What this report is about

Transport for NSW (TfNSW) uses the Driver vehicle System (DRIVES) to support its regulatory functions. The system covers over 6.2 million driver licences and over seven million vehicle registrations.

DRIVES first went live in 1991 and has been significantly extended and updated since, though is still based around the same core system. The system is at end of life but has become an important service for Service NSW and the NSW Police Force.

DRIVES now includes some services to other parts of government and non-government entities which have little or no connection to transport. There are 141 users of DRIVES in total, including commercial insurers, national regulators, and individual citizens.

This audit assessed whether TfNSW is effectively managing DRIVES and planning to transition it to a modernised system.

Audit findings

TfNSW has not effectively planned the replacement of DRIVES.

It is now working on its third business case for a replacement system but has failed to learn lessons from its past attempts.

In the meantime, TfNSW has not taken a strategic approach to managing DRIVES’ growth.

TfNSW has been slow to reduce the risk of misuse of personal information held in DRIVES. With its delivery partner Service NSW, TfNSW has also been slow to develop and implement automatic monitoring of access.

TfNSW uses recognised processes for managing most aspects of DRIVES, but has not kept the system consistently available for users. TfNSW has lacked accurate service availability information since June 2022, when it changed its technology support provider.

TfNSW needs to significantly prioritise cyber security improvements to DRIVES. TfNSW is seeking to lift DRIVES’ cyber defences, but it will not achieve its stated target safeguard level until December 2025.

Even then, one of the target safeguards will not be achieved in full until DRIVES is modernised.

Audit recommendations

TfNSW should:

• implement a service management framework including insight into the views of DRIVES users, and ensuring users can influence the service
• ensure it can accurately and cost effectively calculate when DRIVES is unavailable due to unplanned downtime
• ensure implementation of a capability to automatically detect anomalous patterns of access to DRIVES
• ensure that DRIVES has appropriate cyber security and resilience safeguards in place as a matter of priority
• develop a clear statement of the future role in whole of government service delivery for the system
• resolve key issues currently faced by the DRIVES replacement program including by:
  • clearly setting out a strategy and design for the replacement
  • preparing a specific business case for replacement.

Read the PDF report

Parliamentary reference - Report number #388 - released 20 February 2024

What this report is about

This report draws together the financial impact of natural disasters on agencies integral to the response and impact of natural disasters during 2021–22.

What we found

Over the 2021–22 financial year $1.4 billion from a budget of $1.9 billion was spent by the NSW Government in response to natural disasters.

Total expenses were less than the budget due to underspend in the following areas:

• clean-up assistance, including council grants
• anticipated temporary accommodation support
• payments relating to the Northern Rivers Business Support scheme for small businesses.

Natural disaster events damaged council assets such as roads, bridges, waste collection centres and other facilities used to provide essential services. Additional staff, contractors and experts were engaged to restore and repair damaged assets and minimise disruption to service delivery.

At 30 June 2022, the estimated damage to council infrastructure assets totalled $349 million.

Over the first half of the 2022–23 financial year, councils experienced further damage to infrastructure assets due to natural disasters. NSW Government spending on natural disasters continued with a further $1.1 billion spent over this period.

Thirty-six councils did not identify climate change or natural disaster as a strategic risk despite 22 of these having at least one natural disaster during 2021–22.

What the report is about

In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.

This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.

The report is framed by recognition that the past four years have seen significant challenges and emergency events.

The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.

The report is a resource to support public sector agencies and local government to improve future programs and activities.

What we found

Our analysis of findings and recommendations is structured around six key themes:

• Integrity and transparency
• Performance and monitoring
• Governance and oversight
• Cyber security and data
• System planning for disruption
• Resource management.

The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.

In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.

The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.

The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.

While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.

Margaret Crawford
Auditor-General for New South Wales

This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.

• Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
• Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
• Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.

This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.

The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.

This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.

Appendix one – Included reports, 2018–2022

Appendix two – About this report

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.

What the report is about

This audit assessed how effectively Transport for NSW (TfNSW) and Sydney Trains identify and manage their cyber security risks.

The NSW Cyber Security Policy (CSP) sets out 25 mandatory requirements for agencies, including implementing the Australian Cyber Security Centre’s Essential 8 strategies to mitigate cyber security incidents, and identifying the agency’s most vital systems, their ‘crown jewels’. 

The audited agencies have requested that we do not disclose detail of the significant vulnerabilities detected during the audit, as these vulnerabilities are not yet remediated. We provided a detailed report to the agencies in December 2020 outlining significant issues identified in the audit. We have conceded to the agencies' request but it is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

What we found

TfNSW and Sydney Trains are not effectively managing their cyber security risks.

Both agencies have assessed their cyber security risks as unacceptably high and both agencies had not identified all of the risks we detected during this audit – some of which are significant.

Both agencies have cyber security plans in place that aim to address cyber security risks. TfNSW and Sydney Trains have combined this into the Transport Cyber Defence Rolling Program, part of the Cyber Defence Portfolio (CDP). 

However, neither agency has reached its target ratings for the CSP and the Essential 8 and maturity is low in relation to significant risks and vulnerabilities exposed.

Further, neither agency is fostering a culture where cyber security risk management is an important and valued aspect of decision-making.

TfNSW is not implementing cyber security training effectively across the cluster with only 7.2% of staff having completed basic cyber security training.

What we recommended

TfNSW and Sydney Trains should:

• develop and implement a plan to uplift the Essential 8 controls to the agency's target state
• as a matter of priority, address the vulnerabilities identified as part of this audit and previously described in a detailed Audit Office report provided to both agencies
• ensure cyber security risk reporting to executives and the Audit and Risk Committee
• collect supporting information for the CSP self assessments 
• classify all information and systems according to importance and integrate this with the crown jewels identification process
• require more rigorous analysis to re-prioritise CDP funding 
• increase uptake of cyber security training.

TfNSW should assess the appropriateness of its target rating for each of the CSP mandatory requirements.

Department of Customer Service should:

• clarify the requirement for the CSP reporting to apply to all systems
• require agencies to report the target level of maturity for each mandatory requirement.

Response to requests by audited agencies to remove information from this report

In preparing this audit report, I have considered how best to balance the need to support public accountability and transparency with the need to avoid revealing information that could pose additional risk to agencies’ systems. This has involved an assessment of the appropriate level of detail to include in the report about the cyber security vulnerabilities identified in this audit.

In making this assessment, the audit team consulted with Transport for NSW (TfNSW), Sydney Trains, and Cyber Security NSW to identify content which could potentially pose a threat to the agencies’ cyber security.

In December 2020, my office also provided TfNSW and Sydney Trains with a detailed report of many of the significant vulnerabilities identified in this audit, to enable the agencies to address the cyber security risks identified. The detailed report was produced as a result of a 'red team' exercise, which was conducted with both agencies' knowledge and consent. The scope of this exercise reflected the significant input provided by both agencies. More information on this exercise is at page 12 of this report.

TfNSW and Sydney Trains have advised that in the six months from December 2020 and at the time of tabling this audit report, they have not yet remediated all the vulnerabilities identified. As a result, they, along with Cyber Security NSW, have requested that we not disclose all information contained in this audit report to reduce the likelihood of an attack on their systems and resulting harm to the community. I have conceded to this request because the vulnerabilities identified have not yet been remediated and leave the agencies exposed to significant risk.

It should be stressed that the risks identified in the detailed report exist due to the continued presence of these previously identified vulnerabilities, rather than due to their potential publication. The audited agencies, alone, are accountable for remediating these vulnerabilities and addressing the risks they pose.

It is disappointing that transparency to the Parliament and the public on issues that potentially directly affect them needs to be limited in this way.

That said, the conclusions drawn in this report are significant in terms of risk and remain valid, and the recommendations should be acted upon with urgency.

Cyber security risk is an increasing area of concern for governments in Australia and around the world. In recent years, there have been a number of high-profile cyber security attacks on government entities in Australia, including in New South Wales. Malicious cyber activity in Australia is increasing in frequency, scale, and sophistication. The Audit Office of New South Wales is responding to these risks with a program of audits in this area, which aim to identify the effectiveness of particular agencies in managing cyber risks, as well as their compliance with relevant policy.

Cyber Security NSW, part of the Department of Customer Service (DCS) releases and manages the NSW Cyber Security Policy (CSP). The CSP sets out 25 mandatory requirements for agencies, including making it mandatory for agencies to implement the Australian Cyber Security Centre Essential 8 Strategies to Mitigate Cyber Security Incidents (the Essential 8). The Essential 8 are key controls which serve as a baseline set of protections which agencies can put in place to make it more difficult for adversaries to compromise a system. Agencies are required to self-assess their maturity against the CSP and the Essential 8, and report that assessment to Cyber Security NSW annually.

The CSP makes agencies responsible for identifying and managing their cyber security risks. The CSP sets out responsibilities and governance regarding risk identification, including making agencies responsible for identifying their 'crown jewels', the agency's most valuable and operationally vital systems. Once these risks are identified, agencies are responsible for developing a cyber security plan to mitigate those risks.

This audit focussed on two agencies: Transport for NSW (TfNSW) and Sydney Trains. TfNSW is the lead agency for the Transport cluster and provides a number of IT services to the entire cluster, including Sydney Trains. This audit focussed on the activities of TfNSW's Transport IT function, which is responsible for providing cyber security across the cluster, as well as directly overseeing four of TfNSW's crown jewels. Sydney Trains is one of the agencies in the Transport cluster. While it receives some services from TfNSW, it is also responsible for implementing its own IT controls, as well as controls to protect its Operational Technology (OT) environment. This OT environment includes systems which are necessary for the operation and safety of the train network.

To test the mitigations in place and the effectiveness of controls, this audit involved a 'red team' simulated exercise. A red team involves authorised attackers seeking to achieve certain objectives within the target's environment. The red team simulated a determined external cyber threat actor seeking to gain access to TfNSW's systems. The red team also sought to test the physical security of some Sydney Trains' sites relevant to the agency's cyber security. The red team exercise was conducted with the knowledge of TfNSW and Sydney Trains.

This audit included the Department of Customer Service as an auditee, as they have ownership of the CSP through Cyber Security NSW. This audit did not examine the management of cyber risk in the Department of Customer Service.

This audit assessed how effectively selected agencies identify and manage their cyber security risks. The audit assessed this with the following criteria:

• Are agencies effectively identifying and planning for their cyber security risks?
• Are agencies effectively managing their cyber security risks?

Following this in-depth portfolio assessment, the Auditor-General for NSW will also table a report on NSW agencies' compliance with the CSP in the first quarter of 2021–22.

Agencies have assessed their cyber risks as being above acceptable levels

An agency's risk tolerance is the amount of risk which the agency will accept or tolerate without developing further strategies to modify the level of risk. Risks that are within an agency's risk tolerance may not require further mitigation and may be deemed acceptable, while risks which are above the agency's risk tolerance likely require further mitigation before they become acceptable to the agency.

Both agencies have defined their risk tolerance and have identified risks which are above this level, indicating that they are unacceptable to the agency. TfNSW has defined 'very high' risks as generally intolerable and 'high' risks as undesirable. Its risk tolerance is 'medium'. Sydney Trains has four classifications of risk: A, B, C and D. A and B risks are deemed 'unacceptable' and 'undesirable' respectively, while C risks are considered 'tolerable'. This aligns with the TfNSW definition of a medium risk tolerance.

Transport IT reported five enterprise-level cyber security risks through its enterprise risk reporting tool in September 2020, all of which relate to cyber security or have causes relating to cyber security. These risks are in aggregate form, rather than relating to specific vulnerabilities. At the time of the audit, one of these risks was rated as very high and the other four rated as high. At this time, Transport IT had identified a further seven divisional-level risks which were above the agency’s risk tolerance.

Similarly, Sydney Trains has identified one main cyber security risk in its IT enterprise-level risk register and another with a potential cyber cause. Both of these IT risks are deemed to have a residual risk of ‘unacceptable’.

Similarly, two cyber-related OT risks have been determined to be above the agency's risk tolerance. One risk is rated as 'unacceptable'. Another risk, while not entirely cyber rated, is rated 'undesirable' and is deemed to have some causes which may stem from a cyber-attack.

Agencies have assessed their current cyber risk mitigations as requiring improvement

In addition to the risk ratings stated above, at the time of the audit neither agency believed that its controls were operating effectively. Transport IT had rated the control environments for its cyber security enterprise risks as 'requires improvement'. Mitigations were listed in the risk register for these risks but, in some cases, they were unlikely to reduce the risk to the target state or by the target date. For example, one risk had actions listed as 'under review' and no further treatment actions listed, but a due date of July 2021, while another risk was being treated by the CDP with a due date of July 2021. The CDP identified in May 2020 that while the average risk identified as part of that program will be reduced to a medium level by this date, ten high risks will still remain. Given the delays in the program, this number may be higher. As such, it seems unlikely that the enterprise risk will be reduced to below a 'high' level by July 2021.

Sydney Trains’ IT and OT risk registers cross-reference controls and mitigations against the causes and consequences. The IT cyber security risk identified in the register had causes with no mitigations designed for them. Further, some of these causes did not have future mitigations designed for them. This risk also had controls in place which are identified as partially effective. For the unacceptable OT risk noted above, while there was a control designed for each of the potential causes, Sydney Trains had identified all of the controls in place as either partially effective or ineffective. This indicates that Sydney Trains was not effectively mitigating the causes of its cyber risks and, even where it had designed controls or mitigations, these were not always implemented to fully mitigate the cause of the risk.

Additional information on gaps in cyber mitigations which were exposed in the course of this audit has been detailed to both agencies. The Foreword of this report provides information about why this detail is not included here.

Essential 8 maturity is low across TfNSW and Sydney Trains and little progress was made in 2020

CSP mandatory requirement 3.2 states that agencies must implement the ACSC Essential 8. Agencies must also rate themselves against each of the Essential 8 on a maturity scale from zero to three and report this to Cyber Security NSW. A full list of the Essential 8 can be found in Exhibit 1. Both agencies have a low level of maturity against the Essential 8 not just in comparison to the targets they have set, but also in relation to the risks and vulnerabilities exposed. Both agencies have set target maturity ratings for the Essential 8 but none of the Essential 8 ratings across either agency are currently implemented to this level. Having a low level of Essential 8 maturity exposes both agencies to significant risks and vulnerabilities. Little progress was made between the 2019 and 2020 attestation periods.

Transport IT has set a target rating of three across all of the Essential 8. Sydney Trains has set a target rating of three for its IT systems. Sydney Trains had an interim target of two for its OT systems in 2020 and advised that this has since increased to three. It should be noted that not all the Essential 8 are applicable to OT systems.

None of the Essential 8 ratings across either agency are currently implemented to the target levels. Given that the Essential 8 provide the controls which are most commonly able to deter cyber-attacks, having maturity at a low level potentially exposes agencies to a cyber security attack.

Some work is underway across both TfNSW and Sydney Trains to improve the Essential 8 control ratings. The CDP provided some resources to the Essential 8 over 2019–20, with uplift focusing on specific systems. The CDP work in 2019 and 2020 relevant to the Essential 8 largely focussed on determining the current state of the Essential 8 and creating a target state roadmap. As a result, there was little improvement between the 2019 and 2020 attestation periods. The CDP has a workstream for the Essential 8 in its FY 2020–21 funding allocation, however as noted above in Exhibit 6 this was delayed as resources were redeployed to Project La Brea. Regardless, work on some specific aspects of the Essential 8 remain part of the 2020–21 CDP allocation, with workstreams allocated to improving three of the Essential 8. In addition, some work from Project La Brea should lead to an improvement in the Essential 8.

Sydney Trains' Cyber Uplift Program included a workstream which had in scope the uplift in the Essential 8 in IT. There were also other workstreams which aimed to improve some of the Essential 8 for OT systems. Work is also ongoing as part of the CDP to uplift these scores in Sydney Trains.

TfNSW and Sydney Trains have not reached their target maturity across the CSP mandatory requirements and TfNSW has not evaluated its cluster-wide target to ensure it is appropriate

Cyber Security NSW allows each agency to determine its target level of maturity for the first 20 CSP mandatory requirements. Agencies can tailor their target levels to their risk profile. Not reaching the target rating of the CSP mandatory requirements risks information and systems being managed inconsistently or not in alignment with good governance principles.

Sydney Trains has set its target level of maturity for IT and OT. All of Sydney Trains' target maturity levels are at least a three (defined), with a target of four (quantitatively managed) for many of the mandatory requirements. While Cyber Security NSW does not currently mandate a minimum level of maturity, in 2019 there was a requirement for each agency to target a minimum level of three.

Sydney Trains has not met its target ratings across the mandatory requirements.

The Transport Cyber Defence Rolling Program has a program KPI to ensure that the entire cluster reaches a minimum maturity level of three against all the CSP requirements by 2023. TfNSW has not reviewed its CSP mandatory requirement targets to determine if a three is desirable for all requirements or if a higher target level may be more appropriate. It is important for senior management to set cyber security objectives as a demonstration of leadership and a commitment to cyber security.

TfNSW has not met its target ratings across the mandatory requirements for its Group IT ISMS, which was the focus of this audit.

Both agencies claimed progress in their implementation of the mandatory requirements between 2019 and 2020. The audit did not seek to verify the self-assessed results from either agency.

Both agencies operate ISMS in line with the CSP

CSP mandatory requirement 3.1 requires agencies to implement an Information Security Management System (ISMS) or Cyber Security Framework (CSF), with scope at least covering systems identified as the agency's ‘crown jewels’. The ISMS or CSF should be compliant with, or modelled on, one or more recognised IT or OT standard. As noted in the introduction, an ISMS ‘consists of the policies, procedures, guidelines, and associated resources and activities, collectively managed by an organisation, in the pursuit of protecting its information assets.’ Both agencies operate an ISMS compliant with the CSP requirement.

As noted in the introduction, TfNSW operates four ISMS. The Transport IT ISMS is certified against ISO27001, the most common standard for ISMS certification. Three of TfNSW’s six crown jewels are managed within this ISMS. The other ISMS are not certified to relevant standards, though TfNSW claims that they align with relevant controls. This is sufficient for the purposes of the CSP.

Sydney Trains operates two ISMS, one for IT and another for OT. Neither of these are certified to relevant ISMS Standards, however there have been conformance reviews of both IT and OT with relevant standards. These ISMS cover all crown jewels in the agency.

There are currently 11 ISMS in operation across the Transport cluster. TfNSW has proposed moving towards a holistic approach to these ISMS, with the CDP Board responsible for governing the available security controls and directing agency IT and OT teams to implement these.

Agencies are not routinely conducting audits of third-party suppliers to ensure compliance with contractual obligations

CSP mandatory requirement 1.5 makes agencies accountable for the cyber risks of their ICT service providers and ensuring that providers comply with the CSP and any other relevant agency security policies. The ACSC has provided advice on what organisations should do when managing third party suppliers of ICT. The ACSC advises that organisations should use contracts to define cyber security expectations and seek assurance to ensure that these contract expectations are being met. While both agencies usually include specific cyber security expectations in contracts, neither is routinely seeking assurance that these expectations are being met.

The NSW Government has mandated the use of the 'Core& One' contract template for low-value IT procurements and the Procure IT contract template for high-value IT procurements. Both of these contracts contain space for the procuring agency to include cyber security controls for the contractor to implement. The Procure IT contract template also includes a right-to-audit clause which allows agencies to receive assurance around the implementation of these controls. TfNSW and Sydney Trains used the mandated contracts for relevant contracts examined as part of this audit.

TfNSW included security controls in all the contracts examined as part of this audit. Compliance with ISO27001 was the most commonly stated security expectation. Of the contracts examined as part of this audit, only one contract did not have a right-to-audit clause. This contract was signed in October 2016. While these clauses are in place, TfNSW rarely conducted these audits on its third-party providers. Of the eight TfNSW contracts examined in detail, only two of these had been audited to confirm compliance with the stated security controls.

Sydney Trains included security controls in all but one of the contracts examined as part of this audit. Sydney Trains did not require contractors to be compliant with ISO27001, but only required compliance with whole-of-government policies. Sydney Trains does not routinely conduct audits of its third-party suppliers, however it did conduct deep-dive risk analyses of its top ten highest risk IT suppliers. This involved a detailed review of both the suppliers' security posture and also the contract underpinning the relationship with the supplier.

The CDP funding for 2020–21 includes a workstream for strategic third-party contract remediation. This funding is to conduct some foundational work which will allow the CDP to make further improvements in future years. While this funding will not address gaps in contract requirements or management across all contracts, this workstream aims to reduce the risks posed by strategic suppliers covering critical assets. Similarly, work is currently underway as part of the CDP to conduct OT risk assessments for key suppliers to Sydney Trains in a similar way to the work undertaken for IT suppliers.

Sydney Trains has risk assessed its third-party suppliers but TfNSW has not done so

It is important to conduct a risk assessment of suppliers to identify high-risk contractors. This allows agencies to identify those contractors who may require additional controls stated in the contract, those who require additional oversight, and also where auditing resources are best targeted.

Sydney Trains has risk assessed all its IT suppliers and, as noted above, has conducted a deep-dive risk analysis of its top ten highest risk suppliers. TfNSW has not undertaken similar analysis of its key suppliers, however it has identified risks attached to each of its strategic suppliers and has documented these. As a result of not risk assessing its suppliers, TfNSW cannot take a targeted approach to its contract management.

TfNSW demonstrated poor records handling relating to the contracts examined as part of this audit

TfNSW was not able to locate one of the contracts requested as part of the audit's sample. Other documentation, such as contract management plans, could not be located for many of the other contracts requested as part of this audit. These poor document handling practices limits TfNSW's ability to effectively oversee service providers and ensure that they are implementing agreed controls. It also limits public transparency on the effectiveness of these controls.

The Transport cluster is not effectively implementing cyber security awareness training

Agencies are responsible for implementing regular cyber security education for all employees and contractors under mandatory requirement 2.1 in the CSP. TfNSW is responsible for delivering this training to the whole Transport cluster, including Sydney Trains. The Transport cluster has basic cyber awareness training available for all staff. TfNSW also offers additional training provided by Cyber Security NSW targeted at executives and executive assistants. While TfNSW has training available to staff, it is not delivering this effectively. TfNSW does not make training mandatory for most staff nor does it require staff to repeat training regularly. Even among those staff who have been assigned the training, completion rates are low, meaning that delivery is not effectively monitored. Cyber security training is important for building and supporting a cyber security culture.

TfNSW is responsible for creating and rolling out all forms of training to agencies within the Transport cluster. Both TfNSW and Sydney Trains have the same mandatory cyber awareness training that is automatically assigned to new starters. At the time of the audit, this training was not mandatory for ongoing staff. TfNSW does make additional cyber security training available to staff who can choose to undertake the training themselves, or can be assigned the training by their manager. All TfNSW cyber security training is delivered via online modules and it is the responsibility of managers to ensure that it is completed.

Cyber security training completion rates for both TfNSW and Sydney Trains are low. Only 13.5 per cent of staff across the Transport cluster had been assigned the Cyber Safety for New Starters training as of January 2021. Although this course is mandatory for new starters, only 53 per cent of staff assigned the Cyber Safety for New Starters training module had completed the course by January 2021. As a result, only 7.2 per cent of staff across the entire Transport cluster had completed this training at that time. In Sydney Trains, less than one per cent of staff had completed this training as at January 2021 and a further 7.6 per cent of staff have completed the 'Cyber Security: Beyond the Basics' training. These low completion rates indicate that TfNSW is not effectively rolling out cyber security training across the cluster.

In October 2020, the Department of Customer Service released 'DCS-2020-05 Cyber Security NSW Directive - Practice Requirement for NSW Government', which made annual cyber security training mandatory for all staff from 2021. In line with this requirement, TfNSW has advised that it will be gradually implementing mandatory annual training from July 2021 for all staff.

The Transport cluster undertakes activities to build a cyber-aware culture in accordance with the CSP, but awareness remains low

Increasing staff awareness of cyber security risks and maintaining a cyber secure culture are both mandatory requirements of the CSP. While TfNSW does undertake some activities to build a cyber aware culture, awareness of cyber security risks remains low. This can be demonstrated by the low training rates outlined above, and the 'Spot the Scammer' exercise, described in Exhibit 7. TfNSW is responsible for delivering these awareness raising activities across the cluster.

TfNSW frequently communicates with staff across the Transport cluster about various cyber security risks through multiple avenues. Both agencies use the intranet, emails and other awareness raising activities to highlight the importance for staff to be aware of the seriousness of cyber risks. Advice given on the intranet includes tips for spotting scammers on mobile phones, promoting the cluster-wide training courses, as well as various advice that staff could use when dealing with cyber risks in the workplace.

In addition to these awareness raising activities, TfNSW has also undertaken a cluster-wide phishing email exercise called 'Spot the Scammer'. This is outlined in Exhibit 7. This exercise was carried out in 2019 and 2020 and allowed the Transport cluster to measure the degree to which staff were able to identify phishing emails. As can be seen in Exhibit 7, the results of this exercise indicate that staff awareness of phishing emails remains low.

Appendix one – Response from agencies

Appendix two – Cyber Security Policy mandatory requirements

Appendix three – About the audit

Appendix four – Performance auditing

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

Parliamentary reference - Report number #353 - released (13 July 2021).

The Auditor-General for New South Wales, Margaret Crawford, has today released a report on Transport for NSW’s (TfNSW) acquisition of 4–6 Grand Avenue in Camellia.

This audit, which was requested on 17 November 2020 by the Hon. Andrew Constance MP, the Minister for Transport and Roads, examined:

• whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
• whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.

The audit found that TfNSW conducted an ineffective process when it purchased 4–6 Grand Avenue, Camellia. The audit also found that TfNSW’s internal policies and procedures to guide the transaction were, and continue to be, insufficient.

The Auditor-General has made seven recommendations to address the issues identified in the report.

On 17 November 2020, the Hon. Andrew Constance MP, the Minister for Transport and Roads, requested this audit under section 27B(3)(c) of the Public Finance and Audit Act 1983.

On 15 June 2016, Transport for New South Wales (TfNSW) acquired 6.3 hectares of land at 4–6 Grand Avenue, Camellia, by agreement from Grand 4 Investments Pty Ltd. Grand 4 Investments was a business entity established by the owners of Billbergia Pty Ltd, a property development and investment company.

TfNSW paid Grand 4 Investments $53.5 million and assumed liability for addressing environmental issues and contamination associated with the site. This took place seven months after the vendor acquired the land as part of a competitive Expression of Interest process, in which TfNSW also participated, for $38.15 million.

TfNSW is the NSW Government agency responsible for most major transport infrastructure projects in New South Wales. TfNSW acquired the Camellia site for use as a stabling and maintenance depot to support the Parramatta Light Rail (PLR) project.

Consistent with the minister’s request, this audit assessed:

• whether TfNSW conducted an effective process to purchase 4–6 Grand Avenue, Camellia
• whether TfNSW has effective processes and procedures to identify and acquire property required to deliver the NSW Government’s major infrastructure projects.

In considering the effectiveness of the processes for this purchase, the audit considered:

• the requirements of the Land Acquisition (Just Terms Compensation) Act 1991 (the Act)
• the application of sound processes to manage risk to the NSW Government and to achieve value for money
• the application of disciplines associated with complex procurement, such as probity, in a NSW Government context.

In 2015, TfNSW identified that it would require a stabling and maintenance depot in the Camellia area for the Parramatta Light Rail

In 2014, TfNSW commissioned an external engineering consultancy to undertake a feasibility design study for the Parramatta Light Rail - the Parramatta Transport Corridor Strategy Feasibility Design study (herein referred to as ‘the feasibility study’). In early 2015, TfNSW received the feasibility study, which was one of several key sources that informed the development of business cases for the PLR.

The feasibility study recommended that TfNSW should consolidate the maintenance and cleaning operations with overnight stabling facilities on one site. The study noted that the optimal location for any such site would be in close proximity to the proposed network, and noted that the site must have access to road connections to accommodate access for cars and trucks.

The study found that a centrally located stabling and maintenance facility would be required for all routes serving the Parramatta CBD, and that the Camellia industrial area was a preferred location for such a facility. The study noted that the Camellia area was contaminated.

The feasibility study notes that its conclusions were based on assumptions about the light rail system adopted and decisions made by the future operator of the system, who had not yet been selected or appointed.

TfNSW's decision to progress a potential acquisition in 2015 considered the risk that the site may not be required

TfNSW's FIC was responsible for making decisions on funding allocations at a whole of program level within TfNSW. FIC was also responsible for approving ‘high-risk/high-value’ variations to program budgets. Members of the FIC included:

• Secretary of Transport for NSW
• Deputy Secretary, Infrastructure and Services
• Deputy Secretary, Freight, Strategy and Planning
• Deputy Secretary, Customer Services
• Deputy Secretary Finance and Investment
• Deputy Secretary People and Corporate Services.

An April 2015 submission, from the then Deputy Director-General to the agency’s FIC, sought authorisation and funding approval to participate in an Expression of Interest sale process. It noted the risk that the project may not go ahead. The submission advised that:

By acquiring a strategic site now, it reduces the risk of having to pay an improved value or a value that may be subject to rapidly improving land values due to changes in land use and rezoning.

The property can be acquired for the project, held strategically and income generated by leasing the site as hardstand ¹ space until the project requires the land for the Parramatta Light Rail project.

If the project does not proceed in the medium to longer term, the property can be sold at a premium to what has been paid today as property fundamentals improve.

This submission acknowledged the risks associated with environmental contamination and proposed that these risks would be managed by negotiating a contract where the remediation and associated expenses would be at the landowner’s cost. 

TfNSW assessed the 4–6 Grand Avenue site as one of several sites in Camellia that was a feasible location for a stabling and maintenance facility

The Departmental feasibility study assessed six potential sites for a stabling and maintenance facility, including 4–6 Grand Avenue, noting strengths and weaknesses of each site. A different site on Grand Avenue was assessed as the ‘base case’ option (1 Grand Avenue). The study’s comments on the 4–6 Grand Avenue site included the following:

With an area of approximately 63,000m², this site has sufficient space for a depot with the required stabling yard and maintenance facilities. The location allows for good road access and LRT [light rail transit] access would be from Grand Avenue, which may require a road crossing or signalised intersection. The site has been used for general industrial uses; however the land has been cleared and is currently undergoing remediation ². The site is not affected by flooding based on one in 100-year flood data.

In early 2015, once the opportunity to acquire 4–6 Grand Avenue emerged, TfNSW commissioned a specific feasibility study of the 4–6 Grand Avenue site. The feasibility studies clearly documented the existence of environmental contamination. In April 2015, the report concluded:

Given the limitations of this report and within the parameters that have been set it is concluded that from a spatial and geographic perspective the site at 6 Grand Avenue would be suitable as a stabling and maintenance depot for the Parramatta light rail project. There are few engineering and environmental constraints that would affect the feasibility level analysis of this site and all issues identified, within this desk study, are considered to be resolvable. However this being said there is a significant amount of work necessary to reach the final layout and definition of the stabling and maintenance depot. There are numerous items which require further consideration and conformation; planning approvals could impose restrictions on building heights, noise mitigation measures, light and visual impact requirements all of which can have significant impacts on the spatial requirements of any stabling and maintenance depot. 

The acquisition of 4–6 Grand Avenue was not informed by a Property Acquisition Strategy

For major projects, TfNSW typically requires the project team to complete a Property Acquisition Strategy, which is intended to guide both process as well as specific acquisition issues expected to be faced during the project. The Property Acquisition Strategy is not a mandated document but is a recommended tool to support property acquisition as part of major projects.

TfNSW did not have a Property Acquisition Strategy in place to guide the 2015 Expression of Interest process. On 6 November 2015, the then Project Director for the PLR project emailed the property team, noting a need to develop a Property Acquisition Strategy to close off the scoping design and preliminary business case.

In January 2016, TfNSW developed a draft Property Acquisition Strategy for the Parramatta Light Rail Project, although it was silent on the potential sites for the stabling and maintenance facility.

TfNSW focussed on 4–6 Grand Avenue because it was available and aligned to TfNSW's strategic interests

In early 2015, officials commenced monitoring the market for industrial real estate in the Camellia area and surrounds for possible sites for a stabling and maintenance facility.

In March 2015, then owner of the site, Akzo Nobel Pty Limited released the 4–6 Grand Avenue site through an Expression of Interest process managed by CBRE.

TfNSW’s then Deputy Director-General, Planning, sought approval from FIC to lodge an Expression of Interest up to $30.0 million. Approval was sought on the basis that it would ‘provide certainty for the Parramatta Light Rail project by allowing for a depot site in a suitable location and potentially avoid higher costs or longer timeframes associated with compulsory acquisition following completion of the project’s business case’. FIC approved the request at its meeting on 9 April 2015.

At this time, TfNSW had not conducted any analysis of financial or operational benefits and costs of the potential sites identified in earlier feasibility studies. TfNSW staff advised us that the decision to participate in the Expression of Interest process for 4–6 Grand Avenue was because it was available. There is no documentation substantiating this statement, which TfNSW staff provided verbally as part of this audit.

In November 2015, TfNSW was advised that it was unsuccessful in the Expression of Interest process and that Grand 4 Investments (a related entity of Billbergia) had purchased 4–6 Grand Avenue. TfNSW did not conduct any further analysis of alternative potential sites in Camellia between this date and commencing discussions with Grand 4 Investments in April 2016. In that time there had been some movement on other properties that were included in the feasibility study, including 37–39a Grand Avenue being under offer in September 2015.

In March 2016, TfNSW approached CBRE to organise a meeting with Grand 4 Investments. On 1 April 2016, TfNSW met with Grand 4 Investments.

TfNSW advises that a perceived benefit of the 4–6 Grand Avenue site was that it was not subject to other uses or leaseholds that would increase the cost of compulsory acquisition. Officers involved in the acquisition advised that other nominated sites in the feasibility study were subject to other uses or leaseholds. 

Appendix one – Response from agency 

Appendix two – About the audit 

Appendix three – Performance auditing

Copyright Notice

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

Parliamentary reference - Report number #349 - released (18 May 2021).

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.

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.

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.

The Auditor-General for New South Wales, Margaret Crawford today released her report on the findings and recommendations from the 2019–20 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector.

The bushfire and flood emergencies and the COVID‑19 pandemic continue to have a significant impact on the people and public sector of New South Wales. The scale of the government response to these events has been significant. The report focuses on the effectiveness of internal controls and governance processes, including relevant agencies’ response to the emergencies. In particular, the report focuses on:

• financial and information technology controls
• business continuity and disaster recovery planning arrangements
• procurement, including emergency procurement
• delegations that support timely and effective decision-making.

Due to the ongoing impact of COVID‑19 agencies have not yet returned to a business‑as‑usual environment. ‘Agencies will need to assess their response to the recent emergencies and update their business continuity, disaster recovery and other business resilience frameworks to reflect the lessons learnt from these events’ the Auditor-General said.

The report noted that special procurement provisions were put in place to allow agencies to better respond to the COVID-19 pandemic. The Auditor-General recommended agencies update their procurement policies to reflect the current requirements of the NSW Procurement Framework and the emergency procurement requirements.

Read the PDF report

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 2020. These 40 agencies constitute an estimated 85 per cent of total expenditure for all NSW public sector agencies.

1. Internal control trends

2. Information technology controls

3. Business continuity and disaster recovery planning

4. Procurement, including emergency procurement

5. Delegations

6. Status of 2019 recommendations

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.

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 business continuity and disaster recovery planning arrangements.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of procurement agency procurement policies and procurement activity.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency compliance with financial and human resources delegations.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations

Appendix three – Cluster agencies

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.

This report focuses on how Transport for NSW and Sydney Trains manage crowding at selected metropolitan train stations.

The audit found that while Sydney Trains has identified platform crowding as a key strategic risk, it does not have an overarching strategy to manage crowding in the short to medium term. Sydney Trains 'do not have sufficient oversight to know if crowding is being effectively managed’, the Auditor-General said.

Sydney Trains' operational response to crowding involves restricting customer access to platforms or station entries before crowding reaches unsafe levels or when it impacts on-time running. Assuming rail patronage increases, it is likely that Sydney Trains will restrict more customers from accessing platforms or station entries, causing customer delay. ‘Restricting customer access to platforms or station entries is not a sustainable approach to manage station crowding’, said the Auditor-General.

The Auditor-General made seven recommendations to improve Transport for NSW and Sydney Trains' management of station crowding. Transport for NSW have accepted these recommendations on behalf of the Transport cluster.

Public transport patronage has been impacted by COVID-19. This audit was conducted before these impacts occurred.

Read full report (PDF)

Sydney Trains patronage has increased by close to 34 per cent over the last five years, and Transport for NSW (TfNSW) expects the growth in patronage to continue over the next 30 years. As patronage increases there are more passengers entering and exiting stations, moving within stations to change services, and waiting on platforms. As a result, some Sydney metropolitan train stations are becoming increasingly crowded.

There are three main causes of station crowding:

• patronage growth exceeding the current capacity limits of the rail network
• service disruptions
• special events.

Crowds can inhibit movement, cause discomfort and can lead to increased health and safety risks to customers. In the context of a train service, unmanaged crowds can affect service operation as trains spend longer at platforms waiting for customers to alight and board services which can cause service delays. Crowding can also prevent customers from accessing services.

Our 2017 performance audit, ‘Passenger Rail Punctuality’, found that rail agencies would find it hard to maintain train punctuality after 2019 unless they significantly increased the capacity of the network to carry trains and people. TfNSW and Sydney Trains have plans to improve the network to move more passengers. These plans are set out in strategies such as More Trains, More Services and in the continued implementation of new infrastructure such as the Sydney Metro. Since 2017, TfNSW and Sydney Trains have introduced 1,500 more weekly services to increase capacity. Additional network capacity improvements are in progress for delivery from 2022 onwards.

In the meantime, TfNSW and Sydney Trains need to use other ways of managing crowding at train stations until increased capacity comes on line.

This audit examined how effectively TfNSW and Sydney Trains are managing crowding at selected metropolitan train stations in the short and medium term. In doing so, the audit examined how TfNSW and Sydney Trains know whether there is a crowding problem at stations and how they manage that crowding.

TfNSW is the lead agency for transport in NSW. TfNSW is responsible for setting the standard working timetable that Sydney Trains must implement. Sydney Trains is responsible for operating and maintaining the Sydney metropolitan heavy rail passenger service. This includes operating, staffing and maintaining most metropolitan stations. Sydney Trains’ overall responsibility is to run a safe rail network to timetable.

Appendix one – Response from agency

Appendix two – Sydney rail network

Appendix three – Rail services contract

Appendix four – Crowding pedestrian modelling

Appendix five – Airport Link stations case study

Appendix six – About the audit

Appendix seven – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #333 - released 30 April 2020

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

2. Financial reporting

3. Audit observations

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.

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.

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.

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.

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

2. Information technology controls

3. Gifts and benefits

4. Internal audit

5. Managing contingent labour

6. Managing sensitive data

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.

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. 

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency internal audit functions.

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.

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.

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.