This report analyses the results of our audits of financial statements of the Health cluster for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

This report provides parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

The impacts of the COVID-19 pandemic on the cluster were significant and included changes to the operations of the health entities and increased revenue, expenditure, assets and liabilities.

As a part of this year's audits of health entities, we have considered:

• financial implications of the COVID-19 emergency at both health entity and cluster levels
• changes to agencies' operating models
• agencies' access to technology and the maturity of systems and controls to prevent unauthorised and fraudulent access to data.

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.

The response to the COVID-19 pandemic primarily impacted the financial reporting of NSW Health through:

• additional revenue from the State government in the form of grants and stimulus payments
• additional revenue from the Commonwealth government under the National Partnership Agreement for COVID-19 to cover part of the cost of responding to the COVID-19 pandemic
• increased expenses, largely due to increased payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists and increased cleaning costs
• increased purchases of personal protective equipment.

Chapter one outlines the impacts of NSW Health’s response to the COVID-19 pandemic. This chapter outlines our other audit observations related to the financial reporting of agencies in the Health cluster for 2020.

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.

The primary impact of the COVID-19 pandemic on the effectiveness of the internal controls of NSW Health and health entities relates to the effectiveness of controls implemented by HealthShare relating to the stocktake of personal protective equipment inventories. Inventory managed by HealthShare increased by 2,746 per cent during 2019–20. HealthShare’s inventory controls did not maintain pace with the sudden, significant increase.

The impacts of NSW Health’s response to the COVID-19 pandemic are outlined in chapter one. This chapter outlines other observations and insights from our financial statement audits of agencies in the Health cluster.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations 

Appendix three – Financial data

Appendix four – Analysis of financial indicators 

Appendix five – Analysis of performance against budget

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.

Auditor-General’s Report to Parliament

Health 2020

11 December 2020

This corrigendum has been prepared to amend the following text within the Auditor-General’s Report to Parliament on Health 2020, dated 10 December 2020.

NSW Health emergency department treatment times

On page five the original text was as follows:

NSW Health also measures the percentage of patients whose clinical care in emergency departments is completed within four hours. The measure is used as an indicator of accessibility to public hospital services.

NSW Health aims to complete clinical care in the emergency department for 81 per cent of patients within four hours. In 2019–20 NSW Health reports it completed clinical care within four hours for 72.1 per cent of patients (a 7.3 per cent decrease from 2018–19).

At Western Sydney Local Health District, 59 per cent of patients were treated within the targeted timeframe. NSW Health attribute this to the profile of patients presenting in emergency departments and additional time taken processing COVID-19 patients to ensure staff safety.

The original text has now been changed to:

NSW Health also measures the percentage of patients with total time in the emergency department of four hours or less for each local health district. The measure is used as an indicator of accessibility to public hospital services.

The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.

This report provides parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• the impact of emergencies and the pandemic.

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

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

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

This chapter outlines our:

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

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019, 2018 and 2017 recommendations

Appendix three – Management letter findings

Appendix four – Financial data

Copyright notice

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

The Auditor-General for New South Wales, Margaret Crawford, released a report today examining NSW Health’s management of health and safety risks to nurses and junior doctors in high demand hospital wards over the past five years, including during the first six months of the 2020 COVID-19 health emergency.

The Auditor-General found that while NSW Health effectively managed most incidents and risks to the physical health and safety of hospital staff during ‘business as usual’ activities, systems and resources are not fully effective to manage staff psychological and wellbeing risks, particularly for nurses.

The Auditor-General found that NSW Health was effective in managing most COVID-19 health and safety risks to hospital staff. Overall effectiveness could have been improved had pandemic preparedness training been delivered across all Local Health Districts. Additionally, state-wide communication systems could have been improved to provide hospital clinicians with access to a ‘single source of truth’ with the latest advice from NSW Health authorities.

NSW Health’s planning and preparation for the supply of Personal Protective Equipment (PPE) was partially effective. At various times, some PPE items could not be sourced from established suppliers. Face masks, goggles and protective gowns were substituted with products that differed in shape, size and fitting from usual items, and in some hospitals, substituted masks were used without being locally fit tested by hospital staff.

The Auditor-General made seven recommendations aimed at enhancing hospital health and safety risk reporting practices, along with a recommendation that NSW Health conduct a post pandemic 'lessons learned' review and make policy and operational recommendations for future pandemic responses.

Over the past decade, there have been increases in the numbers of health and safety incidents affecting nurses and junior doctors in NSW hospitals. These increases have been associated with higher numbers of patients with acute mental health conditions, age-related cognitive impairments, and patients presenting in emergency departments under the influence of drugs and alcohol.  

This audit commenced in August 2019, with a focus on the health, safety and wellbeing of nurses and junior doctors in high demand hospital wards. Our audit focused on emergency departments, mental health wards and aged care wards during 'business as usual’ periods of hospital operations. 

In the early months of 2020, the novel coronavirus (COVID-19) brought new health and safety risks to hospital staff. These risks included the potential for infection amongst health workers, increased staff workloads, and impacts on staff wellbeing.  

In May 2020, we expanded the focus of the audit to assess the effectiveness of NSW Health’s management of the health and safety risks to staff during the COVID-19 health emergency. We assessed the impacts on emergency departments and intensive care units, as these were the wards where staff were most likely to come into contact with COVID-19.  

The Audit Office acknowledges the ongoing health and safety challenges that the pandemic has brought to NSW Health staff – in particular to hospital clinicians and the managers who support them.  

This audit assessed the effectiveness of NSW Health’s:

• systems, forums and workplace cultures to support reporting and generate data about risk
• initiatives to support safe workplaces and effectively respond to health and safety incidents
• actions to continuously improve staff health, safety and wellbeing in hospital environments.

The first three chapters of this report describe the effectiveness of NSW Health’s ‘business as usual’ health and safety risk management. The fourth and fifth chapters describe the effectiveness of NSW Health’s health and safety risk management during the COVID-19 pandemic.  

1. Audit recommendations

By December 2021, NSW Health should:

1. Evaluate the effectiveness of the new incident management system to enable full reporting of health and safety incidents and risks in all hospital wards, including those where incidents and risks are common, and monitor for consistency of reporting over time
2. Expand the categories of hospital incident data reported to Ministry executives in the Work Health and Safety Dashboard reports, including by linking injury data to incident types by hospital ward category, and monitor in conjunction with Local Health Districts for emerging trends and improvement over time
3. Ensure that nurses and junior doctors have regular opportunities to report on risks to their psychological health and wellbeing, and that system managers have access to aggregate data to guide responses to mitigate these risks
4. Develop and implement an evidence-based guiding framework and strategy to support hospital staff in the aftermath of traumatic or unexpected workplace incidents, and monitor implementation
5. At regular intervals, publicly report aggregate Root Cause Analysis data detailing the hospital system factors that contribute to clinical incidents
6. Develop and implement a systemwide platform for sharing research and information about hospital health and safety initiatives across the health system
7. Conduct a post-pandemic 'lessons learned' review focusing on the effectiveness of key strategies deployed in the management of the COVID-19 pandemic and make policy and operational recommendations for future pandemic responses. In particular, ensure:
   • regular scenario-based pandemic training for hospital staff
   • updated policies and protocols for hospital infection controls
   • capability to upscale authoritative communication with frontline health workers at the earliest notification of a health emergency and for the duration of the emergency
   • systems and safeguards to ensure the supply and availability of clinically appropriate personal protective equipment (PPE) during all phases of a pandemic.

Local Health Districts were effective in leading health and safety infection control activity

According the NSW Health Influenza Pandemic Plan (Pandemic Plan), the Chief Executives of Local Health Districts have ultimate responsibility for public health unit preparations during health emergencies. If necessary, they can ‘draw on the support of the State Pandemic Management Team and local emergency management resources’.

During the preparations and early response phases to the COVID-19 pandemic, Local Health Districts were at the forefront of most NSW hospital activity. They took the lead role in developing hospital infection control protocols and guidance about the appropriate uses of Personal Protective Equipment (PPE). Each Local Health District established its own responses to the health emergency, based on the best clinical advice available to them. The localised approach meant that there were some minor differences in infection control practices across the NSW health system.

Throughout February and March 2020, there was limited centralised policy or guidance from the Ministry and its Pillar Health agencies about COVID-19 infection control practices. It was not possible to mandate practices at a time when information about the virus was evolving. Clinical responses were changing as more became known about COVID-19, especially about its patterns of transmission and its impacts on people with the disease.

During February and March 2020, Local Health District executives communicated with hospital staff via a range of methods. Some sent daily e-memos with the latest updates. Some scheduled more regular meetings with hospital clinicians. Some Districts set up extensive staff training sessions and information briefings to keep all personnel updated with the latest advice. Physical distancing made it difficult to bring staff together in large groups, so a range of communications measures were implemented.

Clinical staff also utilised their clinical training and expertise to prepare their wards and train frontline staff in infection control procedures. Some sourced information from national and international colleagues to add to localised knowledge of the virus.

When the first evidence of COVID-19 community transmission was identified in the Northern Sydney Local Health District, hospital staff followed infection control protocols that were based on local guidance and information. With the support from the District executive team and infectious diseases experts, hospital clinicians set up their own infection control protocols and PPE protections. Within a week the District had produced a matrix to guide staff in the uses of PPE during COVID-19 procedures, and had circulated the guidance to all hospital clinicians.

At the end of March 2020, a version of the Northern Sydney PPE matrix was published on the Clinical Excellence Commission’s website and it has now become NSW Health’s standard guideline for PPE during COVID-19 procedures. Once this guideline was published centrally, infection control practices were standardised across NSW hospitals.

This form of District-led policy making is not ‘business as usual’ practice for NSW Health. Policy making processes were somewhat reversed during the early response phases to COVID-19. This flexible policy approach supports the governance arrangements described in the Pandemic Plan, which assigns responsibility for ‘supporting and maintaining quality care across health services and implementing infection control measures as appropriate’ to Local Health Districts.

In non-health emergency situations, clinical policy and protocols are usually initiated and developed by the Ministry and the Clinical Excellence Commission and are subsequently shared across the health system after a quality control process. The localised approach adopted in the months from February to March 2020, allowed for rapid and flexible responses to changing information – to protect the health and safety of the hospital workforce and the wider community.

Hospital staff across NSW would have been better prepared for COVID-19 if pandemic training had been delivered across all Local Health Districts in the past decade

Local Health Districts are responsible for training hospital staff in preparation for public health emergencies. NSW’s policy describing Public Health Emergency Response Preparedness Minimum Standards requires that clinical staff participate in at least one annual emergency training exercise if they hold a position where they are likely to be called upon in an emergency. Staff must participate in an actual response exercise or a relevant training session. The training must also include re-familiarisation with PPE.

Available evidence about emergency response training in NSW indicates that at least two Local Health Districts have delivered pandemic focussed training in the past decade. Our interviews with managers of emergency departments and intensive care units indicates that most other Districts have focused their emergency training on mass patient trauma incidents such as plane crashes, train crashes and terrorist attacks. While the potential for these types of mass trauma events is real, and warrants training and preparation, significant global outbreaks of diseases have also had potential to threaten NSW communities. In previous decades, global health communities have been at risk of diseases such as the Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS).

In the two Districts where pandemic training was provided in NSW, staff participated in community influenza vaccination exercises. These were focused on upskilling staff to follow emergency command structures, manage high volume patient flows, and organise sanitisation logistics during a hospital-based training exercise.

Our interviews with nurse managers in emergency departments and intensive care units indicate that in the majority of other Local Health Districts, key personnel were unaware of the NSW Pandemic Plan. Interviewed staff also reported insufficient scenario-based training in pandemic responses over the last ten years.

The Ministry, the Clinical Excellence Commission and the Health Education and Training Institute (HETI) are responsible for online training and 'state-wide strategies and resources to maintain high levels of compliance with infection control and patient safety recommendations'. The HETI website contains online training modules in infection control and PPE donning and doffing procedures. Other infection control information and research is available on the websites of the Clinical Excellence Commission and the Agency for Clinical Innovation.

Online training modules are effective for upskilling staff in a range of skills, but are not a substitute for real-time, rapid incident response training. Face-to-face training provides opportunities for first responders to test procedures in hospital environments. Incident response training provides opportunities for staff to assess their levels of compliance with protocols and their competence with equipment in scenario situations. It is the responsibility of Local Health Districts to provide this form of training to the health staff in their District.

Two NSW Health policies that govern clinical arrangements during pandemics are outdated

The Ministry had not updated two policies that had the potential to assist emergency departments and intensive care units in aspects of their ward preparation for the COVID-19 pandemic. Both policies were on the NSW Health website, but neither were shared with hospital staff in the planning phases for the pandemic. Both policies are out of date and have not been revised within required timeframes.

The 2010 Influenza Pandemic - Providing Critical Care policy was due for review in May 2015 and was not updated at the time of the COVID-19 health emergency. Similarly, the 2007 policy Hospital Response to Pandemic Influenza Part 1: Emergency Department Response was due for review in June 2012 and has not been updated.

These policies were designed to assist clinical staff to make necessary ward arrangements for infection control. They set out the steps for rapid identification of contingent workforces, isolation procedures, and management of patient flows to separate those with suspected infection from other patient cohorts. They were a potential addendum to the NSW Pandemic Plan which describes the command and control responsibilities of health agencies in health emergencies.

Our interviews with nurse managers from emergency departments and intensive care units indicate that in the absence of pandemic policy, they sought clinical guidance from external sources and Local Health District experts. Interviewees told us that a lack of policy guidance about ward arrangements and infection control practices in a pandemic increased their workloads and hours of overtime in the early response phases to COVID-19. With the support of Local Health Districts, clinical staff made rapid adjustments in order to respond to changing testing requirements and ward arrangements.

The Ministry was slow to establish a centralised communication channel to communicate with frontline staff

NSW Health’s governance and communication arrangements during a pandemic are set out in the Pandemic Plan. The Plan requires that government agencies ‘commence enhanced arrangements, establish communications measures’ and confirm ‘governance arrangements’ when there is evidence of person to person transmission during an influenza outbreak. NSW Health received the first notifications of the novel coronavirus risks in January 2020.

During the preparation and early response phases to COVID-19, the Ministry and its central agencies were slow in establishing a single, authoritative channel through which to communicate consistent messages to frontline staff. Clinical staff required up-to-date information about COVID-19 testing criteria as requirements were changing rapidly, sometimes daily. While there was no expectation for fixed policy at this time, hospital staff required the latest instructions about treatment requirements, and updates on the numbers of COVID-19 infections in their region.

As information about COVID-19 was evolving, information was communicated across the health system via ‘multiple channels and sources’. While the Ministry and its central agencies communicated extensively with Local Health Districts during March 2020, hospital staff reported to us that they weren’t always sure where they could find the latest advice about testing protocols or infection controls.

Frontline staff told audit office staff that they were checking multiple sources and time-stamping advice to ensure they had the most up to date information on a daily basis. While some Local Health Districts managed clear communication links with frontline staff, nurse managers told us that communication was ‘chaotic’ during the early phases of pandemic preparation. Key personnel were not always available outside business hours and nurse managers advise that they spent hours at the end of shifts, seeking and printing the latest advice for weekend and night shift personnel. By the end of March 2020, the Ministry and the Clinical Excellence Commission websites became better organised to communicate with frontline clinicians.

A recommendation to the Ministry of Health after H1N1 swine flu could be equally applied in the COVID-19 context. The NSW Government’s report: Key Recommendations on Pandemic (H1N1) 2009 Influenza recommended the establishment of ‘clear pathways of communication … so that all employees have confidence in where their information will come from and who they should approach if they need additional information.’

NSW Health acknowledges the challenges and the lessons from the early phases of the COVID-19 pandemic. For example, a strategy released in August 2020, sets out NSW Health’s own recommendation for the future management of PPE including: ‘Aligning a single source of truth for PPE education and evidence-based guidance to ensure clarity of information on appropriate use, supported by an influential network of Infection Prevention and Control (IPC) practitioners at the forefront.

Ministry executives advise that communication with health staff has improved since the early phases of the pandemic. The Ministry now sends weekly COVID-19 updates to over 130,000 health staff via email. In addition, NSW Health now has two COVID-19 tabs on its website with current information, including COVID-19 testing advice. According to Ministry executives, these communication channels could be used or replicated if needed for future health emergencies. The Ministry also provides health information and updates via a phone application called Med App. This App is preferred by doctors and is less likely to be used by nurses. As at October 2020, there are 13,000 users of Med App. Push notifications can be made on Med App through SMS alerts.

Personal protective equipment (PPE) was not always available in required sizes and some hospital masks and gowns were substituted with products that differed from the usual items

Since the emergence of COVID-19 in Australia, all clinicians in NSW hospitals have had access to some form of PPE for their clinical requirements. If staff did not have appropriate equipment for each COVID-19 related procedure, they were guided by the formal advice issued to the NSW Health workforce on 11 March 2020 stating that: ‘The safety of NSW Health staff is a priority at all times, especially during COVID-19. Where safe working practices confirm specific PPE (e.g. face shields/masks or other equipment) are required for the protection of staff due to COVID-19, in all circumstances:

• staff are to wear prescribed PPE as instructed
• staff are not to undertake or be required to undertake tasks requiring PPE if the PPE is not available for use. Any such tasks are not to proceed until required PPE is available
• any staff member who is concerned about their safety must raise their concerns immediately to their manager.’

At periods during March and April 2020, some PPE items were not available in the required sizes or the regular brands to which staff were accustomed. HealthShare NSW was not able to source PPE from usual suppliers. HealthShare NSW sourced PPE including N95 masks from non-traditional suppliers. Some PPE items differed in shape and size from the usual hospital equipment. While senior executives from HealthShare NSW advise that all products were approved by the Therapeutic Goods Administration (TGA), in some hospitals, nurse managers advise that staff were not able to ‘fit test’ substituted masks. Fit testing determines the type and the size of the respirator mask that achieves an adequate seal on an individual’s face.

In March and April 2020, ‘duck bill’ (N95) masks were not available in some hospitals. According to stock managers and clinical managers in Local Health Districts, duck bills are the preferred mask for staff with smaller faces, particularly female staff members. The duck bill mask is a standard PPE product, and as such, is fit tested during mandatory PPE training. During the early response phases to COVID-19, most Local Health Districts were provided with substitute N95 masks. Fit testing of the substituted N95 masks was not able to be conducted in all NSW hospitals during the early phases of COVID-19. During the first wave of COVID-19 in March and April 2020, hospital staff told audit staff that there was no time and a lack of equipment to appropriately fit test substituted N95 masks.

Nurse managers in emergency departments advise that in some instances, staff made adaptations to PPE to improve protections, such as doubling masks, adding elastics or bringing their own equipment. These adaptations were not consistent with guidelines. Nurse managers advise that in some cases, adaptations to PPE or ill-fitting masks created pressure sores and contact dermatitis. Just over half of the stock managers of Local Health Districts advised that PPE stock was procured from outside the HealthShare NSW system. Stock managers in some Districts advise that facial shields and goggles sourced from non-traditional suppliers by HealthShare NSW were of a lesser quality than standard equipment. Stock managers and nurse managers reported that the changes in PPE products caused confusion and stress amongst staff.

Local Health Districts were proactive in assisting hospital staff to mitigate risks of COVID-19 infections. Some Local Health Districts assigned ‘tiger teams’ to assist staff with their PPE practices. Tiger teams provide clinical expertise and advice to staff, answer questions about infection control and provide training on PPE practice in hospital ward environments. They assist and support PPE donning and doffing practices to ensure the appropriate sequencing of applying and removing PPE for effective infection control. They provide mask fit checking guidance to assist staff in correct PPE practices.

Districts ran extensive refresher PPE training sessions for clinical staff. Some hospitals ran regular PPE demonstrations so that staff could observe correct PPE procedures at set times during the day. These activities assisted staff to implement appropriate infection control in the period before the Clinical Excellence Commission’s web-based materials and videos became available in late March and early April 2020. These online resources now provide comprehensive guidance to hospital staff in PPE practices.

HealthShare NSW placed limits or caps on some high-demand PPE items that were too low to meet requirements in some Local Health Districts and had to be adjusted to meet actual demand

The NSW Pandemic Plan describes the responsibilities of the Ministry and its central agencies to manage and maintain the State Medical Stockpile of essential PPE supplies and antiviral medications. During a pandemic, HealthShare NSW has responsibility for warehousing, monitoring and distributing health supplies to the health workforce.

Due to a reported global shortage of PPE and limits to the NSW stockpile, HealthShare NSW placed limits on the provision of approximately 100 high-demand items to NSW hospitals. HealthShare NSW advise that the PPE order capping ceilings were implemented ‘to ensure local stockpiling does not occur’. A centralised ordering process was established with Local Health Districts so that PPE product ordering occurred through single hospital locations (214 across the State), rather than at the ward level. Escalation processes were established to allow Districts to request one-off increases to supply, and a process was set up to permanently increase the order cap limit for any PPE item by facility.

According to HealthShare NSW, ‘as incoming central supply has improved, order caps have subsequently increased in line with strong engagement and governance with the Local Health Districts to ensure the appropriate levels of supply are provided’. The original capped levels were determined by assessing PPE usage in wards during the flu season of 2019. As the flu season case numbers of 2019 were relatively low, some Local Health District managers advised that the levels of PPE during 2019 were not comparable to the level of PPE required for the COVID-19 pandemic.

After advocacy from hospital stock managers and clinicians, HealthShare NSW increased capped PPE levels in many Local Health Districts.

Executive members of the State Health Emergency Operations Centre (SHEOC) advise that its PPE supply strategy needs to be carefully developed as there are vast differences in PPE usage rates during 'business as usual' periods and pandemic periods. If NSW Health kept the level of PPE required in planning for a worst-case scenario, this would equate to an extensive surplus of PPE that could not be utilised during business as usual periods. The SHEOC Executive advise that it is not feasible or economical to store this level of PPE. They advise that given the costs of PPE, and the fact that the products have a shelf life, a diversified supply line is a more reliable method for ensuring PPE during surge and non-surge periods.

Early data modelling showed ICU patient numbers at levels not manageable with levels of ventilators and equipment

Early projections of patient numbers requiring acute care for COVID-19, were at levels that would not have been manageable with the equipment and resources of NSW hospitals. Throughout March through to May 2020, government data modelling indicated significant surges of community infections and surges in intensive care patients.

Early estimates were based on overseas trends, and if actual cases had matched projections, NSW hospitals would not have had sufficient ventilators to meet demand. The knowledge of this shortfall caused high levels of anxiety among nursing and medical staff.

While the data was based on the best available information, it had negative implications for the health and safety of the nurse and junior doctor workforce. Managers of intensive care wards and emergency departments reported stress amongst the workforce. Staff concerns were primarily about being faced with ‘the unmanageable’, along with heightened fears about contracting the virus with the knowledge that there was insufficient equipment to treat acute patients.

As it transpired, overall numbers of COVID-19 infections were lower than projected during the early months of the pandemic. The lower infection rates in the general population have meant fewer instances of patients requiring intensive care in NSW hospitals. In addition, HealthShare NSW has been able to increase the numbers of ventilators in NSW hospitals to prepare for future surges in patients requiring acute respiratory care.

SHEOC Executive advise that NSW Health undertook an accelerated procurement strategy in early 2020 to increase its stock of ventilators, and that ventilator capacity has always far-exceeded actual requirements.

NSW Health has developed a strategy to improve the management of PPE for the NSW health workforce

In August 2020, NSW Health released a strategy that sets out its future management and planning approaches to the provision of PPE for the NSW Health workforce. NSW Health’s Personal Protective Equipment (PPE) Strategy describes the learnings and challenges during the COVID-19 pandemic in sourcing and distributing PPE. It sets out the systems and methods for distributing PPE to staff and patients and focuses on how staff are kept informed on the appropriate use of PPE at all times. A supporting communications strategy has been developed to support its implementation.

The strategy contains enhanced transparency measures to regularly inform staff about PPE stock levels and to provide data about PPE usage rates by item types in wards in NSW hospitals. The NSW Health PPE strategy describes a changed approach to ordering, storing and allocating PPE. This includes diversifying the supply lines for PPE products to increase supply options in circumstances where supply lines become disrupted. It includes a centralised system for coordinating the supply of hospital PPE through Local Heath District coordination points and centralised distribution points in large hospitals.

Our interviews with hospital PPE stock managers and nurse managers indicate that staff find the new ordering system to be an improvement upon the previous stock ordering method.

According to the Personal Protective Equipment (PPE) Strategy, NSW health is upgrading its models for monitoring and benchmarking PPE usage across the health system. Systems are being improved for forecasting demand volumes during business as usual periods and during health emergency surges.

Appendix one – Response from agency

Appendix two – Audit methodology

Appendix three – About the audit 

Appendix four – Performance auditing 

Copyright notice

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

Parliamentary reference - Report number #344 - released 9 December 2020

The Auditor-General for New South Wales, Margaret Crawford, released her report today on State Finances for the year ended 30 June 2020.

‘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 this has been a challenging year, with New South Wales impacted by natural disasters and the COVID-19 pandemic.

The State’s Budget Result, reported in the financial statements, was a deficit of $6.9 billion. This is different to the 2019-20 budget forecast surplus of $1.0 billion and is an outcome of the government’s significant response to bushfires and COVID-19.

The report summarises a number of audit and accounting matters arising from the audit of the Total State Sector Accounts, a sector that comprises 291 entities controlled by the NSW Government with total assets of $495 billion and total liabilities of $256 billion.

Read full report (PDF)

Our audit opinion on the State’s 2019–20 financial statements was unmodified

An unmodified audit opinion was issued on the State’s 2019–20 consolidated financial statements.

The State extended signing its financial statements by six weeks.

Natural disasters, the COVID-19 pandemic and other factors impacted the State’s 2019–20 reporting timetable. The State extended signing its financial statements by six weeks, compared with 2018–19.

All agencies were also given a two-week extension to prepare their financial statements compared with 2018–19. Further extensions beyond two weeks were subsequently approved for the following 11 agencies (7 in 2018–19) to submit completed financial statements for audit:

• Department of Communities and Justice
• Department of Customer Service
• Department of Planning, Industry and Environment
• Department of Regional NSW
• Department of Transport
• Environment Protection Authority
• Infrastructure NSW
• Lord Howe Island Board
• NSW Crown Holiday Parks Land Manager
• Service NSW
• Water Administration Ministerial Corporation.

The extensions reflected that the COVID-19 pandemic impacted agencies’ work environments during the first six months of 2020. This was at a time when many were still implementing machinery of government changes and preparing to implement three significant new accounting standards:

• AASB 15 Revenue from Contracts with Customers (issued December 2014, effective 1 July 2019)
• AASB 16 Leases (issued February 2016, effective 1 July 2019)
• AASB 1058 Income of Not-for-profit entities (issued December 2016, effective 1 July 2019).

These new accounting standards were issued some years before they became effective, to allow reporting entities sufficient time to prepare for implementation. Notwithstanding this, some agencies had not fully implemented the new accounting standards in time for early close procedures, and the unforeseen impact of COVID-19 further complicated the year-end financial reporting processes for the State and its agencies.

The graph below shows the number of reported errors exceeding $20 million over the past five years in agencies’ financial statements presented for audit.

In 2019–20, agency financial statements presented for audit contained 19 errors exceeding $20 million (six in 2018–19). The total value of these errors increased to $1.4 billion ($927 million in 2018–19).

The errors resulted from:

• incorrectly applying Australian Accounting Standards and Treasury Policies
• incorrect judgements and assumptions when valuing noncurrent physical assets and liabilities
• incorrectly interpreting the accounting treatment for unspent stimulus funding.

Errors in agency financial statements exceeding $20m (2016–2020)

$4.1 billion in stimulus funding was allocated in 2019–20

The government implemented an economic stimulus package primarily to mitigate the impacts of the COVID-19 pandemic on New South Wales.

The COVID-19 pandemic and bushfires had a significant impact on the State’s finances, reducing its revenue and increasing its expenses especially in sectors directly responsible for responding to the COVID-19 pandemic, such as Health.

The government announced a $4.1 billion health and economic stimulus package in 2019–20. This primarily included:

• $2.2 billion in health measures including purchases of essential medical equipment and increasing clinical health capacity (like intensive care spaces)
• $1.0 billion in small business and land tax relief
• $355 million in extra cleaning services and quarantine costs.

Cluster agencies had spent $3.0 billion (just under 75 per cent) of the COVID-19 stimulus package by 30 June 2020.

The Health cluster incurred most of this expenditure.

Total spend relating to bushfires was $1.3 billion in 2019–20.

The graph below shows the total allocation and spend by cluster to 30 June 2020.

Economic stimulus allocation and spend by cluster to 30 June 2020

Deficit of $6.9 billion compared with a budgeted surplus of $1.0 billion

An outcome of the government’s overall activity and policies 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.

The General Government Sector, which comprises 199 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.

The Budget Result for the 2019–20 financial year was a deficit of $6.9 billion. The original budget forecast, set before the COVID-19 pandemic and bushfires, was a $1.0 billion surplus. The main driver of the change in result was:

• $1.3 billion of higher employee costs, mainly due to:
  • increased workers compensation claims
  • additional personnel required (mainly in the Health sector) to respond to the COVID-19 pandemic
• $2.3 billion of higher operating expenses, mainly due to:
  • $828 million from first time recognition of a child abuse claim liability
  • $507 million from additional insurance claims from the NSW bushfires
  • $343 million from COVID-19 claims by agencies for loss of revenue.
• $1.8 billion in higher grants and subsidy expenses, mainly due to:
  • small business grants
  • COVID-19 quarantine compliance measures
  • costs incurred in response to the 2019–20 bushfires, drought and disaster relief payments
  • third party-controlled assets that were subsequently transferred to councils and utility providers, mainly arising from construction of the CBD and South East Light Rail.

The deficit was further driven by:

• $1.9 billion less taxation revenue, mainly resulting from:
  • $1.3 billion less in payroll tax due to relief measures introduced by the government as part of its COVID-19 economic stimulus
  • $424 million less in gambling and betting taxes, due to venue closures required by COVID-19 public health orders
• $523 million less in dividends and income tax revenue from the Non-General Government Sector, due to lower dividends received from NSW Treasury Corporation and from the State’s other commercial government businesses
• lower fines, regulatory fees and other revenue, due to a $305 million decrease in mining royalties, largely driven by lower coal prices.

Main drivers of the 2019–20 actual vs. budget variance

Revenues increased $209 million to $86.3 billion

In 2019–20, the State’s total revenues increased by $209 million to $86.3 billion, 0.2 per cent higher than in 2018–19. COVID-19 impacted taxation revenue, which fell by $1.1 billion and revenue from the sale of goods and services, which fell by $1.1 billion. These falls were offset by a $2.5 billion (7.7 per cent) increase in grants and subsidies from the Australian Government, mainly in the form of additional stimulus funding.

Taxation revenue fell 3.5 per cent

Taxation revenue fell by $1.1 billion, mainly due to a:

• $861 million fall in payroll tax as a result of COVID-19 relief (reduced payroll tax payments for eligible small businesses)
• $430 million fall in stamp duty collections, driven by lower than expected growth in the property market
• $427 million decline in gambling and betting taxes, mainly due to venue closures driven by COVID-19 public health orders.

Stamp duties of $8.8 billion were the largest source of taxation revenue, $473 million higher than payroll tax, the second-largest source of taxation revenue.

Australian Government grants and subsidies

The State received $34.2 billion in grants and subsides which are mainly from the Australian Government, $2.4 billion more than in 2018–19.

The increase was driven by a $1.1 billion increase in Commonwealth Specific Purpose Payments to support the Health cluster respond to the COVID-19 pandemic. Commonwealth National Partnership Payments increased by a similar amount to provide the State with Natural Disaster relief.

Sales of goods and services

In 2019–20, sales of goods and services fell $1.1 billion. This was due to the COVID-19 pandemic reducing:

• patronage and related transport passenger revenue
• health billing activities with elective surgery being put on hold

Fines, regulatory fees and other revenues

Fines, regulatory fees and other revenues fell $505 million. This was mainly due to a $409 million decrease in mining royalties attributed to a drop in thermal coal prices during 2019–20.

Other dividends and distributions

Other dividends and distributions rose by $616 million due to higher distributions received from the State’s investments. This was due to an additional $1.3 billion held in the State’s investment portfolio compared with last year.

Expenses increased $8.2 billion to $96.0 billion

The State’s expenses increased 9.3 per cent compared with 2018–19. Most of the increase was due to higher employee expenses, other operating costs and grants and subsidies.

Employee expenses, including superannuation, increased 5.7 per cent to $42.6 billion.

Salaries and wages increased to $42.6 billion from $40.3 billion in 2018–19. This was mainly due to increases in staff numbers and a 2.5 per cent increase in pay rates across the sector. Salaries and wages for the Education and Health sectors increased by $659 million and $732 million in each sector respectively.

The Health sector employed an additional 2,763 full time staff in 2019–20. It also incurred more overtime in response to COVID-19. Education increased staff numbers by 4,866 full time equivalents and paid a one off 11 per cent pay rise to school administration staff in 2019–20. Historically, 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 8.7 per cent to $27.0 billion.

Operating expenses increased to $27.0 billion in 2019–20 ($24.8 billion in 2018–19) due to higher operating activities in Health. The higher level of activities and related costs is attributed to a full year of operations at the Northern Beaches Hospital (opened November 2018), and responding to COVID-19. The response to COVID-19 involved the State providing viability payments to private hospitals, higher visiting medical officer costs due to additional overtime hours and spending more on equipment to set up COVID-19 testing clinics.

Insurance claims increased by $2.0 billion. This was mainly due to NSW Self Insurance Corporation (SiCorp) recognising a liability for child abuse claims incurred but not reported for the first time, and claims for the 2019–20 bushfires, floods and COVID-19.

Health costs remain the State’s highest expense.

Total expenses of the State were $96 billion ($87.8 billion in 2018–19). Traditionally, the following clusters have the highest expenses as a percentage of total government expenses:

• Health – 24.3 per cent (25.8 per cent in 2018–19)
• Education – 17.6 per cent (19.3 per cent in 2018–19)
• Transport - 12.8 per cent (12.6 per cent in 2018–19).

General public service expenses as a percentage of total State expenses is higher due to a $2.0 billion increase in SiCorp’s accrued claim expenses.

Other expenses increased due to additional grant funding by the State for drought relief and COVID-19 stimulus spend.

Health expenses increased by $632 million compared with 2018–19 but fell as a proportion of total State expenses.

Education expenses remained stable compared with last year due to savings in student transportation costs primarily driven by COVID-19. This led to a decrease in the proportion of the State’s costs relating to education activities.

Grants and subsidies increased $2.5 billion to $14.1 billion.

The increase in grants and subsidies was due to payments the State made to support businesses and local communities in the face of COVID-19 and bushfires. In addition, the State transferred CBD and South East Light Rail assets to councils and utility providers during 2019–20 as it no longer controlled these.

Depreciation expense increased $1.0 billion to $9.2 billion.

Depreciation increased to $9.2 billion from $8.0 billion in 2018–19. At 1 July 2019, the State implemented the new leases standard recognising a right of use (ROU) asset and related lease liability in its financial statements. The value of ROU assets are amortised over the term of the lease. This contributed to $980 million of the increase in 2019–20 depreciation expense. Last year, these costs were previously reported within other operating expenses.

Assets grew by $28.0 billion to $495 billion

The State’s assets primarily include physical assets such as land, buildings and infrastructure, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $28.0 billion to $495 billion. This was a six per cent increase compared with 2018–19, mostly due to changes in asset carrying values.

Of the State’s $28.0 billion increase in asset values, $9.3 billion was due to a new accounting standard requirement for operating leases to be valued and recorded on balance sheet for the first time.

AASB 16 Leases requires entities recognise values for right-ofuse assets (ROU) for the first time. An ROU asset is a lessee’s right to use an asset, the value of which is amortised over the term of the lease. This standard came into effect from 1 July 2019.

Valuing the State’s physical assets

The value of the State’s physical assets increased by $14.1 billion to $365 billion in 2019–20. The assets include land and buildings ($168 billion), infrastructure ($180 billion) and plant and equipment ($16.7 billion). A prior period error relating to the valuation of RMS infrastructure assets reduced the reported values by $1.0 billion from $352 billion to $351 billion at 30 June 2019.

The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include reclassification of physical assets leased under finance leases to right of use assets upon adoption of AASB 16 Leases on 1 July 2019.

Movements in physical asset values

Liabilities increased $38.4 billion to $256 billion

The State borrowed additional funds in response to natural disasters and COVID-19.

The State’s borrowings rose by $33.9 billion to $113.8 billion at 30 June 2020. This accounted for most of the increase in the State’s total liabilities.

The value of TCorp bonds on issue increased by $25.2 billion to $97.0 billion to largely fund capital expenditure and costs associated with the bushfires, drought and COVID-19.

TCorp bonds are actively traded in financial markets and are guaranteed by the NSW Government.

Over 2019–20, TCorp continued to take advantage of lower interest rates, buying back short-term bonds and replacing them with longer dated debt. This lengthens the portfolio matching liabilities with the funding requirements for infrastructure assets.

With effect from 1 July 2019, AASB 16 Leases required the State to recognise liabilities for operating leases for the first time. This increased total lease liabilities from $5.3 billion at 30 June 2019 to $11.8 billion at 30 June 2020.

More than a third 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 and other variables, such as a lower discount rate, can materially impact the valuation of liability balances in the financial statements.

The State’s unfunded superannuation liability rose $300 million from $70.7 billion to $71.0 billion at 30 June 2020. This was mainly due to a lower discount rate of 0.87 per cent (1.32 per cent in 2018–19). The State’s unfunded superannuation liability represents the value of its obligations to past and present employees less the value of assets set aside to fund those obligations.

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 New South Wales’ finances in accordance with the Fiscal Responsibility Act 2012 (the Act).

The Act establishes the framework for fiscal responsibility and the strategy to maintain 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.

This year, the State’s credit rating from Standard & Poor’s changed from AAA/Stable to AAA/Negative. Moody’s Investors Service credit rating of Aaa/Stable did not change from the previous year.

The fiscal target for achieving this objective is that General Government annual expenditure growth should be lower than long term average revenue growth.

The State did not achieve its fiscal target of maintaining annual expenditure growth below the long-term revenue growth rate target of 5.6 per cent.

In 2019–20, General Government expenditure grew by 9.7 per cent (5.5 per cent in 2018–19).

Expenditure items that contributed most to the growth rate include:

• recurrent grants and subsidies (20.4 per cent)
• other operating expenses (9.5 per cent)
• employee costs (including superannuation) (5.6 per cent)

Recurrent grant and subsidy expenses increased by $2.8 billion in 2019–20 mainly due to the COVID-19 and natural disaster payments. Other operating expenses increased mainly due to a $2.0 billion increase in SiCorp insurance claims. This included the $828 million provision for child abuse claims incurred but not reported. The bushfires and COVID-19 pandemic also increased the number and cost of claims in 2019–20.

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

Appendix one - Prescribed entities

Appendix two - Legal opinions

This report examines whether NSW Health effectively planned and delivered major capital works to meet the demand for health services in New South Wales.

The report found that NSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, the program was driven by Local Health District priorities without assessment of the State’s broader and future‑focussed health requirements.

The report found that unclear decision making roles and responsibilities between Health Infrastructure and the Ministry of Health limited the ability of NSW Health to effectively test and analyse investment options.

Project delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved.

The Auditor‑General recommends that NSW Health ensure its capital projects offer the greatest value to New South Wales by establishing effective policy guidance and enhancing project governance and management systems.

Read full report (PDF)

Since 2011–12, NSW Health has aimed to improve its facilities and build 'future focused' infrastructure. The NSW Government’s 2015–16 election commitments established a four-year $5.0 billion capital program for NSW Health to build and upgrade more than 60 hospitals and health services. The 2019–20 State Budget committed a further $10.1 billion over four years for another 29 projects. This is the largest investment to date on health capital works in New South Wales.

Recent reviews of infrastructure have recognised that population and demographic growth will require a change in the delivery and composition of health infrastructure, including considering greater use of non-traditional, non-capital health service options and assets.

To ensure that expenditure on capital works represents the best value for money, NSW Health's business cases need to be robust and supported by evidence that demonstrates they are worthy investments. The NSW Process of Facility Planning has been the main framework guiding the detailed planning and development of NSW Health's capital works proposals. This framework was developed by the then NSW Department of Health in 2010. Its aim is to ensure investment proposals are supported by rigorous planning processes that address health service needs and provide value for money.

Infrastructure projects of the complexity and scale being delivered by NSW Health carry inherent risks. For example, unplanned cost escalations can potentially impact on the State’s finances. Unforeseen delays can also reduce the intended benefits. The growth in the State’s health capital spend and project profile, means its exposure to such risks has increased over time.

The objective of this audit was to assess the effectiveness of planning and delivery of major capital works to meet demand for health services in New South Wales. To address this objective, the audit examined whether:

• the Ministry of Health has effective procedures for planning and prioritising investments in major health capital works
• Health Infrastructure develops robust business cases for initiated major capital works that reliably inform government decision making
• Health Infrastructure has effective project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.

The audit focused on the Ministry of Health and Health Infrastructure – being the lead agencies within NSW Health responsible for prioritising, planning and delivering major health capital works across the State. The audit examined 13 business cases for eight discrete projects over a ten-year period.

Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.

NSW Health's Process of Facility Planning similarly highlights the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by Health Infrastructure that can be tailored to the planning and delivery of health infrastructure projects greater than $10.0 million.

The three major hospital redevelopments examined in metropolitan, regional and rural areas had a combined Estimated Total Cost of more than $1.2 billion and comprised eight discrete projects and 13 separate business cases.

Almost all these projects experienced delivery challenges which impacted achievement of their original objectives and intended benefits. This is expected in complex and large-scale health infrastructure programs. However, in some projects the impacts were significant and resulted in substantial delays, unforeseen costs, and diversion of resources from other priority areas.

Our review of the selected case studies highlighted opportunities for enhancing governance and project management. Specifically, it indicates a need for improving transparency in the management of contingencies, risk management and assessments particularly relating to adverse site conditions and the selection of contractors. There is also a need to strengthen forward planning for options to address unfunded priorities within business cases that risk complicating the delivery of future project stages resulting in unforeseen costs and potentially avoidable budget overruns.

In February 2017, the Ministry's Capital Strategy Group approved the use of surplus funds of $13.76 million from Stage 1 of the Hornsby Ku-ring-gai Hospital Redevelopment for new works deemed needed to support Stage 2. Following this decision, Health Infrastructure finalised and submitted a business case addendum for Stage 1 to the Ministry in March 2017, addressing the new works comprising a two-storey building for medical imaging and paediatric floors. The business case addendum also addressed options to fit out and procure major medical imaging equipment. The Ministry approved the Stage 1 business case in July 2017, noting the Ministry's Capital Strategy Group had already approved the use of remaining Stage 1 funds to deliver the new works.

Stage 1 was completed in 2015, almost two years before the Stage 1 business case addendum was prepared in February 2017.

The Ministry's decision to approve the new works using $13.76 million of surplus Stage 1 funds did not comply with the NSW Treasury Circular TC 12/20. This policy establishes the Treasurer's approval must be sought and received before a new capital project with an Estimated Total Cost of $5.0 million or more can be approved by NSW Health. The Ministry therefore exceeded its delegated authority in making this decision, as it was not evident it had sought and received the Treasurer's approval prior to doing so.

Consequently, the surplus Stage 1 funds should not have been used by the Ministry to deliver new works in the circumstances. Instead, they should have been released from the Stage 1 project in accordance with established NSW Health procedures, and the Stage 1 Estimated Total Cost revised down accordingly. This did not occur, and NSW Health ultimately directed $11.0 million in surplus Stage 1 funds to the new works.

These circumstances indicate a need to strengthen transparency and accountability within NSW Health for the approval of new projects, and how contingency funds are used in the management of major health capital works. They also demonstrate the impact of weaknesses with options appraisal as the initial Stage 1 business case did not consider alternative options for addressing the initially unfunded works later covered by the Stage 1 business case addendum and ultimately funded from the Stage 1 contingency provision.

In addition to proposing the above-noted new works, the 2017 Stage 1 Business Case Addendum for the Hornsby-Ku-ring-gai development sought to retrospectively address the estimated funding gap of around $14.0 million for the internal fit out, supply of major medical imaging equipment, and cost to operate the medical imaging service at Hornsby Ku-ring-gai Hospital also not addressed in the originally Stage 1 business case.

The Stage 1 business case addendum considered various procurement options to purchase and run the medical imaging services ranging from State operation purchase options to private operation purchase options.

It recommended outsourcing the operation and provision of equipment to the private sector based on estimated savings to the public sector initially of around $650,000 per annum reducing over time to $270,000. The Ministry endorsed this option in June 2017, but it did not ultimately proceed.

A July 2018 report to the Executive Steering Committee on the project shows NSW Health later decided to deliver operation of the medical imaging unit 'traditionally' with an updated estimate of the cost at approximately $16.4 million. The report also shows the Ministry supported the costs now being met by the Northern Sydney Local Health District.

This means the funding gap previously identified in the Stage 1 business case addendum for fitting out the medical imaging building and supply of major medical equipment would need to be met fully by the State, representing a $16.4 million cost overrun for the project.

Examined reports to the Executive Steering Committee show this was largely funded by the Northern Sydney Local Health District via the disposal of land realising approximately $15.0 million in proceeds.

This initially unforeseen cost, along with the additional $11.0 million for the new works approved under the Stage 1 business case addendum, were ultimately merged with the Stage 2 project initially approved in 2017–18 with an Estimated Total Cost of $200 million.

The 2019–20 State Budget provided an additional $65.0 million for a further Stage 2A to deliver additional built capacity to support outpatient services, enhanced allied health services, re-housed community health services and the delivery of prioritised clinical services unfunded as part of Stage 2. The funds were approved based on an Investment Decision Template (IDT) that examined two options in addition to the base case representing scoping alternatives to the preferred master planned capital solution.

However, we found the IDT showed around 23 per cent of the $65.0 million sought (i.e. $15.0 million) was to be allocated to fund the deficit in Stage 2, which had arisen as a result of project delays due to adverse site conditions. This was not discussed in the IDT.

The February 2020 report to the Executive Steering Committee shows a combined Stage 2 and 2A final forecast cost of $292.6 million against a potential budget of $290.7 million representing an overall deficit for the project of around 0.6 per cent.

However, this favourable final budget position does not transparently show the funding challenges experienced over the project's implementation to-date. The three major budget issues include:

• inappropriate use of around $11.0 million in Stage 1 contingency for originally unfunded works contrary to Treasury policy
• the additional $16.4 million cost unforeseen in the Stage 1 business case for delivering medical imaging services mostly funded through the sale of land
• an additional $15.0 million from Stage 2A to cover the budget overrun in Stage 2 due to adverse site conditions.

The cumulative impact of these events is that Stages 1 and 2 of the Hornsby project cost approximately $42.4 million than it should have in the circumstances around 14 per cent more than what the revised combined Estimated Total Cost for both stages should have been after releasing the $11.0 million in surplus Stage 1 funds, with Stage 2 delayed by around 14 months.

Major construction projects often experience adverse site conditions which can be difficult to fully detect in advance. However, we found this was a common occurrence in the projects we examined sometimes with significant time and/or budget impacts indicating scope to enhance related risk and cost assessments. Specifically:

• Hornsby Ku-ring-gai Hospital Redevelopment Stage 2: adverse site conditions during demolition works resulted in an 11-month delay for delivering the medical imaging unit and 14-month delay completing Stage 2 main works including need for additional $15.0 million in funds to cover the resultant budget deficit for the project.
• Blacktown Mt Druitt Hospital Redevelopment Stage 2: adverse site conditions combined with project complexity delayed completion of the early works by approximately five months. This contributed to the delay in completing the main construction works which occurred around nine months later than planned in the business case.
• Dubbo Health Service Redevelopment Stages 3 and 4: Health Infrastructure advised adverse site conditions including asbestos containing materials and ground conditions delayed works for the main building with completion forecast for March 2021, around 21 months later than planned in the final business case. This resulted in the need for additional $13.5 million to cover increased construction costs and risks, increasing the Stage 3 and 4 forecast final cost from $150 million to $163.5 million as at February 2020.

These examples indicate a risk the cumulative impact of adverse site conditions may be substantial when measured across both time and Health Infrastructure's full delivery program. They also point to potential for Health Infrastructure to achieve efficiencies and improved outcomes from strengthening its approach to assessing and mitigating the risks from adverse site conditions.

Main construction works on Stage 1 of the Dubbo Health Service Redevelopment were completed in October 2015, approximately 13 months later than planned in the final business case. Delays were mainly due to insolvency of the early works contractor resulting in their departure from the project. The ensuing 11-month delay in completing the early works significantly impacted the overall schedule and delivery of main construction works.

The insolvency event was significant as it affected nine separate Health Infrastructure projects – three of which had yet to reach practical completion. It also affected state-funded projects in other sectors. It resulted in the need for additional funding of $11.5 million that was provided in the 2014–15 State Budget increasing the total Stage 1 and 2 budget from $79.8 million to $91.3 million.

Health Infrastructure’s analysis of lessons learned shows it worked actively to mitigate the impacts of the insolvency event across all affected projects. However, it also indicates a risk the lessons were mainly focused on mitigating the impacts after an insolvency event occurred rather than on prevention.

Although Health Infrastructure initially commissioned a financial assessment of the now insolvent early works contractor before engagement, it did not detect any risks of the impending insolvency and instead concluded the contractor was in a strong financial position. However, the contractor became insolvent shortly after commencement approximately seven months later. This indicates a risk of weaknesses in the assessment performed that was not explicitly addressed by the lessons learned.

Delivery of the main construction works were further impacted by disputes with the main works contractor over the scope of works for the renal unit resulting in Health Infrastructure terminating the contract in November 2016 following lengthy negotiations over several months.

The scope of works relating to the renal unit were ultimately transferred to Stages 3 and 4 and were delivered in December 2019, around five years later than originally planned in the business case.

Health Infrastructure advised the delay was ultimately beneficial to the project because the refurbishment works for the renal unit, initially scheduled for Stages 1 and 2, would have been demolished to accommodate the new Western Cancer Centre proposed after Stages 1 and 2 and currently being delivered in parallel with Stages 3 and 4.

Health Infrastructure advised the actual cost of Stages 1 and 2 was $84.7 million against the budget of $91.3 million. The residual $6.6 million relates to the renal works not delivered during Stage 1 and 2 and transferred to Stage 3 and 4.

Health Infrastructure advised the contractual provisions for mitigating insolvency events 'in-flight' are limited highlighting the importance of proactive and effective due diligence prior to engaging contractors for significant construction projects.

Health Infrastructure's 2017-20 Corporate Plan identifies the development of a quality framework to support delivery of future-focused outcomes as a key organisational priority. Related initiatives within the Corporate Plan describe a framework underpinned by a Quality Committee providing advice on:

• records management, to meet the requirements of the State Records Act 1998
• project assurance, to ensure future focused outcomes and enhance Health Infrastructure's Standards, Policies, Procedures and Guidelines, Templates and Design Guidance Notes
• knowledge management and library services, to promote and leverage from project learnings.

Although Health Infrastructure has some elements of a quality framework it is not yet fully in place. Health Infrastructure advised it had yet to establish the quality framework and related committee described in its Corporate Plan due in part to its focus on responding to the growth of its capital program.

Health Infrastructure's Development and Innovation team has been active in supporting continuous improvement in knowledge and project management including development of business cases. Although useful, these initiatives have relied heavily on leveraging and disseminating insights from Gateway reviews and have not formed part of a systematic quality and continuous improvement framework.

The limited focus on the quality of business cases is reflected in internal performance monitoring and reporting which focuses mainly on tracking the delivery of projects against internal benchmarks, often revised from the baselines in the business case, and expenditure against cashflow targets. There is no evident internal monitoring and/or reporting to the Chief Executive and Board on defined quality metrics linked to business case development and staff capability.

Performance reporting on balanced scorecard metrics has similarly focused mainly on process rather than quality and has been inconsistent in recent years.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Appendix four – Ministry of Health planning tools and guidelines

Appendix five – Streamlined investment decision process for Health Capital Projects

Appendix six – Timeline of business cases and relevant policy guidelines

Copyright notice

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

Parliamentary reference - Report number #338 - released 12 August 2020

This is a follow-up to the Auditor-General's November 2016 report on the CBD South East Sydney Light Rail project. This follow-up report assessed whether Transport for NSW has updated and consolidated information about project costs and benefits.

The audit found that Transport for NSW has not consistently and accurately updated project costs, limiting the transparency of reporting to the public.

The Auditor-General reports that the total cost of the project will exceed $3.1 billion, which is above the revised cost of $2.9 billion published in November 2019. $153.84 million of additional costs are due to omitted costs for early enabling works, the small business assistance package and financing costs attributable to project delays.

The report makes four recommendations to Transport for NSW to publicly report on the final project cost, the updated expected project benefits, the benefits achieved in the first year of operations and the average weekly journey times.

Read full report (PDF)

The CBD and South East Light Rail is a 12 km light rail network for Sydney. It extends from Circular Quay along George Street to Central Station, through Surry Hills to Moore Park, then to Kensington and Kingsford via Anzac Parade and Randwick via Alison Road and High Street.

Transport for NSW (TfNSW) is responsible for planning, procuring and delivering the Central Business District and South East Light Rail (CSELR) project. In December 2014, TfNSW entered into a public private partnership with ALTRAC Light Rail as the operating company (OpCo) responsible for delivering, operating and maintaining the CSELR. OpCo engaged Alstom and Acciona, who together form its Design and Construct Contractor (D&C).

On 14 December 2019, passenger services started on the line between Circular Quay and Randwick. Passenger services on the line between Circular Quay and Kingsford commenced on 3 April 2020.

In November 2016, the Auditor-General published a performance audit report on the CSELR project. The audit found that TfNSW would deliver the CSELR at a higher cost with lower benefits than in the approved business case, and recommended that TfNSW update and consolidate information about project costs and benefits and ensure the information is readily accessible to the public.

In November 2018, the Public Accounts Committee (PAC) examined TfNSW's actions taken in response to our 2016 performance audit report on the CSELR project. The PAC recommended that the Auditor-General consider undertaking a follow-up audit on the CSELR project. The purpose of this follow-up performance audit is to assess whether TfNSW has effectively updated and consolidated information about project costs and benefits for the CSELR project.

Appendix one – Response from agency

Appendix two – Governance and reporting arrangements for the CSELR

Appendix three – 2018 CSELR governance changes

Appendix four – About the audit

Appendix five – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #335 - released 11 June 2020

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

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

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

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

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

Read full report (PDF)

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

There are three main causes of station crowding:

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

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

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

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

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

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

Appendix one – Response from agency

Appendix two – Sydney rail network

Appendix three – Rail services contract

Appendix four – Crowding pedestrian modelling

Appendix five – Airport Link stations case study

Appendix six – About the audit

Appendix seven – Performance auditing

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

NSW Ambulance has introduced several initiatives over the past decade to better manage the number of unnecessary ambulance responses and transports to hospital emergency departments. However, there is no overall strategy to guide the development of these initiatives nor do NSW Ambulance's data systems properly monitor their impact. As a result, the Audit Office was unable to assess whether NSW Ambulance's approach to managing demand is improving the efficiency of ambulance services.

Parliamentary reference - Report number #295 - released 13 December 2017

The following report highlights results of the financial audits of entities in the NSW health cluster. The report focuses on key observations and findings from the most recent audits of these entities.

The report also includes a range of findings on service delivery. Overall, NSW Health is achieving most of their targets. Some local health districts are continuing to experience increased demand for their services and are finding it more difficult to meet their targets. For example, three local health districts had not achieved some emergency department response time targets for three consecutive years.

1. Financial reporting and controls

2. Service Delivery

This report sets out the results of the 30 June 2017 financial statement audits of Health cluster entities.

The report has been structured into two chapters focusing on:

• Financial reporting and controls
• Service delivery.

This chapter outlines audit observations, conclusions and recommendations related to financial reporting and internal controls of entities for 2016-17.

This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17.

Appendix one - List of 2017 recommendations

Appendix two - Status of 2016 recommendations

Appendix three - Timeliness of financial and audit reporting

Appendix four - Financial indicators

Appendix five - Agencies selected for this report

Appendix six - Financial information

Appendix seven - Performance information

This report highlights the results of the financial audits of NSW Government central agencies. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Treasury, Premier and Cabinet, and Finance, Services and Innovation clusters.

The report includes a range of findings in respect to service delivery. One repeat finding is that while the Government regularly reports on the 12 Premier's priorities, there is no comprehensive reporting on the 18 State priorities. 

1. Financial reporting and controls

2. Service delivery

3. Government financial services

This report sets out the results of the 30 June 2017 financial statement audits of NSW Government's central agencies and their cluster agencies.

Central agencies play a key role in ensuring policy coordination, good administrative and people management practices and prudent fiscal management. The central agencies and their key responsibilities are set out below.

Confidence in public sector decision‑making and transparency is enhanced when financial reporting is accurate and timely. Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. This chapter outlines our audit observations, conclusions or recommendations related to financial reporting and controls of agencies for 2016–17.

This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17. 

This chapter outlines our audit observations, conclusions and recommendations specific to NSW Government agencies providing financial services.

Appendix one - List of 2017 recommendations

Appendix two - Status of 2016 recommendations

Appendix three - Agencies selected for this volume

Appendix four - Timeliness of financial reporting and audit reporting

Appendix five - Financial audit reporting

Appendix six - Financial analysis