Reports
Stronger Communities 2019
A report has been released on the NSW Stronger Communities cluster.
From 1 July 2019, the functions of the former Department of Justice, the former Department of Family and Community Services and many of the cluster agencies moved to the new Stronger Communities cluster. The Department of Communities and Justice is the principal agency in the new Stronger Communities cluster.
The report focuses on key observations and findings from the most recent financial audits of agencies in the Stronger Communities cluster.
Unqualified audit opinions were issued on the financial statements for all agencies in the cluster.
There were 157 audit findings on internal controls. Two of these were high risk and 59 were repeat findings from previous financial audits. ‘Cluster agencies should prioritise actions to address internal control weaknesses promptly with particular focus given to issues that are assessed as high risk’, the Auditor-General said.
The report notes that the NSW Government’s new workers' compensation legislation, which gave eligible firefighters presumptive rights to workers' compensation, cost emergency services agencies $180 million in 2018–19, mostly in increased premiums.
This report analyses the results of our audits of financial statements of the agencies comprising the Stronger Communities cluster for the year ended 30 June 2019. The table below summarises our key observations.
This report provides parliament and other users of the financial statements of agencies in the Stronger Communities cluster with the results of our audits, our observations, analyses, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
This cluster was significantly impacted by the Machinery of Government (MoG) changes on 1 July 2019. This report focuses on the agencies that from 1 July 2019, comprised the Stronger Communities cluster. The MoG changes moved some agencies from the clusters to which they belonged in 2018–19 to the Stronger Communities cluster. Conversely, the MoG also moved some agencies formerly in the Family and Community Services cluster and Justice cluster elsewhere. Please refer to the section on Machinery of Government changes for more details.
The Department of Communities and Justice is the principal agency of the cluster. The newly created department combines functions of the former Department of Justice and the Department of Family and Community Services.
Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes occur when the government reorganises these structures and functions and those changes are given effect by Administrative Orders.
The MoG changes announced following the NSW State election on 23 March 2019 significantly impacted the Stronger Communities cluster through Administrative Changes Orders issued on 2 April 2019 and 1 May 2019. These orders took effect on 1 July 2019.
Section highlights
The 2019 MoG changes significantly impacted the former Justice and Family and Community Services (FACS) departments and clusters.
- The Stronger Communities cluster combines most of the functions and agencies of the former Justice and FACS clusters from 1 July 2019.
- The Department of Communities and Justice is now the principal agency in the new cluster.
- The MoG changes bring new responsibilities, risks and challenges to the cluster.
- A temporary office has been established by the Department of Communities and Justice to support the cluster in the planning, delivery and reporting associated with implementing the changes.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations relating to the financial reporting of agencies in the Stronger Communities cluster for 2019.
Section highlights
- Unqualified audit opinions were issued for all agencies' 30 June 2019 financial statements. However, further actions can be taken by some cluster agencies to enhance the quality of their financial reporting.
- In November 2018, the Department of Justice implemented a new Victims Support Services system called VS Connect. Significant data quality issues arising from the VS Connect system implementation impacted the Department's ability to reliably estimate its Victims Support Scheme claims liabilities at 30 June 2019.
We recommend the Department of Communities and Justice resolves the data quality issues in the new VS Connect System before 30 June 2020 and capture and apply lessons learned from recent project implementations, including LifeLink, Justice SAP and VS Connect, in any relevant future implementations. - Our audits found some cluster agencies needed to do more work on their impact assessments and preparedness to implement the new accounting standards, to minimise the risk of errors in their 2019–20 financial statements.
- Cluster agencies with annual leave balances exceeding the State's target should further review their approach to managing leave balances.
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Stronger Communities cluster.
Section highlights
- Cluster agencies should action recommendations to address internal control weaknesses promptly. Particular focus should be given to prioritising high risk issues. The 2018–19 financial audits of cluster agencies identified 157 internal control issues. Of these, two were high risk and 37.6 per cent were repeat findings from previous audits.
- Data from the Department of Justice shows the inmate population reached a maximum of 13,798, compared to an operational capacity of 14,626 beds on 31 August 2019. This equates to an operational vacancy rate of 5.7 per cent, which is more than the recommended 5.0 per cent buffer. This is the first time the vacancy rate has exceeded the target over the last five years. Growth in the NSW prison population is being managed through the NSW Government's $3.8 billion Prison Bed Capacity Program.
- In September 2018, the NSW Government introduced new workers' compensation legislation, which gives eligible firefighters presumptive rights to workers' compensation when diagnosed with one of 12 prescribed cancers. The new legislation cost emergency services agencies $180 million in 2018–19, mainly through additional workers' compensation premiums.
Appendix one – Timeliness of financial reporting by agency
Appendix two – Management letter findings by agency
Appendix three – List of 2019 recommendations
Appendix four – Status of 2018 recommendations
Appendix five – Cluster agencies
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Transport 2019
This report details the results of the financial audits of NSW Government's Transport cluster for the financial year ended 30 June 2019. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Transport cluster.
Unqualified audit opinions were issued for all agencies' financial statements. However, valuations of assets continue to create challenges across the cluster. The Audit Office identified some deficiencies in relation to asset valuations at Transport for NSW, Roads and Maritime Services, Rail Corporation New South Wales and Sydney Metro.
The Audit Office noted an increase in findings on internal controls across the Transport cluster. Key themes related to information technology, asset management and employee leave entitlements. The report also highlights the status of significant infrastructure projects across the Transport cluster.
The report makes several recommendations including:
- agency finance teams need to be consulted on major business decisions and commercial transactions at the time of their execution to assess the financial reporting impacts
- the Department of Transport should ensure consistent accounting policies are applied across its controlled entities.
This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2019. The table below summarises our key observations.
1. Machinery of Government changes
| Transport for NSW, as the lead agency, will absorb the functions of Roads and Maritime Services |
The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW) as part of the Machinery of Government changes. This change was not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019. The Act dissolves RMS and transfers the assets, rights and liabilities of RMS to TfNSW. As at the date of this Report, the Act is not yet in force. Transport is considering the impact of the changes on its operating model and financial reporting. |
2. Financial reporting
| Audit opinions |
Unqualified audit opinions were issued on the 2018–19 financial statements of all agencies in the Transport cluster. TfNSW and Sydney Metro obtained a three-week extension from NSW Treasury to submit their financial statements for audit to resolve accounting issues surrounding the valuation of property, plant and equipment. The Department of Transport reported total consolidated property, plant and equipment of $158 billion at 30 June 2019. In 2018–19, there were issues with asset valuations at TfNSW, RMS, Sydney Metro and Rail Corporation New South Wales (RailCorp), resulting in adjustments after the submission of financial statements for audit and the correction of a prior period error. |
| Preparedness for new accounting standards |
Agencies across the cluster are progressing in their implementation of the new accounting standards. Transport cluster agencies need to improve their contracts registers to ensure they have a complete list of contracts and agreements to assess the impact of the new accounting standards. |
| Valuation of assets remains a challenge in the Transport cluster |
Whilst agencies complied with the requirements of the accounting standards and NSW Treasury policies on valuations, the Audit Office identified some deficiencies in relation to asset valuations across the cluster.
Sydney Metro North West officially opened in May 2019 and reported total assets of $9.1 billion. Sydney Metro derecognised $322 million in assets constructed to facilitate its operation but transferred to councils and utilities. |
| Inconsistent accounting policies across the Transport cluster |
There was an inconsistency identified in the cluster relating to the valuation of substratum land. In 2018–19, RailCorp derecognised $109 million of substratum land to ensure consistency in its approach with other Transport agencies. As the parent entity, the Department of Transport needs to ensure accounting policies are consistently applied across all controlled entities for consolidation purposes. Inconsistencies in the application of accounting standards across agencies will impact comparability of financial reporting and decision making across the Transport cluster. |
| Revenue growth |
Public transport passenger revenue increased by $89.0 million (5.9 per cent) in 2018–19, and patronage increased by 37.8 million (4.9 per cent) across all modes of transport based on data provided by TfNSW. The increase in revenue is mainly due to an increase in patronage as well as the annual increase in fares. |
| Negative Opal cards |
Negative balance Opal cards resulted in $2.9 million in revenue not collected in 2018–19 ($10.4 million since the introduction of Opal). In January 2019, Transport made a change to the Sydney Airport stations to prevent customers with high negative balances exiting the station. In addition, in late 2018, Transport increased the minimum top up values for new cards at the airport stations. |
3. Audit observations
| Internal controls | There was an increase in findings on internal controls across the Transport cluster. Key themes relate to information technology, employee leave entitlements and asset management. Twenty-nine per cent of all issues were repeat issues. The majority of the repeat issues related to information technology controls. |
| Write-off of assets | In addition to a $322 million derecognition of assets transferred to councils and utilities by Sydney Metro and a $109 million derecognition of substratum land at RailCorp, the Transport cluster wrote-off $278 million of assets related to roads, bridges, maritime assets, traffic signals and controls network. These mainly related to roads, bridges, maritime assets, traffic signals and the control network where new infrastructure assets substantially replaced an existing asset as part of construction activities. |
| Transport Asset Holding Entity (TAHE) |
TAHE was established to be a dedicated asset manager for the delivery of public transport asset management. The Transport Administration Amendment (Transport Entities) Act 2017 will transition RailCorp into TAHE. RailCorp is now expected to transition to TAHE from 1 July 2020 (previously 1 July 2019). Several working groups have been considering various aspects of the TAHE transition including its status as a for profit Public Trading Enterprise, the operating model and the impact of the new accounting standards AASB 16 'Leases' and AASB 1059 'Service Concession Arrangements: Grantors'. The considerations of these aspects identified several challenges in the implementation of TAHE which has led to the revised transition date. Given the delays in implementation, it is important to clarify the intent of the TAHE model. |
| Excess annual leave |
Twenty-six per cent of Transport employees have annual leave balances exceeding 30 days. Of the employees with excess leave balances, 732 (10.3 per cent) did not take any annual leave in 2018–19.
|
| Completeness and accuracy of contracts registers |
There are no centralised processes to record all significant contracts and agreements in a register across the Transport cluster.
|
This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
This cluster was impacted by the Machinery of Government changes on 1 July 2019. The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW). This report is focused on the Transport cluster prior to these changes. Please refer to the section on Machinery of Government changes for more details.
Machinery of Government refers to how the government organises the structures and functions of the public service. Machinery of Government changes are where the government reorganises these structures and functions, and are given effect by Administrative orders.
The Transport cluster was impacted by recent Machinery of Government changes. These changes were announced by the Department of Premier and Cabinet but were not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. It was the intention of government to transfer the functions of the RMS into TfNSW. This requires legislative changes to the Transport Administration Act 1988 No. 109.
Section highlights
Under the Machinery of Government changes, the NSW Government will transfer the functions of RMS into TfNSW.
- The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019.
- The Act will dissolve RMS and transfer its functions, assets, rights and liabilities to TfNSW.
- As at the date of this report, the Act is not yet in force.
- There are risks and challenges for asset and liability transfers, governance and retention of knowledge.
- As of 1 July 2019, administrative arrangements (delegations and reporting line changes) were put in place to enable TfNSW and RMS to operate within a single management structure, while still remaining as separate legal entities.
- Transport is working on a number of options as to how to implement the changes.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2019.
Section highlights
- Unqualified audit opinions were issued on all agencies' financial statements.
- RMS required an extension from NSW Treasury for their early close procedures.
- TfNSW and Sydney Metro required extensions to submit their year-end financial statements.
- Valuation of assets remains a challenge across the cluster.
- There remains Opal cards with negative balances.
- Sydney Metro derecognised assets of $322 million in relation to assets constructed for third parties.
- Inconsistencies in the application of accounting policies across cluster agencies impact comparability of financial reporting across the Transport cluster.
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport cluster.
Section highlights
- There was an increase in findings on internal controls across the Transport cluster. Twenty-nine per cent of all issues were repeat issues.
- Transport entities wrote-off over $278 million of assets which were replaced by new assets or technology.
- Twenty-six per cent of Transport employees have excess annual leave.
- There are no processes to ensure all significant contracts and agreements are captured by agencies in a centralised register.
Appendix one – Timeliness of financial reporting by agency
Appendix two – Management letter findings by agency
Appendix three – List of 2019 recommendations
Appendix four – Status of 2017 and 2018 recommendations
Appendix five – Cluster agencies
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Engagement of probity advisers and probity auditors
Three key agencies are not fully complying with the NSW Procurement Board’s Direction for engaging probity practitioners, according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin. They also do not have effective processes to achieve compliance or assure that probity engagements achieved value for money.
Probity is defined as the quality of having strong moral principles, honesty and decency. Probity is important for NSW Government agencies as it helps ensure decisions are made with integrity, fairness and accountability, while attaining value for money.
Probity advisers provide guidance on issues concerning integrity, fairness and accountability that may arise throughout asset procurement and disposal processes. Probity auditors verify that agencies' processes are consistent with government laws and legislation, guidelines and best practice principles.
According to the NSW State Infrastructure Strategy 2018-2038, New South Wales has more infrastructure projects underway than any state or territory in Australia. The scale of the spend on procuring and constructing new public transport networks, roads, schools and hospitals, the complexity of these projects and public scrutiny of aspects of their delivery has increased the focus on probity in the public sector.
A Procurement Board Direction, 'PBD-2013-05 Engagement of probity advisers and probity auditors' (the Direction), sets out the requirements for NSW Government agencies' use and engagement of probity practitioners. It confirms agencies should routinely take into account probity considerations in their procurement. The Direction also specifies that NSW Government agencies can use probity advisers and probity auditors (probity practitioners) when making decisions on procuring and disposing of assets, but that agencies:
- should use external probity practitioners as the exception rather than the rule
- should not use external probity practitioners as an 'insurance policy'
- must be accountable for decisions made
- cannot substitute the use of probity practitioners for good management practices
- not engage the same probity practitioner on an ongoing basis, and ensure the relationship remains robustly independent.
The scale of probity spend may be small in the context of the NSW Government's spend on projects. However, government agencies remain responsible for probity considerations whether they engage external probity practitioners or not.
The audit assessed whether Transport for NSW, the Department of Education and the Ministry of Health:
- complied with the requirements of ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’
- effectively ensured they achieved value for money when they used probity practitioners.
These entities are referred to as 'participating agencies' in this report.
We also surveyed 40 NSW Government agencies with the largest total expenditures (top 40 agencies) to get a cross sector view of their use of probity practitioners. These agencies are listed in Appendix two.
Conclusion
We found instances where each of the three participating agencies had not fully complied with the requirements of the NSW Procurement Board Direction ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’ when they engaged probity practitioners. We also found they did not have effective processes to achieve compliance or assure the engagements achieved value for money.
In the sample of engagements we selected, we found instances where the participating agencies did not always:
- document detailed terms of reference
- ensure the practitioner was sufficiently independent
- manage probity practitioners' independence and conflict of interest issues transparently
- provide practitioners with full access to records, people and meetings
- establish independent reporting lines reporting was limited to project managers
- evaluate whether value for money was achieved.
We also found:
- agencies tend to rely on only a limited number of probity service providers, sometimes using them on a continuous basis, which may threaten the actual or perceived independence of probity practitioners
- the NSW Procurement Board does not effectively monitor agencies' compliance with the Direction's requirements. Our enquiries revealed that the Board has not asked any agency to report on its use of probity practitioners since the Direction's inception in 2013.
There are no professional standards and capability requirements for probity practitioners
NSW Government agencies use probity practitioners to independently verify that their procurement and asset disposal processes are transparent, fair and accountable in the pursuit of value for money.
Probity practitioners are not subject to regulations that require them to have professional qualifications, experience and capability. Government agencies in New South Wales have difficulty finding probity standards, regulations or best practice guides to reference, which may diminish the degree of reliance stakeholders can place on practitioners’ work.
The NSW Procurement Board provides direction for the use of probity practitioners
The NSW Procurement Board Direction 'PBD-2013-15 for engagement of probity advisers and probity auditors' outlines the requirements for agencies' use of probity practitioners in the New South Wales public sector. All NSW Government agencies, except local government, state owned corporations and universities, must comply with the Direction when engaging probity practitioners. This is illustrated in Exhibit 1 below.
Managing growth in the NSW prison population
The Department of Justice has relied heavily on temporary responses to accommodate growing prisoner numbers according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin.
At the time of this audit, the NSW Department of Justice (DOJ) was responsible for delivering custodial corrections services in New South Wales through its Corrective Services NSW division (Corrective Services NSW). From 1 July 2019, the Department of Family and Community Services and Justice will be responsible for these functions.
Within DOJ, Corrective Services NSW is responsible for administering sentences and legal orders through custodial and community-based management of adult offenders. Its key priorities are:
- providing safe, secure and humane management of prisoners
- reducing reoffending
- improving community safety and confidence in the justice system.
The prison population in New South Wales grew by around 40 per cent between 2012 to 2018, from 9,602 to 13,630 inmates. This rate of growth was higher than experienced prior to 2012. DOJ forecasts growth to continue over the short and longer-term.
DOJ has responded to inmate population growth by doubling-up and tripling-up the number of prison beds in cells, reactivating previously closed prisons, and a $3.8 billion program of new prison capacity. DOJ has also developed a long-term prison infrastructure strategy that projects long-term needs and recommended investments to meet these needs.
This audit assessed how efficiently and effectively DOJ is responding to growth in the NSW prison population. In this report, we have not analysed the sources of demand or recommended ways that custody may be avoided. These are largely government policy issues.
The Productivity Commission’s Report on Government Services outlines the performance indicator framework for corrective services in Australia (Appendix three). We have used measures from this framework to assess the efficiency and effectiveness of DOJ’s responses to prison bed capacity needs.
In this section, we analyse system-wide indicators as DOJ has not consistently published or reported data for individual correctional centres over the period of review.
Appendix one - Response from agency
Appendix two - Managing women in custody
Appendix three - Corrective services performance indicator framework
Appendix four - About the audit
Appendix five – Performance auditing
Parliamentary Reference: Report number #319 - released 24 May 2019
CBD and South East Light Rail Project
Transport for NSW did not effectively plan and procure the CBD and South East Light Rail (CSELR) project to achieve best value for money according to a report released today by NSW Auditor-General, Margaret Crawford.
Transport for NSW is on track to deliver the project, but it will come at a higher cost with lower benefits than in the approved business case.
Parliamentary reference - Report number #278 - released 30 November 2016
Justice 2016
Overcrowding in the NSW prison system continues to worsen along with the backlog of cases in the District Court, according to a report released by the New South Wales Auditor-General, Margaret Crawford on the annual financial statements audits in the Justice cluster.
Family and Community Services 2016
The Family and Community Services report was released today by the Acting Deputy Auditor-General. Financial reporting within the cluster continues to improve but there are opportunities to improve governance and performance reporting.
Fraud Survey
In a report released today, the NSW Auditor-General, Margaret Crawford provides a snapshot of reported fraud in the NSW public sector and an analysis of NSW Government agencies’ fraud controls based on a survey of 102 agencies.
Implementation of the NSW Government’s program evaluation initiative
The NSW Government’s ‘program evaluation initiative’, introduced to assess whether service delivery programs achieve expected outcomes and value for money, is largely ineffective according to a report released today by NSW Auditor-General, Margaret Crawford.
Government services, in areas such as public order and safety, health and education, are delivered by agencies through a variety of programs. In 2016–17, the NSW Government estimates that it will spend over $73 billion on programs to deliver services.
Parliamentary reference - Report number #277 - released 3 November 2016
Preventing and managing worker injuries
Police officers and firefighters in NSW are benefiting from an improved focus on preventing and managing injuries, according to a report released today by the NSW Auditor-General. However, the audit found these gains may not be enough to offset risks associated with increasing common law claims, and death and disability scheme costs.
‘Emergency service workers face dangerous situations and traumatic scenes’ said the Auditor-General ‘and are at a significant risk of injury and illness. While the NSW Police Force and Fire & Rescue NSW have made positive shifts towards more proactive injury prevention and better return to work programs and practices, both face significant cost issues.’
Parliamentary reference - Report number #275 - released 13 October 2016
