What the report is about

The Government Advertising Act 2011 requires the Auditor General to conduct a performance audit on government advertising activities each financial year.

This audit looked at whether three campaigns run by Destination NSW (DNSW) during 2020–21 were carried out in an effective, economical and efficient manner:

• Love Sydney (comprising two sub campaigns being ‘Sydney - Love It Like You Mean It’ and ‘Get Your Sydney On’)
• Love NSW
• Road Trips. 

What we found

DNSW complied with section 6 of the Government Advertising Act 2011 (the Act), prohibiting political content.

The Act requires the head of an agency to sign a compliance certificate that certifies that the campaign complies with the Act and is an efficient and cost effective means of achieving its public purpose. 

When the Acting Chief Executive of DNSW signed DNSW’s compliance certificate, evidence to support this certification was not available.

The Act requires a peer review and cost benefit analysis for campaigns over $1.0 million. DNSW did not complete the peer review or cost-benefit analysis for the audited advertising campaigns before they had concluded. 

The Department of Customer Service (DCS), which manages the peer review process, did not escalate the issue of the outstanding peer review documentation to senior DNSW staff. 

DNSW did not set targets for all measures established for the campaigns. This limits the ability to assess their effectiveness.

The impact of the COVID-19 pandemic likely contributed to the campaigns not meeting a substantial proportion of established outcome and impact targets.

None of the audited campaigns met the minimum requirement of 7.5 per cent for the allocation of the media budget for communications with Culturally and Linguistically Diverse and Aboriginal audiences.

What we recommended

DNSW should:

• implement processes for planning and delivering advertising campaigns delivered in urgent circumstances to bring them in line with NSW Government practice
• ensure that it establishes measurements and targets for outcomes and impacts of its advertising campaigns consistent with NSW Government evaluation frameworks and guidance.

The Department of Customer Service should:

• establish a policy and procedure for ensuring that campaign documentation is completed in a timely manner in the case of urgent campaigns, including establishing expectations around timeframes for the completion of peer review
• establish a procedure for escalating issues of outstanding documentation to ensure that the peer review is completed in line with reasonable expectations and timeframes.

The Government Advertising Act 2011 (the Act) requires the Auditor-General to conduct a performance audit on the activities of one or more government agencies in relation to government advertising campaigns in each financial year. The performance audit assesses whether a government agency or agencies have carried out activities in relation to government advertising in an effective, economical and efficient manner and in compliance with the Act, the regulations, other laws and the Government Advertising Guidelines (the Guidelines). This audit examined three campaigns run by Destination NSW during the 2020–21 financial year:

• Love Sydney (comprising two sub-campaigns being ‘Sydney - Love It Like You Mean It’ and ‘Get Your Sydney On’), focussing on increasing visitor activity in Sydney
• Love NSW, focussing on increasing visitor activity in regional New South Wales
• Road Trips, focussing on encouraging visitor activity on iconic road trips in regional New South Wales.

Section 6 of the Act prohibits political advertising. Under this section, material that is part of a government advertising campaign must not contain the name, voice or image of a minister, member of Parliament or a candidate nominated for election to Parliament or the name, logo or any slogan of a political party. Further, a campaign must not be designed to influence (directly or indirectly) support for a political party.

The Act and associated regulations and the Guidelines also establish an accountability and compliance framework around the investment in advertising by NSW Government agencies.

The government's operating circumstances at the commencement of the 2020–21 financial year were highly challenging, with the 2019–20 bushfires being followed by the COVID-19 pandemic. This created new demands across a range of government services, and without any clear view on the severity of the pandemic and when it would end. This was the case for Destination NSW, which had to plan for its advertising activities in the context of an uncertain future for national border closures (impacting international in-bound travel) and lockdowns across Australia, including in New South Wales (impacting domestic travel). Further, the sudden nature of outbreaks and lockdowns meant that Destination NSW often was required to change the targeting of its campaigns and, in some situations, had to cease particular advertising activities until specific lockdowns had ended.

Campaign materials we reviewed did not contain political content

The audit team reviewed campaign materials developed as part of each of the paid advertising campaigns including radio transcripts, digital videos and display. See Appendix two for examples of campaign materials for this campaign.

Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:

• be designed to influence (directly or indirectly) support for a political party
• contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
• contain the name, logo, slogan or any other reference to a political party.

The audit found no breaches of section 6 of the Act in the campaign material reviewed.

All reviewed campaigns were for purposes permitted by section 1.2 of the Guidelines

Section 4 of the Act states that government advertising campaigns are 'the dissemination to members of the public of information about a government program, policy or initiative, or about any public health or safety or other matter'. To support this, section 1.2 of the NSW Government Advertising Guidelines states that government advertising campaigns may only be used to achieve certain objectives. One of these objectives is to encourage changed behaviours or attitudes that will lead to improved public health and safety or quality of life.

The audit team considers that each of the reviewed advertising campaigns was consistent with this objective. This reflects the intent of each of the campaigns to increase economic activity driven by tourism activity in New South Wales, that contributes to improved quality of life for New South Wales residents.

The Acting Chief Executive signed Destination NSW's compliance certificate without supporting evidence

The Acting Chief Executive of Destination NSW signed a single compliance certificate for all Destination NSW campaigns for 2020–21 (including the three campaigns that are considered by this audit) on 28 February 2020. Evidence was not available at this date to support the statements included in the compliance certificate for the campaigns that were considered by this audit.

The compliance certificate is required by section 8 of the Act and states that the head of the agency confirms that a proposed government advertising campaign:

• complies with the Act, the regulations and the Guidelines, and
• contains accurate information, and
• is necessary to achieve a public purpose and is supported by analysis and research, and
• is an efficient and cost-effective means of achieving that public purpose.

At the time of signing the certificate in February 2020, Destination NSW had not conceived, designed or planned any of the campaigns that are considered by this audit, nor had it developed the relevant supporting information that would enable the agency to support these statements. As noted above, peer review had not commenced prior to this date. Further, Destination NSW had not completed a cost-benefit analysis or equivalent analysis.

Without any form of cost-benefit analysis or other evaluation for any of the campaigns prior to the date of signing of the compliance certificate, the Acting Chief Executive had no evidence that could support the certification that the campaigns were 'an efficient and effective means of achieving the public purpose'. The absence of peer review or a cost-benefit analysis also means that the Acting Chief Executive could not certify that the campaigns complied with the Act, the regulations or the Guidelines, nor that the campaign was supported by analysis and research.

Destination NSW did not complete peer reviews for the advertising campaigns before they ended, limiting assurance over campaign effectiveness, efficiency and economy

As all the campaigns subject to this audit were valued at over $250,000, each campaign was required to undergo peer review. The peer review is an independent review of the need for the proposed advertising campaign, the creative and media strategy (including objectives and target audiences) and how the agency will manage the campaign. Ordinarily, a peer review would be completed prior to a campaign commencing, however section 7(4) of the Act permits agencies to carry out a peer review after the advertising campaign commences 'if the head of the government agency concerned is satisfied that the campaign relates to an urgent public health or safety matter or is required in other urgent circumstances'.

DCS supported Destination NSW's assessment that these were urgent campaigns and that it would accept consideration of peer review components in parallel with the roll-out of the advertising campaigns, given the urgency of the need to generate economic activity, initially after the 2019–20 bushfires and then after the challenging circumstances brought on by the COVID-19 pandemic. This is in line with section 7(4) of the Act.

Destination NSW presented and obtained clearance on creative materials and media planning on a timely basis for two of the three campaigns (but not for the Road Trips campaign), which would ordinarily form part of peer review. However, for all campaigns, the peer reviews were not completed or signed off by DCS prior to the completion of advertising campaigns. In particular, Destination NSW did not submit material related to the accountability for campaign effectiveness, including the campaign objectives and measures before the end of the campaigns.

The absence of peer review of much of the material prior to completion of the campaigns reduces the ability of the agency and government to be confident that the advertising expenditure was consistent with NSW Government requirements, or represented efficient, effective and economical use of funds.

Destination NSW noted that section 7(4) of the Act allows the peer review to be completed after the commencement of a campaign in urgent circumstances but places no requirement on it to be completed before the end of the campaign. The audit has determined that for the peer review to meet its intended purpose, being to inform the design and delivery of the advertising campaign, it needs to be completed prior to the end of the campaign, even in urgent circumstances. DCS has supported this intent of the framework.

By the end of September 2021, DCS advised Destination NSW that it would not consider any further material for peer review related to the 2020–21 advertising campaigns. At this time, DCS closed the peer review for the Love NSW and Road Trips campaigns and assessed them as incomplete. DCS assessed the Love Sydney peer review as complete, despite noting that the campaign evaluation was not complete and with no details or confirmation of meeting culturally and linguistically diverse (CALD) advertising requirements, including for Aboriginal communities.

DCS did not escalate the issue of outstanding peer review materials

DCS worked at officer level to remind Destination NSW that peer review material was outstanding during the year. While this is appropriate as an initial point of escalation, at no time was the issue of non-compliance escalated to higher levels of management. DCS also never sent formal correspondence requesting the materials needed to ensure the completion of peer review.

DCS does not have a process for ensuring the timely completion of peer review in situations where urgency exemptions are used. There is an opportunity to formalise this process to ensure that there are appropriate escalation points and to ensure that compliance obligations are fulfilled in future.

Destination NSW did not meet the minimum requirement for allocation of the media budget for communications with CALD and Aboriginal audiences

The NSW Government 'CALD and Aboriginal Advertising Policy' stipulates that at least 7.5 per cent of an advertising campaign media budget is to be spent on direct communications to multicultural and Aboriginal audiences. Spend may be on media or non-media communication activities (e.g. events, participation at cultural festivals, direct mail, competitions and websites).

Destination NSW spent only 1.6 per cent of its media spend on culturally and linguistically diverse specific media placement on the 'Sydney - Love It Like You Mean It' campaign and none of its media placement for the other audited campaigns. This level of expenditure is substantially below the requirement.

Destination NSW could not demonstrate how its campaign designs or media placements effectively supported the cultural needs and issues of culturally and linguistically diverse populations. In connection with the 'Sydney - Love It Like You Mean It' campaign, it was noted that timeframes and production issues limited the ability to incorporate culturally diverse individuals in imagery.

Destination NSW advised that it believes the application of a 7.5 per cent threshold for specific audiences is not an effective way to reach these audiences. Destination NSW advised that its advertising was targeted at audiences with a propensity to travel, which did not necessarily include culturally diverse audiences, and its media channel research influenced its decision not to target specific CALD-focussed media channels.

None of the above factors negate Destination NSW's responsibility to ensure that the 'CALD and Aboriginal Advertising Policy' requirements are met.

In addition, Destination NSW also noted a number of non-media activities that supported culturally and linguistically diverse audiences, including translations on the sydney.com website, capturing of culturally and linguistically diverse audiences in production shooting and the production of a range of other collateral for culturally and linguistically diverse audiences. Despite these non-media activities, which Destination NSW did not quantify, the requirement for minimum expenditure in the reviewed campaigns for CALD audiences was not met by Destination NSW.

Destination NSW advised that it believes that the 7.5 per cent requirement does not apply to advertising outside of New South Wales, which the 'Get Your Sydney On', Love NSW and Road Trips campaigns targeted in whole or in part. The 'CALD and Aboriginal Advertising Policy' does not specifically limit its application to advertising for New South Wales residents.

Appendix one – Response to Destination NSW

Appendix two – Response from agencies

Appendix three – About the campaigns

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 #360 - released (23 December 2021).

This report analyses the results of our audits of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Planning, Industry and Environment cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Planning, Industry and Environment cluster agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all completed 30 June 2021 financial statements audits of cluster agencies. Three audits are ongoing.

An 'Other Matter' paragraph was included in the Independent Planning Commission's (the IPC) audit opinion because the prior year comparative figures were not audited. Prior to 2020–21, the IPC was not required to prepare separate financial statements under the Public Finance and Audit Act 1983 (PF&A Act). The financial reporting provisions of the Government Sector Finance Act 2018 now require the IPC to prepare financial statements.

The number of identified misstatements increased from 51 in 2019–20 to 54 in 2020–21.

The 2010–11 to 2019–20 audits of the Water Administration Ministerial Corporation’s (the Corporation) financial statements are incomplete due to insufficient records and evidence to support the transactions of the Corporation, particularly for the earlier years. Management has commenced actions to improve the governance and financial management of the Corporation. These audits are currently in progress and the 2020–21 audit will commence shortly.

There are 609 State controlled Crown land managers (CLMs) across New South Wales that predominantly manage small parcels of Crown land.

Eight CLMs prepared and submitted 2019–20 financial statements by the revised deadline of 30 June 2021. A further 24 CLMs did not prepare financial statements in accordance with the PF&A Act. The remaining CLMs were not required to prepare 2019–20 financial statements as they met NSW Treasury's financial reporting exemption criteria.

The Department of Planning, Industry and Environment's (the department) preliminary assessment indicates that 60 CLMs are required to prepare financial statements in 2020–21. To date, no CLMs have prepared and submitted financial statements for audit in 2020–21.

There are also 120 common trusts that have never submitted financial statements for audit. Common trusts are responsible for the care, control and management of land that has been set aside for specific use in a certain locality, such as grazing, camping or bushwalking.

What the key issues were

The number of matters we reported to management increased from 135 in 2019–20 to 180 in 2020–21, of which 40 per cent were repeat findings.

Seven high-risk issues were identified in 2020–21:

• system control deficiencies at the department relating to user access to HR and payroll management systems, vendor master data management and journal processing, which require manual reviews to mitigate risks
• deficiencies related to the Centennial Park and Moore Park Trust's tree assets valuation methodology
• the Lord Howe Island Board did not regularly review and monitor privileged user access rights to key information systems
• the Natural Resources Access Regulator identified and adjusted three prior period errors retrospectively, which indicate deficiencies within the financial reporting processes
• deficiencies relating to the Parramatta Park Trust's tree assets valuation methodology
• lease arrangements have not been confirmed between the Planning Ministerial Corporation and Office of Sport regarding the Sydney International Regatta Centre
• the Wentworth Park Sporting Complex land manager (the land manager) has a $6.5 million loan with Greyhound Racing NSW (GRNSW). GRNSW requested the land manager to repay the loan. However, the land manager subsequently requested GRNSW to convert the loan to a grant. Should this request be denied, the land manager would not be able to continue as a going concern without financial support. This matter remains unresolved for many years.

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 are managed and controlled by the department and land managers (including councils and land managers controlled by the state). 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 is implementing a new system to record Crown land (the CrownTracker project). The department advised that the project completion date will be confirmed by June 2022.

What we recommended

The department should ensure CLMs and common trusts meet their statutory reporting obligations.

Cluster agencies should prioritise and action recommendations to address internal control deficiencies, with a focus on addressing high-risk and repeat issues.

The department should prioritise action to ensure the Crown land database is complete and accurate. This will allow the department and CLMs to be better informed about the Crown land they control.

This report provides parliament and other users of the Planning, Industry and Environment cluster (the cluster) agencies’ financial statements with the results of our audits, our observations, 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, Industry and Environment cluster (the cluster) for 2021.

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 statements audits of agencies in the Planning, Industry and Environment cluster.

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.

What the report is about

The term ‘machinery of government’ refers to the way government functions and responsibilities are organised.

The decision to make machinery of government changes is made by the Premier. Changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day.

Larger machinery of government changes typically occur after an election or a change of Premier.

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet (DPC) and NSW Treasury in overseeing machinery of government changes.

What we found

The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of benefits has not been monitored. The costs of the changes were not tracked or reported.

DPC and NSW Treasury provided principles to guide implementation but did not require departments to collect or report information about the benefits or costs of the changes.

The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled.

Major implementation challenges included negotiation about the allocation of corporate support staff and the integration of complex corporate and ICT systems.

What we recommended

DPC and NSW Treasury should:

• consolidate existing guidance on machinery of government changes into a single document that is available to all departments and agencies
• provide guidance for departments and agencies to use when negotiating corporate services staff transfers as a part of machinery of government changes, including a standard rate for calculating corporate services requirements
• progress work to develop and implement common processes and systems for corporate services in order to support more efficient movement of staff between departments and agencies.

The term ‘machinery of government’ refers to the way government functions and responsibilities are allocated and structured across government departments and agencies. A machinery of government change is the reorganisation of these structures. This can involve establishing, merging or abolishing departments and agencies and transferring functions and responsibilities from one department or agency to another.

The decision to make machinery of government changes is made by the Premier. These changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day. Machinery of government changes are formally set out in Administrative Arrangements Orders, which are prepared by the Department of Premier and Cabinet, as instructed by the Premier, and issued as legislative instruments under the Constitution Act 1902.

The heads of agencies subject to machinery of government changes are responsible for implementing them. For more complex changes, central agencies are also involved in providing guidance and monitoring progress.

The NSW Government announced major machinery of government changes after the 2019 state government election. These changes took place between April and June 2019 and involved abolishing five departments (Industry; Planning and Environment; Family and Community Services; Justice; and Finance, Services and Innovation) and creating three new departments (Planning, Industry and Environment; Communities and Justice; and Customer Service). This also resulted in changes to the 'clusters' associated with departments. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status. Most other departments that were not abolished had some functions added or removed as a part of these machinery of government changes. For example, the functions relating to regional policy and service delivery in the Department of Premier and Cabinet were moved to the new Department of Planning, Industry and Environment.

Our Report on State Finances 2019, tabled in October 2019, outlined these changes and identified several issues that can arise from machinery of government changes if risks are not identified early and properly managed. These include: challenges measuring the costs and benefits of machinery of government changes; disruption to services due to unclear roles and responsibilities; and disruption to control environments due to staff, system and process changes.

In April 2020, the Department of Regional NSW was created in a separate machinery of government change. This involved moving functions and agencies related to regional policy and service delivery from the Department of Planning, Industry and Environment into a standalone department.

This audit assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet and NSW Treasury in overseeing machinery of government changes. The audit investigated whether:

• DPIE and DRNSW have integrated new responsibilities and functions in an effective and timely manner
• DPIE and DRNSW can demonstrate the costs of the machinery of government changes
• The machinery of government changes have achieved or are achieving intended outcomes and benefits.

Appendix one – Response from agencies

Appendix two – About the audit

Appendix three – 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 #359 - released (17 December 2021).

This report analyses the results of our audits of the Premier and Cabinet cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Premier and Cabinet cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of the Premier and Cabinet cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for all Premier and Cabinet cluster agencies.

The number of monetary misstatements decreased from 49 in 2019–20 to 38 in 2020–21.

The Library Council of New South Wales corrected a prior period error of $325 million. In 2017, the council split its collection assets into six asset classes, but not the related asset revaluation reserves. To correct this error, some revaluation decrements previously recognised in asset revaluation reserves were reclassified to accumulated funds.

Eight agencies did not complete all of the mandatory early close procedures.

What the key issues were

The Premier and Cabinet cluster was impacted by three Machinery of Government (MoG) changes during 2020–21.

The changes resulted in the transfer of activities and functions in and out of the cluster and the creation of a new entity - Investment NSW.

The transferor entities continued to provide services to Investment NSW subsequent to 30 June 2021. There were no formal service level agreements in place for the provision of these services.

The New South Wales Electoral Commission (the Commission) and Sydney Opera House Trust obtained letters of financial support from their relevant Minister and/or NSW Treasury in 2020–21. The postponement of local government elections impacted the Commission's operations due to increased planned expenditure to support a COVID-safe election. Sydney Opera House Trust's ability to generate revenue was impacted due to the closure of the Concert Hall partly due to COVID-19 and planned renovations.

The number of repeated audit issues raised with management and those charged with governance increased from 22 in 2019–20 to 24 in 2020–21.

There were 47 moderate risk and 28 low risk findings identified. Of the total findings there were 24 repeat issues.

What we recommended

Investment NSW should ensure services received from other agencies are governed by service level agreements.

This report provides Parliament and other users of the Premier and Cabinet’s financial statements with the results of our audits, our observations, 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 Premier and Cabinet cluster (the cluster) for 2021.

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 Premier and Cabinet cluster.

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.

What the report is about

This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and NSW Treasury have supported state agencies to manage climate risks to their assets and services.

Climate risks that can impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. Impacts can include damage to transport, communications and energy infrastructure, increases in hospital admissions, and making social housing or school buildings unsuitable.

NSW Treasury estimates these risks could have significant costs.

What we found

DPIE and NSW Treasury’s support to agencies to manage climate risks to their assets and services has been insufficient.

In 2021, key agencies with critical assets and services have not conducted climate risk assessments, and most lack adaptation plans.

DPIE has not delivered on the NSW Government commitment to develop a state-wide climate change adaptation action plan. This was to be complete in 2017.

There is also no adaptation strategy for the state. These have been released in all other Australian jurisdictions. The NSW Government’s draft strategic plan for its Climate Change Fund was also never finalised.

DPIE’s approach to developing climate projections is robust, but it hasn’t effectively educated agencies in how to use this information to assess climate risk.

NSW Treasury did not consistently apply dedicated resourcing to support agencies' climate risk management until late 2019.

In March 2021, DPIE and NSW Treasury released the Climate Risk Ready NSW Guide and Course. These are designed to improve support to agencies.

What we recommended

DPIE and NSW Treasury should, in partnership:

• enhance the coordination of climate risk management across agencies
• implement climate risk management across their clusters.

DPIE should:

• update information and strengthen education to agencies, and monitor progress
• review relevant land-use planning, development and building guidance
• deliver a climate change adaptation action plan for the state.

NSW Treasury should:

• strengthen climate risk-related guidance to agencies
• coordinate guidance on resilience in infrastructure planning
• review how climate risks have been assured in agencies’ asset management plans.

According to the Intergovernmental Panel on Climate Change in 2021, each of the last four decades has been successively warmer and surface temperatures will continue to increase until at least the mid-century. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Bureau of Meteorology (BoM) have reported that extreme weather across Australia is more frequent and intense, and there have been longer-term changes to weather patterns. They also report sea levels are rising around Australia increasing the risk of inundation and damage to coastal infrastructure and communities.

According to the Department of Planning, Industry and Environment (the department), in New South Wales the impacts of a changing climate, and the risks associated with it, will be felt differently across regions, populations and economic sectors. The department's climate projections indicate the number of hot days will increase, rainfall will vary across the state, and the number of severe fire days will increase.

The NSW Government is a provider of essential services, such as health care, education and public transport. It also owns and manages around $365 billion in physical assets (as at June 2020). More than $180 billion of its assets are in major infrastructure such as roads and railway lines.

In NSW, climate risks that could directly impact on state agencies' assets and services include flooding, bushfires, and extreme temperatures. In recent years, natural hazards exacerbated by climate change have damaged and disrupted government transport, communications and energy infrastructure. As climate risks eventuate, they can also increase hospital admissions when people are affected by poorer air quality, and make social housing dwellings or schools unsafe and unusable during heatwaves. The physical impacts of a changing climate also have significant financial costs. Taking into account projected economic growth, NSW Treasury has estimated that the fiscal and economic costs associated with natural disasters due to climate change will more than triple per year by 2061.

The department and NSW Treasury advise that leading practice in climate risk management includes a process that explicitly identifies climate risks and integrates these into existing risk management, monitoring and reporting systems. This is in line with international risk management and climate adaptation standards. For agencies to manage the physical risks of climate change to their assets and services, leading practice identified by the department means that they need to:

• use robust climate projection information to understand the potential climate impacts
• undertake sound climate risk assessments, within an enterprise risk management framework
• implement adaptation plans that reduce these risks, and harness opportunities.

Adaptation responses that could be planned for include: controlling development in flood-prone locations; ensuring demand for health services can be met during heatwaves; improving thermal comfort in schools to support student engagement; proactive asset maintenance to reduce disruption of essential services, and safeguarding infrastructure from more frequent and intense natural disasters.

According to NSW Treasury policy, agencies are individually responsible for risk management systems appropriate to their context. The department and NSW Treasury have key roles in ensuring that agencies are supported with robust information and timely, relevant guidance to help manage risks to assets and services effectively, especially for emerging risks that require coordinated responses, such as those posed by climate change.

This audit assessed whether the department and NSW Treasury are effectively supporting NSW Government agencies to manage climate risks to their assets and services. It focused on the management of physical risks to assets and services associated with climate change.

Appendix one – Response from agencies

Appendix two – Timeline of key activities 

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 #355 - released (7 September 2021).

What the report is about

This report examines the effectiveness of the Fast-tracked Assessment Program, administered by the Department of Planning, Industry and Environment (DPIE) between April 2020 and October 2020. 

The program aimed to support the construction industry during the COVID-19 crisis by accelerating the final assessment stages for planning proposals and development applications. 

DPIE selected projects and planning proposals for fast tracked assessment that demonstrated the potential to:

• deliver jobs
• progress to the next stage of development within six months of determination
• deliver public benefit.

The audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls.

What we found

Through tranches three to six of the program, DPIE successfully accelerated the final stages of 53 assessments. DPIE reported that 89 per cent of these proceeded to the next stage of development within six months.

Assessment of projects and planning proposals was compliant with legislation and other requirements. However, the audit found gaps in DPIE's management of conflicts of interest.

DPIE has not evaluated or costed the program and is not able to demonstrate the extent to which it provided support to the construction industry during COVID-19. 

Aspects of the program have been incorporated into longer term reforms to create a new level of transparency over the progress and status of planning assessments. 

What we recommended

DPIE should:

• strengthen controls over conflicts of interest 
• evaluate the Fast-tracked Assessment Program.

In April 2020, the Department of Planning, Industry and Environment (DPIE) introduced programs aimed at providing immediate support to the construction industry during the COVID-19 crisis. One of these was the Fast-tracked Assessment Program. This program identified planning proposals and development applications (DAs), across six tranches, that were partially-assessed and could be accelerated to determination.

In accordance with the program objectives, the planning proposals and DAs selected for fast-tracked assessment had to:

• deliver jobs – particularly in the construction industry
• be capable of progressing to the next stage of development within six months of determination
• deliver public benefit.

At the same time, the Fast-tracked Assessment Program was to lay a foundation for future reform of the planning system by piloting changes in the assessment process that could be adopted in the medium to long term.

This audit assessed whether the Fast-tracked Assessment Program achieved its objectives while complying with planning controls. The audit focused on tranches three to six of the program, which were determined between July 2020 and October 2020. The rationale for focusing on these four tranches was that the program design had been slightly modified after the first two tranches to address identified risks.

Appendix one – Response from agency

Appendix two – Planning determination pathways

Appendix three – About the audit

Appendix four – Performance auditing

© 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 #354 - released (27 July 2021).

What the report is about

The report examined whether NSW Treasury, Service NSW and the Department of Customer Service effectively administered grants programs funded under the $750 million Small Business Support Fund, including:

• $10,000 Small Business Support Grant
• $3,000 Small Business Recovery Grant.

What we found

The agencies effectively implemented the grants within required timeframes, reflecting the NSW Government’s decision to deliver urgent financial support to small businesses impacted by the COVID-19 pandemic.

NSW Treasury met urgent timeframes to design the grants and Service NSW made timely payments in line with the grants' objectives and eligibility criteria.

Service NSW and the Department of Customer Service strengthened processes to detect and minimise fraud in response to identified external fraud risks, and to investigate suspected fraudulent applications.

Fraud security checks and investigations are ongoing, and the agencies will not know the full extent of fraud across the grants until these processes have been completed.

The agencies regularly monitored and reported on the timeliness of payments to small business applicants but have not yet measured all benefits of the grants programs.

The $10,000 Support Grant and the $3,000 Recovery Grant have provided around $630 million in one off grant payments to eligible small businesses.

What we recommended

NSW Treasury should finalise and implement an evaluation of both grants programs, including obtaining feedback from businesses.

Service NSW should develop a framework that documents expected controls for how it administers grants, including business processes, fraud control and governance and probity requirements.

Service NSW should publish information on all grants programs, including grants distribution and uptake.

The Department of Customer Service should ensure its processes for managing conflicts of interest meets its policy requirements.

Upcoming performance audit

The Audit Office is conducting a further performance audit into grants administration for disaster relief focussing on bushfire grants. This is planned to complete in 2021-22.

Further information

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

The NSW Government responded to the partial shutdown of the NSW economy caused by the COVID-19 pandemic in 2020 by, among other measures, announcing on 3 April 2020 that it would place $750 million into the Small Business Support Fund (the Fund).

Under the Fund, the NSW Government would pay one-off grants of up to $10,000 to small business impacted by the shutdown. The objectives of the $10,000 Small Business Support Grant ($10,000 Support Grant) were to:

• ease the pressure on small businesses that have been affected by the COVID-19 pandemic
• support the ongoing operations of small businesses highly impacted by the COVID-19 restrictions
• deliver cash-flow into small businesses as soon as possible so that small businesses could meet pressing financial needs.

Grant applications were assessed against eligibility criteria that were determined by the NSW Government. The eligibility criteria for the $10,000 Support Grant required an employing small business to demonstrate it was significantly impacted by the COVID-19 pandemic by self-declaring or demonstrating a significant decline of 75 per cent or more in turnover compared to 2019. Documentation requirements were relaxed for small businesses within highly impacted industries.

In June 2020, the NSW Government announced a second round of one-off grants of up to $3,000 to small businesses that were highly impacted by the COVID-19 pandemic ($3,000 Recovery Grant). The objective of the $3,000 Recovery Grant was to help small businesses in 'highly impacted industries' — those directly impacted by the restrictions and closures put in place under the Public Health Orders — to meet the costs of safely reopening or scaling up operations.

The eligibility criteria for the $3,000 Recovery Grant required that a small business be in a highly impacted industry, demonstrate that it was significantly impacted by the COVID-19 pandemic by declaring a significant decline in turnover, and had costs associated with reopening under the 'COVID-Safe' requirements.

NSW Treasury and Service NSW implemented both grants on behalf of the NSW Government. The process of applying for a grant was intended to be quick and easy, with Service NSW using automated assessments and simple online application forms to process applications. Applicants applied for the $10,000 Support Grant through the Service NSW website between 14 April 2020 to 30 June 2020 and applied for the $3,000 Small Business Recovery Grant between 1 July 2020 and 31 August 2020.

At May 2021, around $520 million has been paid to over 52,500 grant applicants under the $10,000 Support Grant and around $109 million had been paid to around 36,700 grant applicants under the $3,000 Recovery Grant.

The Audit Office plans to undertake a performance audit into grants administration for disaster relief focussing on bushfire grants in 2021–22.

This audit assessed whether the grants funded under the $750 million Small Business Support Fund were effectively administered and implemented to provide disaster relief. It addressed the following questions:

• Were funded grants programs planned, designed and targeted effectively?
• Were funded grants programs implemented in line with the objectives and criteria and delivery requirements?
• Have agencies established measures to monitor intended benefits and outcomes?

This audit did not seek to assess the effectiveness of any other grant programs or stimulus measures. It also did not seek to assess the impact of the funding on applicants, or the future prospects of small businesses that received support.

1. Key findings

Around $630 million in timely one-off grant payments have been made to small businesses

Service NSW and NSW Treasury have paid around $630 million in one-off grant payments to small businesses via two grants administered under the $750 million Small Business Support Fund. At May 2021:

• around $520 million has been paid to over 52,500 grant applications received for the $10,000 Small Business Support Grant ($10,000 Support Grant)
• around $109 million has been paid to 36,700 grant applications received for the $3,000 Small Business Recovery Grant ($3,000 Recovery Grant).

Across both grants, over 65,000 small businesses received a payment across either grant, and over 23,000 businesses received payments under both grants.

NSW Treasury advise that, while no data was collected on the time to pay applicants for the $10,000 Support Grant, from its monitoring of the grants' outputs it was satisfied that payment timeframes met its expectations. Service NSW met its targeted time to pay applicants with payments made within ten days for the $3,000 Recovery Grant.

Funds for both grants were not fully spent due to limitations in data and uncertainty of the COVID-19 pandemic's impact. At May 2021, the final demand for the $10,000 Support Grant was around 30 per cent less than initially anticipated and the final demand for the $3,000 Recovery Grant was around 40 per cent less than initially anticipated.

NSW Treasury developed proposals establishing high level design and delivery expectations within rapid timeframes

NSW Treasury put forward proposals to the NSW Government for the two grants administered under the $750 million Small Business Support Fund. It met rapid timeframes for producing this advice: within one day for the $10,000 Support Grant and within four days for the $3,000 Recovery Grant. NSW Treasury's advice to the NSW Government on how to best target the total funding, eligibility criteria and the feasibility of delivering the grants through Service NSW was based on comparable grants programs – including the $10,000 Small Business Bushfire Support Grant – which at that time were ongoing.

The proposals established, at a high-level, the rationale for the grants, expected financial costs, risks and analysis on budget impacts, and confirmation that Service NSW could deliver the grants applications platform. NSW Treasury's demand projections were uncertain due to limited data in the early stages of the pandemic regarding potential economic impact.

Given the tight timeframes, the proposals did not fully consider all planning and design aspects for both grants. For example, there was minimal identification of the costs and benefits of the programs, and a lack of detailed design and delivery requirements. The proposals outlined that arrangements to finalise the risk management, controls, and auditing plan would be agreed by Service NSW and NSW Treasury before implementation.

In future circumstances where urgent advice on program design is required, NSW Treasury could set clearer expectations for the delivery agency, including fully considering costs, benefits and delivery requirements that could be carried through to project governance and implementation.

Service NSW implemented both grants in line with delivery expectations

Service NSW met urgent timeframes to stand-up both grants: 11 days for the $10,000 Support Grant and 26 days for the $3,000 Recovery Grant. Delivery expectations for each grant were established under a grant project agreement (grant agreement). Service NSW delivered the online application platform, assessment of applications, payments and reporting of the grants' uptake as per the grant agreements.

The urgent timeframes to deliver the grants contributed to gaps in Service NSW's project and risk management processes throughout the lifecycle of both grants. For example, the requirement to meet pressing timeframes for the $10,000 Support Grant launch meant agencies had reduced time to achieve sign-off on key documentation. As a result, important documents and processes – including the grant agreement, risk documentation and key business process and quality assurance processes – were not finalised ahead of launch.

Quality assurance and compliance processes for detecting fraud were not settled until after the conclusion of the applications for the $10,000 Support Grant, and were not completed until late 2020. Some project documents, including risk registers, communication plans and project briefs are still not finalised.

The longer timeframe to develop the $3,000 Recovery Grant meant that agencies were able to build on their understanding of the implementation requirements from the $10,000 Support Grant, and better document these expectations and understanding while ensuring that key documents and sign-offs were in place prior to launch.

Service NSW tightened its risk management and controls in response to evidence of fraudulent applications

In May 2020, Service NSW and the Department of Customer Service (DCS) were alerted to suspected fraudulent activity within grants administered by Service NSW. Initially, Service NSW anticipated that up to $8.8 million of the $10,000 Support Grant was at risk of exposure to fraudulent applications. However, Service NSW reported that, at April 2021, $1.9 million for the $10,000 Support Grant and $254,000 for the $3,000 Recovery Grant from paid applications were at risk of fraud exposure.

Following an internal review of the potential exposure to fraudulent or ineligible applications, Service NSW implemented additional automated security checks on applications, increased manual assessments of grant applications, established a dedicated taskforce for grants administration and engaged a unit within DCS to manage high-risk investigations.

Service NSW and DCS's increased governance and oversight has resulted in an established case management function, increased referrals to law enforcement, prioritised investigations of suspicious applications and the development of a 'Fraud Control Framework' aimed at addressing external fraud risks. Given Service NSW had limited experience in these processes in context of administering grant payments, such actions were an appropriate response.

Security checks and investigations of suspicious applications are ongoing. Service NSW will not know the full extent of fraud across the grants until these processes have been fully completed.

Service NSW and Department of Customer Service can improve how conflicts of interest are managed for future programs

Compliance with agency policies and processes to manage conflicts of interest and financial subdelegations demonstrates that investment decisions are being made by appropriately skilled and experienced staff, allowing agencies to operate efficiently, and reducing the risk of internal fraud.

DCS was unable to produce employee conflicts of interest declarations for the $10,000 Support Grant. Therefore, it is not known how many employees had completed conflicts of interest declarations for this round.

DCS provided information on conflicts of interest declarations for the $3,000 Recovery Grant. Twenty-nine per cent of declarations provided for employees undertaking grant assessments for the $3,000 Recovery Grant were incomplete at March 2021, and a further nine per cent were not finalised even though they indicated a real, potential or perceived conflict.

For future grants programs, ensuring compliance with conflicts of interest policies would help DCS and Service NSW to have greater confidence that conflicts of interest are appropriately identified and managed.

NSW Treasury has not yet measured all benefits or outcomes of the grants

In April 2021, NSW Treasury updated its evaluation plan for the $10,000 Support Grant and $3,000 Recovery Grant in support of an economic evaluation to commence from mid-2021. The updated evaluation plan outlines inputs, activities, and outputs as well as immediate, short term and medium term outcomes for both grants.

The evaluation will consider the extent to which both grants achieved their intended outcomes, and whether the economic benefits exceeded the costs to help inform decisions about the nature and design of any future small business support programs. This will complement, and feed into a broader review of all NSW Government COVID-19 stimulus measures.

Service NSW rapidly developed an approach to administer the grants

Over recent disasters, such as the 2019–20 bushfires and the COVID-19 pandemic, Service NSW has been responsible for administering grant programs on behalf of other government agencies.

Service NSW implemented both grants under its Project Management Framework and under each grant agreement with NSW Treasury as it does not have its own grants administration framework. To address the risks that emerged during delivery, Service NSW developed an approach to standardise and monitor the administration of the grants while they were being implemented.

Service NSW now has an opportunity to establish a grants administration framework, based on the processes, lessons and outcomes captured under the grants administration taskforce and in developing its fraud control framework. Embedding these processes into business as usual for grants administration will enable Service NSW to have a consistent set of expectations for controls, business processes and governance and probity requirements for future grants it implements.

2. Recommendations

By December 2021, NSW Treasury should:

1. finalise and implement an evaluation of the $10,000 Support Grant and $3,000 Recovery Grant, including obtaining direct feedback from businesses on how grant funds achieved the grant objectives.

By December 2021, Service NSW should:

2. develop a grants administration framework, which documents expected controls – including fraud controls – business processes and governance and probity requirements

3. publish information on all grants programs, including grants distribution and uptake.

By December 2021, the Department of Customer Service should:

4. ensure its process for managing conflicts of interest meets policy requirements by:

• ensuring employees promptly declare any real, potential or perceived conflicts of interest
• annually producing a list of conflicts of interest for records retention purposes
• requiring a separate register of conflicts of interest declarations where a grant program is deemed as high risk.

3. Lessons for grants administered within urgent timeframes

The two grants this audit examined were administered within a context of urgent timeframes, and increased complexity and uncertainty about the impact of the COVID-19 pandemic. The following lessons are shared to assist sponsor and delivery agencies in administering future grants where rapid implementation is required.

Sponsor agencies should consider the following lessons:

1. develop an approach to define and measure benefits for rapidly developed programs and projects where a full business case and cost-benefit analysis is not feasible

2. establish common processes and expectations for co-administered grants:

• periodically assure agencies' capability to deliver grants programs
• agree and establish risk appetite statements with administering agencies
• clearly establish expected performance levels and targets under any agreement

3. review the processes and outcomes of rapidly developed programs, capture lessons learned, and apply these in planning and delivering future programs.

Delivery agencies should consider the following lessons:

1. risk management and risk appetite:

• perform robust assessment procedures to ensure risks associated with delivery of the project are identified
• ensure the controls implemented adequately address identified risks
• agree and document the acceptable risk appetite at the outset
• review risk management processes after the grants are issued when unable to finalise risk management processes ahead of launch

2. grant agreements between NSW public sector agencies:

• ensure agreements are finalised in a timely manner
• ensure agreements clearly outline:
  • roles and responsibilities of both parties,
  • changes in scope of services provided
  • fees and charges applicable

3. frameworks for grants administration:

• ensure that there is a common set of expectations in place to guide grants administration including standard controls and processes for managing risk, capturing lessons learned and reporting on outcomes.

Appendix one – Response from agencies

Appendix two – Summary of other COVID‑19 Stimulus and Support for small businesses in NSW in April 2020

Appendix three – Public Health Orders

Appendix four – Highly impacted industries

Appendix five – About the audit

Appendix six – Performance auditing

© 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 #352 - released (24 June 2021).

What the report is about

Results of the local government sector council financial statement audits for the year ended 30 June 2020.

What we found

Unqualified audit opinions were issued for 127 councils, 9 county councils and 13 joint organisation audits in 2019–20. A qualified audit opinion was issued for Central Coast Council.

Councils were impacted by recent emergency events, including bushfires 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 1,435 findings reported to councils in audit management letters.

One extreme risk finding was identified related to Central Coast Council’s use of restricted funds for general purposes.

Fifty-three high risk matters were identified across the sector:

• 21 high risk matters relating to asset management
• 14 high risk matters relating to information technology
• 7 high risk matters relating to financial reporting
• 4 high risk matters to council governance procedures
• 3 high risk matters relating to financial accounting
• 3 high risk matters relating to purchasing and payables
• 1 high risk matter relating to cash and banking.

More can be done to reduce the number of errors identified in financial reports. 61 councils required material adjustments to correct errors in previous audited financial statements.

Rural fire fighting equipment

Sixty-eight councils did not record rural fire fighting equipment worth $119 million in their financial statements.

The NSW Government has confirmed these assets are not controlled by the NSW Rural Fire Service and are not recognised in the financial records of the NSW Government.

What we recommended

The Office of Local Government should communicate the State's view that rural firefighting equipment is controlled by councils in the local government sector, and therefore this equipment should be properly recorded in their financial statements.

Central Coast Council

A qualified opinion was issued for Central Coast Council (the Council) relating to two matters.

Council did not conduct the required revaluation to support the valuation of roads.

Council also disclosed a prior period error relating to restrictions of monies collected for their water, sewer, and drainage operations, which, based on the NSW Crown Solicitor’s advice, should be considered a change in accounting policy.

What we recommended

The Office of Local Government should clarify the legal framework relating to restrictions of water, sewerage and drainage funds (restricted reserves) by either seeking an amendment to the relevant legislation or by issuing a policy instrument to remove ambiguity from the current framework.

Further information

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

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.

Recent emergency events, including drought, bushfires, floods and the COVID-19 pandemic have impacted councils.

This chapter will provide insights into how these events have impacted councils, including:

• financial implications of the emergency events
• changes to councils' operating models, processes and controls
• accessibility to technology and the maturity of councils' systems and controls to prevent unauthorised and fraudulent access to data
• receipt and delivery of stimulus packages or programs at short notice.

Recent emergency events significantly impacted councils

Recent emergencies, including drought, bushfires, floods and the COVID-19 pandemic have brought particular challenges for councils and their communities.

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 2019–20. It also includes the findings reported in the 2018–19 audits of Hilltops, MidCoast and Murrumbidgee councils as these audits were finalised after the Report on Local Government 2019 was published.

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.

Total number of findings reported in audit management letters decreased

In 2019–20, 1,435 findings were reported in audit management letters (2018–19: 1,985 findings). An extreme risk finding was also identified this year related to Central Coast Council's use of restricted funds. The total number of high-risk findings decreased to 53 (2018–19: 82 high-risk findings).

Findings are classified as new, repeat or ongoing findings, based on:

• new findings were first reported in 2019–20 audits
• repeat findings were first reported in prior year audits, but remain unresolved in 2019–20
• ongoing findings were first reported in prior year audits, but the action due dates to address the findings are after 2019–20.

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 findings across these areas are explored further in this chapter.

Audit Office’s work plan for 2020–21 onwards

Focus on local council's response and recovery from recent emergencies

Local councils and their communities will continue to experience the effects of recent emergency events, including the bushfires, floods and the COVID 19 pandemic for some time. The full extent of some of these events remain unclear and will continue to have an impact into the future. The recovery is likely to take many years.

The Office of Local Government (OLG) within the Department of Planning, Industry and Environment is working with other state agencies to assist local councils and their communities to recover from these unprecedented events.

These events have created additional risks and challenges, and changed the way that councils deliver their services.

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' preparedness for emergencies
• its initial responses to support people and communities impacted by the 2019–20 bushfires and floods, and COVID-19
• the governance and oversight risks that arise from the need for quick decision making and responsiveness to emergencies
• the 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.

Planned financial audit focus areas in Local Government

During 2020–21, the financial audits will focus on the following key areas:

• cybersecurity, including:
  • cybersecurity framework, policies and procedures
  • assessing the controls management has to address the risk of cybersecurity incidents
  • whether cybersecurity risks represent a risk of material misstatement to council's financial statements
• budget management
• financial sustainability
• quality and timeliness of financial reporting
• infrastructure, property, plant and equipment
• information technology general controls.

Audit, risk and improvement committees

All councils are required to have an audit, risk and improvement committee by March 2022

The requirement for all councils to establish an audit, risk and improvement committee was deferred by 12 months to March 2022 due to the COVID 19 pandemic.

Audit, risk and improvement committees are an important contributor to good governance. They help councils to understand strategic risks and how they can mitigate them. An effective committee helps councils to build community confidence, meet legislative and other requirements and meet standards of probity, accountability and transparency.

Local Government elections

Local Government elections were postponed for one year due to the COVID 19 pandemic

The Local Government elections were deferred for one year due to the COVID 19 pandemic and will now be held on 4 September 2021. As the statutory deadline for the 2020–21 financial statements is 30 October 2021, some of the newly elected councillors will be required to endorse them.

Implementation of AASB 1059

Accounting standards implementation continue next year

AASB 1059 is effective for councils for the 2020–21 financial year.

A service concession arrangement typically involves a private sector operator that is involved with designing, constructing or upgrading assets used to provide public services. They then operate and maintain those assets for a specified period of time and is compensated by the public sector entity in return. Examples of potential service concession arrangements impacting councils include roads, community housing, childcare services and nursing homes.

AASB 1059 may result in councils recognising more service concession assets and liabilities in their financial statements.

Appendix one – Response from the Department of Planning, Industry and Environment

Appendix two – NSW Crown Solicitor’s advice

Appendix three – Status of 2019 recommendations

Appendix four – Status of audits

© 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 Environment Protection Authority’s expenditure for the financial year 2010/11 was $92 million - $76 million of this was for environment protection and regulation. The Office of Environment and Heritage and the Environment Protection Authority commenced 145 prosecutions for environmental offences and 106 were completed in the financial year 2010/11, down from the 134 prosecutions completed in 2009/10. Financial penalties for 2010/11 totalled $969,000 down from $1,403,000 in 2009/10. The average fine decreased from $10,468 in 2009/10 to $9,141 in 2010/11.

The audits of the New South Wales Government controlled superannuation entities financial statements for the year ended 30 June 2011 resulted in unmodified audit opinions within the Independent Auditor’s Reports. Findings show that Treasury should review the structure and number of public sector superannuation funds and consider whether efficiencies and cost savings could be achieved through consolidation.