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Reports

10 December 2020

Published

Transport 2020

Transport

Asset valuation

Cyber security

Financial reporting

Information technology

Infrastructure

Project management

1. Financial Reporting
Audit opinion	Unmodified audit opinions issued for the financial statements of all Transport cluster entities.
Quality and timeliness of financial reporting	All cluster agencies met the statutory deadlines for completing the early close and submitting the financial statements. Transport cluster agencies continued to experience some challenges with accounting for land and infrastructure assets. The former Roads and Maritime Services and Sydney Metro recorded prior period corrections to property, plant and equipment balances.
Impact of COVID-19 on passenger revenue and patronage	Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19. The Transport cluster received additional funding from NSW Treasury during the year to support the reduced revenue and additional costs incurred such as cleaning on all modes of public transport and additional staff to manage physical distancing.
Completion of the CBD and South East Light Rail	The CBD and South East Light Rail project was completed and commenced operations in this financial year. At 30 June 2020, the total cost of the project related to the CBD and South East Light Rail was $3.3 billion. Of this total cost, $2.6 billion was recorded as assets, whilst $700 million was expensed.
2. Audit Observations
Internal control	While internal controls issues raised in management letters in the Transport cluster have decreased compared to the prior year, control weaknesses continue to exist in access security for financial systems. We identified 56 management letter findings across the cluster and 43 per cent of all issues were repeat issues. The majority of the repeat issues relate to information technology controls around user access management. There were three high risk issues identified - two related to financial reporting of assets and one for implementation of TAHE (see below).
Agency responses to emergency events	Transport for NSW established the COVID-19 Taskforce in March 2020 to take responsibility for the overall response of planning and coordination for the Transport cluster. It also implemented the COVIDSafe Transport Plan which incorporates guidance on physical distancing, increasing services to support social distancing and cleaning.
RailCorp transition to TAHE	On 1 July 2020, RailCorp was renamed Transport Asset Holding Entity of New South Wales (TAHE) and converted to a for-profit statutory State-Owned Corporation. TAHE is a commercial for-profit Public Trading Entity with the intent to provide a commercial return to its shareholders. A plan was established by NSW Treasury to transition RailCorp to TAHE which covered the period 1 July 2015 to 1 July 2019. A large portion of the planned arrangements were not implemented by 1 July 2020. As at the time of this report, the TAHE operating model, Statement of Corporate Intent (SCI) and other key plans and commercial agreements are not finalised. The State Owned Corporations Act 1989 generally requires finalisation of an SCI three months after the commencement of each financial year. However, under the Transport Administration Act 1988, TAHE received an extension from the voting shareholders, the Treasurer and Minister for Finance and Small Business, to submit its first SCI by 31 December 2020. In accordance with the original plan, interim commercial access arrangements were supposed to be in place with RailCorp prior to commencement of TAHE. Under the transitional arrangements, TAHE is continuing to operate in accordance with the asset and safety management plans of RailCorp. The final operating model is expected to include considerations of safety, operational, financial and fiscal risks. This should include a consideration of the potential conflicting objectives of a commercial return, and maintenance and safety measures. This matter has been included as a high risk finding in our management letter due to the significance of the financial reporting impacts and business risks for TAHE. Recommendation: TAHE management should: establish an operating model in line with the original intent of a commercial return finalise commercial agreements with the public rail operators confirm forecast financial information to assess valuation of TAHE infrastructure finalise asset and safety management plans. Resolution of the above matters are critical as they may significantly impact the financial reporting arrangements for TAHE for 2020–21, in particular, accounting policies adopted as well as measurement principles of its significant infrastructure asset base.
Completeness and accuracy of contracts registers	Across the Transport cluster, contracts and agreements are maintained by the transport agencies using disparate registers. Recommendation (repeat): Transport agencies should continue to implement a process to centrally capture all contracts and agreements entered. This will ensure: agencies are fully aware of contractual and other obligations appropriate assessment of financial reporting implications ongoing assessments of accounting standards, in particular AASB 16 ‘Leases’, AASB 15 'Revenue from Contract with Customers', AASB 1058 'Income of Not-for-Profit Entities' and new accounting standard 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
the impact of emergencies and the pandemic.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2020, including any financial implications from the recent emergency events.

Section highlights

Total patronage and revenue for public transport decreased by approximately 18 per cent in 2019–20 due to COVID-19.
Unqualified audit opinions were issued on all Transport agencies' financial statements.
Transport cluster agencies continued to experience challenges with accounting of land and infrastructure assets.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.

This chapter outlines our:

observations and insights from our financial statement audits of agencies in the Transport cluster
assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies.

Section highlights

While there was a decrease in findings on internal controls across the Transport cluster, 43 per cent of all issues were repeat issues. Many repeat issues related to information technology controls around user access management.
RailCorp transitioned to TAHE on 1 July 2020. TAHE's operating model and commercial arrangements with public rail operators has not been finalised despite government original plans to be operating from 1 July 2019. TAHE management should finalise its operating model and commercial agreements with public rail operators as they may significantly impact the financial reporting arrangements for TAHE for 2020–21.
Completeness and accuracy of contracts registers remains an ongoing issue for the Transport cluster.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019, 2018 and 2017 recommendations

Appendix three – Management letter findings

Appendix four – Financial data

Copyright notice

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

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.

1 December 2016

Published

Transport 2016

Transport

Asset valuation

Compliance

Financial reporting

Fraud

Information technology

Internal controls and governance

Procurement

Project management

Financial reporting within the Transport Cluster continues to improve with reported misstatements down 96 per cent since 2011-12 to just three in 2015-16, according to a report released today by the NSW Auditor-General, Margaret Crawford.

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.