This report examined whether HealthShare NSW, a part of NSW Health, has the required contract management capability to effectively manage goods and services contracts valued over $250,000. 

The report found that HealthShare has a procurement framework that should support effective contract management, but it is not applying it consistently. In particular, the audit found that HealthShare was not applying key contract management elements to over 80 per cent of the high-value contracts it manages. The audit also found that HealthShare’s contract management practices were limited by inadequate performance monitoring.

'Effective contract management is essential to ensure the contracts HealthShare enters into are delivering as expected and ensuring value for money,' said the Auditor-General. 'Without this, the value for money or savings HealthShare achieves when it negotiates these contracts is at risk of being eroded over the life of the contract.'

The report recommends that NSW Health develop a performance improvement plan to ensure HealthShare is fully compliant with procurement policies and that NSW Health meets its obligations under the Government's Accreditation Program for Goods and Services Procurement.

HealthShare is a NSW Health entity responsible for providing shared services, including procurement, to support the delivery of patient care within the NSW health system. In 2018, HealthShare procured high value goods and services contracts with an annual estimated total spend of around $1.8 billion, with most of the contracts of long duration.

NSW Government agencies are increasingly delivering services and projects through contracts with third parties. These contracts can be complex and governments face challenges in negotiating and implementing them effectively. A robust contract management framework helps ensure all parties meet their obligations, contractual relationships are well managed, agencies achieve value for money, and deliverables meet the required standards and agreed timeframes.

Contract management capability is a broad term, which can include aspects of individual staff capability (such as staff knowledge, skills and experience) as well as organisational capability (such as policies, frameworks and processes).

The NSW Procurement Board is responsible for overseeing the Government's procurement system, setting policy and ensuring compliance. It has accredited the Health Administration Corporation (HAC) to procure goods and services with no upper financial limit. Under the terms of this accreditation, the Secretary, NSW Health (as head of HAC) has delegated the procurement of high-value (over $250,000) goods and services contracts within NSW Health to only the Ministry of Health and HealthShare NSW (HealthShare).

HealthShare NSW (HealthShare) is a NSW Health entity responsible for providing shared services, including procurement, to support the delivery of patient care within the NSW health system. In 2018, HealthShare procured high-value goods and services contracts with an annual estimated total spend of around $1.8 billion, with most of the contracts of long duration.

HealthShare’s Contract Management Guide states that, without rigorous contract management, 75 per cent of projected sourcing savings can disappear within 18 months of the contract starting.

This audit examined whether HealthShare has the required capability to effectively manage high-value goods and services contracts. Contracts we examined included critical items such as food services in hospitals, patient transport services, intravenous equipment and kidney dialysis services, where risks include patient safety as well as value for money. We did not examine infrastructure, construction or information communication and technology contracts. We also did not examine HealthShare’s sourcing processes, including identifying business needs, tendering and contract award.

We assessed HealthShare against the following criteria:

1. HealthShare's systems, policies and procedures support effective contract management and are consistent with relevant frameworks, policies and guidelines.
2. HealthShare has capable personnel to effectively conduct the monitoring activities throughout the life of the contract.

We included the NSW Public Service Commission and NSW Treasury, through NSW Procurement, as auditees because they administer policies which directly affect contract management capability. These include:

• NSW Procurement Board Directions and policies
• NSW Government Procurement Policy Framework
• Accreditation Program for Goods and Services Procurement
• the NSW Public Sector Capability Framework.

NSW Procurement was transferred to NSW Treasury from the former Department of Finance, Services and Innovation on 1 July 2019 as part of changes to government administrative arrangements.

Appendix one – Response from agencies

Appendix two – Contract performance management summary

Appendix three – About the audit

Appendix four – Performance auditing

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Parliamentary Reference: Report number #328 - released 31 October 2019

The Auditor-General, Margaret Crawford, has released her report on the State Finances for the year ended 30 June 2019.

‘I am pleased to once again report that I issued an unmodified audit opinion on the State’s consolidated financial statements,’ the Auditor-General said.

The report acknowledges NSW Treasury and agency efforts to reduce the number and value of errors compared with the previous year. ‘Strong financial management and transparent reporting are key elements of our system of government. Treasury and agency finance teams need to be consulted on major business decisions at the time of their execution. This will ensure agencies assess the accounting implications earlier and support accurate financial statements being presented for audit on a timely basis,’ said the Auditor-General.

The report summarises the financial audit result of the Total State Sector Accounts. The Total State Sector comprises 304 entities controlled by the NSW Government with total assets of $468 billion and total liabilities of $218 billion.

The General Government sector comprises 212 entities that provide goods and services that are funded centrally by the State. General Government expenditure grew by 5.5 per cent in 2018-19, which was below the long-term revenue growth of 5.6 per cent target established by the Fiscal Responsibility Act 2012.

Download PDF of State Finances 2019 report

Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2019.

Strong financial management and transparent reporting are key elements of our system of government.

I am pleased to once again report that I issued an unmodified audit opinion on the State’s consolidated financial statements. 

The number of errors in agencies’ 2018–19 financial statements fell to six compared to the 23 recorded in 2017–18. This reflects Treasury’s focus on early close and the resolution of complex accounting matters before submission. Agency finance teams need to be consulted on major business decisions and commercial transactions to assess their accounting impacts at the time of their execution, rather than at the end of a financial year. This would improve the quality of financial reporting and avoid the need for extensions for agencies to submit their financial statements for audit.

To further increase transparency, a Key Audit Matters section was included in my Independent Auditor Report on the Total State Sector Accounts this year. This explains those matters considered most significant to the conduct of the audit and requiring significant management judgement.

Looking forward, certain factors have the potential to impact the accuracy and completeness of the Total State Sector Accounts in coming years. First, three new accounting standards are effective from 1 July 2019 and a fourth from 1 July 2020. Transitioning to new standards requires significant planning and resources to ensure the impacts are appropriately assessed and accounted for. Second, the Government Sector Finance Act 2018 will be implemented in stages over three years to 2020–21. This Act is intended to focus on performance, transparency, accountability, and efficiency of financial management in the government sector. I encourage agencies to build their awareness of this important reform and ensure their alignment with the principles of the Act. 

I want to thank Treasury staff for the way they engaged with my staff in the conduct of the audit. Our partnership is critical to ensuring the quality of financial management and reporting.

Margaret Crawford
Auditor-General, 10 October 2019

Our audit opinion on the State’s 2018–19 financial statements was unmodified. There were fewer reported errors but earlier resolution of accounting matters is still required.

Our audit opinion on the State’s 2018–19 financial statements was unmodified.

This year, six errors exceeding $20 million were found in agencies’ 2018–19 financial statements that make up the State’s consolidated financial statements. The total value of these errors was $927 million compared to $3.8 billion in 2017–18. The errors identified in 2018–19 resulted from:

• incorrectly applying Australian Accounting Standards and Treasury Policies
• using inappropriate assumptions and inaccurate data
• incorrectly assessing the fair value of non-current physical assets.

The introduction of mandatory ‘early close procedures’ in 2011–12, saw the number of errors in agencies’ financial statements fall progressively, to a low of five in 2015–16.

In 2016–17, Treasury narrowed the scope of its mandatory early close procedures to focus on non-current physical asset valuations and pro-forma financial statements. Following this, the number of significant errors increased to 23 in 2017–18, the

highest number in six years and similar to the numbers identified before mandatory early close procedures were introduced.

In 2018–19, Treasury and agencies’ refocused their efforts around early close procedures and other year-end processes resulting in this year’s lower error total of six.

Errors in agency financial statements exceeding $20m (2015–2019)

Correction of prior year’s reported values    

Correction of earthwork assets ($2.1 billion)

Some of the State’s earthworks were first valued in 2016–17. These included earth excavations and embankments for the Country Rail and Metropolitan Network created before the year 2000 and dating back to the early 1900s.

For many years, the State did not account for earthworks because it believed the value could not be reliably measured. In 2016–17, the State engaged an external valuer who identified a methodology showing the earthworks could be valued. That valuer performed a valuation using topography maps for the Country Rail Network (CRN) because information in this earthworks database was of poor quality and incomplete. The valuation resulted in the State recognising $7.5 billion of earthworks for the first time in 2016–17. This was disclosed as a prior period error.

Over the following years, the State improved the quality of the CRN earthworks database by engaging an engineering firm to perform more detailed earthworks surveys. The work involved the use of technology to survey most of the CRN lines.

In 2018–19, the State once again engaged an external valuer to assess the fair value of the CRN earthworks. The valuer determined that incorrect assumptions were used in the 2016–17 valuation. These primarily related to land elevations, which were corrected in the earthworks database and this resulted in a new fair value of $5.4 billion, $2.1 billion less than the previous valuation. The error reported in the 2017–18 value has been corrected in the 2018–2019 financial statements to reflect the revised value.

Previously reported value for earthworks reduced from $7.5 billion to $5.4 billion.

Correction of museum collection assets ($27 million)

The Australian Museum’s collection assets were restated by $27 million to $800 million in 2017–18.

After the 2017–18 financial statements were published, the Australian Museum identified additional collection assets that were not included in the original valuation. This resulted in a $27 million error relating to collection asset values. As last year’s valuation was based on an incomplete listing of collection assets, the 2017-18 value has been corrected in the 2018–19 financial statements to reflect the revised value.

Correction of lease liability ($46.2 million)

On 1 July 1995, the Department of Justice entered into a 25-year lease arrangement with an option to extend for a further 15 years.

The Department accounted for the arrangement as a finance lease by recognising a building asset and a corresponding finance lease liability for the period of 25 years. The Department depreciated the leased asset based on a useful life of 40 years.

As it was reasonably certain the Department would exercise the lease option at inception, it should have recognised a liability that reflected the entire 40 year lease period. To correct the prior year error and properly reflect the extended lease period, the Department of Justice increased the lease liability and decreased retained earnings by $46.2 million as at 1 July 2017.

Abuse Claims remain a significant contingent liability of the State

The State discloses a contingent liability in its financial statements when the possibility of settling the liability in the future is considered less than probable, but more likely than remote, or the amount of the obligation cannot be measured with sufficient reliability.

If the expected settlement subsequently becomes probable and reliably estimable, a provision is recognised.

The State has numerous contingent liabilities. Some are quantifiable while others are not. As contingent liabilities are potentially material future liabilities of the State, every effort should be made to quantify these as accurately as possible. They also need to be monitored closely to ensure that they are recognised and brought on balance sheet as they crystallise.

At 30 June 2019, NSW Self Insurance Corporation (SiCorp) could not reliably measure the claims liability arising from past incidences of abuse that occurred within NSW Government institutions which have not yet been reported. These are referred to as incurred but not reported claims (IBNR).

Since 1 July 2018, victims of child sexual abuse can opt to claim compensation through the National Redress Scheme, or to lodge a civil claim. Civil claims for incidents that occurred within NSW Government institutions may be covered by SiCorp. An estimate of an IBNR for child abuse claims within SiCorp will be impacted by the extent that victims claim compensation through redress as compared to civil claims.

Recent legislative changes have added further uncertainty to estimating the extent of IBNR claims. SiCorp requires more reliable data on the number of IBNR child abuse claims and the expected average size of the related payments. As such, the liabilities presented in the SiCorp and the State financial statements do not include an allowance for IBNR abuse claims.

As more information becomes available it may be possible for SiCorp to reasonably estimate the value of abuse claim liabilities. It is possible that such an estimate may be material to SiCorp and the State’s financial statements. 

TAFE update

In prior years we reported on information system limitations at TAFE NSW, specifically relating to its student administration system. TAFE NSW continues to implement additional processes to verify the accuracy and completeness of revenue from student fees for the 2018–19 financial year.

In 2017–18 TAFE NSW started implementing a new student management system. Significant delays have occurred in implementing this system, mainly due to the complexity of integrating the vendor solution with the requirements of TAFE. TAFE will now bring the final commissioning and operation of the system in house. Final project delivery timeframes and estimated completion costs are being reviewed. Costs incurred to date amount to $67 million. The original budget for this new system is $89.4 million.

Light Rail settlement

The CBD and South East Light Rail is a new twelve kilometre light rail network for Sydney, currently under construction. Passenger trips are set to begin on the light rail by December between Circular Quay and Randwick. The second stage from Randwick to Kingsford is planned to open in March 2020. The original budget for construction work of $1.6 billion was revised to $2.1 billion in 2014.

The State Government has been in dispute with the firm responsible for delivering and operating the CBD and South East light rail project. In May 2019, the parties reached a Settlement Arrangement resulting in the State agreeing to pay a settlement amount of $576 million, which is in addition to the revised budget. Transport has advised a final cost is still to be determined following project completion.

The Audit Office has commenced a follow up audit on the CBD South East Light Rail. This audit will consider whether recommendations of our previous audit have been implemented. We will also review the current status and budget of this project.

Sydney Metro Northwest project commissioning

The Sydney Metro North West officially opened in May 2019.

In constructing the metro, some assets were built to facilitate its operation. These included pavements, roadworks, and electricity
and water connections.

When the project was completed, the assets and the responsibility for maintaining them transferred to third parties, primarily Councils and utility providers. In 2018–19, the State expensed (derecognised) the assets, valued at $306 million, because it no longer controlled them.

Financial Reporting by Crown Land Reserve Trusts

Approximately 700 reserve trusts, managed by Trust Boards, did not prepare the financial statements at 30 June 2019 as required by the
Public Finance and Audit Act 1983.

These Crown reserves contain showgrounds, cemeteries, racecourses, local parks, and other community facilities and public areas. Some of the Crown reserves have independent streams of revenue from user charges.

In 2016–17, Treasury determined that NSW cemetery trusts and a holiday park reserve trust were controlled entities of the State. As such, the Public Finance and Audit Act 1983 requires them to prepare financial statements and have these audited by the Auditor-General.

In 2017–18, three reserve trusts accepted NSW Treasury’s view, prepared financial statements and had them audited by the Auditor-General.

However, three cemetery reserve trusts continue to maintain they are not controlled by the State and therefore their financial statements are not audited by the Audit Office. These cemeteries shared their unaudited financial statements with Treasury so they could be incorporated into the State’s financial statements. At 30 June 2019, the value of their combined assets and liabilities, which are not audited by the Audit Office, was $564 million.

The State included an additional $319 million in assets that relate to Crown land values of approximately 700 reserve trusts that did not prepare or submit financial statements.

We performed additional audit procedures to obtain some assurance over the value of these crown lands. The nature and extent of the limitations to the scope of these procedures was not significant enough to impact our audit opinion. Treasury should ensure these trusts comply with the requirements of the Public Finance and Audit Act.

Derecognition of investment in City West Housing

In 2017–18, the State had an equity investment of $680 million in a community housing provider, City West Housing Pty Limited (CWH).

During 2018–19, CWH amended its constitution to ensure alignment with its charitable status. The unintended impact of this change was that on windup the net assets would not be distributed to the State. The accounting implications to the State’s investment was not considered by Treasury at the time of approving the amended constitution. Consequently, the State wrote off its $680 million investment in CWH in 2018–19.

It is important that accounting impacts of such changes are discussed and agreed upon early. At the time of approving the decision to change the constitution, all accounting implications should be made available and understood. Such information is relevant when approving decisions. The theme of what is relevant
information will be explored further in our Performance Audit of ‘Advice on Major Decisions’.

Machinery of government (MoG) changes refers to how the government reorganises agency structures and functions and realigns ministerial responsibilities.

Cluster changes

On 2 April 2019, the Government reorganised public sector agencies into eight clusters (ten in 2017–18) with effect from 1 July 2019.

Prior to 30 June 2019, two subsequent administrative arrangement orders were made to amend and finalise the MoG changes.

The key MoG changes included:

• abolishing the following five departments:
  • Finance, Services and Innovation
  • Industry
  • Planning and Environment
  • Family and Communities
  • Justice
• transferring their functions into three new departments:
  • Department of Customer Service
  • Department of Planning, Industry and Environment
  • Department of Communities and Justice

The State’s consolidated financial statements at 30 June 2019 were not impacted by the changes, as they were effective from 1 July 2019.

The chart below shows the cluster arrangements before and after the MoG changes to the General Government Sector. It compares total budgeted expenses presented in the 2018–19 and 2019–20 Budget Papers (1).

Each cluster’s share of the General Government Sector’s (GGS) total expenditure remains relatively unchanged after the MoG changes. Further details on other functions transferred between clusters are detailed in the 2019–20 Budget Papers.

Of the clusters, Education is affected most by the MoG changes from the perspective of increased expenditure in the 2019–20 budget. This is because the TAFE Commission transferred into this cluster from the former Department of Industry on 1 July 2019, resulting in a corresponding decrease in the new Planning, Industry and Environment cluster’s expenditure.

Cluster expenses

$1.2 billion surplus, $0.2 billion below 2018–19 budget of $1.4 billion

The Total State Sector comprises 304 entities controlled by the NSW Government.

The General Government Sector, which comprises 212 entities, generally provides goods and services funded centrally by the State.
The non-General Government Sector, which comprises 92 Government businesses, generally provides goods and services, such as water, electricity and financial services that consumers pay for directly.

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

What changed from 2018 to 2019?

The State maintained its AAA credit rating.

The object of the Fiscal Responsibility Act 2012 is to maintain the State’s AAA credit rating.

The Government manages NSW’s finances in accordance with the Fiscal Responsibility Act 2012 (the Act).

The Act establishes the framework for fiscal responsibility and the strategy to protect the State’s AAA credit rating and service delivery to the people of New South Wales.

The legislation sets out targets and principles for financial management to achieve this.

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

The fiscal targets for achieving this objective are:

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

General Government expenditure grew by 5.5 per cent in 2018–19 (5.1 per cent in 2017–18 based on restated balances). This was slightly below the long-term revenue growth rate of 5.6 per cent.

Eliminating unfunded superannuation liabilities by 2030.

The Act sets a target to eliminate unfunded superannuation liabilities by 2030.

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 2018–19, the State made employer contributions of $1.73 billion ($1.67 billion in 2017–18), an increase of $64 million or 3.8 per cent ($52 million or 3.2 per cent in 2017–18). This was under the five per cent target by $19.5 million.

For fiscal responsibility purposes, the State uses AASB 1056: Superannuation Entities. This accounting standard discounts superannuation liabilities using the expected return from the assets backing the liability.

Using this method, the State’s unfunded superannuation liability was $13.2 billion at 30 June 2019 ($14.0 billion).

Superannuation funding position since inception of the Act - AASB 1056 Valuation

State revenues fell $604 million to $86.1 billion in 2018–19    

In the prior years, revenue growth was underpinned by cyclical increases in land tax, payroll tax and one-off large stamp duty receipts from the lease of the State’s electricity network assets. In 2018–19, the State’s revenue fell by $604 million to $86.1 billion ($86.7 million in 2017–18).

Taxation revenue remained relatively stable

Taxation revenue only grew slightly, mainly due to:

• a $517 million increase in payroll tax from NSW wages growth
• a $469 million increase in land tax from growth in land values
• offset by a $1.2 billion decrease in stamp duty due to lower than expected growth in the property market. This decrease would have been higher had the State not received $555 million in stamp duty from the new 51 per cent owner of WestConnex.

The gap between payroll tax and stamp duty reduced significantly in 2018–19. Stamp duty still remains the largest source of revenue for the State at $9.2 billion, only $42 million above payroll tax.

Australian Government grants and subsidies

The State received $31.8 billion in grants and subsidies from the Australian Government, $158 million less than the previous year. This was due to falls in other grants and subsidies of $98 million and GST revenues of $48 million.

GST revenues fell due to weaker growth in national consumption expenditure and a smaller GST pool. The GST pool represents funds made available by the Commonwealth for transfer to the States as untied financial assistance. The allocation of GST is determined by the Commonwealth, not the State.

A $392 million decrease in National Partnership Payments was offset by a $380 million increase in Specific Purpose Payments.
 
In 2018–19, sales of goods and services fell $395 million mainly due to the sale of WestConnex.

Other dividends and distributions fell by $122 million due to lower distributions from associates. This reflected weaker performance in the electricity sector (Ausgrid and Endeavour) resulting in lower distributions paid to the State following changes in the Electricity Network Service Providers regulatory environment and the sale of Snowy Hydro Pty Ltd in 2017–18.

Fines, regulatory fees and other revenues increased by $242 million largely from mineral royalties. The increase was attributed to strong demand across Asian markets for coal exports, which the State expects will continue to experience steady growth.

Expenses increased $4 billion to $87.9 billion in 2018–19    

Overall, the State’s expenses increased 4.8 per cent in 2018–19 compared to 2017–18. Most of the increase was due to higher employee expenses, operating costs and grants and subsidies.

Employee expenses, including superannuation, increased by 3.9 per cent to $40.3 billion.

Salaries and wages increased to $40.3 billion in 2018–19 from $38.8 billion 2017–18. This was mainly due to salary and wage increases. The Government wages policy aims to limit growth in employee remuneration and other employee related costs to no more than 2.5 per cent per annum.

Operating expenses increased 6.1 per cent from 2017–18.

Within operating expenses, payments for supplies, services and other expenses increased due to:

• increased operating costs associated with the commencement of the new Sydney Metro
• higher operating activity levels experienced in the Health sector resulting in higher visiting medical officer costs, surgical supplies and information management costs
• higher school operating expenses in Education, mainly relating to teaching cloud tools and purchase of computer equipment.

Health costs remain the highest expense of the State.

The following clusters have the highest expenses as a percentage of total government expenses:

• Health - 25.8 per cent (24.6 per cent in 2017–18)
• Education - 20 per cent (18.5 per cent)
• Transport - 14.7 per cent (17.6 per cent).

Other, mainly relates to Economic Affairs, Housing and Community, Recreation and Culture functions of the State.

Transport expenses have decreased in 2018–19 mainly due to the sale of WestConnex. This is partially offset by costs associated with the new Sydney Metro, which commenced operations from 1 July 2018. The graph highlights annual expenditure by function in 2018–19 compared to 2017–18.

Grants and subsidies increased by $782 million to $11.7 billion.

This was mainly due to:

• the $239 million Emergency Drought Relief Package
• a $226 million increase in funding to the Human Services sector to deliver key election commitments, including 5,000 more nurses and midwives
• $123 million in funding for sporting facilities and creating NSW Centre's of Excellence.

Assets grew by $26.7 billion to $468 billion in 2018–19    

Overall, the States total assets increased by $26.7 billion to $468 billion in 2018–19. This is a six per cent increase compared to 2017–18. Most of this was due to increases in carrying value of the State’s physical assets and investments.

Valuing the State's physical assets

The State’s physical assets were valued at $352 billion at 30 June 2019.

The State’s physical assets include land and buildings ($166 billion) and infrastructure ($168 billion). The value of the State’s physical assets at 30 June 2018 was restated from $339 billion to $337 billion. The restatement was required to correct errors in the fair value of earthworks previously reported at $7.5 billion and subsequently corrected to $5.4 billion.

Our audits assess the reasonableness and appropriateness of assumptions used to value physical assets. This includes
obtaining an understanding of the valuation methodologies used and judgements made. We also review the completeness of asset registers and the mathematical accuracy of valuation models.

Net movements between years include additions, disposals, depreciation and valuations. The State’s physical assets increased by $15.2 billion compared with 2017–18.

Movement in the State's physical assets

Liabilities increased $28.6 billion to $217.5 billion in 2018–19    

The State relies on actuarial assessments to value its liabilities

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

Valuing these obligations involves complex estimation techniques and significant judgements. Small changes in assumptions can materially impact balances in the financial statements, such as a lower discount rate.

Superannuation obligations rose by $14.3 billion.

The State’s $70.7 billion unfunded superannuation liability represents obligations to past and present employees less the value of assets set aside to meet those obligations. The unfunded superannuation liability rose by $14.3 billion from $56.4 billion at 30 June 2018 to $70.7 billion at 30 June 2019. This was mainly due to a lower discount rate.

Borrowings totalled $79.9 billion at 30 June 2019.

The State’s borrowings of $79.9 billion at 30 June 2019 were $8.6 billion higher than they were at 30 June 2018.

TCorp issues bonds to raise funds for NSW Government agencies. These are actively traded in financial markets, which provides 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 has been restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to match liabilities with the funding requirements for infrastructure assets.

Implementing the requirements of new accounting standards will be challenging

Risks to the quality and timeliness of financial reporting

The State and its agencies will be implementing the requirements of new accounting standards shortly. These are likely to have a major impact on the financial positions and operating results of agencies across the sector.

Accounting standards require agencies to assess and disclose where possible, the impact of the new standards in their 2018–19 financial statements.

Our review found agencies needed to do more work on their impact assessments to minimise the risk of errors in the financial statement disclosures. Some agencies disclosed that the new standards would not have a material impact on their reported financial position and performance, but had little evidence to support this.

Each agency is unique and implementing the new standards is not straight forward as many new principles apply. Management judgement is needed to interpret how the principles apply to each agency. As a result, agencies face the following risks and challenges:

• having the required technical skills in house
• having accurate data to assess the impacts
• correctly and consistently interpreting the new requirements
• adequately planning and preparing for their application
• implementing new systems to capture the information needed to meet the new reporting obligations.

To help agencies implement the new standards consistently across the sector, Treasury:

• issued guidance to agencies
• prepared position papers on proposed accounting treatments
• provided briefing sessions to agencies
• mandated which option in the new standards agencies had to adopt on transition.

Key dates

Section 45 of the Public Finance and Audit Act 1983 requires the Auditor-General to perform audits of the financial statements of entities prescribed for the purposes of that section.
The following were prescribed entities as at 30 June 2019:

A report released by the Auditor-General for New South Wales, Margaret Crawford, has found that NSW Health is not forming effective partnerships with Aboriginal communities to plan, design and deliver appropriate mental health services. There is limited evidence that NSW Health is using the knowledge and expertise of Aboriginal communities to guide how mental health care is structured and delivered.

Mental illness (including substance use disorders) is the main contributor to lower life expectancy and increased mortality in the Aboriginal population of New South Wales. It contributes to a higher burden of disease and premature death at rates that are 40 per cent higher than the next highest chronic disease group, cardiovascular disease.¹ 

Aboriginal people have significantly higher rates of mental illness than non Aboriginal people in New South Wales. They are more likely to present at emergency departments in crisis or acute phases of mental illness than the rest of the population and are more likely to be admitted to hospital for mental health treatments.² 

In acknowledgement of the significant health disparities between Aboriginal and non Aboriginal people, NSW Health implemented the NSW Aboriginal Health Plan 2013 2023 (the Aboriginal Health Plan). The overarching message of the Aboriginal Health Plan is ‘to build respectful, trusting and effective partnerships with Aboriginal communities’ and to implement ‘integrated planning and service delivery’ with sector partners. Through the Plan, NSW Health commits to providing culturally appropriate and ‘holistic approaches to the health of Aboriginal people'.

The mental health sector is complex, involving Commonwealth, state and non government service providers. In broad terms, NSW Health has responsibility to support patients requiring higher levels of clinical support for mental illnesses, while the Commonwealth and non government organisations offer non acute care such as assessments, referrals and early intervention treatments.

The NSW Health network includes 15 Local Health Districts and the Justice Health and Forensic Mental Health Network that provide care to patients during acute and severe phases of mental illness in hospitals, prisons and community service environments. This includes care to Aboriginal patients in the community at rates that are more than four times higher than the non Aboriginal population. Community services are usually provided as follow up after acute admissions or interactions with hospital services. The environments where NSW Health delivers mental health care include:

• hospital emergency departments, for short term assessment and referral
• inpatient hospital care for patients in acute and sub acute phases of mental illness
• mental health outpatient services in the community, such as support with medications
• custodial mental health services in adult prisons and juvenile justice centres.

The NSW Government is reforming its mental health funding model to incrementally shift the balance from hospital care to enhanced community care. In 2018–19, the NSW Government committed $400 million over four years into early intervention and specialist community mental health teams.

This audit assessed the effectiveness of NSW Health’s planning and coordination of mental health services and service pathways for Aboriginal people in New South Wales. We addressed the audit objective by answering three questions: 

1. Is NSW Health using evidence to plan and inform the availability of mental health services for Aboriginal people in New South Wales?
2. Is NSW Health collaborating with partners to create accessible mental health service pathways for Aboriginal people?
3. Is NSW Health collaborating with partners to ensure the appropriateness and quality of mental health services for Aboriginal people?

In this report, the term ‘Aboriginal people’ is used to describe both Aboriginal and Torres Strait Islander peoples. The Audit Office of NSW acknowledges the diversity of traditional countries and Aboriginal language groups across the state of New South Wales.

In May 2019, the Audit Office of New South Wales invited Aboriginal mental health clinicians and policy experts from government and non-government organisations to attend a one-day workshop. Workshop attendees advised on factors that improve the quality and appropriateness of mental health care for Aboriginal people in New South Wales. They described appropriate mental health care as:

• culturally safe, allowing Aboriginal people to draw strength in their identity, culture and community
• person centred and focussed on individual needs
• delivered by culturally competent staff with no bias
• holistic, trauma-informed and focussed on early intervention where possible
• delivered in places that are appropriate including outreach to homes and communities
• welcoming of the involvement of local Aboriginal community and connected to local knowledge and expertise including totems and kinship structures. 

The definition of 'appropriate' mental health care for Aboriginal people throughout this report is based on this advice.

Aboriginal people access emergency services at much higher rates than non-Aboriginal people

The choices that people make in relation to health service options provide some insight into the suitability and appropriateness of the service to their needs.

Aboriginal people have different mental health service use patterns than non-Aboriginal people. Aboriginal people are much more likely to be in a crisis situation before receiving mental health services, usually in an emergency department of a hospital.

Aboriginal people make up three per cent of the total New South Wales population, but they constitute 11 per cent of emergency department presentations for mental health treatments. In regional areas, Aboriginal people make up 20.5 per cent of presentations at emergency departments for mental health reasons. 

A number of factors help to explain Aboriginal mental health service usage patterns. According to government and non-government mental health organisations:

• emergency department services are better known to Aboriginal people than other mental health services
• community-based models of care are not appropriate for Aboriginal people
• Aboriginal people are reluctant to access community-based mental health services to prevent crisis situations
• community mental health services are not available for Aboriginal people after hours and during the weekend, so emergency services are the only option.

The statewide proportions of Aboriginal people presenting at emergency departments for mental health treatments has been increasing over time (Exhibit 6).

Appendix one – Response from agency

Appendix two – The NSW Aboriginal Health Plan

Appendix three – About the audit

Appendix four – Performance auditing

Parliamentary Reference: Report number #326 - released 29 August 2019

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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.

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.

Appendix one – Response from agencies

Appendix two – List of selected agencies

Appendix three – About the audit

The following report is available in an Easy English version that is intended to meet the needs of some people with lower literacy skills, some people with an intellectual disability and some people from different cultural backgrounds.

View the Easy English version of the Transport Access Program report

Transport for NSW’s process for selecting and prioritising projects for the third stage of its Transport Access Program balanced compliance with national disability standards with broader customer outcomes. Demographics, deliverability and value for money were also considered. However, Transport for NSW does not know the complete scope of work required for full compliance, limiting its ability to demonstrate that its approach is effective, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.

Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services. In 2015, there were 1.37 million people living with disability in New South Wales.

Accessible public transport is about more than physical accessibility. It also means barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services. 

Transport for NSW has an obligation under Australian Government legislation to provide accessible services to people with disabilities in a manner which is not discriminatory. Under the Disability Standards for Accessible Public Transport 2002 (the DSAPT - an instrument of the Disability Discrimination Act 1992 (the Act) (Commonwealth)), there is a requirement to modify and develop new infrastructure, means of transport and services to provide access for people with disabilities. All public transport operators are required to ensure that at least 90 per cent of their networks met DSAPT by December 2017 and the networks will need to be 100 per cent compliant with all parts of the standards by 31 December 2022. Trains are not required to be fully compliant with DSAPT until December 2032. 

The Transport Access Program (TAP) is Transport for NSW's largest program with a specific focus on improving access to public transport for people with disability. The TAP is a series of projects to upgrade existing public transport infrastructure across four networks: Sydney Trains, Intercity Trains, Regional Trains and Sydney Ferries. Transport for NSW established the TAP as a rolling program and, to date, it has delivered the first tranche of TAP (TAP 1) and is completing the final projects for the second tranche (TAP 2). NSW budget papers estimate that by 30 June 2018, Transport for NSW had spent $1.2 billion in the TAP since its commencement in 2011-12.

After the completion of TAP 1 and TAP 2 (as well as through other transport infrastructure programs), Transport for NSW estimates that 58.5 per cent of the Sydney Trains, Regional Trains and Intercity Trains networks, and 66 per cent of the Sydney Ferries network, will be accessible. To close the significant gap in compliance with the DSAPT target, the objective for TAP 3 is ‘to contribute to Disability Discrimination Act 1992 related targets through DSAPT compliance upgrades’. 

The audit assessed whether Transport for NSW has an effective process to select and prioritise projects as part of the TAP, with a specific focus on the third tranche of TAP funding.

In August 2018, at the commencement of this audit, Transport for NSW intended to complete the selection of projects for the TAP 3 final business case in December 2018. Transport for NSW advise that it now intends to complete the development stage and final business case in the first quarter of 2019, prior to the final investment decision of the TAP program. This report is based on the TAP 3 strategic business case and information provided by Transport for NSW up to December 2018.

In 2015, there were 1.37 million people living with disability in New South Wales. Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services. 

The social model of disability, outlined in the United Nations Convention on the Rights of Persons with Disabilities, views people with disability as not disabled by their impairment but by the barriers in the community and environment that restrict their full and effective participation in society on an equal basis with others. 

Accessible public transport is more than the provision of physical access to premises and conveyances, it provides barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services.

According to the Australian Bureau of Statistics, the main types of difficulties experienced by people with disability when using public transport relate to steps (39.9 per cent), difficulty getting to stops and stations (25 per cent), fear and anxiety (23.3 per cent) and lack of seating or difficulty standing (20.7 per cent).

Transport for NSW has a Disability Inclusion Action Plan (the Action Plan) 2018-2022 that sets an overall framework for planning, delivering and reporting on initiatives to increase accessibility of the transport network. It covers all elements of the journey experienced when using public transport, including journey planning, staff training, customer services and interaction between the physical environment and modes of transport. Appendix five outlines the guiding principles of the Action Plan.

Transport for NSW's Transport Social Policy branch developed the Action Plan in consultation with internal and external stakeholders. The director of the Transport Social Policy branch is a member of the TAP executive steering committee, which supports alignment between the Action Plan and TAP.

Transport for NSW's Disability Inclusion Action Plan describes a customer focussed approach to accessibility

One of the guiding principles of the Action Plan is ‘intelligent compliance’. Transport for NSW describes this as compliance that prioritises customer-focused outcomes over a narrow focus on legal compliance with accessibility standards. As well as being compliant, infrastructure should be practical, usable, fit for purpose and convenient. 

The TAP prioritisation and selection methodology reflects Transport for NSW’s focus on intelligent compliance. We consider this a reasonable approach as had Transport for NSW focussed exclusively on achieving compliance with the DSAPT targets by upgrading the most affordable infrastructure, some locations, that are used by more customers, would remain inaccessible to people with disability. However, this approach should not be seen as an alternative to Transport for NSW meeting its DSAPT compliance obligations.

TAP program staff consult with the Accessible Transport Advisory Committee

The Accessible Transport Advisory Committee (ATAC) has representatives from disability and ageing organisations, who provide expert guidance to Transport for NSW on access and inclusion. The ATAC provide guidance and feedback on projects and project solutions, including user testing where appropriate. TAP program staff provide regular updates at ATAC meetings, which include briefings on progress. The ATAC also provides feedback and suggestions to TAP program staff, which is considered and sometimes included in current and future projects.For example, in March 2017 the TAP program team briefed the ATAC on the challenges with respect to a number of ferry wharves and sought support for DSAPT exemptions proposed in the TAP 3 strategic business case.

Transport for NSW has not briefed the Advisory Committee on the outcome of the prioritisation and selection process

TAP program staff briefed the Advisory Committee about the prioritisation and selection methodology, after the Minister approved it in 2016. However, Transport for NSW have not briefed or consulted the Advisory Committee on the outcome of the prioritisation process. Infrastructure NSW noted this issue during its review of the strategic business case. 

Transport for NSW advised us that it established the ATAC as an advisory group, and that Transport for NSW does not disclose sensitive information to it. Transport for NSW intends to share the outcome of the prioritisation process following the completion of the TAP 3 development stage and final investment decision.

The TAP communication plan does not fully meet the requirements of the Disability Inclusion Action Plan

The Disability Inclusion Action Plan includes an action item to ‘provide a listing of stations and wharves to be upgraded with estimated time of construction as each new tranche of the Transport Access Program is announced’ The TAP Communication Plan that we reviewed does not include this provision instead focussing on communication on a per project basis. Given the long timeframes associated with improving transport infrastructure, this information is important as it allows people to make informed decisions about where they live, work or study.

Appendix one - Response from agency

Appendix two - Compliance requirements of Disability Standards for Accessible Public Transport

Appendix three - TAP 1 and TAP 2 sub-programs

Appendix four - Prioritisation Assessment for the TAP 3 Strategic Business Case

Appendix five - The guiding principles of Transport for NSW's Disability Inclusion Action Plan

Appendix six - Transport projects and programs that contribute to DSAPT compliance

Appendix seven - About the audit

Appendix eight - Performance auditing

Parliamentary Reference - Report number #314 - released 19 February 2019.

Several of my recent audits have identified a need to improve our public transport system – both for the benefit of travellers and to assist in achieving better air quality.

Bus Transitways can provide a good public transport solution for lower density population areas, potentially at a relatively low capital cost. This audit examines the transitway running between Liverpool and Parramatta, the first of several planned for Sydney. This audit should contribute to a better understanding of the lessons learnt from this first project, and so to future transitways providing better value for money.

But this audit also raises broader issues.

It highlights the importance of accurately projecting the total cost of major infrastructure projects before governments lock in their decisions. It also highlights the need for sound decision-making processes when government agencies compete with the private sector. The principles and recommendations flowing from these issues are ones I would draw to the attention of all agencies, and to the Government.

Parliamentary reference - Report number #146 - released 5 December 2005

Periodically we review the extent to which agencies have changed their practices as a result of our audits. This gives Parliament and the public an update on the extent of progress made.

In this follow-up audit, we examine changes following our September 2002 report, to assess whether NSW Health has improved its buying of hospital supplies using electronic systems.

NSW Health spends over $1.3 billion on hospital supplies. It is the largest expenditure area after employee costs. Reform of this area has the potential to make significant savings that could be redirected to frontline services.

As part of our series of audits in the area of e-government, our previous audit looked closely at the extent to which technology was being used to deliver potentially major savings in purchasing hospital supplies. This is a key area of so-called “process re-engineering” in the “e” field, and NSW Health provided an ideal case study.

Whilst implementing large-scale e-procurement has many technical aspects, it is not chiefly a technical issue. The key requirements for success reside in effective change management, in particular being clear as to who has the authority to make change decisions and be held accountable.

This audit looks at NSW Health’s successes to date, and its frustrations and challenges in making further progress in this field. Many of the issues raised in this report may provide lessons for any agency that is seeking to drive a significant change program.

Parliamentary reference - Report number #145 - released 23 November 2005

Hospitals, schools, public housing, roads, bridges, buses and trains are just some of the assets used by government in providing services to citizens.

The NSW Government’s asset base is impressive in size - with a value of around $167 billion and with government plans to spend around $8 billion acquiring or replacing assets in the current year. Another $2 billion is spent each year on maintenance.

Good asset management is very important to government; even a small efficiency gain in this area can provide significant returns. Good practice by those responsible for managing assets can improve reliability, extend asset life, save on maintenance costs and aid in identifying and disposing of unnecessary or non-performing assets.

Improving the NSW public sector’s approach to asset management has been on the reform agenda for at least a decade. Changes in practice have been accelerated more recently by integrating asset management policy with the budget process.

In this audit we examined NSW Treasury’s efforts to improve asset management practices in the public sector and the progress made by 3 agencies - the Department of Corrective Services, NSW Fire Brigades and the Powerhouse Museum - towards better managing their asset portfolios.

This report informs Parliament and the community on progress to date and what more needs to be done to ensure that agencies manage assets effectively and achieve best value.

Parliamentary reference - Report number #143 - released 12 October 2005

The annual Budget is one of the most important and visible statements about a government’s financial intentions.

Once a Budget is released, it is important to monitor variations from the projections it contains. This is done for two reasons -

• first, to ensure that individual agencies are properly managing their budget allocations and that any genuine emerging need for additional funding is met.
• second, to ensure that any changes to the State’s overall financial position are understood and corrective action is undertaken.

This audit dealt primarily with the second of these objectives.

Budget monitoring involves both agencies and Treasury working together to quickly identify factors that might impact the budget, to clearly understand the implications for their budget position and to take any remedial action needed.

Poor monitoring may reduce the confidence that stakeholders have in the government’s financial management. It may mean that government decisions made in- year or for the following budget (for example on tax measures or spending increases/savings) are based on an incorrect understanding of the State’s true financial position.

I hope that this Report provides some useful insights that will assist in better monitoring.

Parliamentary reference - Report number #141 - released 28 July 2005

Periodically we review the extent to which agencies have implemented the recommendations they accepted from our earlier audits.

This gives Parliament and the public an update on the extent of progress made.

In this follow-up audit, we examine changes following our May 2002 report on how well the:

• State Transit Authority maintained its buses
• Ministry of Transport administered contracts for the provision of regular passenger bus services.

Parliamentary reference - Report number #138 - released 14 June 2005