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

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

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

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

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

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

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

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

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

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

This audit assessed the effectiveness of NSW Health’s:

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

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

1. Audit recommendations

By December 2021, NSW Health should:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Appendix one – Response from agency

Appendix two – Audit methodology

Appendix three – About the audit 

Appendix four – Performance auditing 

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

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

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

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

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

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

Read full report (PDF)

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

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

The State extended signing its financial statements by six weeks.

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

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

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

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

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

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

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

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

The errors resulted from:

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

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

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

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

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

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

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

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

The Health cluster incurred most of this expenditure.

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

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

Economic stimulus allocation and spend by cluster to 30 June 2020

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

An outcome of the government’s overall activity and policies is its net operating balance (Budget Result). This is the difference between the cost of general government service delivery and the revenue earned to fund these sectors.

The General Government Sector, which comprises 199 entities, generally provides goods and services funded centrally by the State.

The Non-General Government Sector, which comprises 92 government businesses, generally provides goods and services, such as water, electricity and financial services that consumers pay for directly.

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

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

The deficit was further driven by:

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

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

Revenues increased $209 million to $86.3 billion

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

Taxation revenue fell 3.5 per cent

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

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

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

Australian Government grants and subsidies

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

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

Sales of goods and services

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

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

Fines, regulatory fees and other revenues

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

Other dividends and distributions

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

Expenses increased $8.2 billion to $96.0 billion

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

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

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

The Health sector employed an additional 2,763 full time staff in 2019–20. It also incurred more overtime in response to COVID-19. Education increased staff numbers by 4,866 full time equivalents and paid a one off 11 per cent pay rise to school administration staff in 2019–20. Historically, the government wages policy aims to limit growth in employee remuneration and other employee related costs to no more than 2.5 per cent per annum.

Operating expenses increased 8.7 per cent to $27.0 billion.

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

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

Health costs remain the State’s highest expense.

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

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

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

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

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

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

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

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

Depreciation expense increased $1.0 billion to $9.2 billion.

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

Assets grew by $28.0 billion to $495 billion

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

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

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

Valuing the State’s physical assets

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

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

Movements in physical asset values

Liabilities increased $38.4 billion to $256 billion

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

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

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

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

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

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

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

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

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

The State maintained its AAA credit rating

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

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

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

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

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

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

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

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

Expenditure items that contributed most to the growth rate include:

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

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

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

Appendix one - Prescribed entities

Appendix two - Legal opinions

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

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

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

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

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

Read full report (PDF)

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

There are three main causes of station crowding:

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

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

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

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

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

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

Appendix one – Response from agency

Appendix two – Sydney rail network

Appendix three – Rail services contract

Appendix four – Crowding pedestrian modelling

Appendix five – Airport Link stations case study

Appendix six – About the audit

Appendix seven – Performance auditing

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 #333 - released 30 April 2020

This report focuses on whether Destination NSW (DNSW) can demonstrate that its support for major events achieves value for money.

The audit found that DNSW’s processes for assessing and evaluating the major events it funds are mostly effective, but its public reporting does not provide enough transparency.

DNSW provides clear information to event organisers seeking funding and has a comprehensive methodology for conducting detailed event assessments. However, the reasons for decisions to progress events from the initial assessment to the detailed assessment stage are not documented in sufficient detail.

DNSW does not publish detailed information about the events it funds or the outcomes of these events. This means that members of the public are unable to see whether its activities achieve value for money. However, DNSW’s internal reporting to its key decision‑makers, including the CEO, the Board and the Minister is appropriate.

The Auditor-General made four recommendations to DNSW, aimed at improving the transparency of its activities, improving the documentation of decisions and certain compliance matters, and streamlining its approach to assessing and evaluating events that receive smaller amounts of funding.

Read full report (PDF)

Destination NSW (DNSW) provides funding to attract a range of major events to New South Wales, including high-profile professional sports matches and tournaments, musicals, art and museum exhibitions, and participation-focused events such as festivals and sports events that members of the public can enter. The NSW Government's rationale for providing funding is to encourage event organisers to hold events in New South Wales, and to ensure that events held in New South Wales maximise the potential for attracting overseas and interstate visitors.

This audit assessed whether DNSW can demonstrate that its support for major events achieves value for money. In making this assessment, the audit examined whether:

• DNSW effectively assesses proposals to support major events
• DNSW effectively evaluates the impact of its support for major events.

This audit focused on DNSW's work to attract major events to New South Wales. It did not assess DNSW's tourism promotion or development work, which includes developing tourism strategies, marketing and advertising campaigns, national and international partnerships, and regional programs.

Appendix one – Response from Destination NSW

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 #332 - released 9 April 2020.

The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of NSW Government central agencies, namely the Premier and Cabinet, Treasury and Customer Service clusters. There are 191 agencies in these clusters, including government financial, superannuation and insurance entities.

Unqualified audit opinions were issued on the financial statements for all agencies in the clusters. There were two high risk and 99 moderate risk audit findings on internal controls. Of these, 31 percent were repeat issues, and most related to weaknesses in information technology access controls.

The report notes a number of audit observations including:

• a qualified opinion on information technology internal controls at an outsourced service provider
• self-insurance losses of $1.4 billion partly due to unfavourable movements in the risk free discount rate, and increases in workers compensation claims, including psychological injury claims
• a shortfall (unfunded liability) of $637 million at 30 June 2019 in the Home Building Compensation Fund, due to premiums not being sufficient to meet costs of the scheme
• agencies self-assessed against the Australian Cyber Security Centre’s ‘Essential 8’ cyber risk mitigation strategies for the first time in 2018-19. Based on their own self assessments, more work needs to be done to improve cyber security resilience.

This report analyses the results of our financial statement audits of the Treasury, Premier and Cabinet and Customer Service clusters for the year ended 30 June 2019. Our key observations are summarised below.

This report provides parliament and other users of the NSW Government's central agencies and their cluster agencies financial statements with the results of our audits, observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations
• government financial services.

Central agency clusters were significantly impacted by Machinery of Government changes which took effect on 1 July 2019. This report is focussed on agencies now in the Treasury, Premier and Cabinet and Customer Service clusters. Some of these agencies may have been in another cluster during 2018–19. Please refer to the section on Machinery of Government changes for more details.

Central agencies and their key responsibilities are set out below.

Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions and they are given effect by Administrative orders.

The MoG changes announced following the NSW State election on 23 March 2019 significantly impacted Central Agencies’ clusters through Administrative Changes Orders issued on 2 April 2019 and 1 May 2019. These orders took effect on 1 July 2019.

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 on the 2019 financial reporting of agencies in the Treasury, Premier and Cabinet, and Customer Service clusters.

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 Treasury, Premier and Cabinet and Customer Service clusters.

Background

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

Appendix one – Timeliness of financial reporting by agency

Appendix two – Management letter findings by agency

Appendix three – Status of 2018 recommendations

Appendix four – Cluster agencies

Appendix five – 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.

This report details the results of the financial audits of NSW Government's Transport cluster for the financial year ended 30 June 2019. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Transport cluster.

Unqualified audit opinions were issued for all agencies' financial statements. However, valuations of assets continue to create challenges across the cluster. The Audit Office identified some deficiencies in relation to asset valuations at Transport for NSW, Roads and Maritime Services, Rail Corporation New South Wales and Sydney Metro.

The Audit Office noted an increase in findings on internal controls across the Transport cluster. Key themes related to information technology, asset management and employee leave entitlements. The report also highlights the status of significant infrastructure projects across the Transport cluster.

The report makes several recommendations including:

• agency finance teams need to be consulted on major business decisions and commercial transactions at the time of their execution to assess the financial reporting impacts
• the Department of Transport should ensure consistent accounting policies are applied across its controlled entities.

Download the Transport 2019 report (PDF)

This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2019. The table below summarises our key observations.

1. Machinery of Government changes

2. Financial reporting

3. Audit observations

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

• financial reporting
• audit observations.

This cluster was impacted by the Machinery of Government changes on 1 July 2019. The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW). This report is focused on the Transport cluster prior to these changes. Please refer to the section on Machinery of Government changes for more details.

Machinery of Government refers to how the government organises the structures and functions of the public service. Machinery of Government changes are where the government reorganises these structures and functions, and are given effect by Administrative orders.

The Transport cluster was impacted by recent Machinery of Government changes. These changes were announced by the Department of Premier and Cabinet but were not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. It was the intention of government to transfer the functions of the RMS into TfNSW. This requires legislative changes to the Transport Administration Act 1988 No. 109.

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

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2019.

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

This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport cluster.

Appendix one – Timeliness of financial reporting by agency 

Appendix two – Management letter findings by agency 

Appendix three – List of 2019 recommendations 

Appendix four – Status of 2017 and 2018 recommendations 

Appendix five – Cluster agencies 

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

This report focuses on key observations and findings from the most recent financial audits of the Ministry of Health, local health districts, specialty health networks, health corporations and independent health agencies in New South Wales. The report also summarises self-reported performance measures across the network.

The number and value of adjustments to financial statements of entities in the Health Cluster decreased from the prior year. And unqualified audit opinions were issued for all heath entities’ financial statements.

Audit findings relating to internal controls deficiencies increased across health entities. Contributing to this increase were deficiencies in information system controls, which accounted for nearly a quarter of all control deficiencies. Repeat audit findings also accounted for more than a quarter of all control deficiencies.

The report notes health entities continued to experience challenges with managing employees’ excessive annual leave and time recording practices. The Ambulance Service of New South Wales continued to report high overtime payments to its employees. 

Download Health 2019 report (PDF).

This report analyses the results of our audits of financial statements of the agencies comprising the Health cluster for the year ended 30 June 2019. The table below summarises our key observations.

1. Machinery of Government changes

2. Financial reporting

3. Audit observations

This report provides parliament and other users of the financial statements of agencies within the Health cluster with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas for the year ended 30 June 2019:

• financial reporting
• audit observations. 

 The Health cluster was not impacted by the Machinery of Government changes on 1 July 2019. 

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 for 2019.

Audit opinions 

We issued unqualified audit opinions for all health entities and quality of financial reporting continues to improve

We identified fewer misstatements this year, and the errors were less significant. In 2018–19 no errors exceeded $5.0 million (eight errors recorded in 2017–18). Ten health entities conducted a full revaluation of their land, buildings and infrastructure systems in 2018–19, but more robust processes avoided the errors identified in the previous year.

Number of misstatements
Year ended 30 June	2019		2018		2017
Less than $50,000	--	--	--	6	3	3
$50,000 to $249,999	--	1	--	--	2	3
$250,000 to $999,999	1	--	--	--	1	3
$1 million to $4,999,999	--	2	--	2	1	5
$5 million and greater	--	--	6	2	1	2
Total number of misstatements	1	3	6	10	8	16

 Corrected mistatements.  Uncorrected statements.

We issued a qualified audit opinion for our compliance audit of the Ministry of Health's Annual Prudential Compliance Statement

The Ministry of Health operates eight aged care facilities in NSW and is required to comply with the Fees and Payments Principles 2014 (No. 2) (the Principles) when entering into agreements with and managing payments to and from care recipients. The Principles are set by the Commonwealth Assistant Minister for Social Services. We identified 40 instances of material non-compliance in 2018–19, including:

• not agreeing maximum accommodation amounts payable with aged care recipients before they entered the residential care services
• not entering into accommodation agreements with care recipients within the specified period
• charging incorrect fees for activities or services to one care recipient
• not refunding two bond balances within the statutory framework
• not paying the correct amount of interest for 14 care recipients’ bonds refunded during the year.

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 health cluster.

Appendix one – List of 2019 recommendations

Appendix two – Status of 2018 recommendations

Appendix three – Financial data 

Appendix four – Analysis of financial indicators

Appendix five – Analysis of performance against budget

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

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

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

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

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

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

Download PDF of State Finances 2019 report

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

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

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

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

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

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

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

Margaret Crawford
Auditor-General, 10 October 2019

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

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

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

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

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

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

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

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

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

Correction of prior year’s reported values    

Correction of earthwork assets ($2.1 billion)

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

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

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

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

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

Correction of museum collection assets ($27 million)

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

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

Correction of lease liability ($46.2 million)

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

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

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

Abuse Claims remain a significant contingent liability of the State

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

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

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

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

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

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

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

TAFE update

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

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

Light Rail settlement

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

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

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

Sydney Metro Northwest project commissioning

The Sydney Metro North West officially opened in May 2019.

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

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

Financial Reporting by Crown Land Reserve Trusts

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

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

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

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

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

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

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

Derecognition of investment in City West Housing

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

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

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

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

Cluster changes

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

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

The key MoG changes included:

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

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

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

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

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

Cluster expenses

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

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

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

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

What changed from 2018 to 2019?

The State maintained its AAA credit rating.

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

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

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

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

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

The fiscal targets for achieving this objective are:

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

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

Eliminating unfunded superannuation liabilities by 2030.

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

The State’s funding plan is to contribute amounts escalated by five per cent each year so the schemes will be fully funded by 2030. In 2018–19, the State made employer contributions of $1.73 billion ($1.67 billion in 2017–18), an increase of $64 million or 3.8 per cent ($52 million or 3.2 per cent in 2017–18). This was under the five per cent target by $19.5 million.

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

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

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

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

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

Taxation revenue remained relatively stable

Taxation revenue only grew slightly, mainly due to:

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

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

Australian Government grants and subsidies

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

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

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

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

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

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

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

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

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

Operating expenses increased 6.1 per cent from 2017–18.

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

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

Health costs remain the highest expense of the State.

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

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

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

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

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

This was mainly due to:

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

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

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

Valuing the State's physical assets

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

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

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

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

Movement in the State's physical assets

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

The State relies on actuarial assessments to value its liabilities

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

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

Superannuation obligations rose by $14.3 billion.

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

Borrowings totalled $79.9 billion at 30 June 2019.

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

TCorp issues bonds to raise funds for NSW Government agencies. These are actively traded in financial markets, which provides price transparency and liquidity to public sector borrowers and institutional investors. All TCorp bonds are guaranteed by the NSW Government.

The Government manages its debt liabilities through its balance sheet management strategy. The strategy extends to TCorp, which applies an active risk management strategy to the Government’s debt portfolio.

General Government Sector debt has been restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to match liabilities with the funding requirements for infrastructure assets.

Implementing the requirements of new accounting standards will be challenging

Risks to the quality and timeliness of financial reporting

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

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

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

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

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

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

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

Key dates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Appendix one – Response from agency

Appendix two – The NSW Aboriginal Health Plan

Appendix three – About the audit

Appendix four – Performance auditing

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

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.

Three key agencies are not fully complying with the NSW Procurement Board’s Direction for engaging probity practitioners, according to a report released today by the Acting Auditor-General for New South Wales, Ian Goodwin. They also do not have effective processes to achieve compliance or assure that probity engagements achieved value for money.

Probity is defined as the quality of having strong moral principles, honesty and decency. Probity is important for NSW Government agencies as it helps ensure decisions are made with integrity, fairness and accountability, while attaining value for money.

Probity advisers provide guidance on issues concerning integrity, fairness and accountability that may arise throughout asset procurement and disposal processes. Probity auditors verify that agencies' processes are consistent with government laws and legislation, guidelines and best practice principles. 

According to the NSW State Infrastructure Strategy 2018-2038, New South Wales has more infrastructure projects underway than any state or territory in Australia. The scale of the spend on procuring and constructing new public transport networks, roads, schools and hospitals, the complexity of these projects and public scrutiny of aspects of their delivery has increased the focus on probity in the public sector. 

A Procurement Board Direction, 'PBD-2013-05 Engagement of probity advisers and probity auditors' (the Direction), sets out the requirements for NSW Government agencies' use and engagement of probity practitioners. It confirms agencies should routinely take into account probity considerations in their procurement. The Direction also specifies that NSW Government agencies can use probity advisers and probity auditors (probity practitioners) when making decisions on procuring and disposing of assets, but that agencies:

• should use external probity practitioners as the exception rather than the rule
• should not use external probity practitioners as an 'insurance policy'
• must be accountable for decisions made
• cannot substitute the use of probity practitioners for good management practices
• not engage the same probity practitioner on an ongoing basis, and ensure the relationship remains robustly independent. 

The scale of probity spend may be small in the context of the NSW Government's spend on projects. However, government agencies remain responsible for probity considerations whether they engage external probity practitioners or not.

The audit assessed whether Transport for NSW, the Department of Education and the Ministry of Health:

• complied with the requirements of ‘PBD-2013-05 Engagement of Probity Advisers and Probity Auditors’
• effectively ensured they achieved value for money when they used probity practitioners.

These entities are referred to as 'participating agencies' in this report.

We also surveyed 40 NSW Government agencies with the largest total expenditures (top 40 agencies) to get a cross sector view of their use of probity practitioners. These agencies are listed in Appendix two.

There are no professional standards and capability requirements for probity practitioners

NSW Government agencies use probity practitioners to independently verify that their procurement and asset disposal processes are transparent, fair and accountable in the pursuit of value for money. 

Probity practitioners are not subject to regulations that require them to have professional qualifications, experience and capability. Government agencies in New South Wales have difficulty finding probity standards, regulations or best practice guides to reference, which may diminish the degree of reliance stakeholders can place on practitioners’ work.

The NSW Procurement Board provides direction for the use of probity practitioners

The NSW Procurement Board Direction 'PBD-2013-15 for engagement of probity advisers and probity auditors' outlines the requirements for agencies' use of probity practitioners in the New South Wales public sector. All NSW Government agencies, except local government, state owned corporations and universities, must comply with the Direction when engaging probity practitioners. This is illustrated in Exhibit 1 below.

Appendix one – Response from agencies

Appendix two – List of selected agencies

Appendix three – About the audit