human resources units in decisions about engaging contingent labour
- regularly reporting on contingent labour use to agency executive teams, particularly in terms of trends in agency spend, tenure and compliance with policies and procedures
- strengthening on-boarding and off-boarding processes, including establishing checklists to on-board and off-board contingent labour, making provisions for knowledge transfer, and assessing, documenting and capturing performance information.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of governance and processes in relation to the management of sensitive data.
Key conclusions and sector wide learnings
Information technology risks are rapidly increasing. More interfaces between agencies and greater connectivity means the amounts of data agencies generate, access, store and share continue to increase. Some of this information is sensitive information, which is protected by the Privacy Act 1988.
It is important that agencies understand what sensitive data they hold, the risks associated with the inadvertent release of this information and how they are mitigating those risks. We found that agencies need to continue to identify and record their sensitive data, as well as expand the methods they use to identify sensitive data. This includes data held in unstructured repositories, such as network shared drives and by agency service providers.
Eighty-eight per cent of agencies have established policies to respond to potential data breaches when they are identified and 70 per cent of agencies maintain a register to record key information in relation to identified data breach incidents.
Key areas where agencies can improve their management of sensitive data include:
- identifying sensitive data, based on a comprehensive and structured process and maintaining an inventory of the data
- assessing the criticality and sensitivity of the data so that the protection of high risk data can be prioritised
- developing comprehensive data breach management policies to ensure data breaches are appropriately managed
- maintaining a data breach incident register to record key information in relation to identified data breaches incidents, including the estimated cost of the breach
- providing on-going training and awareness activities to employees in relation to sensitive data and managing data breaches.
Appendix one – List of 2019 recommendations
Appendix two – Status of 2018 recommendations
Appendix three – In-scope agencies
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Actions for Engagement of probity advisers and probity auditors
Engagement of probity advisers and probity auditors
Three key agencies are not fully complying with the NSW Procurement Board’s Direction for engaging probity practitioners, according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin. They also do not have effective processes to achieve compliance or assure that probity engagements achieved value for money.
Probity is defined as the quality of having strong moral principles, honesty and decency. Probity is important for NSW Government agencies as it helps ensure decisions are made with integrity, fairness and accountability, while attaining value for money.
Probity advisers provide guidance on issues concerning integrity, fairness and accountability that may arise throughout asset procurement and disposal processes. Probity auditors verify that agencies' processes are consistent with government laws and legislation, guidelines and best practice principles.
According to the NSW State Infrastructure Strategy 2018-2038, New South Wales has more infrastructure projects underway than any state or territory in Australia. The scale of the spend on procuring and constructing new public transport networks, roads, schools and hospitals, the complexity of these projects and public scrutiny of aspects of their delivery has increased the focus on probity in the public sector.
A Procurement Board Direction, 'PBD-2013-05 Engagement of probity advisers and probity auditors' (the Direction), sets out the requirements for NSW Government agencies' use and engagement of probity practitioners. It confirms agencies should routinely take into account probity considerations in their procurement. The Direction also specifies that NSW Government agencies can use probity advisers and probity auditors (probity practitioners) when making decisions on procuring and disposing of assets, but that agencies:
- should use external probity practitioners as the exception rather than the rule
- should not use external probity practitioners as an 'insurance policy'
- must be accountable for decisions made
- cannot substitute the use of probity practitioners for good management practices
- not engage the same probity practitioner on an ongoing basis, and ensure the relationship remains robustly independent.
The scale of probity spend may be small in the context of the NSW Government's spend on projects. However, government agencies remain responsible for probity considerations whether they engage external probity practitioners or not.
The audit assessed whether Transport for NSW, the Department of Education and the Ministry of Health:
- complied with the requirements of ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’
- effectively ensured they achieved value for money when they used probity practitioners.
These entities are referred to as 'participating agencies' in this report.
We also surveyed 40 NSW Government agencies with the largest total expenditures (top 40 agencies) to get a cross sector view of their use of probity practitioners. These agencies are listed in Appendix two.
Conclusion
We found instances where each of the three participating agencies had not fully complied with the requirements of the NSW Procurement Board Direction ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’ when they engaged probity practitioners. We also found they did not have effective processes to achieve compliance or assure the engagements achieved value for money.
In the sample of engagements we selected, we found instances where the participating agencies did not always:
- document detailed terms of reference
- ensure the practitioner was sufficiently independent
- manage probity practitioners' independence and conflict of interest issues transparently
- provide practitioners with full access to records, people and meetings
- establish independent reporting lines reporting was limited to project managers
- evaluate whether value for money was achieved.
We also found:
- agencies tend to rely on only a limited number of probity service providers, sometimes using them on a continuous basis, which may threaten the actual or perceived independence of probity practitioners
- the NSW Procurement Board does not effectively monitor agencies' compliance with the Direction's requirements. Our enquiries revealed that the Board has not asked any agency to report on its use of probity practitioners since the Direction's inception in 2013.
There are no professional standards and capability requirements for probity practitioners
NSW Government agencies use probity practitioners to independently verify that their procurement and asset disposal processes are transparent, fair and accountable in the pursuit of value for money.
Probity practitioners are not subject to regulations that require them to have professional qualifications, experience and capability. Government agencies in New South Wales have difficulty finding probity standards, regulations or best practice guides to reference, which may diminish the degree of reliance stakeholders can place on practitioners’ work.
The NSW Procurement Board provides direction for the use of probity practitioners
The NSW Procurement Board Direction 'PBD-2013-15 for engagement of probity advisers and probity auditors' outlines the requirements for agencies' use of probity practitioners in the New South Wales public sector. All NSW Government agencies, except local government, state owned corporations and universities, must comply with the Direction when engaging probity practitioners. This is illustrated in Exhibit 1 below.
Actions for Transport Access Program
Transport Access Program
The following report is available in an Easy English version that is intended to meet the needs of some people with lower literacy skills, some people with an intellectual disability and some people from different cultural backgrounds.
View the Easy English version of the Transport Access Program report
Transport for NSW’s process for selecting and prioritising projects for the third stage of its Transport Access Program balanced compliance with national disability standards with broader customer outcomes. Demographics, deliverability and value for money were also considered. However, Transport for NSW does not know the complete scope of work required for full compliance, limiting its ability to demonstrate that its approach is effective, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.
Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services. In 2015, there were 1.37 million people living with disability in New South Wales.
Accessible public transport is about more than physical accessibility. It also means barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services.
Transport for NSW has an obligation under Australian Government legislation to provide accessible services to people with disabilities in a manner which is not discriminatory. Under the Disability Standards for Accessible Public Transport 2002 (the DSAPT - an instrument of the Disability Discrimination Act 1992 (the Act) (Commonwealth)), there is a requirement to modify and develop new infrastructure, means of transport and services to provide access for people with disabilities. All public transport operators are required to ensure that at least 90 per cent of their networks met DSAPT by December 2017 and the networks will need to be 100 per cent compliant with all parts of the standards by 31 December 2022. Trains are not required to be fully compliant with DSAPT until December 2032.
The Transport Access Program (TAP) is Transport for NSW's largest program with a specific focus on improving access to public transport for people with disability. The TAP is a series of projects to upgrade existing public transport infrastructure across four networks: Sydney Trains, Intercity Trains, Regional Trains and Sydney Ferries. Transport for NSW established the TAP as a rolling program and, to date, it has delivered the first tranche of TAP (TAP 1) and is completing the final projects for the second tranche (TAP 2). NSW budget papers estimate that by 30 June 2018, Transport for NSW had spent $1.2 billion in the TAP since its commencement in 2011-12.
After the completion of TAP 1 and TAP 2 (as well as through other transport infrastructure programs), Transport for NSW estimates that 58.5 per cent of the Sydney Trains, Regional Trains and Intercity Trains networks, and 66 per cent of the Sydney Ferries network, will be accessible. To close the significant gap in compliance with the DSAPT target, the objective for TAP 3 is ‘to contribute to Disability Discrimination Act 1992 related targets through DSAPT compliance upgrades’.
The audit assessed whether Transport for NSW has an effective process to select and prioritise projects as part of the TAP, with a specific focus on the third tranche of TAP funding.
In August 2018, at the commencement of this audit, Transport for NSW intended to complete the selection of projects for the TAP 3 final business case in December 2018. Transport for NSW advise that it now intends to complete the development stage and final business case in the first quarter of 2019, prior to the final investment decision of the TAP program. This report is based on the TAP 3 strategic business case and information provided by Transport for NSW up to December 2018.
Transport for NSW’s process for selecting and prioritising projects for TAP 3 balanced DSAPT compliance goals with broader customer outcomes. It also considered demographics, deliverability and value for money. However, Transport for NSW does not know the complete scope of work required for full DSAPT compliance, and this limits its ability to demonstrate that its approach is effective.
In 2015, there were 1.37 million people living with disability in New South Wales. Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services.
The social model of disability, outlined in the United Nations Convention on the Rights of Persons with Disabilities, views people with disability as not disabled by their impairment but by the barriers in the community and environment that restrict their full and effective participation in society on an equal basis with others.
Accessible public transport is more than the provision of physical access to premises and conveyances, it provides barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services.
According to the Australian Bureau of Statistics, the main types of difficulties experienced by people with disability when using public transport relate to steps (39.9 per cent), difficulty getting to stops and stations (25 per cent), fear and anxiety (23.3 per cent) and lack of seating or difficulty standing (20.7 per cent).
Transport for NSW has a Disability Inclusion Action Plan (the Action Plan) 2018-2022 that sets an overall framework for planning, delivering and reporting on initiatives to increase accessibility of the transport network. It covers all elements of the journey experienced when using public transport, including journey planning, staff training, customer services and interaction between the physical environment and modes of transport. Appendix five outlines the guiding principles of the Action Plan.
Transport for NSW's Transport Social Policy branch developed the Action Plan in consultation with internal and external stakeholders. The director of the Transport Social Policy branch is a member of the TAP executive steering committee, which supports alignment between the Action Plan and TAP.
Transport for NSW's Disability Inclusion Action Plan describes a customer focussed approach to accessibility
One of the guiding principles of the Action Plan is ‘intelligent compliance’. Transport for NSW describes this as compliance that prioritises customer-focused outcomes over a narrow focus on legal compliance with accessibility standards. As well as being compliant, infrastructure should be practical, usable, fit for purpose and convenient.
The TAP prioritisation and selection methodology reflects Transport for NSW’s focus on intelligent compliance. We consider this a reasonable approach as had Transport for NSW focussed exclusively on achieving compliance with the DSAPT targets by upgrading the most affordable infrastructure, some locations, that are used by more customers, would remain inaccessible to people with disability. However, this approach should not be seen as an alternative to Transport for NSW meeting its DSAPT compliance obligations.
TAP program staff consult with the Accessible Transport Advisory Committee
The Accessible Transport Advisory Committee (ATAC) has representatives from disability and ageing organisations, who provide expert guidance to Transport for NSW on access and inclusion. The ATAC provide guidance and feedback on projects and project solutions, including user testing where appropriate. TAP program staff provide regular updates at ATAC meetings, which include briefings on progress. The ATAC also provides feedback and suggestions to TAP program staff, which is considered and sometimes included in current and future projects.For example, in March 2017 the TAP program team briefed the ATAC on the challenges with respect to a number of ferry wharves and sought support for DSAPT exemptions proposed in the TAP 3 strategic business case.
In June 2018, the Program team sought feedback on a variety of lift button options to improve accessibility on future TAP projects. In September 2018, during the ATAC meeting attended by the Audit Office, the program team sought feedback on the standard designs for TAP 3. Some ATAC members noted that the standard design included Braille lettering on the lift buttons, and that this was not good practice because people can accidently press the button while reading it. As a result, Transport for NSW are incorporating this feedback into design requirements for the lifts for TAP 3, which will consider larger buttons, clearer Braille and Braille signage adjacent to the button. |
Transport for NSW has not briefed the Advisory Committee on the outcome of the prioritisation and selection process
TAP program staff briefed the Advisory Committee about the prioritisation and selection methodology, after the Minister approved it in 2016. However, Transport for NSW have not briefed or consulted the Advisory Committee on the outcome of the prioritisation process. Infrastructure NSW noted this issue during its review of the strategic business case.
Transport for NSW advised us that it established the ATAC as an advisory group, and that Transport for NSW does not disclose sensitive information to it. Transport for NSW intends to share the outcome of the prioritisation process following the completion of the TAP 3 development stage and final investment decision.
The TAP communication plan does not fully meet the requirements of the Disability Inclusion Action Plan
The Disability Inclusion Action Plan includes an action item to ‘provide a listing of stations and wharves to be upgraded with estimated time of construction as each new tranche of the Transport Access Program is announced’ The TAP Communication Plan that we reviewed does not include this provision instead focussing on communication on a per project basis. Given the long timeframes associated with improving transport infrastructure, this information is important as it allows people to make informed decisions about where they live, work or study.
Appendix one - Response from agency
Appendix two - Compliance requirements of Disability Standards for Accessible Public Transport
Appendix three - TAP 1 and TAP 2 sub-programs
Appendix four - Prioritisation Assessment for the TAP 3 Strategic Business Case
Appendix five - The guiding principles of Transport for NSW's Disability Inclusion Action Plan
Appendix six - Transport projects and programs that contribute to DSAPT compliance
Appendix seven - About the audit
Appendix eight - Performance auditing
Parliamentary Reference - Report number #314 - released 19 February 2019.
Actions for Transport 2017
Transport 2017
The following report focuses on key observations and findings from the most recent financial statement audits of agencies in the Transport cluster.
Unqualified audit opinions were issued for all agencies' financial statements. However, the report notes the agencies can improve their asset revaluation processes.
Actions for Agency compliance with NSW Government travel policies
Agency compliance with NSW Government travel policies
Overall, agencies materially complied with NSW Government travel policies.
However, the Auditor-General found some agencies:
- did not always book official travel through the approved supplier
- had weaknesses in their travel approval processes
- had travel policies that were inconsistent with the NSW Government policy
- did not adequately manage their travel records.
We asked the 15 participating agencies to complete a self assessment of the processes they have implemented to comply with the new policy. The key observations are summarised below.
Actions for State Finances 2017
State Finances 2017
Total State Sector Accounts received an unqualified audit opinion for the fifth consecutive year.
There was a $5.7 billion State budget surplus and continued investment in new infrastructure, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets. This report also comments on key accounting matters, including the correction of some previously reported balances and the first time reporting of combined Cabinet members’ compensation in the Total State Sector Accounts.
Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2017.
You will note that the format of this report has changed from previous years.
The intent of this change is to draw attention to the key matters that have been the focus of our audit and highlight significant factors that have contributed to the outcome.
First, it is pleasing to report once again that I issued a clear audit opinion on the State’s consolidated financial statements. This outcome demonstrates the Government’s continued focus on the quality of financial reporting across the NSW public sector.
High quality financial management and reporting are crucial to properly inform the public and build community confidence in our system of government.
The Treasury’s Financial Management Transformation program also aims to improve financial governance, budgeting and reporting arrangements across the sector. My Office is working collaboratively with The Treasury on reforms to reduce the burden of reporting, without weakening established safeguards.
The reforms should include measures to provide independent assurance of the budget process, of outcome reporting by agencies, and the power to “follow the dollar” given the increasing use of non-government organisations to deliver Government programs.
This Report also highlights another year of strong financial performance. The State’s budget result was a $5.7 billion surplus, and investment in new infrastructure has continued, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets.
Finally, could I take this opportunity to thank the staff of The Treasury for the way they approached this audit. Our partnership is critical to ensuring NSW is an exemplar of quality financial management and reporting.
Margaret Crawford
24 October 2017
A clear audit opinion on the State’s consolidated financial statements was issued.
Timely and accurate financial reporting is essential for informed decision making, effective management of public funds and enhancing public accountability.
This year’s clear audit opinion reflects the Government’s continued efforts to improve the quality of financial reporting across the NSW public sector.
Since the introduction of ‘early close procedures’ in 2011-12, the number of significant errors in financial statements of agencies has generally fallen largely due to identifying and resolving complex accounting issues early. Agencies’ 2016-17 financial statements submitted for audit contained nine errors exceeding $20 million. All errors were subsequently corrected in the individual agencies financial statements.
Agencies should continue to respond to key accounting issues as soon as they are identified. Where issues are identified, accounting position papers should be prepared for consideration by the Audit Office, their Audit and Risk Committee members, and when relevant, The Treasury.
The State addressed the following key accounting matters during 2016-17.
The State recognised rail tunnels and earthworks valued at $8.5 billion.
Some rail tunnels and earthworks have never been valued by the State. These include the City Circle, the country rail network and other tunnels and earthworks built before the year 2000. Some of these tunnels and earthworks date back to the early 1900s.
For many years, the State did not account for these assets as they believed that their value could not be reliably measured. This year an independent valuer was engaged to perform a comprehensive valuation. The methodology used demonstrated
that the assets could have been reflected in the financial statements earlier.
The State recorded an additional $8.5 billion to correct the value of infrastructure assets at 1 July 2016.
Cabinet member’s compensation and related party transactions were reviewed.
Due to changes in Accounting Standards, the State had to consider 'related party information' in the financial statements. Previously this only applied to for-profit entities.
This year, requirements to report related party information extended to members of Cabinet, considered to be “key management personnel” of the State, as defined by Accounting Standards.
The Treasury implemented a process to assess and report Cabinet member’s compensation, and transactions between Cabinet members and/or their close family members, and government agencies.
Collectively, Cabinet members’ remuneration was $8.8 million, which was mainly salaries and allowances, and $3.5 million of non-monetary benefits such as security and drivers. The Treasury determined there were no other specific “related party” transactions or balances that required disclosure in the State’s financial statements.
Information system limitations continue at TAFE NSW.
TAFE NSW has experienced ongoing issues with its student administration system.
TAFE NSW has again implemented additional processes to verify the accuracy and completeness of revenue from sales of goods and services.
TAFE NSW expects to spend up to $89 million on a new information system to address these issues. Modules of the new student enrolment system are expected to be in place for the 2018 enrolment period.
Restatements relating to the General Government Sector's investment in the commercial sector.
The State corrected two previously reported balances relating to the General Government Sector’s investment in the commercial sector.
Accounting Standards require the General Government Sector to effectively store gains or losses related to its investment in the commercial sector in reserves until the investment is derecognised.
When these investments are disposed of, the cumulative gains and losses must be cleared and recognised in the operating result. However, the Government had previously cleared the cumulative gains and losses directly to Accumulated Funds within equity.
To comply with Accounting Standards, a total of $6 billion previously reported as a movement in equity at 30 June 2016, has now been corrected to the operating result.
In addition, Accounting Standards only allow gains or losses on its investments to be stored in reserves. In past years, the State recognised all changes in the value of its investment in Available for Sale Reserves, including the capital contributed to establish the State’s investment. In 2016-17, a total of $23.4 billion of contributed capital was corrected to accumulated funds at 1 July 2015.
The State’s budget result was a $5.7 billion surplus, $2.0 billion higher than the budget estimate.
The Total State Sector comprises 310 entities controlled by the NSW Government.
Of the total, the General Government Sector comprises 215 entities that provide goods and services not directly paid for by consumers.
The non-General Government Sector comprises 95 Government businesses that provide goods and services such as water and electricity, or financial services.
A principal measure of a Government’s overall performance is its Net Operating Balance, or Budget Result. The Net Operating Balance reports the difference between the cost of General Government service delivery and the revenue earned to fund these sectors.
The State has recorded budget surpluses and exceeded the original budget result in nine of the last ten years.
The State maintained its AAA credit rating.
The object of the Act is to maintain the AAA credit rating.
NSW’s finances are managed in alignment with the Fiscal Responsibility Act 2012 (the Act).
The Act established the framework for fiscal responsibility and strategy needed to protect the State’s AAA credit rating and service delivery to the people of NSW.
The purpose of maintaining the AAA credit rating is to reduce the cost of, and ensure the broadest access to, borrowings.
A triple-A credit rating also helps maintain business and consumer confidence so economic activity and employment are sustained. The legislation sets out targets and principles for financial management to achieve this.
New South Wales has credit ratings of AAA/Negative from Standard & Poor’s and Aaa/Stable from Moody’s Investors Service.
The fiscal targets for achieving this objective are:
General Government expenditure growth is lower than long term revenue growth.
General Government expenditure growth was 4.2 per cent in 2016-17, below the long-term revenue growth of 5.6 per cent.
Eliminating unfunded superannuation liabilities by 2030.
The Act sets a target of eliminating unfunded defined benefit superannuation liabilities by 2030. The State’s net superannuation liability was $58.6 billion at 30 June 2017 ($71.2 billion at 30 June 2016).
The Government predicts the 2030 target will be achieved. The State’s funding plan is to contribute amounts escalated by five per cent each year so the schemes will be fully funded by 2030. In 2016-17, the State made employer contributions of $1.5 billion, which is largely consistent with contributions over the past five years.
The liability values in the graph below do not reflect the values recorded in the Total State Sector Accounts. For financial reporting purposes, Accounting Standards (AASB 119 Employee Benefits) require the State to discount its superannuation liability using the government bond rate (refer to page 10 of this report).
The relevant government bond rate in the current economic climate is 2.62 per cent.
The State’s target for the unfunded superannuation liability is measured using AASB 1056 Superannuation Entities. This is because it adopts a measurement basis that reflects expected earnings on fund assets, which are currently between 5.9 and 7.4 per cent. Using these rates, the liability is $15.0 billion at 30 June 2017 ($16.1 billion at 30 June 2016). The unfunded liability is $2.4 billion less than when the Act was introduced.
The State’s assets grew by $31.6 billion during 2016-17 to $409 billion.
Valuing the State’s physical assets.
When we audit the financial statements, we focus on areas we consider as higher risk. These areas are often complex, and require the use of estimates and judgements.
The State has $307.2 billion of physical assets measured at fair value in accordance with Australian Accounting Standards. Fair value calculations are inherently complex and sensitive to assumptions and estimates, increasing the risk these assets are incorrectly valued.
In our audits, we assess the reasonableness and appropriateness of assumptions used in valuing physical assets. This includes obtaining an understanding of the valuation methodologies applied and judgements made. We also review the completeness of asset registers, and the mathematical accuracy of valuation models.
Net movements between years includes additions, disposals, depreciation and valuations. This year, valuations of physical assets added $16.2 billion to the State’s assets, comprising:
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Transport for NSW and Railcorp $8.5 billion
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New South Wales Land and Housing Corporation $4.8 billion
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Roads and Maritime Services $930 million
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Crown Entity $400 million.
The State’s financial assets increased $27.5 billion in 2016-17
The State’s financial assets have increased by 88 per cent over the past four years. In 2016-17, financial assets increased primarily due to proceeds from the sale of government assets and businesses.
The Government implemented reforms to better use the State’s financial assets. A key element was the creation of an Asset and Liability Committee (ALCO) to provide advice on ways to improve balance sheet management.
Since the creation of the ALCO, reforms include:
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Establishment of the New South Wales Infrastructure Future Fund (NIFF). The net proceeds from the State’s asset recycling program are invested into the NIFF, which is managed by TCorp, with a balance of $14.6 billion by 30 June 2017. Funds raised are invested through the NIFF until the Government requires them for critical infrastructure projects that are part of the Restart NSW and Rebuilding NSW program of works. ALCO and TCorp provide advice on the NIFF’s performance and management
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Establishment of the Social and Affordable Housing Fund ($1.1 billion at 30 June 2017). ALCO oversees the Fund to ensure an appropriate investment approach that will maintain funding certainty for new social and affordable housing stock
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Cash and liquidity management reforms to centralise cash previously held by agencies in the Treasury Banking System. This reform is designed to ensure agencies have adequate levels of liquidity but with surplus funds invested centrally for better returns.
The State’s liabilities decreased by $13.1 billion during 2016-17 to $182 billion.
Valuing the State’s liabilities relies on an actuarial assessment.
Nearly half of the State’s liabilities relate to its employees. This includes unfunded superannuation, and employee benefits, such as long service and recreation leave.
Valuation of these obligations is subject to complex estimation techniques and significant judgements. Small changes in assumptions can materially impact the financial statements.
We address the risk associated with auditing these balances:
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using actuarial specialists
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testing controls around underlying employee data used in data models, and testing the accuracy of the calculations
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evaluating assumptions applied in calculating employee entitlements such as the discount rate and the probability of long service leave vesting conditions being met.
The State’s superannuation obligations reduced by $12.6 billion in 2016-17.
The State’s $58.6 billion superannuation liability represents obligations for past and present employees, less the value of assets set aside to meet those obligations. The superannuation liability decreased from $71.2 billion to $58.6 billion, largely due to an increase in the discount rate from 1.99 per cent to 2.62 per cent. This alone reduced the liability by $9.2 billion
The State’s borrowings totalled $70.6 billion at 30 June 2017.
The State’s borrowings totalled $70.6 billion at 30 June 2017, $9.5 billion less than the previous year. This was largely due to the repayment of borrowings when the assets of Ausgrid and Endeavour Energy were leased to the private sector.
TCorp issues bonds to raise funds for NSW Government agencies. The bonds are actively traded in financial markets providing price transparency and liquidity to public sector borrowers and institutional investors. All TCorp bonds are guaranteed by the NSW Government.
The Government manages its debt liabilities through its balance sheet management strategy. The strategy extends to TCorp, which applies an active risk management strategy to the Government’s debt portfolio.
General Government Sector debt is being restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to better match liabilities with the funding requirements of infrastructure assets and reduces refinancing risks. It also allows the Government to take advantage of the low interest rate environment.
The State recorded revenue of $83.5 billion in 2016-17, an increase of $5.3 billion from 2015-16.
The State’s results are underpinned by revenue growth in taxation, fees and fines.
Taxation, fees, fines and other revenue comprises $30.5 billion of taxation ($28.7 billion in 2015-16) and $5.3 billion of fees, fines and other revenue ($4.6 billion).
Tax revenue for the Total State Sector increased by $1.8 billion, or 6.4 per cent compared to 2015-16, primarily due to:
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one-off business asset sales and lease transactions, including $718 million in transfer duty from the Ausgrid and Endeavour Energy lease transactions
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$385 million increase in payroll tax from growth in NSW employment and average employee compensation
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a $426 million increase in land taxes.
Growth in stamp duty is expected to slow over the next 4 years.
General Government Sector stamp duties have increased from $6.2 billion in 2012-13 to $11.5 billion in 2016-17, an annual average growth rate of 16.5 per cent. The Government’s budget forecasts the growth in stamp duties to decline, to an average annual growth rate of 2.6 per cent between 2016-17 and 2020-21.
The State received Commonwealth grants and subsidies of $30.8 billion in 2016-17.
The State received $30.8 billion from the Commonwealth Government in 2016-17, $1.6 billion more than in 2015-16. This was primarily due to transaction based asset recycling grants of $1.0 billion and a $720 million increase in national land transport grants. This increase was offset by a $435 million decrease in General Purpose Grants, which mainly comprises New South Wales’ share of the Goods and Services Tax (GST).
The State spent $79.4 billion in 2016-17 to deliver services to the community, an increase of $3.9 billion from 2015-16.
Overall expenses increased 5.2 per cent from last year. Most of the increase was due to higher employee costs and operating costs.
Total salaries and wages increased by 4.2 per cent from 2015-16.
Total salaries and wages increased to $30 billion from $28.8 billion in 2015-16. The Government wages policy aims to limit the growth in remuneration and other employee costs to no more than 2.5 per cent per annum.
Operating expenses increased by 12.4 per cent from 2015-16.
Within operating expenses, payments for supplies, services and other expenses increased, in part, due to the State:
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reacquiring mining licenses worth $482 million and additional land remediation costs of $101 million
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spending more on health including additional drug supplies relating to Hepatitis C.
State spend on transport and communications increased by 68.1 per cent since 2012-13.
While spending on health and education remain the largest functional areas provided by Government, expenditure on transport and communication increased, on average, by 13.9 per cent annually between 2012-13 and 2016-17. This increase reflects the Government’s investment in transport infrastructure such as the Sydney Metro and Westconnex. Over the same period, spending on health increased by $3.9 billion.
Expenditure on fuel and energy has decreased by an average of 44.7 per cent since 2012-13, reflecting the State’s leases of electricity network assets.
In 2011, the Government established Restart NSW to fund high priority infrastructure projects.
Restart NSW projects are primarily funded from the proceeds from the asset recycling program enabling Government to deliver new infrastructure investment.
Restart NSW provides funding for the delivery of Rebuilding NSW, which is the Government’s 10-year plan to invest $20 billion in new infrastructure.
The State finalised long-term leases of Ausgrid and Endeavour Energy assets.
In June 2017, the Government finalised its long-term lease of 50.4 per cent of Endeavour Energy. This transaction follows on from the long-term leases of TransGrid in December 2015 and 50.4 per cent of Ausgrid in December 2016. Net proceeds of $15.0 billion were paid into Restart NSW relating to these transactions.
The Government also finalised an arrangement for the private sector to provide land titling and registry services to the public for 35 years. The State, through Restart NSW, received an upfront payment of $2.6 billion from the new operator.
Restart NSW is funding $29.8 billion of new infrastructure.
The Government has detailed its plan to invest $20 billion into the Rebuilding NSW plan from Restart NSW.
At 30 June 2017, around $2.9 billion has already been spent on Rebuilding NSW projects from Restart NSW, with a further $9 billion included in the budget aggregates. The Government has also earmarked a further $8.1 billion in Restart NSW for future projects.
The most significant project is the Sydney Metro. The Government has committed $7.0 billion from Restart NSW to build a 30-kilometre metro line, linking Sydney Metro Northwest at Chatswood, through new stations in the lower North Shore, the Sydney CBD and southwest to Bankstown. At 30 June 2017, $2.4 billion has been spent on this project from Restart NSW.
Other significant projects funded by Restart NSW include a $1.8 billion contribution to WestConnex and reserved funding of $1 billion towards the State’s Major Stadia Network program.
The Treasury initiated the Financial Management Transformation (FMT) program with the aim of changing and improving financial governance, budgeting and reporting arrangements of the New South Wales public sector.
FMT aims to deliver better outcomes for the people of New South Wales and focuses on transparency and accountability for expenditure, and better value for money.
New Financial Management System
PRIME is the Information Technology (IT) solution component of the FMT program, replacing several historical systems. PRIME will provide both financial and performance information within one IT platform for all agencies in the NSW public sector.
It is expected to give Government more timely information to plan and deliver its policy priorities and the budget.
Independent assurance over the budget process would improve confidence in the reliability of the State’s financial information.
Actions for Sydney Road Maintenance Contracts
Sydney Road Maintenance Contracts
In November 2013, Roads and Maritime Services (RMS) outsourced the maintenance of State roads in the Sydney region south and west zones using an innovative contracting approach called the Stewardship Maintenance Contract (SMC). The SMC links risk to reward, and uses a performance framework where outcomes should drive improved performance over time.
WA | VIC | QLD | NSW | |
---|---|---|---|---|
Roads managed (lane kms) | 52,659 | 50,510 | 71,353 | 80,348 |
Estimated spend ($/lane km) | 5,000 | 4,500 | 6,000 | 7,000 |
Road quality measure (%) | 99 | 99 | 94 | 91 |
Parliamentary reference - Report number #288 - released 15 June 2017
Actions for NorthConnex
NorthConnex
The processes used to assess NorthConnex adequately considered value for money for taxpayers.This report also found that the impact of tolling concessions on road users and the motorway network was consistent with policy objectives described in the 2012 NSW Long Term Transport Master Plan.
Parliamentary reference - Report number #287 - released 8 June 2017