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28 November 2019

Published

Transport 2019

Transport

Asset valuation

Financial reporting

Infrastructure

Internal controls and governance

Management and administration

Service delivery

Workforce and capability

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.

Download the Transport 2019 report (PDF)

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. There was also a prior period error resulting from an agreement between TfNSW and the former UrbanGrowth Development Corporation due to a lack of assessment of the financial reporting implications at the time of signing the agreement. Recommendation: Agency finance teams need to be consulted on major business decisions and commercial transactions to assess their accounting impacts at the time of their execution, rather than at the end of a financial year. Agencies also need to resolve all key accounting issues such as valuations as part of the early close procedures. This would improve the quality of financial reporting and avoid the need for extensions for agencies to submit their financial statements for audit.
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. TfNSW reported a retrospective correction of a prior period error at 1 July 2017 which resulted in a reduction in the valuation of its Country Rail Network earthworks by $2.1 billion. This was due to survey results which identified the earthworks were flatter and lower than estimated in the valuation at 30 June 2017. RMS made several adjustments during the year to correct asset values due to changes to valuation assumptions or data improvements. This included: reduction of $318 million in the value of land under roads decrease of $84.9 million to the value of land and buildings changes to the value of traffic control and traffic signal network assets, due to data improvements. 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. Recommendation: The Department of Transport should ensure consistent accounting policies are applied across its controlled entities.
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. Recommendation (repeat): TfNSW should implement further measures to prevent the loss of revenue from passengers tapping off with negative balance Opal cards.

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. Recommendation (repeat): Transport entities should further review the approach to managing excess annual leave in 2019–20. They should: monitor current and projected leave balances to the end of the financial year each month agree formal leave plans with employees to reduce leave balances over an acceptable timeframe ensure leave plans are actioned appropriately encourage all staff with excess leave balances take a minimum two-week period of leave per year.
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. Across the Transport cluster, contracts and agreements are maintained by the individual agencies using disparate registers. Agencies must perform detailed assessments of their existing contracts and agreements to quantify the impact of the new accounting standards (AASB 16 ‘Leases’, AASB 15 ‘Revenue from Contracts with Customers’, AASB 1058 ‘Income of Not-for-Profit Entities’ and AASB 1059 'Service Concession Arrangements: Grantors'). In 2018–19, there was also a prior period error resulting from an agreement between TfNSW and another government agency due to a lack of assessment of the financial reporting implications at the time of signing the agreement. A lack of a complete register of all contracts and agreements increases the risk that agencies may not be able to assess the full impact of the new accounting standards, as well as perform a complete assessment of the financial reporting implications of contracts and agreements. Recommendation: Transport agencies should implement a process to centrally capture all significant contracts and agreements entered. This will ensure: agencies are fully aware of contractual and other obligations appropriate assessment of financial reporting implications assessment of new accounting standards, in particular AASB 16 ‘Leases’, AASB 15 'Revenue from Contract with Customers', AASB 1058 'Income of Not-for-Profit Entities ' and AASB 1059 'Service Concession Arrangements: Grantors' are accurate and complete.

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

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15 December 2017

Published

Transport 2017

Transport

Asset valuation

Information technology

Internal controls and governance

Project management

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.

1. Financial reporting and controls

Audit opinions	Unqualified audit opinions were issued for all agencies' financial statements.
Early close	Early close procedures continue to facilitate timely preparation of financial statements and completion of audits, but agencies can improve their asset revaluation processes. The revaluations were not completed by the early close deadline.
Key audit matters	The cluster corrected the value of rail tunnels and earthworks by recording an additional $8.5 billion in infrastructure assets.
Passenger revenue and patronage	Revenue increased by seven per cent at a similar rate to patronage. Opal fare structure changes came into effect on 5 September 2016. Continued rises in patronage can increase pressure on public transport punctuality.
Negative balances on Opal Cards	There was $2.6 million in revenue not collected during 2016–17 financial year through negative balance Opal Cards. This represents 0.2 per cent of total annual passenger revenue. Transport advise the cumulative balance of negative balance Opal Cards is $4.2 million as at 30 June 2017. Recommendation: Transport for NSW (TfNSW) should implement measures to prevent loss of revenue from passengers tapping off with negative balance Opal Cards.
Investment in infrastructure	Agencies spent $8.5 billion on assets in 2016–17 and have contractual capital commitments of $11.3 billion over the next five years.
Internal controls	IT systems user access administration remains an area of weakness.

2. Service Delivery

Punctuality	According to Transport data, average punctuality is above target for Sydney Trains, Ferries and Light Rail, but below target for NSW Trains services. State Transit Authority of NSW (STA) is not meeting punctuality targets. STA continued working with TfNSW on delivering improved punctuality.
Public transport capacity	Passenger crowding is above benchmark for many morning peak suburban rail services, as indicated by Transport data. Eleven of the 14 bus contract regions had full buses.
Bus crowding	There are no target measures on crowding for bus operators in any contract region. Recommendation: TfNSW should develop target measures on crowding for bus operators in all contract regions and publish the results.
Customer satisfaction	Surveys conducted by Transport indicate customer satisfaction exceeded target for all modes of public transport.

Confidence in public sector decision-making and transparency is enhanced when financial reporting is accurate and timely. Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies.

This chapter outlines our audit observations, conclusions or recommendations related to financial reporting and controls of Transport cluster agencies for 2016–17.

Observation	Conclusion or recommendation
Quality of financial reporting
Unqualified opinions were issued for all agencies’ financial statements.	Unqualified audit opinions were issued on the 2016–17 financial statements of all agencies in the Transport cluster. Agencies complied with the new disclosure requirements required under accounting standard AASB 124 'Related Party Disclosures'.
Old tunnels and earthworks valued.	The cluster corrected the value of rail tunnels and earthworks by recording an additional $8.5 billion in infrastructure assets.
Timeliness of financial reporting
Most agencies complied with the statutory timeframes for completion of early close procedures and preparation and audit of financial statements.	Early close procedures continue to facilitate timely preparation of financial statements and completion of audits, but agencies can make further improvement in the revaluation process.
TfNSW and RailCorp completed asset revaluations after the early close deadline.	While all revaluation matters were resolved and corrected, completing the revaluation process earlier would enable more timely review, identification and resolution of matters.
Passenger revenue, patronage and cost recovery
Revenue increased by 7 per cent at a similar rate to patronage.	Public transport passenger revenue increased by $93 million (seven per cent) in 2016–17, and patronage increased by 49 million (seven per cent) across all modes of transport. There were some changes in the method of calculating reported patronage between 2015–16 and 2016–17. If the methods had been consistent, the patronage increase would be 6.5 per cent. Opal fare structure changes came into effect on 5 September 2016.
Value of negative balance Opal Cards doubled since last year.	There was $2.6 million in revenue not collected during 2016–17 financial year through negative balance Opal Cards. This represents 0.2 per cent of total annual passenger revenue. Transport advise the cumulative balance of negative balance Opal Cards is $4.2 million as at 30 June 2017. Recommendation: TfNSW should implement measures to prevent the loss of revenue from passengers tapping off with negative balance Opal cards.
The overall cost recovery from users of public transport increased slightly to 21.3 per cent.	Cost of service per passenger journey for buses and ferries decreased. Revenue per passenger journey for all modes remained fairly stable.
Investment in infrastructure
There was a significant investment in transport assets in 2016–17.	Agencies spent $8.5 billion on assets in 2016–17, including $3.8 billion on rail systems and $3.8 billion on road and maritime infrastructure systems.
Transport cluster have capital commitment of $11.3 billion over the next five years.	The transport cluster has significant contractual commitments over the next five years on rail and road infrastructure projects.
Internal controls
User access administration over systems remains an area of weakness.	We identified six moderate and eight low risk issues related to user systems access administration across four agencies. This included review of highly privileged/super user account transactions not performed effectively and user access reviews not performed. These weaknesses increase the risk of users having excessive or unauthorised access to critical financial systems and information.

Achievement of government outcomes can be improved through effective delivery of the right mix of services, whether from the public, private or not‑for‑profit sectors. Service delivery reform will be most successful if there is clear accountability for service delivery outcomes, decisions are aligned to strategic direction and performance is monitored and evaluated.

This chapter outlines our audit observations, conclusions or recommendations related to service delivery in the Transport cluster agencies for 2016–17.

Observations	Conclusion or recommendation
Punctuality
Average punctuality is above target for Sydney Trains, but below target for NSW Trains services. Punctuality targets are not met by all bus operators.	Meeting punctuality targets is a continuing challenge for NSW Trains’ and STA bus services.
The 2017 performance audit 'Passenger Rail Punctuality' reported that based on forecast patronage increases, rail agencies will find it hard to maintain punctuality after 2019 unless the capacity of the network to carry trains and people is increased significantly.	The 2017 performance audit found that given the likely lead times involved with major infrastructure projects, there remains a significant risk of poor punctuality after 2019. Transport advised it is currently either delivering or planning rail network upgrades to address current growth and longer-term future demand. This includes investments such as procurement of suburban and intercity trains, Sydney Metro services and further timetable planning into the 2020s.
After reaching its punctuality target in 2015–16 for the first time in 13 years, NSW Trains regional services was below the target in 2016–17.	NSW Trains regional services achieved an average of 75 per cent punctuality in 2016–17, four per cent less than 2015–16.
The bus contracts do not have an option to impose financial penalties on STA for poor punctuality performance.	In 2015–16, we recommended TfNSW should consider including financial penalties for not meeting each punctuality KPI in future contracts with bus operators. An opportunity to implement the recommendation requires a contract renewal process to be finalised with STA, which did not occur during 2016–17.
Public transport capacity
There are no target measures on crowding for bus operators in any contract region.	Recommendation: TfNSW should develop target measures on crowding for bus operators in all contract regions and publish the results.
Customer Satisfaction
Customers on ferries continued to be most satisfied, followed by those on light rail. Sydney Trains and NSW Trains had fewer complaints in 2016–17.	Customer satisfaction exceeded target for all modes of transport.
Project management
Transport cluster manages many of the State high profile/high risk projects.	Major Transport projects include WestConnex, Sydney Metro Northwest, Sydney Metro City and Southwest, Woolgoolga to Ballina - Pacific Highway upgrade, NorthConnex, CBD and South East Light Rail and Newcastle Light Rail.
Safety performance
Road fatalities decreased by eight per cent between July 2016 and June 2017, from 390 to 359 deaths.	Road fatalities mainly involved speed, fatigue and vehicle occupants not wearing available restraints.
Maintenance
RMS’ maintenance backlog of $3.7 billion is higher than the $3.4 billion reported in 2016.	Transport cluster agencies manage $134 billion in property, plant and equipment. The total backlog maintenance of $4.1 billion at 30 June 2017 represents 3.1 per cent of those assets.

30 November 2011

Published

Volume Eight 2011 Focus on Transport and Ports

Transport

Industry

Asset valuation

Financial reporting

Fraud

Information technology

Infrastructure

Internal controls and governance

Management and administration

Procurement

Project management

Workforce and capability

The report includes comments on financial audits of government agencies in the Transport and Ports sectors. The audit of corporations’ financial statements for the year ended 30 June 2011 resulted in unmodified audit opinions within the Independent Auditor’s Reports. A key recommendation from the report is that Sydney Ports Corporation should continue working with other government authorities and industry stakeholders to improve the effectiveness of program initiatives for increasing container freight movements by rail. The Corporation should review the underlying causes hindering growth in the rail mode and develop and implement strategies to address the unfavourable trend.