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Published

Actions for Universities 2023

Universities 2023

Universities
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance
Risk
Service delivery

About this report

Financial audit results of the NSW public universities’ financial statements for the year ended 31 December 2023.

Audit findings

Unmodified audit opinions were issued for all ten universities.

Eight universities reported net deficits. Three of these improved on their 2022 results.

Total fees and charges returned to pre-pandemic levels, with 40.5% earned from overseas students from three countries.

Employee related expenses increased 10.2% in 2023 mainly due to an additional 2,830 full time equivalent staff, in response to increased teaching and research activities.

Key issues

The number of findings reported to management has increased to 111 matters in 2023 up from 88 in 2022.

These included one high risk finding and 62 moderate risk findings, a 72% increase from last year.

Gaps identified in universities governance processes included delays in responding to findings and recommendations; staff not attesting compliance with codes of conduct annually; and not capturing and recording staff conflicts of interests within central registers.

Seven of the ten universities have cyber security risks above what they determine as an acceptable risk. Four universities did not have a cyber security uplift program.

Recommendations

Universities should address all recommendations made in the report (see Appendix one for a summary of these).

In particular, there should be a focus on prioritising remediation of wage underpayments to affected employees; ensuring a centralised conflict of interest register is maintained for all staff; considering emerging risks in university risk registers; ensuring controlled entities are considered when determining internal audit plans; and focusing efforts to improve cyber security risk management and cyber resilience capability.

This report provides NSW Parliament with the results of our 2023 financial audits of universities in New South Wales and their controlled entities, including analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and enrolments
  • cyber security.

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

This chapter outlines audit observations related to the financial reporting of universities in NSW for 2023.

Appropriate financial controls help to ensure the efficient and effective use of resources and administration of policies. They are essential for quality and timely decision-making. Effective governance is essential for the stability, sustainability and ethical operation of universities. It ensures accountability, transparency and promotes responsible decision making.

This chapter outlines our observations and insights from our financial statement audits of NSW universities.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These, along with the less significant matters, are reported to universities for management to address.

Section highlights

  • The 2023 audits identified one high risk finding which has been carried forward since 2018. There were 62 moderate risk issues also identified across NSW universities.
  • Seventeen of the moderate risk issues were repeat issues. Repeat issues mainly related to information technology controls around user access management, privileged user review, outdated policies and procedures, payroll and procurement processing improvements.
  • The number of findings reported to management has increased to 111 matters in 2023 up from 88 in 2022.
  • The number of overall repeat deficiencies has decreased with 32 reported in 2023 compared to 41 in 2022. 
  • Seven universities do not require staff to annually attest to the Code of Conduct.
  • Four universities did not capture and record conflicts of interests for all staff within a centralised register.
  • All universities have developed risk management frameworks, policies, appetite statements and registers however improvements are needed.

Universities' primary objectives are the functions of teaching and research. They invest most of their resources aiming to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.

This chapter outlines teaching and enrolment outcomes for universities in NSW for 2023.

Section highlights

  • Six universities were reported as having full-time employment rates of their domestic undergraduates in 2023 that were greater than the national average.
  • Overall student enrolments at NSW universities increased, with higher enrolments in Health, Information Technology and Engineering related courses.
  • On average, universities delivered 52% of courses face to face, an increase from 45% reported in 2022.
  • Five universities in 2023 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.
  • Only one metropolitan based university reported increased enrolments of Aboriginal and Torres Strait Islander students in 2022.

This chapter of the report focuses on the cyber risk environment for universities, how universities have assessed that risk, what frameworks they use to strategically identify controls that respond to those risks, and the extent to which they have implemented or have plans to implement those controls. We also address some specific controls in respect of cyber resilience.

Section highlights

  • Seven of the ten universities have cyber security risks above what they have determined as an acceptable risk level.
  • One university did not assess its current cyber security maturity, which is a recommended practice to support prioritisation of cyber security improvements.
  • Four universities did not have a formal cyber security uplift program.
  • One university did not have a specific budget for improving its cyber security.

Appendix one – List of 2023 recommendations

Appendix two – Status of 2022 recommendations

Appendix three – Universities' controlled entities

 

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.

Published

Actions for Universities 2022

Universities 2022

Universities
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance
Service delivery

What this report is about

Results of the financial statement audits of the public universities in NSW for the year ended 31 December 2022.

What we found

Unmodified audit opinions were issued for all ten universities.

Nine universities reported net deficits in 2022, and all showed a decline from their 2021 results.

Results were impacted by a decline in investment income and government grants.

Wage remediation provisions across the universities increased by 116% to $110 million at 31 December 2022.

Expenditure increased as universities transitioned back to face-to-face teaching with the lifting of most COVID-19 restrictions.

Revenue from overseas students decreased by 0.5% overall in 2022, although not all universities were impacted equally.

Nearly 42% of fees and charges revenue came from overseas student revenue from three countries of origin (43% in 2021).

What the key issues were

We reported 88 findings to universities on internal control deficiencies (105 in 2021).

Six high risk findings were identified (four in 2021), relating to:

  • IT control deficiencies in monitoring privileged user access
  • password configuration
  • cyber security process improvements
  • lack of security over access to EFT payment files
  • the status of a university's work in assessing its liability for underpayment of staff
  • inadequate review of contracts leading to incorrect accounting treatments.

Two out of 13 entities reported financial losses from cyber incidents in 2022.

Retention policies on personally identifiable information (PII) vary and universities can further reduce their PII exposure risk from cyber attack.

What we recommended

Universities should:

  • conduct a comprehensive assessment of their employment agreements and historical pay practices to identify potential underpayments
  • prioritise actions to address repeat findings on internal control deficiencies in a timely manner
  • review their PII retention policies to ensure PII stored is limited to the entity's needs, held only for the minimum duration it is legally and operationally required, and access is strictly limited.

This report provides Parliament with the results of our financial audits of universities in New South Wales and their controlled entities in 2022, including our analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and research.

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

This chapter outlines our audit observations related to the financial reporting of universities in NSW for 2022.

Section highlights

  • The 2022 financial statements of all ten universities received unmodified audit opinions.
  • Wage remediation provisions across the NSW universities increased by 116% to $110 million at 31 December 2022.
  • Nine universities reported net deficits in 2022, and all showed a decline from 2021 results.
  • Revenue from overseas students decreased by 0.5% in 2022, as overseas student enrolments decreased by 1.2%. Almost 42% of universities' fees and charges revenue in 2022 came from overseas students from three countries (down from 43% in 2021).
  • Revenue from domestic students decreased by 0.7% in 2022, as domestic student enrolments decreased by 5.3%.
  • Combined expenditure for universities increased by 6.6% to $11.2 billion in 2022. Most of this was attributed to employee related expenses, which increased by 4.9%. 

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

This chapter outlines our observations and insights from our financial statement audits of NSW universities.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These, along with the less significant matters, are reported to universities for management to address.

Section highlights

  • The 2022 audits identified six high risk and 36 moderate risk issues across NSW universities. Sixteen of the moderate risk issues were repeat issues. Many repeat issues related to information technology controls around user access management.
  • The number of repeat deficiencies has decreased with 41 reported in 2022 compared to 45 in 2021.
  • Two out of 13 entities reported financial losses from cyber incidents during 2022.
  • Retention policies on personally identifiable information (PII) vary across entities and opportunities exist for entities to further limit their PII exposure risk from cyber attack.

Universities' primary objectives are teaching and research. They invest most of their resources aiming to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.

This chapter outlines teaching and research outcomes for universities in NSW for 2022.

Section highlights

  • Seven universities were reported as having full-time employment rates of their domestic undergraduates in 2022 that were greater than the national average.
  • Enrolments at NSW universities decreased the most in Science related courses in 2022. The largest increase in enrolments was in Health courses.
  • On average, universities delivered 21% of their courses primarily through online means in 2022, a decrease from 59% in 2021.
  • Five universities in 2021 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.
  • Seven universities reported increased enrolments of Aboriginal and Torres Strait Islander students in 2021.

Appendix one – List of 2022 recommendations

Appendix two – Status of 2021 recommendations

Appendix three – Universities' controlled entities 

 

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.

Published

Actions for Audit Insights 2018-2022

Audit Insights 2018-2022

Community Services
Education
Environment
Finance
Health
Industry
Justice
Local Government
Premier and Cabinet
Planning
Transport
Treasury
Universities
Whole of Government
Asset valuation
Cross-agency collaboration
Compliance
Cyber security
Financial reporting
Fraud
Information technology
Infrastructure
Internal controls and governance
Management and administration
Procurement
Project management
Regulation
Risk
Service delivery
Shared services and collaboration
Workforce and capability

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.

Fast facts

  • 72 audits included in the Audit Insights 2018–2022 analysis
  • 4 years of audits tabled by the Auditor-General for New South Wales
  • 6 key themes for Audit Insights 2018–2022.

picture of Margaret Crawford Auditor-General for New South Wales in black dress with city skyline as backgroundI 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

Integrity and transparency Performance and monitoring Governance and oversight Cyber security and data System planning Resource management
Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest.
Government entities should report to the public at both system and project level for transparency and accountability. Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds.
Entities must provide balanced advice to decision-makers on the benefits and risks of investments. Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. Active review of policies and procedures in line with current business activities supports more effective risk management. Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. Transformation programs can be improved by resourcing a program management office.
Clear guidelines and transparency of decisions are critical in distributing grant funding. Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues.     Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need.
Governments must ensure timely and complete provision of information to support governance, integrity and audit processes.          
Read more Read more Read more Read more Read more Read more

 

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.

Published

Actions for Universities 2021

Universities 2021

Universities
Cyber security
Financial reporting
Internal controls and governance

What the report is about

Results of the financial statement audits of the public universities in NSW for the year ended 31 December 2021.

What we found

Financial reporting

Unmodified audit opinions were issued for all ten universities.

The University of Wollongong reported the retrospective correction of a prior period error relating to a $169 million contract termination liability.

All universities reported positive net results in 2021 (four in 2020) and each showed improvement from 2020. This was mainly due to expenditure decreasing by a combined $644 million (5.8%) from 2020. Universities implemented redundancy programs in response to the COVID-19 pandemic, which resulted in a decrease of nearly 2,300 full-time equivalent staff in 2021.

All universities held an investment in Education Australia Limited, which paid to its shareholders a fully franked dividend comprising cash and shares in IDP Education Limited. This increased the combined investment revenues of the universities by $515 million in 2021. However, it affected each university's net result differently depending on elections made in their historical accounting treatment.

Government grants increased by $442 million from 2020, of which $297 million related to the Commonwealth's 2021 additional Research Support Program funding to the NSW universities which was a COVID-19 support measure to the sector.

Over 43% of universities' course fees revenue comes from three countries (39% in 2020). Students from China now represent over half of all overseas student enrolments. A high level of reliance on student revenue from a single country poses a concentration risk for universities.

Internal controls

We reported 105 findings to universities on internal control deficiencies (110 in 2020).

Four high-risk findings were identified (three in 2020), relating to:

  • the status of one university's work in assessing its liability for underpayment of staff
  • IT control deficiencies over privileged user access
  • control deficiencies that resulted in non-recognition of a liability in one university's prior year's financial statements
  • a detailed review of payroll compliance for casual staff, which remains outstanding at one university.

There were 45 repeat findings of control deficiencies in 2021 (45 in 2020). 

All universities have drafted or implemented a cybersecurity policy and established a governance committee accountable for cybersecurity. However, improvements could be made in:

  • recording and monitoring of attempted cyber incidents
  • assessing cyber risks relating to IT vendors
  • implementation of cybersecurity control measures for key systems. 

Four out of 13 entities experienced a significant cyber incident during 2021. 

What we recommended

  • Universities should prioritise actions to address repeat findings on internal control deficiencies, particularly where the issue has been repeated for a number of years.
  • Universities and controlled entities should prioritise improvements to their cybersecurity and resilience.

Fast facts

There are ten public universities in NSW, with 52 controlled entities in Australia and 22 overseas controlled entities.

  • $12b total combined adjusted revenue in 2021, an increase of $1.1 billion (10.5%) from 2020
  • $10.4b total combined expenditure in 2021, a decrease of $644 million (5.8%) from 2020
  • 79,134 overseas student enrolments in 2021, a decrease of 3,138 students (3.8%) from 2020
  • 209,018 domestic student enrolments in 2021, an increase of 1,622 students (0.8%) from 2020
  • 4 high-risk management letter findings were identified (3 in 2020) 
  • 43% of reported issues were repeat issues. 

This report provides Parliament with the results of our financial audits of universities in New South Wales and their controlled entities in 2021, including our analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and research.

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

This chapter outlines our audit observations on the financial reporting of universities in NSW for 2021.

Section highlights
  • The 2021 financial statements of all ten universities received unmodified audit opinions.
  • All universities reported positive net results in 2021 and all showed improvement from 2020 results.
  • The change in universities' investments in Education Australia Limited resulted in a combined increase of $515 million in investment revenue. However, it affected each university's net result differently depending on elections made in their historical accounting treatment.
  • Forty-three per cent of universities' course fees revenue comes from three countries (up from 39% in 2020). Students from China now represent over half of all overseas student enrolments.

Appropriate and robust internal controls help produce reliable financial reports and reduce risks associated with managing finances, compliance and administration of universities.

This chapter outlines the internal controls related observations and insights across universities in NSW for 2021, including overall trends in findings, level of risk and implications.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant matters are reported to universities for management to address.

Section highlights
  • The total number of internal control findings decreased from 110 in 2020 to 105 in 2021.
  • Four high-risk findings were identified in 2021 (three in 2020).
  • The number of repeat deficiencies remained the same with 45 reported in 2021 and 2020.
  • All entities have drafted or implemented a cybersecurity policy/framework and established a governance committee accountable for cybersecurity.
  • Four out of 13 entities experienced a significant cyber incident during 2021.

Universities' primary objectives are teaching and research. They invest most of their resources aiming to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.

This chapter outlines teaching and research outcomes for universities in NSW for 2021.

Section highlights
  • Seven universities were reported as having full-time employment rates of their undergraduates in 2021 that were greater than the national average.
  • Enrolments at universities in NSW decreased the most in Management and Commerce courses. The largest increase in enrolments was in Science courses.
  • On average, universities delivered 59% of their courses primarily through online means in 2021.
  • Five universities in 2020 were reported as meeting the target enrolment rate for students from low socio-economic status (SES) backgrounds.

Appendix one – List of 2021 recommendations

Appendix two – Status of 2020 recommendations

Appendix three – Universities' controlled entities

 

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.

Published

Actions for Universities 2020 audits

Universities 2020 audits

Universities
Cyber security
Financial reporting
Internal controls and governance

What the report is about

Results of the financial statement audits of the public universities in NSW for the year ended 31 December 2020.

What we found

Unqualified audit opinions were issued for all ten universities.

Two universities reported retrospective corrections of prior period errors.

Universities were impacted by the COVID-19 pandemic with student enrolments decreasing in 2020 compared to 2019 by 10,032 (3.3 per cent). Of this decrease 8,310 students were from overseas.

In response to the pandemic, each university provided welfare support, created student hardship funds, provided accommodation and flexibility on payment of course fees. State and Commonwealth governments provided additional support to the sector.

Six universities recorded negative net operating results in 2020 (two in 2019). The combined revenues of the ten universities from fees and charges decreased by $361 million (5.8 per cent).

Despite the impact of the COVID-19 pandemic, which will continue to impact the financial results of universities in 2021, enrolments of overseas students in semester one of 2021 increased at two universities. This growth meant that total overseas student enrolments increased by 7,944 or 5.8 per cent across the sector as a whole. However, eight universities experienced decreases in overseas student enrolments compared to semester one of 2020. All universities have experienced growth in domestic student enrolments.

What the key issues were

There were 110 findings reported to universities in audit management letters.

Three high risk findings were identified. One related to the continued work by the University of New South Wales to assess its liability for underpayment of casual staff entitlements. The other two deficiencies were at Charles Sturt University, relating to financial reporting implications of major contracts, and resolving issues identified by an internal review of its employment contracts to reliably quantify the university’s liability to its employees.

What we recommended

Universities should prioritise actions to address repeat findings. Forty-five findings were repeated from 2019, of which 23 related to information technology.

Fast facts

There are ten public universities in NSW with 51 local controlled entities and 23 overseas controlled entities.

  • $10.9bn Total combined revenue in 2020, a decrease of $538.5 million (4.7 per cent) from 2019.
  • 106,984 Overseas student enrolments in 2020, a decrease of 8,310 students (7.2 per cent) from 2019.
  • 3 High risk management letter findings were identified.
  • $11.0bn Total combined expenditure in 2020, a decrease of $147.8 million (0.9 per cent) from 2019.
  • 182,683 Domestic student enrolments in 2020, a decrease of 1,722 students (0.9 per cent) from 2019.
  • 41% Of reported issues were repeat issues.

Further information

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

This report analyses the results of our audits of the financial statements of the ten universities in NSW for the year ended 31 December 2020. The table below summarises our key observations.

1. Financial reporting

Financial reporting The 2020 financial statements of all ten universities received unmodified audit opinions.

Two universities reported retrospective corrections of prior period errors. The University of Sydney reported errors relating to the underpayment of staff entitlements and the fair value of buildings. Charles Sturt University reported an error relating to how it had calculated right‑of‑use assets and lease liabilities on initial application of the new leasing standard in the previous year.

Impacts of COVID‑19

Student enrolments decreased in 2020 compared to 2019 by 10,032 (3.3 per cent). Of this decrease, 8,310 students were from overseas.

The ongoing impact of COVID‑19 in the short‑term, on semester one enrolments for 2021 compared to semester one of 2020, has been mixed:

  • all universities in NSW experienced a growth in their domestic student enrolments
  • eight universities experienced decreases in overseas student enrolments.

During 2020, universities provided welfare support to students, created student hardship funds, provided accommodation, and flexibility on payment of course fees.

State and Commonwealth governments provided additional support to the sector:

  • those university controlled entities eligible to receive JobKeeper payments received a combined amount under the Commonwealth scheme totalling $47.6 million in 2020
  • the NSW Government launched a University Loan Guarantee scheme.
Financial results

Six universities recorded negative net operating results in 2020 (two in 2019). While most universities experienced decreased revenue in 2020, only four had reduced their expenses to a level that was less than revenue.

Revenue from operations

Universities' revenue streams were impacted in 2020 by the COVID‑19 pandemic, with fees and charges decreasing by $361 million (5.8 per cent).

Government grants as a proportion of total revenue increased for the first time in five years to 34 per cent in 2020.

Nearly 40 per cent of universities' total revenue from course fees in 2020 (40.9 per cent in 2019) came from overseas students from three countries: China, India and Nepal (same in 2019). Students from these countries of origin contributed $2.2 billion ($2.4 billion in 2019) in fees. Some universities continue to be dependent on revenues from students from these destinations and their results are more sensitive to fluctuations in demand as a result.

Other revenues

Overall philanthropic contributions to universities increased by 32.2 per cent in 2020 to $222 million ($167.9 million in 2019). The University of Sydney and the University of New South Wales attracted 75.2 per cent of the total philanthropic contributions in 2020 (69.5 per cent in 2019).

Total research income for universities was $1.4 billion in 20191, with the University of Sydney and the University of New South Wales attracting 66.5 per cent of the total research income of all universities in NSW (65.2 per cent in 2018).

Expenditure Universities initiated cost saving measures in response to the COVID‑19 pandemic. The cost of redundancy programs increased employee related expenses in 2020 by 4.4 per cent to $6.5 billion ($6.2 billion in 2019). The cost of redundancies offered in 2020 across the universities totalled $293.9 million. Combined other expenses decreased to $2.8 billion in 2020, a reduction of $436 million (13.4 per cent).

2. Internal controls and governance

Internal control findings One hundred and ten internal control deficiencies were identified in 2020 (108 in 2019). Forty‑five findings were repeated from 2019, of which 23 related to information technology.

Recommendation: Universities should prioritise actions to address repeat findings on internal control deficiencies in a timely manner. Risks associated with unmitigated control deficiencies may increase over time.

Three high risk internal control deficiencies were identified, namely:

  • The University of New South Wales should continue work to assess its liability for the underpayment of casual staff entitlements. This issue was also reported last year.
  • Two high risk deficiencies were identified at Charles Sturt University. One related to misunderstanding the requirements of the new accounting standard in relation to recognising grant funding revenue for construction work. The second related to resolving issues identified by an ongoing internal review of its employment contracts to enable a reliable quantification as to the university's liability to its employees.

Gaps in information technology (IT) controls comprised the majority of the remaining deficiencies. Deficiencies included a lack of sufficient privileged user access reviews and monitoring, payment files being held in editable formats and accessible by unauthorised persons, and password settings not aligning with the requirements of information security policies.

Business continuity and disaster recovery planning All universities have a business continuity policy supported with a business impact analysis.

Except for Macquarie University, all other universities had disaster recovery plans prepared for all of the IT systems that support critical business functions. Macquarie University’s disaster recovery plans were still in progress at 31 December 2020.

Only half of the universities' policies require regular testing of their business continuity plans and six universities' plans do not specify staff must capture, asses and report disruptive incidents.

3. Teaching and research

Graduate employment outcomes Eight out of ten universities were reported as having full‑time employment rates of their undergraduates in 2020 that were greater than the national average.

Six universities were reported as having full‑time employment rates of their postgraduates in 2020 that were greater than the national average.

Student enrolments by field of education Enrolments at universities in NSW decreased the most in Management and Commerce courses and Engineering and Related Technologies courses. The largest increase in enrolments was in Society and Culture courses.
Achieving diversity outcomes Five universities in 2019 were reported as meeting the target enrolment rate for students from low socio‑economic status (SES) backgrounds.

Seven universities were reported to have increased their enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2019. The target growth rate for increases in enrolments of Aboriginal and Torres Strait Islander students (to exceed the growth rate of enrolments of non‑indigenous students by at least 50 per cent) was achieved in 2019.

 1 2020 data, which is compiled by the Australian Department of Education and Training, is not yet available.

This report provides Parliament with the results of our financial audits of universities in NSW and their controlled entities in 2020, including our analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and research.

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

This chapter outlines our audit observations on the financial reporting of universities in NSW for 2020.

Financial results

The graph below shows the net results of individual universities for 2020.

Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of universities.

This chapter outlines the internal controls related observations and insights across universities in NSW for 2020, including overall trends in findings, level of risk and implications.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant matters are reported to universities for management to address.

Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.

This chapter outlines teaching and research outcomes for universities in NSW for 2020.

Published

Actions for Universities 2019 audits

Universities 2019 audits

Universities
Cyber security
Financial reporting
Internal controls and governance
Procurement

This report contains findings on the results of financial audits of NSW universities for the year ended 31 December 2019.

All ten NSW universities received unqualified audit opinions. The 2019 financial results for universities are reported as at 31 December and reflect results from operations before the impact of the COVID‑19 pandemic.

The combined revenues for all NSW universities increased by $381 million to $11.4 billion in 2019, driven by increases in student revenues. Revenue from overseas students continued to grow faster than that from domestic students and contributed $3.6 billion in course fees to NSW universities in 2019.

Overseas students from the top three countries of origin, being China, India and Nepal, represented 72.4 per cent of all enrolments of overseas students and 65.4 per cent of all overseas student revenues for 2019. Revenue from students from these three countries comprised 40.9 per cent of total student revenues for all NSW universities, creating a considerable concentration risk for NSW universities.

The COVID‑19 pandemic may significantly impact the financial results of NSW universities in 2020. NSW universities provided data on COVID‑19 impacted student enrolments for semester one 2020. Overall numbers of student enrolments in semester one 2020 were 5.8 per cent beneath projections. Overseas student enrolments were 13.8 per cent beneath expectations and domestic student enrolments were 2.4 per cent below expectations.

The report makes recommendations to the NSW universities, aimed at strengthening controls over information technology, cyber security, validating published performance information, procurement practices and the oversight of their overseas controlled entities' legal and policy compliance functions.

Read full report (PDF)

This report analyses the results of our audits of the financial statements of the ten NSW universities for the year ended 31 December 2019. The table below summarises our key observations.

1. Financial reporting

Financial reporting

The 2019 financial statements of all ten NSW universities received unmodified audit opinions.

One controlled entity of the Western Sydney University received a qualified audit opinion.

Five NSW universities finalised their audited financial statements this year on or before the date they did last year.

New accounting standards, which changed how universities report income and treat operating leases, became effective from 1 January 2019.

Sources of revenue from operations

Government grants as a proportion of the total income of NSW universities continued to decrease.

Fee revenue from overseas students continued to grow faster than fees from domestic students. Forty-one per cent of NSW universities' total student revenue came from overseas students from three countries.

Five NSW universities increased the proportion of revenue they receive from overseas students from a single country. Two universities sourced over 73 per cent of their total overseas student revenue from students from a single country of origin in 2019.

Other revenues Two universities attracted over 69.5 per cent of the total philanthropic revenue of $174 million received by all NSW universities in 2019.
Operating expenditures Combined total operating expenditure for NSW universities increased to $9.9 billion in 2019, a rise of 5.2 per cent from 2018.
Current ratio At 31 December 2019, five NSW universities had a current ratio of less than one, meaning those universities need to actively manage their cash to meet current obligations.
Controlled entities

All six NSW universities with overseas controlled entities have devolved responsibility for governance and legislative compliance to their overseas controlled entities.

Recommendation (repeat issue): NSW universities should strengthen their governance arrangements to oversight their overseas controlled entities' legal and policy compliance functions.

COVID-19 impacts and responses

The 2019 financial results for universities are reported as at 31 December. Consequently, the results for the 2019 year were unaffected by the impact of the COVID-19 pandemic.

NSW universities provided data on the COVID-19 impacted student enrolments for semester one 2020. Overall numbers of student enrolments were 5.8 per cent beneath projections. Overseas student enrolments were 13.8 per cent beneath expectations and domestic student enrolments were 2.4 per cent beneath expectations.

NSW universities are responding to the challenges presented by COVID-19 by moving course delivery online, expanding student support and introducing cost saving measures.

2. Internal controls and governance

Internal control findings

Our audits identified 108 internal control deficiencies in 2019 (99 in 2018).

Gaps in information technology (IT) controls comprised the majority of these deficiencies. Deficiencies included a lack of sufficient user access reviews, inadequate review and approval of change management processes, and issues with password settings.

We identified one high risk financial control deficiency at the University of New South Wales, which resulted in the University providing for a potential underpayment of casual staff salaries.

NSW universities continue to implement recommendations arising from 35 findings raised in previous years.

Performance reporting

Five NSW universities still do not have formal processes to internally review and validate performance information published in their annual reports.

Recommendation (repeat issue): NSW universities should strengthen processes to review and validate published performance information.

Cyber security

Two universities have not yet implemented a cyber risk policy and three universities have not formally trained staff in cyber awareness.

Recommendation (repeat issue): NSW universities should strengthen cyber security frameworks and controls to protect sensitive data and prevent financial and reputational losses.

Management of IT service providers NSW universities have contracts with vendors to support their computer systems. Five universities have not formally established frameworks to manage these contracts. Poor contract management can compound risks associated with IT control deficiencies.
Data breach management Universities are required to maintain the privacy of sensitive data which, if disclosed or used inappropriately, could result in harm to individuals, financial loss, or loss of intellectual property. Two NSW universities have not established formal policies to manage data breaches.
Procurement

All universities have a procurement policy. Most universities have a documented procurement manual and contact management policy.

Recommendation: NSW universities should review their procurement and contract management policies and procedures to ensure that they are relevant and effective in reducing risk and improving purchasing outcomes.

3. Teaching and research

Graduate employment outcomes Eight out of ten NSW universities exceeded the national average for full-time employment rates of their undergraduates in 2019. Six universities performed better than the national average for full-time employment outcomes of their postgraduates in 2019.
Student enrolments by field of education Enrolments at NSW universities increased the most in Management and Commerce courses in 2019.
Achieving diversity outcomes

Five universities in 2018 (five in 2017) met the target enrolment rate for students from low socio-economic status (SES) backgrounds.

Eight universities increased enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2018.

 

This report provides Parliament with the results of our financial audits of New South Wales universities and their controlled entities in 2019, including our analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and research.

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

This chapter outlines our audit observations on the financial reporting of NSW universities for 2019.

Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of NSW universities.

This chapter outlines the internal controls related observations and insights across NSW universities for 2019, including overall trends in findings, level of risk and implications.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant ones are reported to universities for them to address.

Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and international and Australian rankings.

This chapter outlines teaching and research outcomes for NSW universities for 2019.

Appendix one – List of 2019 recommendations

Appendix two – Status of 2018 recommendations

Appendix three – NSW universities’ controlled entities and associated entities

 

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.

Published

Actions for Universities 2018 audits

Universities 2018 audits

Universities
Cyber security
Financial reporting
Information technology
Internal controls and governance

The Acting Auditor General of New South Wales, Ian Goodwin, released a report today on the results of financial audits of NSW universities for the year ended 31 December 2018.

All ten NSW universities received unqualified audit opinions.

This report analyses the results of our audits of financial statements of the ten NSW universities for the year ended 31 December 2018. The table below summarises our key observations.

This report provides Parliament with the results of our financial audits of New South Wales universities and their controlled entities in 2018, including our analysis, observations and recommendations in the following areas:

  • financial reporting
  • internal controls and governance
  • teaching and research.

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

This chapter outlines our audit observations on the financial reporting of NSW universities for 2018.

Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of NSW universities.

This chapter outlines the internal controls related observations and insights across NSW universities for 2018, including overall trends in findings, level of risk and implications.

Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant ones are reported to universities for them to address.

Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and international and Australian rankings.

This chapter outlines teaching and research outcomes for NSW universities for 2018.

Published

Actions for Universities 2017

Universities 2017

Universities
Asset valuation
Compliance
Cyber security
Financial reporting
Information technology
Internal controls and governance

The Auditor-General, Margaret Crawford released her report today on the results of financial audits of NSW universities for the year ended 31 December 2017. No qualified audit opinions were issued for any university and the quality and timeliness of financial reporting continues to improve.

This report analyses the results of our audits of financial statements of the ten NSW universities and their controlled entities for the year ended 31 December 2017. The table below summarises our key observations.

This report focuses on our observations on the common issues identified in our audits of the financial statements of the ten NSW universities and their controlled entities in 2017. The universities and controlled entities are listed in Appendix three and four respectively.

The report provides our analysis of universities’ results and findings in the following areas:

  • Financial reporting and performance
  • Teaching and research
  • Financial controls and governance.

Accurate and timely financial reporting is important for universities to make efficient and effective economic decisions. Sound financial performance provides the platform for universities to deliver high quality teaching and research outcomes. 

This chapter outlines our audit observations on the financial reporting and performance of NSW universities for 2017.

Observation Conclusion or recommendation
3.1 Financial reporting
Audit results
The financial statements of all ten NSW universities and 66 out of 69 of their controlled entities received unmodified audit opinions. Two controlled entities did not fully comply with the financial reporting and audit requirements of the Public Finance and Audit Act 1983 as they did not submit their financial statements to the Auditor-General. One of these entities was audited under the requirements applicable in its foreign jurisdiction. A third controlled entity submitted financial statements, but only after the statutory due date.
Quality and timeliness of financial reporting
The number of uncorrected misstatements continues to decrease. The quality of financial statements of the universities improved in 2017.
Two universities simplified disclosures in their financial statements. The financial statements of the University of Sydney and Macquarie University are more concise, readable and understandable than those of other universities. 
Six universities finalised their financial statements earlier than in previous years. Universities that performed aspects of early close procedures improved the timeliness of their financial reporting and helped us conclude our audits earlier. 
Eight universities are yet to quantify the impact of new accounting standards applicable in future years.  The two universities that have assessed the impact of the new accounting standards believe the impact will be material.
An accounting issue was identified relating to the recognition and measurement of payroll tax liabilities on employees' defined benefit superannuation contributions payable to the superannuation funds. Recommendation: NSW universities should clarify the recognition and measurement of their liability for payroll tax on their defined benefit superannuation obligations before 31 December 2018. 
3.2 Financial performance
Sources of revenue from operations
Government grants as a proportion of total revenue decreased over the past five years by 6.4 per cent.

The Australian Government announced funding freezes to Australian Government grants revenue for the next two years.

Universities are expanding other revenue streams to decrease their reliance on grant funding. The revenue stream that has increased the most significantly over the past five years is overseas student revenue.

Revenue from overseas student course fees increased by 23 per cent in the last year and contributed $2.8 billion to the NSW university sector in 2017. Overseas student revenue exceeded domestic student revenue by 37 per cent, and comprised over a quarter of NSW universities' total revenues in 2017. The growth in overseas student revenue has not been shared equally in the sector. Some universities are more dependent on overseas student revenue than others.
Revenue from overseas students from four countries comprised 37 per cent of total student revenues for all NSW universities.  Recommendation: NSW universities should assess their student market concentration risk where they rely heavily on students from a single country of origin. This increases their sensitivity to economic or political changes in that country.
Universities' data shows as much as 71 per cent of their overseas student revenue comes from a single country of origin. 
Research income of NSW universities was $1.1 billion in 2016 and has grown by 9.8 per cent between 2012 and 2016. Two universities attracted 65.2 per cent of the total research income received by all NSW universities.
Other revenues
Total philanthropic revenue increased by 1.0 per cent to $151 million in 2017.

Philanthropic revenue has been increasing for the past five years.

Two universities attracted 76.8 per cent of the total philanthropic dollars received by all NSW universities.

Average investment returns fell from 7.0 per cent in 2013 to 5.8 per cent in 2017, while total investments grew to $5.4 billion in 2017 from $3.5 billion in 2013.

Universities have structured their investment portfolios between fixed and non-fixed income assets, seeking to optimise their returns in a low interest rate environment within the limits of their risk management strategies.

Investment income is a significant source of revenue for some, but not all universities. Two universities' investment funds represented 52.3 per cent of the total investment funds of all NSW universities combined.

Low interest rates have made investment in fixed income assets less attractive for universities. Over the last five years universities have increased their investment in non-fixed income (or market based) assets by 67.1 per cent.  
Most NSW universities have established investment governance frameworks.  
Financial sustainability indicators
Operating expenditure per equivalent full-time student load (EFTSL) increased by 3.0 per cent in 2017. The universities that have been able to attract international students to grow their operational revenues have been able to leverage economies of scale to maximise their average margin per EFTSL. Other universities have had to rely on containing costs to achieve higher EFTSL margins.
For six universities, the growth in operating expenditure has exceeded the growth in operating revenue, reducing operating margins. The risk associated with narrowing margins is compounded where universities have a high reliance on student revenues from a single source. Sudden changes in demand can challenge the ability of those universities to adjust their cost structures.

As the margin between operating revenue and operating expenditure decreases, operational results are more at risk from unexpected fluctuations, such as Australian Government higher education reforms and reduced overseas student enrolments.

Smaller operating margins reduce the funds available to invest in upgrading infrastructure and implement corporate strategies to meet future challenges.

Eight universities have current ratios greater than one in 2017.    
Controlled entities
Sixteen of the universities' 58 controlled entities that operate business activities reported losses in 2017 (15 in 2016). Overall, the financial performance of controlled entities operating business activities was positive, but results in 2017 were lower than in 2016. 
The total profit of controlled entities operating business activities decreased 5.5 per cent to $77.5 million in 2017 ($82.6 million in 2016). Universities may be able to improve their overall performance by reassessing the viability of business ventures that continue to make losses and/or rely on them for financial support. 
Eighteen controlled entities relied on guarantees of financial support from their parent entity in 2017 (19 in 2016).  

Teaching and research are key objectives of universities and they invest most of their resources in achieving high quality academic and research outcomes to maintain or advance their reputations and rankings in Australia and abroad. Universities have also committed to achieving certain government objectives.

This chapter outlines teaching and research outcomes for NSW universities for 2017.

Observation Conclusion or recommendation
4.1 Teaching outcomes
Achieving Australian Government target
NSW universities met the Australian Government target of having 40 per cent of 25 to 34 year-olds with bachelor degrees ten years earlier than the original target date of 2025.

The proportion of 25 to 34 year-olds in NSW holding a bachelor degree increased to 43.4 per cent in 2017.

In 2009, when the target was originally set, only 35.5 per cent of 25 to 34 year-olds held a bachelor degree.

Graduate employment rates

Seven universities exceeded the national average of 71.8 per cent for the proportion of their undergraduates who obtain full-time employment.

Four universities achieved better than the national average of 86.1 per cent for the proportion of their postgraduates who obtain full-time employment.

Most NSW universities' employment outcomes are better than the national average.
Student enrolments by field of education
NSW universities have increased enrolments in fields of study that align with known skills shortages in NSW identified by the Australian Government for 2016 and 2017. Alignment of student intake with identified shortages helps ensure graduates secure timely employment on completion of their studies. 
Achieving diversity outcomes

NSW universities agreed to targets set by the Australian Government for enrolments of students from low socio economic status (SES) and Aboriginal or Torres Strait Islander backgrounds.

NSW universities can improve outcomes for these students by implementing policies to increase enrolments and support students to graduation.

Three universities exceeded the target of 20 per cent of low SES student enrolments in 2017.

Six universities met their Indigenous student enrolment target in 2017. The target is having a growth rate in the enrolment of Indigenous students that is more than 50 per cent higher than the growth rate of non-Indigenous student enrolments.

At the current rate, it is unlikely most universities will reach the agreed low SES target by 2020.

Appropriate financial controls help ensure efficient and effective use of resources, and the implementation and monitoring of university policies. Governance consists of frameworks, processes and behaviours that enable the universities to operate effectively and comply with relevant laws and policies.

This chapter outlines our audit observations on the financial control and governance of NSW universities for 2017.

Observation Conclusion or recommendation
5.1 Internal controls
Internal control findings

Eighty-three internal control deficiencies were identified during our audits, of which 40 related to Information Technology (IT).
High risk
We identified a high risk finding in relation to storage of unencrypted username and password information on a database without appropriate access restrictions. We performed additional audit procedures to conclude that the control deficiency did not present a risk of material misstatement in the university's financial statements.
Moderate risk
Forty-three moderate risk control deficiencies were identified, of which 22 related to IT and 21 related to governance and financial reporting.

Recommendation: NSW universities should ensure controls, including information technology controls, are properly designed and operate effectively to protect intellectual property, staff and student data, and assets. Universities should rectify identified deficiencies in a timely manner.
Repeat findings
Twenty-four findings were repeat internal control deficiencies, of which 18 related to IT. 
IT issues can take some time to rectify because specialist skill and/or partnering with software suppliers is often required to implement new controls. However, until rectified, the vulnerabilities those control deficiencies present can be significant.
Cyber security
Our audits identified opportunities to improve cyber security controls and processes to reduce risks, including risks relating to financial loss, reputational damage and breaches of privacy laws.

Recommendation: NSW universities should strengthen their cyber security frameworks to manage cyber security risks. This includes developing:

  • procedures, protocols and supporting systems to effectively identify, report and respond to cyber security threats and incidents
     
  • staff awareness training and programs, including programs tailored for a range of audiences.

Use of credit card and work-related travel
All NSW universities had appropriate published policies on the use of credit cards, and have internal controls and processes to implement those policies.

The risks of unauthorised use can be mitigated by regular monitoring, and reporting breaches for investigation and disciplinary action.

Appropriately designed and implemented preventive and detective controls are most effective when enforcement and disciplinary activities are oversighted by university audit and risk committees. 

Published

Actions for Agency compliance with NSW Government travel policies

Agency compliance with NSW Government travel policies

Education
Community Services
Finance
Health
Industry
Justice
Local Government
Planning
Premier and Cabinet
Transport
Treasury
Universities
Whole of Government
Compliance
Internal controls and governance
Procurement

Overall, agencies materially complied with NSW Government travel policies.

However, the Auditor-General found some agencies:

  • did not always book official travel through the approved supplier
  • had weaknesses in their travel approval processes
  • had travel policies that were inconsistent with the NSW Government policy
  • did not adequately manage their travel records.   

Last year the NSW Government spent almost $250 million on travel. The government’s travel policies aim to help agencies make better travel decisions and reduce costs. The Department of Finance, Services and Innovation (DFSI) is responsible for the government’s travel policy and manages the government contract with an approved private sector provider to procure travel services.

This audit assessed how effective agency processes were to ensure compliance with:

  • the ‘Policy on Official Travel within Australia and Overseas’ issued by the Department of Premier and Cabinet in Circular OFS-2014–07 ‘Official Travel in Australia and Overseas’ (the former policy)
  • the ‘NSW Government Travel and Transport Policy’ issued by DFSI (the new policy), effective from 28 September 2016.

We examined 15 agencies from different NSW Government clusters with significant travel expenditure. For a list of participating agencies, refer to the Appendix two.

Conclusion

We found that overall, agencies materially complied with NSW Government travel policies. However, some agencies:

  • did not always book official travel through the approved supplier
  • had weaknesses in their travel approval processes
  • had travel policies that were inconsistent with the government policy
  • did not adequately manage their travel records.

Self-assessments indicate agencies comply with most aspects of the new policy. Agencies also believe more guidance from DFSI about certain aspects of the policy would increase compliance.

We asked the 15 participating agencies to complete a self assessment of the processes they have implemented to comply with the new policy. The key observations are summarised below.

Published

Actions for State Finances 2017

State Finances 2017

Finance
Health
Industry
Justice
Local Government
Planning
Premier and Cabinet
Treasury
Universities
Whole of Government
Environment
Asset valuation
Financial reporting
Information technology
Internal controls and governance

Total State Sector Accounts received an unqualified audit opinion for the fifth consecutive year.

There was a $5.7 billion State budget surplus and continued investment in new infrastructure, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets. This report also comments on key accounting matters, including the correction of some previously reported balances and the first time reporting of combined Cabinet members’ compensation in the Total State Sector Accounts.

Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2017.

You will note that the format of this report has changed from previous years.

The intent of this change is to draw attention to the key matters that have been the focus of our audit and highlight significant factors that have contributed to the outcome.

First, it is pleasing to report once again that I issued a clear audit opinion on the State’s consolidated financial statements. This outcome demonstrates the Government’s continued focus on the quality of financial reporting across the NSW public sector.

High quality financial management and reporting are crucial to properly inform the public and build community confidence in our system of government.

The Treasury’s Financial Management Transformation program also aims to improve financial governance, budgeting and reporting arrangements across the sector. My Office is working collaboratively with The Treasury on reforms to reduce the burden of reporting, without weakening established safeguards.

The reforms should include measures to provide independent assurance of the budget process, of outcome reporting by agencies, and the power to “follow the dollar” given the increasing use of non-government organisations to deliver Government programs.

This Report also highlights another year of strong financial performance. The State’s budget result was a $5.7 billion surplus, and investment in new infrastructure has continued, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets.

Finally, could I take this opportunity to thank the staff of The Treasury for the way they approached this audit. Our partnership is critical to ensuring NSW is an exemplar of quality financial management and reporting.

02_Margaret_signature.jpg

Margaret Crawford 
24 October 2017

A clear audit opinion on the State’s consolidated financial statements was issued.

Timely and accurate financial reporting is essential for informed decision making, effective management of public funds and enhancing public accountability.

This year’s clear audit opinion reflects the Government’s continued efforts to improve the quality of financial reporting across the NSW public sector.

Since the introduction of ‘early close procedures’ in 2011-12, the number of significant errors in financial statements of agencies has generally fallen largely due to identifying and resolving complex accounting issues early. Agencies’ 2016-17 financial statements submitted for audit contained nine errors exceeding $20 million. All errors were subsequently corrected in the individual agencies financial statements.

Agencies should continue to respond to key accounting issues as soon as they are identified. Where issues are identified, accounting position papers should be prepared for consideration by the Audit Office, their Audit and Risk Committee members, and when relevant, The Treasury.

The State addressed the following key accounting matters during 2016-17. 

The State recognised rail tunnels and earthworks valued at $8.5 billion.

Some rail tunnels and earthworks have never been valued by the State. These include the City Circle, the country rail network and other tunnels and earthworks built before the year 2000. Some of these tunnels and earthworks date back to the early 1900s.

For many years, the State did not account for these assets as they believed that their value could not be reliably measured. This year an independent valuer was engaged to perform a comprehensive valuation. The methodology used demonstrated
that the assets could have been reflected in the financial statements earlier.

The State recorded an additional $8.5 billion to correct the value of infrastructure assets at 1 July 2016.

Cabinet member’s compensation and related party transactions were reviewed.

Due to changes in Accounting Standards, the State had to consider 'related party information' in the financial statements. Previously this only applied to for-profit entities.

This year, requirements to report related party information extended to members of Cabinet, considered to be “key management personnel” of the State, as defined by Accounting Standards.

The Treasury implemented a process to assess and report Cabinet member’s compensation, and transactions between Cabinet members and/or their close family members, and government agencies.

Collectively, Cabinet members’ remuneration was $8.8 million, which was mainly salaries and allowances, and $3.5 million of non-monetary benefits such as security and drivers. The Treasury determined there were no other specific “related party” transactions or balances that required disclosure in the State’s financial statements.

Information system limitations continue at TAFE NSW.

TAFE NSW has experienced ongoing issues with its student administration system.

TAFE NSW has again implemented additional processes to verify the accuracy and completeness of revenue from sales of goods and services.

TAFE NSW expects to spend up to $89 million on a new information system to address these issues. Modules of the new student enrolment system are expected to be in place for the 2018 enrolment period.

Restatements relating to the General Government Sector's investment in the commercial sector.

The State corrected two previously reported balances relating to the General Government Sector’s investment in the commercial sector.

Accounting Standards require the General Government Sector to effectively store gains or losses related to its investment in the commercial sector in reserves until the investment is derecognised.

When these investments are disposed of, the cumulative gains and losses must be cleared and recognised in the operating result. However, the Government had previously cleared the cumulative gains and losses directly to Accumulated Funds within equity.

To comply with Accounting Standards, a total of $6 billion previously reported as a movement in equity  at 30 June 2016, has now been corrected to the operating result.

In addition, Accounting Standards only allow gains or losses on its investments to be stored in reserves. In past years, the State recognised all changes in the value of its investment in Available for Sale Reserves, including the capital contributed to establish the State’s investment. In 2016-17, a total of $23.4 billion of contributed capital was corrected to accumulated funds at 1 July 2015.

The State’s budget result was a $5.7 billion surplus, $2.0 billion higher than the budget estimate.

The Total State Sector comprises 310 entities controlled by the NSW Government.

Of the total, the General Government Sector comprises 215 entities that provide goods and services not directly paid for by consumers.

The non-General Government Sector comprises 95 Government businesses that provide goods and services such as water and electricity, or financial services.

A principal measure of a Government’s overall performance is its Net Operating Balance, or Budget Result. The Net Operating Balance reports the difference between the cost of General Government service delivery and the revenue earned to fund these sectors.

The State has recorded budget surpluses and exceeded the original budget result in nine of the last ten years.

The State maintained its AAA credit rating.

The object of the Act is to maintain the AAA credit rating.

NSW’s finances are managed in alignment with the Fiscal Responsibility Act 2012 (the Act).

The Act established the framework for fiscal responsibility and strategy needed to protect the State’s AAA credit rating and service delivery to the people of NSW.

The purpose of maintaining the AAA credit rating is to reduce the cost of, and ensure the broadest access to, borrowings.

A triple-A credit rating also helps maintain business and consumer confidence so economic activity and employment are sustained. The legislation sets out targets and principles for financial management to achieve this.

New South Wales has credit ratings of AAA/Negative from Standard & Poor’s and Aaa/Stable from Moody’s Investors Service.

The fiscal targets for achieving this objective are:

General Government expenditure growth is lower than long term revenue growth.

General Government expenditure growth was 4.2 per cent in 2016-17, below the long-term revenue growth of 5.6 per cent.

Eliminating unfunded superannuation liabilities by 2030.

The Act sets a target of eliminating unfunded defined benefit superannuation liabilities by 2030. The State’s net superannuation liability was $58.6 billion at 30 June 2017 ($71.2 billion at 30 June 2016).

The Government predicts the 2030 target will be achieved. The State’s funding plan is to contribute amounts escalated by five per cent each year so the schemes will be fully funded by 2030. In 2016-17, the State made employer contributions of $1.5 billion, which is largely consistent with contributions over the past five years.

The liability values in the graph below do not reflect the values recorded in the Total State Sector Accounts. For financial reporting purposes, Accounting Standards (AASB 119 Employee Benefits) require the State to discount its superannuation liability using the government bond rate (refer to page 10 of this report). 

The relevant government bond rate in the current economic climate is 2.62 per cent.

The State’s target for the unfunded superannuation liability is measured using AASB 1056 Superannuation Entities. This is because it adopts a measurement basis that reflects expected earnings on fund assets, which are currently between 5.9 and 7.4 per cent. Using these rates, the liability is $15.0 billion at 30 June 2017 ($16.1 billion at 30 June 2016). The unfunded liability is $2.4 billion less than when the Act was introduced.

The State’s assets grew by $31.6 billion during 2016-17 to $409 billion.

Valuing the State’s physical assets.

When we audit the financial statements, we focus on areas we consider as higher risk. These areas are often complex, and require the use of estimates and judgements.

The State has $307.2 billion of physical assets measured at fair value in accordance with Australian Accounting Standards. Fair value calculations are inherently complex and sensitive to assumptions and estimates, increasing the risk these assets are incorrectly valued.

In our audits, we assess the reasonableness and appropriateness of assumptions used in valuing physical assets. This includes obtaining an understanding of the valuation methodologies applied and judgements made. We also review the completeness of asset registers, and the mathematical accuracy of valuation models.

Net movements between years includes additions, disposals, depreciation and valuations. This year, valuations of physical assets added $16.2 billion to the State’s assets, comprising: 

  • Transport for NSW and Railcorp $8.5 billion

  • New South Wales Land and Housing Corporation $4.8 billion

  • Roads and Maritime Services $930 million

  • Crown Entity $400 million.    

The State’s financial assets increased $27.5 billion in 2016-17

The State’s financial assets have increased by 88 per cent over the past four years. In 2016-17, financial assets increased primarily due to proceeds from the sale of government assets and businesses.

The Government implemented reforms to better use the State’s financial assets. A key element was the creation of an Asset and Liability Committee (ALCO) to provide advice on ways to improve balance sheet management.

Since the creation of the ALCO, reforms include:

  • Establishment of the New South Wales Infrastructure Future Fund (NIFF). The net proceeds from the State’s asset recycling program are invested into the NIFF, which is managed by TCorp, with a balance of $14.6 billion by 30 June 2017. Funds raised are invested through the NIFF until the Government requires them for critical infrastructure projects that are part of the Restart NSW and Rebuilding NSW program of works. ALCO and TCorp provide advice on the NIFF’s performance and management

  • Establishment of the Social and Affordable Housing Fund ($1.1 billion at 30 June 2017). ALCO oversees the Fund to ensure an appropriate investment approach that will maintain funding certainty for new social and affordable housing stock

  • Cash and liquidity management reforms to centralise cash previously held by agencies in the Treasury Banking System. This reform is designed to ensure agencies have adequate levels of liquidity but with surplus funds invested centrally for better returns.

The State’s liabilities decreased by $13.1 billion during 2016-17 to $182 billion.

Valuing the State’s liabilities relies on an actuarial assessment.

Nearly half of the State’s liabilities relate to its employees. This includes unfunded superannuation, and employee benefits, such as long service and recreation leave.

Valuation of these obligations is subject to complex estimation techniques and significant judgements. Small changes in assumptions can materially impact the financial statements.

We address the risk associated with auditing these balances:

  • using actuarial specialists

  • testing controls around underlying employee data used in data models, and testing the accuracy of the calculations

  • evaluating assumptions applied in calculating employee entitlements such as the discount rate and the probability of long service leave vesting conditions being met.

The State’s superannuation obligations reduced by $12.6 billion in 2016-17.

The State’s $58.6 billion superannuation liability represents obligations for past and present employees, less the value of assets set aside to meet those obligations. The superannuation liability decreased from $71.2 billion to $58.6 billion, largely due to an increase in the discount rate from 1.99 per cent to 2.62 per cent. This alone reduced the liability by $9.2 billion

The State’s borrowings totalled $70.6 billion at 30 June 2017.

The State’s borrowings totalled $70.6 billion at 30 June 2017, $9.5 billion less than the previous year. This was largely due to the repayment of borrowings when the assets of Ausgrid and Endeavour Energy were leased to the private sector.

TCorp issues bonds to raise funds for NSW Government agencies. The bonds are actively traded in financial markets providing price transparency and liquidity to public sector borrowers and institutional investors. All TCorp bonds are guaranteed by the NSW Government.

The Government manages its debt liabilities through its balance sheet management strategy. The strategy extends to TCorp, which applies an active risk management strategy to the Government’s debt portfolio.

General Government Sector debt is being restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to better match liabilities with the funding requirements of infrastructure assets and reduces refinancing risks. It also allows the Government to take advantage of the low interest rate environment.

The State recorded revenue of $83.5 billion in  2016-17, an increase of $5.3 billion from 2015-16.

The State’s results are underpinned by revenue growth in taxation, fees and fines.

Taxation, fees, fines and other revenue comprises $30.5 billion of taxation ($28.7 billion in 2015-16) and $5.3 billion of fees, fines and other revenue ($4.6 billion).

Tax revenue for the Total State Sector increased by $1.8 billion, or 6.4 per cent compared to 2015-16, primarily due to:

  • one-off business asset sales and lease transactions, including $718 million in transfer duty from the Ausgrid and Endeavour Energy lease transactions

  • $385 million increase in payroll tax from growth in NSW employment and average employee compensation

  • a $426 million increase in land taxes.

Growth in stamp duty is expected to slow over the next 4 years.

General Government Sector stamp duties have increased from $6.2 billion in 2012-13 to $11.5 billion in 2016-17, an annual average growth rate of 16.5 per cent. The Government’s budget forecasts the growth in stamp duties to decline, to an average annual growth rate of 2.6 per cent between 2016-17 and 2020-21.

The State received Commonwealth grants and subsidies of $30.8 billion in 2016-17.

The State received $30.8 billion from the Commonwealth Government in 2016-17, $1.6 billion more than in 2015-16. This was primarily due to transaction based asset recycling grants of $1.0 billion and a $720 million increase in national land transport grants. This increase was offset by a $435 million decrease in General Purpose Grants, which mainly comprises New South Wales’ share of the Goods and Services Tax (GST). 

The State spent $79.4 billion in 2016-17 to deliver services to the community, an increase of $3.9 billion from 2015-16.

Overall expenses increased 5.2 per cent from last year. Most of the increase was due to higher employee costs and operating costs.

Total salaries and wages increased by 4.2 per cent from 2015-16.

Total salaries and wages increased to $30 billion from $28.8 billion in 2015-16. The Government wages policy aims to limit the growth in remuneration and other employee costs to no more than 2.5 per cent per annum.

Operating expenses increased by 12.4 per cent from 2015-16.

Within operating expenses, payments for supplies, services and other expenses increased, in part, due to the State:

  • reacquiring mining licenses worth $482 million and additional land remediation costs of $101 million

  • spending more on health including additional drug supplies relating to Hepatitis C.

State spend on transport and communications increased by 68.1 per cent since 2012-13.

While spending on health and education remain the largest functional areas provided by Government, expenditure on transport and communication increased, on average, by 13.9 per cent annually between 2012-13 and 2016-17. This increase reflects the Government’s investment in transport infrastructure such as the Sydney Metro and Westconnex. Over the same period, spending on health increased by $3.9 billion.

Expenditure on fuel and energy has decreased by an average of 44.7 per cent since 2012-13, reflecting the State’s leases of electricity network assets.

In 2011, the Government established Restart NSW to fund high priority infrastructure projects.

Restart NSW projects are primarily funded from the proceeds from the asset recycling program enabling Government to deliver new infrastructure investment.

Restart NSW provides funding for the delivery of Rebuilding NSW, which is the Government’s 10-year plan to invest $20 billion in new infrastructure.

The State finalised long-term leases of Ausgrid and Endeavour Energy assets.

In June 2017, the Government finalised its long-term lease of 50.4 per cent of Endeavour Energy. This transaction follows on from the long-term leases of TransGrid in December 2015 and 50.4 per cent of Ausgrid in December 2016. Net proceeds of $15.0 billion were paid into Restart NSW relating to these transactions.

The Government also finalised an arrangement for the private sector to provide land titling and registry services to the public for 35 years. The State, through Restart NSW, received an upfront payment of $2.6 billion from the new operator.

Restart NSW is funding $29.8 billion of new infrastructure.

The Government has detailed its plan to invest $20 billion into the Rebuilding NSW plan from Restart NSW.

At 30 June 2017, around $2.9 billion has already been spent on Rebuilding NSW projects from Restart NSW, with a further $9 billion included in the budget aggregates. The Government has also earmarked a further $8.1 billion in Restart NSW for future projects.

The most significant project is the Sydney Metro. The Government has committed $7.0 billion from Restart NSW to build a 30-kilometre metro line, linking Sydney Metro Northwest at Chatswood, through new stations in the lower North Shore, the Sydney CBD and southwest to Bankstown. At 30 June 2017, $2.4 billion has been spent on this project from Restart NSW.

Other significant projects funded by Restart NSW include a $1.8 billion contribution to WestConnex and reserved funding of $1 billion towards the State’s Major Stadia Network program.

The Treasury initiated the Financial Management Transformation (FMT) program with the aim of changing and improving financial governance, budgeting and reporting arrangements of the New South Wales public sector.

FMT aims to deliver better outcomes for the people of New South Wales and focuses on transparency and accountability for expenditure, and better value for money.

New Financial Management System

PRIME is the Information Technology (IT) solution component of the FMT program, replacing several historical systems. PRIME will provide both financial and performance information within one IT platform for all agencies in the NSW public sector.

It is expected to give Government more timely information to plan and deliver its policy priorities and the budget.

Independent assurance over the budget process would improve confidence in the reliability of the State’s financial information.