Reports
Design and implementation of the Transport Asset Holding Entity
What the report is about
The Transport Asset Holding Entity (TAHE) is the State's custodian of rail assets. It is a state owned corporation and commenced operating on 1 July 2020.
This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. We audited TAHE, Transport for NSW (TfNSW) and NSW Treasury.
Separate and related audits on TAHE are reported in 'State Finances 2022', 'State Finances 2021' and 'Transport and Infrastructure 2022' reports.
What we found
The design and implementation of TAHE, which spanned seven years, was not effective.
The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.
The benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose.
Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed.
Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.
What we recommended
We recommended that the audited agencies should:
- improve accountability and transparency for major new fiscal transformation initiatives
- ensure entities do not reflect the financial impact of significant initiatives in the Budget when there is uncertainty, or it creates perverse incentives
- review record keeping practices, systems and policies to ensure compliance with the State Records Act 1998, and the NSW Government Information Classification, Labelling and Handling Guidelines
- review procurement policies to ensure that consultant use complies with all NSW Government policy requirements.
The NSW Government established the Transport Asset Holding Entity (TAHE), a statutory State Owned Corporation (SOC), on 1 July 2020 to replace the former rail infrastructure owner – RailCorp. It is the State's custodian of rail network assets, including rail tracks and other infrastructure, rolling stock, land, train stations and facilities, retail space, and signal and power systems, within metropolitan and regional New South Wales. It is responsible for $2.8 billion of major capital projects in 2022–23.
TAHE was established under Part 2 of the Transport Administration Act 1988 and is governed by a decision-making board. The Treasurer and the Minister for Finance and Employee Relations are the Shareholding Ministers of TAHE, and they annually agree performance expectations articulated in a Statement of Corporate Intent.
Whereas TAHE is the custodian of rail assets, Sydney Trains and NSW Trains operate public rail services. TAHE does not have responsibility for the operation of the heavy rail network or train services, nor does it have network control functions. TAHE, Sydney Trains and NSW Trains are in the Transport and Infrastructure cluster in the public sector (formerly the Transport cluster and renamed in April 2022), which also includes Sydney Metro and Transport for NSW (TfNSW).
TfNSW leads the Transport and Infrastructure cluster. Its role is to set the strategic direction for transport across the State. This involves the shaping of planning, policy, strategy, regulation, resource allocation and other service and non-service delivery functions for all modes of transport.
TAHE's Operating Licence is granted by the Portfolio Minister and authorises the entity to perform the functions required to acquire, develop, finance, divest and hold assets, pursuant to the Transport Administration Act 1988. The Portfolio Minister also issues a Statement of Expectations which outlines the government’s expectation for the business for the next three to five years.
TAHE's original Portfolio Minister was the Minister for Transport who approved, on 30 June 2020, the issuing of an interim 12-month Operating Licence to enable TAHE to commence operating on 1 July 2020. The Portfolio Minister then granted TAHE's current Operating Licence in 2021. After TAHE requested a 12-month extension to its current Operating Licence, its next Operating Licence is due on 1 July 2024. The current Portfolio Minister is the Minister for Infrastructure, Cities and Active Transport.
About this audit
This audit assessed the effectiveness of NSW Government agencies' design and implementation of TAHE. In making this assessment, we considered whether:
- the process of designing and implementing TAHE was cohesive and transparent, and delivered an effective outcome
- agencies' roles and responsibilities were clear in the planning of TAHE
- agencies effectively identified and managed certain risks.
Conclusion
The design and implementation of TAHE was not effective. The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments to sustain TAHE through continuing investment, and funding of the state owned rail operators. The ineffective process to design TAHE delivered a model that entails significant uncertainty as to whether the anticipated longer-term financial improvements to the Budget position can be achieved or sustained.
NSW Treasury and TfNSW had different objectives for TAHE
Up to June 2013, RailCorp had been the owner and operator of rail services and maintainer of the metropolitan rail network for almost a decade. It had been operating as a not-for-profit Public Non-Financial Corporation (PNFC).
In 2012, NSW Treasury (hereafter Treasury) decided there was a risk that the Australian Bureau of Statistics (ABS) would reclassify RailCorp to the General Government Sector (GGS), meaning depreciation expenses of approximately $870 million would be reflected in the GGS Budget. Treasury wanted to avoid this impact on the GGS Budget, and considered the establishment of a transport asset holding entity as a means to do so. Capital grants to RailCorp were being treated as an expense to the GGS Budget.
TfNSW also wanted an asset holding entity – but one that would be a non-trading ‘shell’ company with no staff that would hold and manage all public transport assets. TfNSW's concept envisaged the entity would have a structure that would enable future public transport reforms and strategic directions while ensuring vertical integration of operations between asset owners and the rail operators to maintain rail safety.
However, Treasury pursued its objective to improve the GGS Budget result, and sought to expand on TfNSW's 'shell' asset holding entity concept. Treasury wanted an entity that could generate a return on investment, as this meant that government investment in transport assets could be treated as equity investments, rather than a Budget expense, and in turn improve the GGS Budget position. As an example of the potential impact of creating this new entity, capital grants of $2.3 billion were paid to RailCorp in 2013–14. If Treasury's objective was met, grants of this significance would then be treated as an equity investment, rather than an expense in the GGS Budget.
In 2017, Treasury's preferred option was progressed through legislation, but both agencies' central objectives for the proposed asset holding entity would continue to prove difficult to reconcile. To achieve Treasury's objective to improve the Budget result, the entity would need to generate a return on investment (this is further discussed below). However, TfNSW expressed concerns that the prioritisation of rail safety, and the effective management of governance, regulation and operations would be more complex in an entity with commercial imperatives.
Asset holding entities are a common approach to the management of transport assets in Australia and internationally, and there are a range of approaches to how they are structured and used. Such structures should be driven by the goal of improved asset management. Ultimately, TfNSW's objectives could have been delivered through a simpler entity structure. However, reconciling TfNSW's objectives with Treasury's imperative to deliver and justify a Budget improvement in the short-term resulted in an overly lengthy process and an unnecessarily complex outcome that places an obligation on future governments to sustain. There is still significant uncertainty as to whether the short-term improvements to the Budget can continue to be realised in the longer-term.
The Budget benefits of TAHE were claimed before the entity was legislated, committing the agencies to deliver, regardless of the complexities that subsequently arose
The 2015–16 GGS Budget treated the government's investment in TAHE (still known at this time as RailCorp) as an equity contribution. This had the immediate impact of improving the Budget result by $1.8 billion per annum. However, the legislation to enable the establishment of TAHE had not yet been passed by Parliament, key elements of the operating model were still under development, and imminent changes in accounting standards had the potential to impact TAHE's financial model. The decision to book the benefits in the Budget early committed the involved agencies to implement a solution that justified the 2015–16 Budget impacts, irrespective of the challenges that arose.
TAHE's financial structure requires circular government investment to work
For the NSW Government to continue to treat its investment in TAHE as an equity contribution, rather than an expense to the Budget, there must be a reasonable expectation that TAHE will generate a sufficient rate of return as required by the Government Finance Statistics (GFS) framework. In doing so, it needs to recover a revaluation loss created by a $20.3 billion reduction in the value of its assets which was incurred in its first full year of operation. This loss occurred as a result of a revaluation of TAHE's assets when RailCorp (a not-for profit entity) became TAHE (a for-profit commercial entity) – and is discussed further in the 'Key findings' below.
TAHE generates a small portion of its income from transactions with the private sector but, as noted in our report 'State Finances 2021', TAHE receives the majority of its revenue (more than 80%) from access and licence fee agreements with Sydney Trains and NSW Trains. Both of these entities are funded by grants (a Budget expense) to TfNSW from the GGS Budget.
Based on Treasury’s correspondence with the ABS in 2015, TAHE was initially expected to pay a return on equity of 7% in 2016–17. The assumption of a 7% return persisted through to 2018, after the legislation enabling the establishment of TAHE was passed by Parliament. However, when the initial access and licence fees were agreed on 1 July 2020, this figure had been revised to an expected rate of return of 1.5% excluding the revaluation loss. This was below the long-term inflation target and did not include the recovery of the revaluation loss – risking the government's ability to treat its investment in TAHE as an equity contribution. Importantly, as TAHE is primarily reliant on fees paid by the state owned rail operators that, in turn, are funded by the GGS Budget (as an expense), the decision to change the returns model from 7% to 1.5% would in its own right have had a positive impact on the GGS Budget. However, the decision to use a 1.5% return would ultimately be problematic as it made it difficult to treat the government's contributions to TAHE as an equity investment, as discussed below.
On 14 December 2021, to avoid a qualified audit opinion, the NSW Government made the decision to increase TAHE's expected rate of return to 2.5%, equal to the Reserve Bank’s long-term inflation target.
In 2021-22, TAHE needed to start charging rail operators higher access and licence fees in order to generate a return of 2.5%, so as to support the government's treatment of its investment in TAHE as an equity contribution in the GGS Budget. This meant the government needed to provide additional grant (expense) funding to the state owned rail operators so they could pay the increased access and licence fees to TAHE. Based on current projections, TAHE is not expected to recover the revaluation loss until 2046.
There remains a risk that TAHE will not be able to generate a sufficient return on the NSW Government's investment without relying on increased funding to state owned rail operators so that they can in turn pay the higher access and licence fees. TAHE's ability to generate returns on government investment from other sources are uncertain and may not be achievable or sustainable. Current modelling highlights that TAHE remains largely reliant, through to 2046, on increasing fees (which are assumed to increase at 2.5% per annum from 2031 onwards when the current 10 year contracts with rail operators expire) paid by the state owned rail operators that remain principally reliant on GGS Budget grants.
The process of designing and implementing TAHE was not transparent to independent scrutiny
Our report 'State Finances 2021' commented that Treasury did not always provide this Office with information relating to TAHE on a timely basis. Similarly, during this performance audit, there were also multiple instances where auditees were unable to provide documentation regarding key activities in the process to deliver TAHE. Agencies also applied higher sensitivity classifications to large tranches of documents than was justified or required by policy. Of particular concern is the incorrect classification of documents as Cabinet sensitive information. The incorrect or over-classification of documentation as Cabinet sensitive delayed this Office's ability to provide scrutiny or independent assurance.
There was a lack of clarity around the roles and responsibilities of governance structures set up to oversee the design and implementation of TAHE
From 2014, multiple workstreams and advisory committees were established to progress the design and implementation of TAHE. For some of these committees and workstreams, there is limited information on what they were tasked to do and what they achieved. Most had ceased meeting by 2018, before significant work needed to deliver TAHE was completed.
The lack of clarity around the roles and responsibilities of these governance structures reduced opportunities for TfNSW and Treasury to reconcile their differing objectives for TAHE, and resolve key questions earlier in the process.
There was a heavy reliance on consulting firms throughout the process to establish TAHE, and the management of consultant engagements failed to ensure that agencies received independent advice to support objective decision-making
In 2020, Treasury and TfNSW failed to prevent, identify, or adequately manage a conflict of interest when they engaged the same 'Big 4' consulting firm to work on separate TAHE-related projects. Both agencies used the firm's work to further their respective views with regard to the financial implications of TAHE's operating model. At this time those views were still unreconciled.
Treasury engaged the firm to provide a fiscal risk management strategy and advice on the impact of changes to accounting standards. TfNSW engaged the same firm to develop operating and financial models for TAHE, which raised concerns regarding the viability of TAHE. Disputes arose around the findings of these reports. Treasury disagreed with some of the outcomes of the work commissioned by TfNSW, relating to accounting treatment and fiscal advice.
The management of this conflict (real or perceived) was left to the 'Big 4' consulting firm when it was more appropriate for it to be managed by Treasury and TfNSW. If these agencies had communicated more effectively, used available governance structures consistently, and shared information openly about their use of the firm and the nature of their respective engagements, these disputes might have been avoided. This issue, coupled with deficiencies in procurement by both agencies, reflected and further perpetuated the lack of cohesion in the design and implementation of TAHE.
More broadly, over the period 2014 – 2021, 16 separate consulting firms were employed to work on 36 contracts, valued at over $22.56 million, relating to TAHE ranging from accounting and legal advice, project management, and the provision of administrative support and secretariat services.
Consultants are legitimately used by agencies to provide advice on how to achieve the outcomes determined by government, including advising agencies on the risks and challenges in achieving those outcomes. Similarly, consultants can provide expert knowledge in the service of achieving those outcomes and managing the risks. However, the heavy reliance on consulting firms during the design and implementation of TAHE heightened the risk that agencies were not receiving value for money, were outsourcing tasks that should be performed by the public service, and did not mitigate the risk that the advice received was not objective and impartial. The risk that the role of consultants could have been blurred between providing independent advice to government on options and facilitating a pre-determined outcome was not effectively treated or mitigated. This risk was amplified because a small number of firms were used repeatedly to provide advice on one topic. The effective procurement and management of consultants is an obligation of government agencies.
Appendix two – Classification of government entities
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 #372 - released 24 January 2023
Transport and Infrastructure 2022
What the report is about
Result of the Transport and Infrastructure cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all Transport and Infrastructure cluster agencies' financial statements.
An 'other matter' paragraph was included in TAHE's Independent Auditor's Report for its 30 June 2022 financial statements which draws attention to Transport and Asset Holding Entity's (TAHE) reliance on government-funded customers.
We included an ‘emphasis of matter’ paragraph in the Independent Auditor’s Report for State Transit Authority of New South Wales’ (the authority) 30 June 2022 financial statements, which draws attention to the financial statements being prepared on a liquidation basis as the authority’s principal activities ceased operations on 3 April 2022.
What the key issues were
The 2021–22 audits identified five high-risk findings:
- detailed business modelling to support returns from TAHE
- valuation of assets at TAHE
- control of assets at TAHE
- accounting and valuation of tree assets at Centennial Park and Moore Park Trust and Parramatta Park Trust.
Access and licence fees - TAHE
Revised commercial agreements were signed between TAHE, the operators and Transport for NSW on 23 June 2022 to reflect increased access and licence fees detailed in the 18 December 2021 Heads of Agreement.
TAHE’s ability to generate the expected return of 2.5% based on the current modelling is heavily reliant on the government funding the public rail operators (TAHE's customers).
There are risks that:
- TAHE will not be able to recontract for access and licence fees at a level that is consistent with current projections
- future governments' funding to TAHE's key customers will not be sufficient to fund payment of access and licence fees at a level that is consistent with current projections
- TAHE will be unable to grow its non-government revenues.
Valuation of assets - TAHE
Although TAHE's selected valuation of assets falls within an acceptable range, there remains a significant gap between what has been assessed as an acceptable range and TAHE's range.
What we recommended
Control of assets - TAHE
While we accepted TAHE’s position on control for the current year, NSW Treasury and TAHE should continue to monitor the risk that control of TAHE assets could change in future reporting periods. TAHE must continue to demonstrate control of its assets or the current accounting presentation would need to be reconsidered.
This report provides Parliament and other users of the Transport and Infrastructure cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 and Infrastructure cluster (the cluster) for 2022.
Section highlights
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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 cluster.
Section highlights
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Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Enterprise, Investment and Trade 2022
What the report is about
Result of the Enterprise, Investment and Trade cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
The Machinery of Government changes within the Enterprise, Investment and Trade cluster resulted in the creation of the Department of Enterprise, Investment and Trade and the transfer of $1.0 billion of net assets into the new department.
Unmodified audit opinions were issued for all completed cluster agencies' 2021–22 financial statements audits. Two audits are ongoing.
An 'Other Matter' paragraph was included in the audit opinion for the Jobs for NSW Fund's 30 June 2021 financial report to reflect the non-compliance with the Jobs for NSW Act 2015 (the Act) and Government Sector Finance Act 2018. The Act requires the board to consist of seven members that include the Secretary of the Treasury, the Secretary of the Department of Premier and Cabinet, and five ministerial appointments. The board has consisted of two secretaries since 24 May 2019 when the independent members resigned. The remaining five members have not been appointed by the ministers as required by section 5(2) of the Act.
Three cluster agencies accepted changes to their office leasing arrangements managed by Property NSW. This has resulted in the collective derecognition of $24.8 million of right-of-use assets and $26.7 million in lease liabilities, and recognition of $1.9 million of other gains.
What the key issues were
The number of issues we reported to management decreased from 108 in 2020–21 to 103 in 2021–22. Thirty per cent of issues were repeated from the prior year.
Six high-risk issues were identified across the cluster related to the quality and timeliness of financial reporting, governance processes and internal controls.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Enterprise, Investment and Trade cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 Enterprise, Investment and Trade cluster (the cluster) for 2022.
Section highlights
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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 Enterprise, Investment and Trade cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Planning and Environment 2022
What the report is about
Result of the Planning and Environment cluster agencies' financial statements audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for all completed 30 June 2022 financial statements audits of cluster agencies. Seven audits are ongoing.
Disclaimed audit opinions were issued for the 2010–11 to 2015–16 financial statements of the Water Administration Ministerial Corporation (WAMC), as management was unable to certify that the financial statements exhibit a true and fair view of WAMC's financial position and financial performance.
Qualified audit opinions were issued for WAMC's 2016–17 and 2017–18 financial statements due to insufficient evidence to support the completeness and valuation of water meters infrastructure assets, the impairment of water meters, and the completeness of buildings at Nimmie Caira.
Unqualified audit opinions were issued for WAMC's 2018–19 and 2019–20 financial statements.
The Department of Planning and Environment (the department) assessed 45 Category 2 Statutory Land Managers (SLM) did not meet the reporting exemption criteria and therefore were required to prepare 2021–22 financial statements. None of these 45 Category 2 SLMs prepared and submitted their 30 June 2022 financial statements by the statutory reporting deadline.
All 119 Commons Trusts have never submitted their financial statements for audit as required by the Government Sector Finance Act 2018 (GSF Act).
NSW Treasury has confirmed that the Catholic Metropolitan Cemeteries Trust (CMCT) is a controlled entity of the State. To date, CMCT has not met its obligations to prepare financial statements under the GSF Act and it has not submitted financial statements to the Auditor-General for audit.
What the key issues were
Since 2017, the Audit Office has recommended the department address the different practices across the local government sector in accounting for rural firefighting equipment. Despite repeated recommendations, the department did little to resolve this issue. At the time of writing, 32 of 118 completed council audits received qualified audit opinions on their 30 June 2022 financial statements.
There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that is managed and controlled by the department and land managers. The CLID system was not designed to facilitate financial reporting, and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.
The department implemented the CrownTracker system as a replacement for CLID. The project was finalised in June 2022, but it has not achieved the intended outcomes.
Nine high-risk issues were identified across the cluster related to the findings outlined above and weaknesses in IT general controls, financial reporting, governance processes and internal controls.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Planning and Environment cluster’s financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 Planning and Environment cluster (the cluster) for 2022.
Section highlights
|
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 Planning and Environment cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Appendix five – Councils received qualified audit opinions
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.
Health 2022
What the report is about
Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for the financial statements for all Health cluster agencies.
The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).
A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.
What the key issues were
The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.
Three unresolved high-risk issues were:
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COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.
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Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.
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Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.
What we recommended
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COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.
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Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.
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Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.
This report provides Parliament and other users of Health cluster (the cluster) agencies' financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
-
financial reporting
-
audit observations.
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 Health cluster (the cluster) for 2022.
Section highlights
|
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 cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Customer Service 2022
What the report is about
Result of the Customer Service cluster agencies' financial statement audits for the year ended 30 June 2022.
What we found
Unmodified audit opinions were issued for Customer Service cluster agencies.
What the key issues were
The number and size of Service NSW's administered grant programs have increased significantly in response to emergency events. Improvements are required to address gaps in Service NSW's policies, systems and processes in administering and financial reporting of grant programs.
The Department of Customer Service (the department) reported a retrospective correction of a prior period error of $33.3 million understatement of the land titling database, which is a service concession asset managed by a private operator.
The 2021–22 audits identified five high-risk issues across the cluster:
- the department:
- control weaknesses in user access to GovConnect systems
- significant control deficiencies in information technology change management controls
- Rental Bond Board:
- legislation amendment required to better support the accounting treatment of rental bonds
- no delegation instrument to government officers authorising them to approve expenditures
- Service NSW:
- improvements required in the timeliness and quality of grant administration revenue assessment and controls over the recovery of grant administration costs.
Recommendations were made to address these deficiencies.
This report provides Parliament and other users of the Customer Service cluster's financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 Customer Service cluster (the cluster) for 2022.
Section highlights
|
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 Customer Service cluster.
Section highlights
|
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
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.
Audit Insights 2018-2022
What the report is about
In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.
This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.
The report is framed by recognition that the past four years have seen significant challenges and emergency events.
The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.
The report is a resource to support public sector agencies and local government to improve future programs and activities.
What we found
Our analysis of findings and recommendations is structured around six key themes:
- Integrity and transparency
- Performance and monitoring
- Governance and oversight
- Cyber security and data
- System planning for disruption
- Resource management.
The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.
In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.
The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
Fast facts
- 72 audits included in the Audit Insights 2018–2022 analysis
- 4 years of audits tabled by the Auditor-General for New South Wales
- 6 key themes for Audit Insights 2018–2022.
I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.
The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.
A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.
However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.
While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.
Margaret Crawford
Auditor-General for New South Wales
| Integrity and transparency | Performance and monitoring | Governance and oversight | Cyber security and data | System planning | Resource management |
| Insufficient documentation of decisions reduces the ability to identify, or rule out, misconduct or corruption. | Failure to apply lessons learned risks mistakes being repeated and undermines future decisions on the use of public funds. | The control environment should be risk-based and keep pace with changes in the quantum and diversity of agency work. | Building effective cyber resilience requires leadership and committed executive management, along with dedicated resourcing to build improvements in cyber security and culture. | Priorities to meet forecast demand should incorporate regular assessment of need and any emerging risks or trends. Absence of an overarching strategy to guide decision-making results in project-by-project decisions lacking coordination. | Governments must weigh up the cost of reliance on consultants at the expense of internal capability, and actively manage contracts and conflicts of interest. |
| Government entities should report to the public at both system and project level for transparency and accountability. | Government activities benefit from a clear statement of objectives and associated performance measures to support systematic monitoring and reporting on outcomes and impact. | Management of risk should include mechanisms to escalate risks, and action plans to mitigate risks with effective controls. | In implementing strategies to mitigate cyber risk, agencies must set target cyber maturity levels, and document their acceptance of cyber risks consistent with their risk appetite. | Service planning should establish future service offerings and service levels relative to current capacity, address risks to avoid or mitigate disruption of business and service delivery, and coordinate across other relevant plans and stakeholders. | Negotiations on outsourced services and major transactions must maintain focus on integrity and seeking value for public funds. |
| Entities must provide balanced advice to decision-makers on the benefits and risks of investments. | Benefits realisation should identify responsibility for benefits management, set baselines and targets for benefits, review during delivery, and evaluate costs and benefits post-delivery. | Active review of policies and procedures in line with current business activities supports more effective risk management. | Governments hold repositories of valuable data and data capabilities that should be leveraged and shared across government and non-government entities to improve strategic planning and forecasting. | Formal structures and systems to facilitate coordination between agencies is critical to more efficient allocation of resources and to facilitate a timely response to unexpected events. | Transformation programs can be improved by resourcing a program management office. |
| Clear guidelines and transparency of decisions are critical in distributing grant funding. | Quality assurance should underpin key inputs that support performance monitoring and accounting judgements. | Governance arrangements can enable input into key decisions from both government and non-government partners, and those with direct experience of complex issues. | Workforce planning should consider service continuity and ensure that specialist and targeted roles can be resourced and allocated to meet community need. | ||
| Governments must ensure timely and complete provision of information to support governance, integrity and audit processes. | |||||
| Read more | Read more | Read more | Read more | Read more | Read more |
This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.
- Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
- Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
- Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.
This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.
The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.
This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.
Appendix one – Included reports, 2018–2022
Appendix two – About this report
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Universities 2021
What the report is about
Results of the financial statement audits of the public universities in NSW for the year ended 31 December 2021.
What we found
Financial reporting
Unmodified audit opinions were issued for all ten universities.
The University of Wollongong reported the retrospective correction of a prior period error relating to a $169 million contract termination liability.
All universities reported positive net results in 2021 (four in 2020) and each showed improvement from 2020. This was mainly due to expenditure decreasing by a combined $644 million (5.8%) from 2020. Universities implemented redundancy programs in response to the COVID-19 pandemic, which resulted in a decrease of nearly 2,300 full-time equivalent staff in 2021.
All universities held an investment in Education Australia Limited, which paid to its shareholders a fully franked dividend comprising cash and shares in IDP Education Limited. This increased the combined investment revenues of the universities by $515 million in 2021. However, it affected each university's net result differently depending on elections made in their historical accounting treatment.
Government grants increased by $442 million from 2020, of which $297 million related to the Commonwealth's 2021 additional Research Support Program funding to the NSW universities which was a COVID-19 support measure to the sector.
Over 43% of universities' course fees revenue comes from three countries (39% in 2020). Students from China now represent over half of all overseas student enrolments. A high level of reliance on student revenue from a single country poses a concentration risk for universities.
Internal controls
We reported 105 findings to universities on internal control deficiencies (110 in 2020).
Four high-risk findings were identified (three in 2020), relating to:
- the status of one university's work in assessing its liability for underpayment of staff
- IT control deficiencies over privileged user access
- control deficiencies that resulted in non-recognition of a liability in one university's prior year's financial statements
- a detailed review of payroll compliance for casual staff, which remains outstanding at one university.
There were 45 repeat findings of control deficiencies in 2021 (45 in 2020).
All universities have drafted or implemented a cybersecurity policy and established a governance committee accountable for cybersecurity. However, improvements could be made in:
- recording and monitoring of attempted cyber incidents
- assessing cyber risks relating to IT vendors
- implementation of cybersecurity control measures for key systems.
Four out of 13 entities experienced a significant cyber incident during 2021.
What we recommended
- Universities should prioritise actions to address repeat findings on internal control deficiencies, particularly where the issue has been repeated for a number of years.
- Universities and controlled entities should prioritise improvements to their cybersecurity and resilience.
Fast facts
There are ten public universities in NSW, with 52 controlled entities in Australia and 22 overseas controlled entities.
- $12b total combined adjusted revenue in 2021, an increase of $1.1 billion (10.5%) from 2020
- $10.4b total combined expenditure in 2021, a decrease of $644 million (5.8%) from 2020
- 79,134 overseas student enrolments in 2021, a decrease of 3,138 students (3.8%) from 2020
- 209,018 domestic student enrolments in 2021, an increase of 1,622 students (0.8%) from 2020
- 4 high-risk management letter findings were identified (3 in 2020)
- 43% of reported issues were repeat issues.
This report provides Parliament with the results of our financial audits of universities in New South Wales and their controlled entities in 2021, including our analysis, observations and recommendations in the following areas:
- financial reporting
- internal controls and governance
- teaching and research.
Financial reporting is an important element of governance. Confidence and transparency in university sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations on the financial reporting of universities in NSW for 2021.
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Appropriate and robust internal controls help produce reliable financial reports and reduce risks associated with managing finances, compliance and administration of universities.
This chapter outlines the internal controls related observations and insights across universities in NSW for 2021, including overall trends in findings, level of risk and implications.
Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant matters are reported to universities for management to address.
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Universities' primary objectives are teaching and research. They invest most of their resources aiming to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.
This chapter outlines teaching and research outcomes for universities in NSW for 2021.
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Appendix one – List of 2021 recommendations
Appendix two – Status of 2020 recommendations
Appendix three – Universities' controlled entities
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Local Government 2021
What the report is about
Results of the local government sector council financial statement audits for the year ended 30 June 2021.
What we found
Unqualified audit opinions were issued for 126 councils, 13 joint organisation audits and nine county councils in 2020–21.
A qualified audit opinion was issued for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.
The audit of Kiama Municipal Council is still in progress as at the date of this report due to significant accounting issues not resolved resulting in corrections to the financial statements and prior period errors.
Forty-one councils and joint organisations (2020: 16) received extensions to submit audited financial statements to the Office of Local Government (OLG).
Councils were impacted by recent emergency events, including bushfires, floods and the COVID-19 pandemic. The financial implications from these events varied across councils. Councils adapted systems, processes and controls to enable staff to work flexibly.
What the key issues were
There were 1,277 audit findings reported to councils in audit management letters.
Ninety-two high-risk matters were identified across the sector:
- 69 high-risk matters relating to asset management (see page 30)
- six high-risk matters relating to information technology (see page 39)
- six high-risk matters relating to financial reporting (see page 26)
- six high-risk matters to council governance procedures (see page 22)
- five high-risk matters relating to financial accounting (see page 28).
More needs to be done to reduce the number of errors identified in financial reports. Twenty-nine councils required material adjustments to correct errors in previous audited financial statements.
Rural firefighting equipment
Sixty-eight councils did not record rural firefighting equipment estimated to be $145 million in their financial statements.
The financial statements of the NSW Total State Sector and the NSW Rural Fire Service do not include these assets, as the State is of the view that rural firefighting equipment that has been vested to councils under the Rural Fires Act 1997 is not controlled by the State. In reaching this conclusion, the State argued that on balance it would appear the councils control rural firefighting equipment that has been vested to them.
The continued non-recording of rural firefighting equipment in financial management systems of some councils increases the risk that these assets are not properly maintained and managed.
What we recommended
Councils should perform a full asset stocktake of rural firefighting equipment, including a condition assessment for 30 June 2022 financial reporting purposes and recognise this equipment as assets in their financial statements.
Consistent with OLG’s role to assess council’s compliance with legislative responsibilities, standards or guidelines, OLG should intervene where councils do not recognise rural firefighting equipment.
Fast facts
- 150 councils and joint organisations in the sector
- 99% unqualified audit opinions issued for the 30 June 2021 financial statements
- 489 monetary misstatements reported in 2020–21
- 54 prior period errors reported
- 92 high-risk management letter findings identified
- 53% of reported issues were repeat issues.
Early financial reporting procedures
Fifty-nine per cent of councils performed some early financial reporting procedures, less than the prior year.
What we recommended
OLG should require early financial reporting procedures across the local government sector by April 2023. Policy requirements should be discussed with key stakeholders to ensure benefits of the procedures are realised.
Asset valuations
Audit management letters reported 288 findings relating to asset management. Fifty-eight councils had deficiencies in their processes to revalue infrastructure assets.
Thirty-five councils corrected errors relating to revaluations amounting to $1 billion and 13 councils had prior period errors relating to asset revaluations that amounted to $253 million.
What we recommended
Councils should have all asset revaluations completed by April of the financial year subject to audit.
Integrity/completeness of asset records
Sixty-seven councils had weak processes over maintenance, completeness and security of fixed asset registers.
Thirty-five councils corrected errors to the financial statements relating to poor record keeping of asset data that amounted to $102.1 million. Nineteen councils had 27 prior period financial statement errors that amounted to $417.1 million relating to the quality of asset records such as found and duplicate assets.
What we recommended
Councils need to improve controls and processes to ensure integrity and completeness of asset source records.
Cybersecurity
Our audits found that cybersecurity frameworks and related controls were not in place at 65 councils.
These councils have yet to implement basic governance and internal controls to manage cybersecurity such as having a cybersecurity framework, policy and procedure, register of cyber incidents, system penetrations testing and training.
What we recommended
OLG needs to develop a cybersecurity policy to be applied by councils as a matter of high priority in order to ensure cybersecurity risks over key data and IT assets are appropriately managed across councils and key data is safeguarded.
Councils should monitor the implementation of recommendations
Fifty-three per cent of total findings reported in 2020–21 audit management letters were repeat or partial repeat findings from prior years.
What we recommended
Councils and those charged with governance should track the progress of implementing recommendations from financial audits, performance audits and public inquiries.
Key financial information
In 2020–21, councils:
- collected $7.6b in rates and annual charges
- received $5.1b in grants and contributions
- incurred $4.8b of employee benefits and on costs
- held $15.3b of cash and investments
- managed $161.7b of infrastructure, property, plant and equipment
- entered into $3.4b of borrowings.
Pursuant to the Local Government Act 1993 I present my report Local Government 2021. My report provides the results of the 2020–21 financial audits of 127 councils, 13 joint organisations and nine county councils.
Unqualified audit opinions were issued for 126 councils, 13 joint organisation and nine county councils in 2020–21. My independent auditor’s opinion was qualified for Central Coast Council who was unable to provide evidence to support the carrying value of $5.5 billion of roads, bridges, footpaths, bulk earthworks, stormwater drainage, water supply and sewerage network assets.
The 2020–21 year was challenging from many perspectives, not least being the continuing impact of and response to the recent emergency events, including bushfires, floods and the COVID-19 pandemic. We appreciate the efforts of council staff and management right across local government and they must be congratulated for their responsiveness and resilience in meeting their financial reporting obligations in such challenging circumstances.
This report makes a number of recommendations to councils and to the regulator, the Office of Local Government within the Department of Planning and Environment. These are intended to support councils to further improve the timeliness, accuracy and strength of financial reporting and their governance arrangements. Arguably, when faced with challenges, it is even more important to prioritise and invest in systems and processes to protect the integrity of councils' operations and promote accurate and transparent reporting.
I look forward to continuing engagement and constructive dialogue with councils in 2022–23 and beyond.
Margaret Crawford
Auditor-General for New South Wales
Financial reporting is an important element of good governance. Confidence in and transparency of public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines audit observations related to the financial reporting of councils and joint organisations.
Highlights
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A strong system of internal controls enables councils to operate effectively and efficiently, produce reliable financial reports, comply with laws and regulations, and support ethical government.
This chapter outlines the overall trends in governance and internal control findings across councils, county councils and joint organisations in 2020–21.
Financial audits focus on key governance matters and internal controls supporting the preparation of councils' financial statements. Audit findings are reported to management and those charged with governance through audit management letters.
Highlights
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Total number of findings reported in audit management letters decreased
In 2020–21, 1,277 audit findings were reported in audit management letters (2019–20: 1,435 findings). No extreme audit risk findings were identified this year. The extreme risk relating to Central Coast Council's use of externally restricted funds in 2019–20 was partially addressed by management and has been rated as a high-risk for 2020–21. The total number of high-risk findings increased to 92 (2019–20: 53 high-risk findings).
Findings are classified as new, repeat or ongoing, based on:
- new findings were first reported in 2020–21 audits
- repeat findings were first reported in prior year audits, but remain unresolved in 2020–21
- ongoing findings were first reported in prior year audits, but the action due dates to address the findings are after 2020–21.
Findings are categorised as governance, financial reporting, financial accounting, asset management, purchases and payables, payroll, cash and banking, revenue and receivables, or information technology. The high-risk and common audit findings across these areas are explored further in this chapter.
Audit Office’s annual work program for 2021–22 onwards
Focus on integrity of systems, good governance and good advice
We have a fundamental role in helping the Parliament hold government accountable for the use of public resources. In doing so, we examine whether councils' systems and processes are effective in supporting integrity, accountability and transparency. Key aspects of integrity that we expect to through conduct of our financial and performance audits over the next three years include the integrity of systems, good governance and good advice. These focus areas have arisen from the collation of key findings and recommendations from our past reports.
Focus on local councils' continued response to recent emergencies
The COVID-19 pandemic continues to have a significant impact on the people and the public sector of New South Wales. Local councils are continuing to assist communities in their recovery from the 2019–20 bushfires and subsequent and recent flooding. The full extent of some of these events remain unclear and will likely continue to have an impact into the future.
The Office of Local Government within the Department of Planning and Environment continues to work with other state agencies to assist local councils and their communities to recover from these unprecedented events.
The increasing and changing risk environment presented by these events has meant that we have recalibrated and focused our efforts on providing assurance on how effectively aspects of responses to these emergencies have been delivered.
This includes financial and governance risks arising from the scale and complexity of government responses to these events.
We will take a phased approach to ensure our financial and performance audits address the following elements of the emergencies and the Local Government's responses:
- local councils' planning and preparedness for emergencies
- local councils' initial responses to support people and communities impacted by COVID-19 and the 2019–20 bushfires and recent floods
- governance and oversight risks that arise from the need for quick decision-making and responsiveness to emergencies
- effectiveness and robustness of processes to direct resources toward recovery efforts and ensure good governance and transparency in doing so
- the mid to long-term impact of government responses to the natural disasters and COVID-19
- whether government investment has achieved desired outcomes.
Focus on the effectiveness of cybersecurity in local government
The increasing global interconnectivity between computer networks has dramatically increased the risk of cybersecurity incidents. Such incidents can harm local government service delivery and may include theft of information, denial of access to critical technology, or even hijacking of systems for profit or malicious intent.
Outdated IT systems and capability present risks to government cybersecurity. Local councils need to be alert to the need to update and replace legacy systems, and regularly train and upskill staff in their use. To add to this, cybersecurity risks have been exacerbated by recent emergencies, which have resulted in greater and more diverse use of digital technology.
Our approach to auditing cybersecurity across in the sector involves:
- considering how local councils are responding to the risks associated with cybersecurity across our financial audits
- examining the effectiveness of cybersecurity planning and governance arrangements within local councils
- conducting deep-dive performance audits of the effectiveness of cybersecurity measures in selected councils.
Local government elections
Local government elections took place in 2021–22
The local government elections were deferred for one year due to the COVID-19 pandemic and were held on 4 December 2021.
As part of our audits, we will consider the impact of any significant change on key decisions and activities for councils, county councils and joint organisations following the local government elections.
New rate peg methodology to support growing councils
The Independent Pricing and Regulatory Tribunal (IPART) has completed its review of the local government rate peg methodology to include population growth.
On 10 September 2021, IPART provided the final report on this review to the Minister for Local Government.
The minister has endorsed the new rate peg methodology and has asked IPART to give effect to it in setting the rate peg from the 2022–23 financial year.
As part of our audits, we will consider the impact of these changes on the financial statements and on key decisions and activities for councils, county councils and joint organisations.
Appendix two – Status of previous recommendations
Appendix three – Status of audits
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.
COVID-19: response, recovery and impact
What the report is about
This report draws together the financial impact of COVID-19 on the agencies integral to responses across the state government sector of New South Wales.
What we found
Since the COVID-19 pandemic hit NSW in January 2020, and until 30 June 2021, $7.5 billion was spent by state government agencies for health and economic stimulus. The response was largely funded by borrowings.
The key areas of spending since the start of COVID-19 in NSW to 30 June 2021 were:
- direct health response measures – $2.2 billion
- personal protective equipment – $1.4 billion
- small business grants – $795 million
- quarantine costs – $613 million
- increases in employee expenses and cleaning costs across most agencies
- vaccine distribution, including vaccination hubs – $71 million.
The COVID-19 pandemic significantly impacted the financial performance and position of state government agencies.
Decreases in revenue from providing goods and services were offset by increases in appropriations, grants and contributions, for health and economic stimulus funding in response to the pandemic.
Most agencies had expense growth, due to additional operating requirements to manage and respond to the pandemic along with implementing new or expanded stimulus programs and initiatives.
Response measures for COVID-19 have meant the NSW Government is unlikely to meet targets in the Fiscal Responsibility Act 2012 being:
- annual expense growth kept below long-term average revenue growth
- elimination of State’s unfunded superannuation liability by 2030.
Fast facts
- First COVID-19 case in NSW on 25 January 2020
- COVID-19 vaccinations commenced on 21 February 2021
- By 31 December 2021, 25.2 million PCR tests had been performed in NSW and 13.6 million vaccines administered, with 93.6% of the 16 and over population receiving two doses
- During 2020–21, NSW Health employed an extra 4,893 full-time staff and incurred $28 million in overtime mainly in response to COVID-19
- During 2020–21, $1.2 billion was spent on direct health COVID-19 response measures and $532 million was spent on quarantine for incoming international travellers
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Section highlights
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