Reports
Transport 2019
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.
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
| Transport for NSW, as the lead agency, will absorb the functions of Roads and Maritime Services |
The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW) as part of the Machinery of Government changes. This change was not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019. The Act dissolves RMS and transfers the assets, rights and liabilities of RMS to TfNSW. As at the date of this Report, the Act is not yet in force. Transport is considering the impact of the changes on its operating model and financial reporting. |
2. Financial reporting
| Audit opinions |
Unqualified audit opinions were issued on the 2018–19 financial statements of all agencies in the Transport cluster. TfNSW and Sydney Metro obtained a three-week extension from NSW Treasury to submit their financial statements for audit to resolve accounting issues surrounding the valuation of property, plant and equipment. The Department of Transport reported total consolidated property, plant and equipment of $158 billion at 30 June 2019. In 2018–19, there were issues with asset valuations at TfNSW, RMS, Sydney Metro and Rail Corporation New South Wales (RailCorp), resulting in adjustments after the submission of financial statements for audit and the correction of a prior period error. |
| Preparedness for new accounting standards |
Agencies across the cluster are progressing in their implementation of the new accounting standards. Transport cluster agencies need to improve their contracts registers to ensure they have a complete list of contracts and agreements to assess the impact of the new accounting standards. |
| Valuation of assets remains a challenge in the Transport cluster |
Whilst agencies complied with the requirements of the accounting standards and NSW Treasury policies on valuations, the Audit Office identified some deficiencies in relation to asset valuations across the cluster.
Sydney Metro North West officially opened in May 2019 and reported total assets of $9.1 billion. Sydney Metro derecognised $322 million in assets constructed to facilitate its operation but transferred to councils and utilities. |
| Inconsistent accounting policies across the Transport cluster |
There was an inconsistency identified in the cluster relating to the valuation of substratum land. In 2018–19, RailCorp derecognised $109 million of substratum land to ensure consistency in its approach with other Transport agencies. As the parent entity, the Department of Transport needs to ensure accounting policies are consistently applied across all controlled entities for consolidation purposes. Inconsistencies in the application of accounting standards across agencies will impact comparability of financial reporting and decision making across the Transport cluster. |
| Revenue growth |
Public transport passenger revenue increased by $89.0 million (5.9 per cent) in 2018–19, and patronage increased by 37.8 million (4.9 per cent) across all modes of transport based on data provided by TfNSW. The increase in revenue is mainly due to an increase in patronage as well as the annual increase in fares. |
| Negative Opal cards |
Negative balance Opal cards resulted in $2.9 million in revenue not collected in 2018–19 ($10.4 million since the introduction of Opal). In January 2019, Transport made a change to the Sydney Airport stations to prevent customers with high negative balances exiting the station. In addition, in late 2018, Transport increased the minimum top up values for new cards at the airport stations. |
3. Audit observations
| Internal controls | There was an increase in findings on internal controls across the Transport cluster. Key themes relate to information technology, employee leave entitlements and asset management. Twenty-nine per cent of all issues were repeat issues. The majority of the repeat issues related to information technology controls. |
| Write-off of assets | In addition to a $322 million derecognition of assets transferred to councils and utilities by Sydney Metro and a $109 million derecognition of substratum land at RailCorp, the Transport cluster wrote-off $278 million of assets related to roads, bridges, maritime assets, traffic signals and controls network. These mainly related to roads, bridges, maritime assets, traffic signals and the control network where new infrastructure assets substantially replaced an existing asset as part of construction activities. |
| Transport Asset Holding Entity (TAHE) |
TAHE was established to be a dedicated asset manager for the delivery of public transport asset management. The Transport Administration Amendment (Transport Entities) Act 2017 will transition RailCorp into TAHE. RailCorp is now expected to transition to TAHE from 1 July 2020 (previously 1 July 2019). Several working groups have been considering various aspects of the TAHE transition including its status as a for profit Public Trading Enterprise, the operating model and the impact of the new accounting standards AASB 16 'Leases' and AASB 1059 'Service Concession Arrangements: Grantors'. The considerations of these aspects identified several challenges in the implementation of TAHE which has led to the revised transition date. Given the delays in implementation, it is important to clarify the intent of the TAHE model. |
| Excess annual leave |
Twenty-six per cent of Transport employees have annual leave balances exceeding 30 days. Of the employees with excess leave balances, 732 (10.3 per cent) did not take any annual leave in 2018–19.
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| Completeness and accuracy of contracts registers |
There are no centralised processes to record all significant contracts and agreements in a register across the Transport cluster.
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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.
Section highlights
Under the Machinery of Government changes, the NSW Government will transfer the functions of RMS into TfNSW.
- The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019.
- The Act will dissolve RMS and transfer its functions, assets, rights and liabilities to TfNSW.
- As at the date of this report, the Act is not yet in force.
- There are risks and challenges for asset and liability transfers, governance and retention of knowledge.
- As of 1 July 2019, administrative arrangements (delegations and reporting line changes) were put in place to enable TfNSW and RMS to operate within a single management structure, while still remaining as separate legal entities.
- Transport is working on a number of options as to how to implement the changes.
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.
Section highlights
- Unqualified audit opinions were issued on all agencies' financial statements.
- RMS required an extension from NSW Treasury for their early close procedures.
- TfNSW and Sydney Metro required extensions to submit their year-end financial statements.
- Valuation of assets remains a challenge across the cluster.
- There remains Opal cards with negative balances.
- Sydney Metro derecognised assets of $322 million in relation to assets constructed for third parties.
- Inconsistencies in the application of accounting policies across cluster agencies impact comparability of financial reporting across the Transport cluster.
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.
Section highlights
- There was an increase in findings on internal controls across the Transport cluster. Twenty-nine per cent of all issues were repeat issues.
- Transport entities wrote-off over $278 million of assets which were replaced by new assets or technology.
- Twenty-six per cent of Transport employees have excess annual leave.
- There are no processes to ensure all significant contracts and agreements are captured by agencies in a centralised register.
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.
Health 2019
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.
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
| Cluster changes | Machinery of Government (MoG) changes refer to how the government reorganises agency structures and functions and realigns ministerial responsibilities. The Health cluster was not impacted by the MoG changes. |
2. Financial reporting
| Financial reporting |
The financial statements of NSW Health and its controlled entities received unqualified audit opinions before the legislative deadline. |
| Financial performance | Overall, NSW Health recorded an operating surplus of $1.1 billion in 2018–19, an increase of $699 million from 2017–18. This was the result of additional funding received for capital expenditure on the construction of new facilities, upgrades and redevelopments. Budgeted expense for the 15 local health districts and two speciality networks increased from $18.3 billion to $19.4 billion in 2018–19. The 15 health entities recorded unfavourable variances between actual and budgeted expenses. |
| Excess annual leave |
Managing excess annual leave remains a challenge for NSW Health, 36.9 per cent of the workforce have excess annual leave balances. Recommendation: Health entities should further review their approach to managing excess annual leave in 2019–20, and:
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| Overtime payments | NSW Health entities generally manage overtime well. The Ambulance Service of NSW’s overtime payments of $83.1 million (9.8 per cent of total salaries and wages), remain significantly higher than other health entities. Recommendation: The Ambulance Service of NSW should further review the effectiveness of its rostering practices to identify strategies to reduce overtime payments. |
3. Audit observations
| Internal control deficiencies | We identified more internal control deficiencies in 2018–19. The number of repeat issues from prior years also remains high with more than one quarter of issues having been previously reported. More than a quarter of deficiencies related to information system controls. |
| Infrastructure delivery | NSW Health defines projects with a budgeted cost greater than $50.0 million as 'major projects'. There were significant revisions to planned financial completion dates and budgeted costs of these projects. The revised total budgets for the 30 ongoing major capital projects at 30 June 2019 is $10.2 billion, $2.2 billion more than the original budget. Health Infrastructure completed three major capital projects during 2018–19. |
| Asset maintenance | The total cost of maintaining the health entities’ $19.8 billion of assets was $635 million for 2018–19. Health entities' approaches to setting maintenance budgets vary. Most entities are addressing their backlog maintenance, although many were not able to quantify the full extent of their backlog maintenance. Although health entities continue to use fully depreciated assets, the replacement cost of these assets is decreasing. |
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.
Section highlights
- We issued unqualified audit opinions for all health entities’ financial statements and identified fewer misstatement than last year. Health entities continue to meet statutory deadlines.
- The Ministry of Health sets significant accounting policies centrally and provides a template for the preparation of health entities’ financial statements. These processes promote consistent quality in the financial reports of health entities and reduce the number of misstatements we identify.
- NSW Health recorded an operating surplus of $1.1 billion, an increase of $699 million from 2017–18. This is because of additional capital grants for new facilities, upgrades and redevelopments. The capital replacement ratio (investment in new assets divided by depreciation) for NSW Health is 2.6.
- NSW Health’s expenses increased by 7.0 per cent in 2018–19 (5.5 per cent in 2017–18). This is one percentage point higher than the projected long-term annual expense growth rate of six per cent. The primary causes for the growth in expenses are increased:
- employee related expenses because provisions for employee benefits increased when the discount rate decreased
- operating expenses associated with the opening of Northern Beaches Hospital.
- Excess annual leave balances continue to increase for the NSW Health workforce, with excess annual leave balances impacting 37 per cent of employees (34 per cent in 2017–18).
- Health entities should further review their approach to managing excess annual leave in 2019–20 by monitoring current and projected leave balances on a regular basis, agreeing formal leave plans with employees and encouraging staff that perform key control functions to take a minimum of two consecutive weeks’ leave a year as a fraud mitigation strategy.
- The Ambulance Services continued to report overtime payments higher than other health entities. The Ambulance Service paid its employees $83.1 million in overtime payments in 2018–19 ($74.8 million in 2017–18).
- We issued a qualified audit opinion for the Ministry of Health's Annual Prudential Compliance Statement for aged care facilities operated by NSW Health. We identified 40 instances of material non-compliance with the Fees and Payments Principles 2014 (No. 2) (the Principles) in 2018–19 (17 in 2017–18).
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 | |||
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 |
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| 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.
Section highlights
- The number of internal control deficiencies has increased since 2017–18. More than a quarter of control deficiencies are repeat issues and almost a quarter relate to information system controls. Both employee time recording and leave management remain as repeat issues in 2018–19.
- Control deficiencies that relate to managing employees' leave, employees’ time recording or information system limitations can be difficult for entities to resolve in a timely manner.
- Agreements for the treatment of New South Wales residents while they are interstate, and interstate residents while they are in New South Wales, are unsigned for Queensland, Victoria and the Australian Capital Territory for 2016–17, 2017–18 and 2018–19.
- NSW Health recorded $113.6 million in revenue from fees charged to Medicare ineligible patients during 2018–19 but has received payment for less than half of this.
- NSW Health reported that they completed three major capital projects during 2018–19.
- As at 30 June 2019 there were 30 ongoing major capital health projects in NSW. The revised capital budget for these projects in total was $2.2 billion more than the original budget of $8.0 billion.
- Health entities spent $635 million maintaining assets with a fair value of $19.8 billion of assets. Almost all entities were working through backlog maintenance during 2018–19, although several were unable to quantify the backlog.
- While entities are now regularly reassessing the useful lives of their assets, entities are still using a high volume of assets that are fully depreciated. Due to the age and nature of these assets the impact was not material.
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.
Transport Access Program
The following report is available in an Easy English version that is intended to meet the needs of some people with lower literacy skills, some people with an intellectual disability and some people from different cultural backgrounds.
View the Easy English version of the Transport Access Program report
Transport for NSW’s process for selecting and prioritising projects for the third stage of its Transport Access Program balanced compliance with national disability standards with broader customer outcomes. Demographics, deliverability and value for money were also considered. However, Transport for NSW does not know the complete scope of work required for full compliance, limiting its ability to demonstrate that its approach is effective, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.
Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services. In 2015, there were 1.37 million people living with disability in New South Wales.
Accessible public transport is about more than physical accessibility. It also means barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services.
Transport for NSW has an obligation under Australian Government legislation to provide accessible services to people with disabilities in a manner which is not discriminatory. Under the Disability Standards for Accessible Public Transport 2002 (the DSAPT - an instrument of the Disability Discrimination Act 1992 (the Act) (Commonwealth)), there is a requirement to modify and develop new infrastructure, means of transport and services to provide access for people with disabilities. All public transport operators are required to ensure that at least 90 per cent of their networks met DSAPT by December 2017 and the networks will need to be 100 per cent compliant with all parts of the standards by 31 December 2022. Trains are not required to be fully compliant with DSAPT until December 2032.
The Transport Access Program (TAP) is Transport for NSW's largest program with a specific focus on improving access to public transport for people with disability. The TAP is a series of projects to upgrade existing public transport infrastructure across four networks: Sydney Trains, Intercity Trains, Regional Trains and Sydney Ferries. Transport for NSW established the TAP as a rolling program and, to date, it has delivered the first tranche of TAP (TAP 1) and is completing the final projects for the second tranche (TAP 2). NSW budget papers estimate that by 30 June 2018, Transport for NSW had spent $1.2 billion in the TAP since its commencement in 2011-12.
After the completion of TAP 1 and TAP 2 (as well as through other transport infrastructure programs), Transport for NSW estimates that 58.5 per cent of the Sydney Trains, Regional Trains and Intercity Trains networks, and 66 per cent of the Sydney Ferries network, will be accessible. To close the significant gap in compliance with the DSAPT target, the objective for TAP 3 is ‘to contribute to Disability Discrimination Act 1992 related targets through DSAPT compliance upgrades’.
The audit assessed whether Transport for NSW has an effective process to select and prioritise projects as part of the TAP, with a specific focus on the third tranche of TAP funding.
In August 2018, at the commencement of this audit, Transport for NSW intended to complete the selection of projects for the TAP 3 final business case in December 2018. Transport for NSW advise that it now intends to complete the development stage and final business case in the first quarter of 2019, prior to the final investment decision of the TAP program. This report is based on the TAP 3 strategic business case and information provided by Transport for NSW up to December 2018.
Transport for NSW’s process for selecting and prioritising projects for TAP 3 balanced DSAPT compliance goals with broader customer outcomes. It also considered demographics, deliverability and value for money. However, Transport for NSW does not know the complete scope of work required for full DSAPT compliance, and this limits its ability to demonstrate that its approach is effective.
In 2015, there were 1.37 million people living with disability in New South Wales. Access to transport is critical to ensuring that people can engage in all aspects of community life, including education, employment and recreation. People with disability can encounter barriers when accessing public transport services.
The social model of disability, outlined in the United Nations Convention on the Rights of Persons with Disabilities, views people with disability as not disabled by their impairment but by the barriers in the community and environment that restrict their full and effective participation in society on an equal basis with others.
Accessible public transport is more than the provision of physical access to premises and conveyances, it provides barrier-free access for people who have vision, hearing or cognitive impairments. All users, not just people with disability, benefit from improvements to the accessibility and inclusiveness of transport services.
According to the Australian Bureau of Statistics, the main types of difficulties experienced by people with disability when using public transport relate to steps (39.9 per cent), difficulty getting to stops and stations (25 per cent), fear and anxiety (23.3 per cent) and lack of seating or difficulty standing (20.7 per cent).
Transport for NSW has a Disability Inclusion Action Plan (the Action Plan) 2018-2022 that sets an overall framework for planning, delivering and reporting on initiatives to increase accessibility of the transport network. It covers all elements of the journey experienced when using public transport, including journey planning, staff training, customer services and interaction between the physical environment and modes of transport. Appendix five outlines the guiding principles of the Action Plan.
Transport for NSW's Transport Social Policy branch developed the Action Plan in consultation with internal and external stakeholders. The director of the Transport Social Policy branch is a member of the TAP executive steering committee, which supports alignment between the Action Plan and TAP.
Transport for NSW's Disability Inclusion Action Plan describes a customer focussed approach to accessibility
One of the guiding principles of the Action Plan is ‘intelligent compliance’. Transport for NSW describes this as compliance that prioritises customer-focused outcomes over a narrow focus on legal compliance with accessibility standards. As well as being compliant, infrastructure should be practical, usable, fit for purpose and convenient.
The TAP prioritisation and selection methodology reflects Transport for NSW’s focus on intelligent compliance. We consider this a reasonable approach as had Transport for NSW focussed exclusively on achieving compliance with the DSAPT targets by upgrading the most affordable infrastructure, some locations, that are used by more customers, would remain inaccessible to people with disability. However, this approach should not be seen as an alternative to Transport for NSW meeting its DSAPT compliance obligations.
TAP program staff consult with the Accessible Transport Advisory Committee
The Accessible Transport Advisory Committee (ATAC) has representatives from disability and ageing organisations, who provide expert guidance to Transport for NSW on access and inclusion. The ATAC provide guidance and feedback on projects and project solutions, including user testing where appropriate. TAP program staff provide regular updates at ATAC meetings, which include briefings on progress. The ATAC also provides feedback and suggestions to TAP program staff, which is considered and sometimes included in current and future projects.For example, in March 2017 the TAP program team briefed the ATAC on the challenges with respect to a number of ferry wharves and sought support for DSAPT exemptions proposed in the TAP 3 strategic business case.
| In June 2018, the Program team sought feedback on a variety of lift button options to improve accessibility on future TAP projects. In September 2018, during the ATAC meeting attended by the Audit Office, the program team sought feedback on the standard designs for TAP 3. Some ATAC members noted that the standard design included Braille lettering on the lift buttons, and that this was not good practice because people can accidently press the button while reading it. As a result, Transport for NSW are incorporating this feedback into design requirements for the lifts for TAP 3, which will consider larger buttons, clearer Braille and Braille signage adjacent to the button. |
Transport for NSW has not briefed the Advisory Committee on the outcome of the prioritisation and selection process
TAP program staff briefed the Advisory Committee about the prioritisation and selection methodology, after the Minister approved it in 2016. However, Transport for NSW have not briefed or consulted the Advisory Committee on the outcome of the prioritisation process. Infrastructure NSW noted this issue during its review of the strategic business case.
Transport for NSW advised us that it established the ATAC as an advisory group, and that Transport for NSW does not disclose sensitive information to it. Transport for NSW intends to share the outcome of the prioritisation process following the completion of the TAP 3 development stage and final investment decision.
The TAP communication plan does not fully meet the requirements of the Disability Inclusion Action Plan
The Disability Inclusion Action Plan includes an action item to ‘provide a listing of stations and wharves to be upgraded with estimated time of construction as each new tranche of the Transport Access Program is announced’ The TAP Communication Plan that we reviewed does not include this provision instead focussing on communication on a per project basis. Given the long timeframes associated with improving transport infrastructure, this information is important as it allows people to make informed decisions about where they live, work or study.
Appendix one - Response from agency
Appendix two - Compliance requirements of Disability Standards for Accessible Public Transport
Appendix three - TAP 1 and TAP 2 sub-programs
Appendix four - Prioritisation Assessment for the TAP 3 Strategic Business Case
Appendix five - The guiding principles of Transport for NSW's Disability Inclusion Action Plan
Appendix six - Transport projects and programs that contribute to DSAPT compliance
Appendix seven - About the audit
Appendix eight - Performance auditing
Parliamentary Reference - Report number #314 - released 19 February 2019.
Internal Controls and Governance 2017
Agencies need to do more to address risks posed by information technology (IT).
Effective internal controls and governance systems help agencies to operate efficiently and effectively and comply with relevant laws, standards and policies. We assessed how well agencies are implementing these systems, and highlighted opportunities for improvement.
1. Overall trends
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New and repeat findings |
The number of reported financial and IT control deficiencies has fallen, but many previously reported findings remain unresolved. |
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High risk findings |
Poor systems implementations contributed to the seven high risk internal control deficiencies that could affect agencies. |
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Common findings |
Poor IT controls are the most commonly reported deficiency across agencies, followed by governance issues relating to cyber security, capital projects, continuous disclosure, shared services, ethics and risk management maturity. |
2. Information Technology
|
IT security |
Only two-thirds of agencies are complying with their own policies on IT security. Agencies need to tighten user access and password controls. |
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Cyber security |
Agencies do not have a common view on what constitutes a cyber attack, which limits understanding the extent of the cyber security threat. |
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Other IT systems |
Agencies can improve their disaster recovery plans and the change control processes they use when updating IT systems. |
3. Asset Management
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Capital investment |
Agencies report delays delivering against the significant increase in their budgets for capital projects. |
|
Capital projects |
Agencies are underspending their capital budgets and some can improve capital project governance. |
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Asset disposals |
Eleven per cent of agencies were required to sell their real property through Property NSW but didn’t. And eight per cent of agencies can improve their asset disposal processes. |
4. Governance
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Governance arrangements |
Sixty-four per cent of agencies’ disclosure policies support communication of key performance information and prompt public reporting of significant issues. |
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Shared services |
Fifty-nine per cent of agencies use shared services, yet 14 per cent do not have service level agreements in place and 20 per cent can strengthen the performance standards they set. |
5. Ethics and Conduct
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Ethical framework |
Agencies can reinforce their ethical frameworks by updating code‑of‑conduct policies and publishing a Statement of Business Ethics. |
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Conflicts of interest |
All agencies we reviewed have a code of conduct, but they can still improve the way they update and manage their codes to reduce the risk of fraud and unethical behaviour. |
6. Risk Management
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Risk management maturity |
All agencies have implemented risk management frameworks, but with varying levels of maturity. |
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Risk management elements |
Many agencies can improve risk registers and strengthen their risk culture, particularly in the way that they report risks to their lead agency. |
This report covers the findings and recommendations from our 2016–17 financial audits related to the internal controls and governance of the 39 largest agencies (refer to Appendix three) in the NSW public sector. These agencies represent about 95 per cent of total expenditure for all NSW agencies and were considered to be a large enough group to identify common issues and insights.
The findings in this report should not be used to draw conclusions on the effectiveness of individual agency control environments and governance arrangements. Specific financial reporting, controls and service delivery comments are included in the individual 2017 cluster financial audit reports tabled in Parliament from October to December 2017.
This new report offers strategic insight on the public sector as a whole
In previous years, we have commented on internal control and governance issues in the volumes we published on each ‘cluster’ or agency sector, generally between October and December. To add further value, we then commented more broadly about the issues identified for the public sector as a whole at the start of the following year.
This year, we have created this report dedicated to internal controls and governance. This will help Parliament to understand broad issues affecting the public sector, and help agencies to compare their own performance against that of their peers.
Without strong control measures and governance systems, agencies face increased risks in their financial management and service delivery. If they do not, for example, properly authorise payments or manage conflicts of interest, they are at greater risk of fraud. If they do not have strong information technology (IT) systems, sensitive and trusted information may be at risk of unauthorised access and misuse.
These problems can in turn reduce the efficiency of agency operations, increase their costs and reduce the quality of the services they deliver.
Our audits do not review every control or governance measure every year. We select a range of measures, and report on those that present the most significant risks that agencies should mitigate. This report divides these into the following six areas:
- Overall trends
- Information technology
- Asset management
- Governance
- Ethics and conduct
- Risk management.
Internal controls are processes, policies and procedures that help agencies to:
- operate effectively and efficiently
- produce reliable financial reports
- comply with laws and regulations.
This chapter outlines the overall trends for agency controls and governance issues, including the number of findings, level of risk and the most common deficiencies we found across agencies. The rest of this volume then illustrates this year’s controls and governance findings in more detail.
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Issues |
Recommendations |
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1.1 New and repeat findings |
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The number of internal control deficiencies reduced over the past three years, but new higher-risk information technology (IT) control deficiencies were reported in 2016–17. Deficiencies repeated from previous years still make up a sizeable proportion of all internal control deficiencies. |
Recommendation Agencies should focus on emerging IT risks, but also manage new IT risks, reduce existing IT control deficiencies, and address repeat internal control deficiencies on a more timely basis. |
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1.2 High risk findings |
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We found seven high risk internal control deficiencies, which might significantly affect agencies. |
Recommendation Agencies should rectify high risk internal control deficiencies as a priority |
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1.3 Common findings |
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The most common internal control deficiencies related to poor or absent IT controls. We found some common governance deficiencies across multiple agencies. |
Recommendation Agencies should coordinate actions and resources to help rectify common IT control and governance deficiencies. |
Information technology (IT) has become increasingly important for government agencies’ financial reporting and to deliver their services efficiently and effectively. Our audits reviewed whether agencies have effective controls in place over their IT systems. We found that IT security remains the source of many control weakness in agencies.
| Issues | Recommendations |
2.1 IT security |
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User access administration While 95 per cent of agencies have policies about user access, about two-thirds were compliant with these policies. Agencies can improve how they grant, change and end user access to their systems. |
Recommendation Agencies should strengthen user access administration to prevent inappropriate access to sensitive systems. Agencies should:
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Privileged access Sixty-eight per cent of agencies do not adequately manage who can access their information systems, and many do not sufficiently monitor or restrict privileged access. |
Recommendation Agencies should tighten privileged user access to protect their information systems and reduce the risks of data misuse and fraud. Agencies should ensure they:
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Password controls Forty-one per cent of agencies did not meet either their own standards or minimum standards for password controls. |
Recommendation Agencies should review and enforce password controls to strengthen security over sensitive systems. As a minimum, password parameters should include:
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2.2 Cyber Security |
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Cyber security framework Agencies do not have a common view on what constitutes a cyber attack, which limits understanding the extent of the cyber security threat. |
Recommendation The Department of Finance, Services and Innovation should revisit its existing framework to develop a shared cyber security terminology and strengthen the current reporting requirements for cyber incidents. |
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Cyber security strategies While 82 per cent of agencies have dedicated resources to address cyber security, they can strengthen their strategies, expertise and staff awareness. |
Recommendations The Department of Finance, Services and Innovation should:
Agencies should ensure they adequately resource staff dedicated to cyber security. |
2.3 Other IT systems |
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Change control processes Some agencies need to improve change control processes to avoid unauthorised or inaccurate system changes. |
Recommendation Agencies should consistently perform user acceptance testing before system upgrades and changes. They should also properly approve and document changes to IT systems. |
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Disaster recovery planning Agencies can do more to adequately assess critical business systems to enforce effective disaster recovery plans. This includes reviewing and testing their plans on a timely basis. |
Recommendation Agencies should complete business impact analyses to strengthen disaster recovery plans, then regularly test and update their plans. |
Agency service delivery relies on developing and renewing infrastructure assets such as schools, hospitals, roads, or public housing. Agencies are currently investing significantly in new assets. Agencies need to manage the scale and volume of current capital projects in order to deliver new infrastructure on time, on budget and realise the intended benefits. We found agencies can improve how they:
- manage their major capital projects
- dispose of existing assets.
| Issues | Recommendations or conclusions |
3.1 Capital investment |
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Capital asset investment ratios Most agencies report high capital investment ratios, but one-third of agencies’ capital investment ratios are less than one. |
Recommendation Agencies with high capital asset investment ratios should ensure their project management and delivery functions have the capacity to deliver their current and forward work programs. |
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Volume of capital spending Most agencies have significant forward spending commitments for capital projects. However, agencies’ actual capital expenditure has been below budget for the last three years. |
Conclusion The significant increase in capital budget underspends warrant investigation, particularly where this has resulted from slower than expected delivery of projects from previous years. |
3.2 Capital projects |
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Major capital projects Agencies’ major capital projects were underspent by 13 percent against their budgets. |
Conclusion The causes of agency budget underspends warrant investigation to ensure the NSW Government’s infrastructure commitment is delivered on time. |
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Capital project governance Agencies do not consistently prepare business cases or use project steering committees to oversee major capital projects. |
Conclusion Agencies that have project management processes that include robust business cases and regular updates to their steering committees (or equivalent) are better able to provide those projects with strategic direction and oversight. |
3.3. Asset disposals |
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Asset disposal procedures Agencies need to strengthen their asset disposal procedures. |
Recommendations Agencies should have formal processes for disposing of surplus properties. Agencies should use Property NSW to manage real property sales unless, as in the case for State owned corporations, they have been granted an exemption. |
Governance refers to the high-level frameworks, processes and behaviours that help an organisation to achieve its objectives, comply with legal and other requirements, and meet a high standard of probity, accountability and transparency.
This chapter sets out the governance lighthouse model the Audit Office developed to help agencies reach best practice. It then focuses on two key areas: continuous disclosure and shared services arrangements. The following two chapters look at findings related to ethics and risk management.
| Issues | Recommendations or conclusions |
4.1 Governance arrangements |
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Continuous disclosure Continuous disclosure promotes improved performance and public trust and aides better decision-making. Continuous disclosure is only mandatory for NSW Government Businesses such as State owned corporations. |
Conclusion Some agencies promote transparency and accountability by publishing on their websites a continuous disclosure policy that provides for, and encourages:
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4.2 Shared services |
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Service level agreements Some agencies do not have service level agreements for their shared service arrangements. Many of the agreements that do exist do not adequately specify controls, performance or reporting requirements. This reduces the effectiveness of shared services arrangements. |
Conclusion Agencies are better able to manage the quality and timeliness of shared service arrangements where they have a service level agreement in place. Ideally, the terms of service should be agreed before services are transferred to the service provider and:
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Shared service performance Some agencies do not set performance standards for their shared service providers or regularly review performance results. |
Conclusion Agencies can achieve better results from shared service arrangements when they regularly monitor the performance of shared service providers using key measures for the benefits realised, costs saved and quality of services received. Before agencies extend or renegotiate a contract, they should comprehensively assess the services received and test the market to maximise value for money. |
All government sector employees must demonstrate the highest levels of ethical conduct, in line with standards set by The Code of Ethics and Conduct for NSW government sector employees.
This chapter looks at how well agencies are managing these requirements, and where they can improve their policies and processes.
We found that agencies mostly have the appropriate codes, frameworks and policies in place. But we have highlighted opportunities to improve the way they manage those systems to reduce the risks of unethical conduct.
| Issues | Recommendations or conclusions |
5.1 Ethical framework |
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Code of conduct All agencies we reviewed have a code of conduct, but they can still improve the way they update and manage their codes to reduce the risk of fraud and unethical behaviour. |
Recommendation Agencies should regularly review their code-of-conduct policies and ensure they keep their codes of conduct up-to-date. |
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Statement of business ethics Most agencies maintain an ethical framework, but some can enhance their related processes, particularly when dealing with external clients, customers, suppliers and contractors. |
Conclusion Agencies can enhance their ethical frameworks by publishing a Statement of Business Ethics, which communicates their values and culture. |
5.2 Potential conflicts of interest |
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Conflicts of interest All agencies have a conflicts-of-interest policy, but most can improve how they identify, manage and avoid conflicts of interest. |
Recommendation Agencies should improve the way they manage conflicts of interest, particularly by:
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Gifts and benefits While all agencies already have a formal gifts-and-benefits policy, we found gaps in the management of gifts and benefits by some that increase the risk of unethical conduct. |
Recommendation Agencies should improve the way they manage gifts and benefits by promptly updating registers and providing annual training to staff. |
Risk management is an integral part of effective corporate governance. It helps agencies to identify, assess and prioritise the risks they face and in turn minimise, monitor and control the impact of unforeseen events. It also means agencies can respond to opportunities that may emerge and improve their services and activities.
This year we looked at the overall maturity of the risk management frameworks that agencies use, along with two important risk management elements: risk culture and risk registers.
| Issues | Recommendations or conclusions |
6.1 Risk management maturity |
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All agencies have implemented risk management frameworks, but with varying levels of maturity in their application. Agencies’ averaged a score of 3.1 out of five across five critical assessment criteria for risk management. While strategy and governance fared best, the areas that most need to improve are risk culture, and systems and intelligence. |
Conclusion Agencies have introduced risk management frameworks and practices as required by the Treasury’s:
However, more can be done to progress risk management maturity and embed risk management in agency culture. |
6.2 Risk management elements |
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Risk culture Most agencies have started to embed risk management into the culture of their organisation. But only some have successfully done so, and most agencies can improve their risk culture.
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Conclusion Agencies can improve their risk culture by:
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Risk registers and reporting Some agencies do not report their significant risks to their lead agency, which may impair the way resources are allocated in their cluster. Some agencies do not integrate risk registers at a divisional and whole-of-enterprise level. |
Conclusion Agencies not reporting significant risks at the cluster level increases the likelihood that significant risks are not being mitigated appropriately. |
Effective risk management can improve agency decision-making, protect reputations and lead to significant efficiencies and cost savings. By embedding risk management directly into their operations, agencies can also derive extra value for their activities and services.
Transport 2017
The following 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, the report notes the agencies can improve their asset revaluation processes.
Health 2017
The following report highlights results of the financial audits of entities in the NSW health cluster. The report focuses on key observations and findings from the most recent audits of these entities.
The report also includes a range of findings on service delivery. Overall, NSW Health is achieving most of their targets. Some local health districts are continuing to experience increased demand for their services and are finding it more difficult to meet their targets. For example, three local health districts had not achieved some emergency department response time targets for three consecutive years.
1. Financial reporting and controls
| Financial Reporting |
All health cluster entities received unqualified audit opinions and the quality of financial reporting remains high across the cluster. Early close procedures were largely completed and all financial statements were submitted by the deadlines. |
| Financial performance |
Overall, NSW Health recorded an operating surplus of $407 million in 2016–17. Eleven local health districts/specialty networks recorded operating deficits in 2016–17, four more than 2015–16. Expenses across NSW Health increased by 4.4 per cent in 2016–17 (6.0 per cent in 2015–16), lower than the expected long term annual expense growth rate. |
| Excess annual leave | Managing excess annual leave is a continual challenge for NSW Health, with thirty–five per cent of the workforce having excess balances. |
| Overtime payments | NSW Health entities are generally managing overtime well; however NSW Ambulance’s overtime payments, $74.6 million in 2016–17, remain significantly higher than other health entities. |
| Time and leave recording practices | Unapproved employee timesheets continue to be a problem for health entities. Weak timesheet approval controls increase the risk of staff claiming and being paid for hours they have not worked. There is also an increased risk of high volumes of roster adjustments, manual pays, salary overpayments and leave not being recorded accurately. |
2. Service Delivery
| Service Agreements | Most of the service agreements between the Secretary of NSW Health and health entities were signed earlier than prior years. |
| Performance monitoring | Five NSW Health entities are not meeting the Ministry of Health’s performance expectations at 30 June 2017. |
| Emergency department performance | Data provided by the Ministry indicates NSW Health, on average, met emergency department triage response time targets across all triage categories for the fourth consecutive year. |
| Ambulance response times | Data provided by the Ministry shows NSW Ambulance response times for imminently life‑threatening incidents of 7.5 minutes in 2016–17 was within the Ministry’s target of 10.0 minutes. Data provided by the Ministry indicates NSW Ambulance response times for potentially life‑threatening incidents did not improve in 2016–17. The median response time of 11.1 minutes in 2016–17 was similar to 2015–16 (11.0 minutes). This is despite the number of Priority 1 responses reducing by 4.3 per cent. |
| Unplanned hospital re-admissions | Data provided by the Ministry shows eight local health districts achieved the Ministry of Health’s unplanned hospital re‑admissions target in 2016–17. The target is for local health districts to reduce re‑admission rates from the previous financial year. |
This report sets out the results of the 30 June 2017 financial statement audits of Health cluster entities.
The report has been structured into two chapters focusing on:
- Financial reporting and controls
- Service delivery.
This chapter outlines audit observations, conclusions and recommendations related to financial reporting and internal controls of entities for 2016-17.
| Observation | Conclusion or recommendation |
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2.1 Quality of financial reporting |
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| All cluster entities received unqualified audit opinions and misstatements identified in financial statements fell. | The quality of financial reporting remains high across the cluster. |
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2.2 Timeliness of financial reporting |
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| Early close procedures were largely completed and all financial statements were submitted by the deadlines. | Health entities controlled by the Ministry of Health continued submitting their financial statements well ahead of the statutory deadlines. |
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2.4 Financial and sustainability analysis |
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NSW Health recorded an operating surplus of $407 million in 2016–17.
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The statewide operating surplus was $84 million higher than 2015–16. Net surpluses contribute to NSW Health’s ability to invest in new facilities, upgrades and redevelopments. The 2016–17 financial results were once again impacted by the NSW Government initiative to improve cash management across the sector. |
| 2.5 Performance against budget | |
| Ten local health districts/specialty networks’ expense budget variance was outside performance expectations agreed with the Ministry at the beginning of 2016–17. | The Ministry continues to manage performance across NSW Health to improve the accuracy of budgeting practices. |
| 2.7 Human Resources | |
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Thirty-five per cent of NSW Health’s workforce have excess annual leave balances.
NSW Ambulance had the highest average sick leave rate in NSW Health of 85.2 hours per FTE in 2016–17 (78.7 hours in 2015–16). This was higher than the statewide average of 62.1 hours (62.0 hours in 2015–16).
Unapproved employee timesheets continue to be a problem for health entities. Weak timesheet approval controls increase the risk of staff claiming and being paid for hours they have not worked.
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Managing excess annual leave is a continual challenge for health entities.
Recommendation: NSW Ambulance should further review the effectiveness of its rostering practices to identify strategies to reduce excessive overtime payments. Recommendation: Health entities should conduct a risk‑based review of time and leave recording practices to ensure control weaknesses are identified and fixed. |
This chapter outlines our audit observations, conclusions and recommendations relating to service delivery for 2016–17.
| Observation | Conclusion or recommendation |
| 3.1 Service agreements in NSW Health | |
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Most of the service agreements between the Secretary of NSW Health and health entities were signed earlier than prior years. Thirteen local health districts/specialty networks signed their service agreements by the 31 July 2017 due date. This is a significant improvement with only seven local health districts/specialty networks meeting the date in 2015–16. |
Having service agreements signed as close as possible to the start of each year provides the Ministry and NSW Health entities with clarity around roles, responsibilities, performance measures, budgets, and service volumes and levels. |
| 3.2 Performance of NSW Health entities | |
| Five NSW Health entities were not meeting the Ministry’s performance expectations at 30 June 2017. | The Ministry is managing the five entities in accordance with its performance review process. |
| 3.4 Emergency department response times | |
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Data provided by the Ministry indicates NSW Health again, on average, met emergency department triage response time targets across all triage categories for the fourth consecutive year. The Ministry manages performance across NSW Health to ensure patients presenting at emergency departments receive care in a clinically appropriate timeframe. |
Based on the Ministry’s data, local health districts/specialty networks are, on average, meeting triage targets despite increasing emergency department attendances. The data shows eleven local health districts met all triage targets in 2016–17, compared to eight in |
| 3.5 Emergency treatment performance | |
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The Ministry manages public patient access to emergency services in public hospitals. It has an emergency treatment performance target of 81 per cent of patients leaving emergency departments within four hours. |
Data provided by the Ministry indicates NSW Health maintained its overall emergency treatment performance in 2016–17, but did not achieve its target. The State average emergency treatment performance was 74.2 per cent (74.2 per cent in 2015–16). Based on the Ministry’s data, only four local health districts achieved the target in 2016–17, five in |
| 3.6 Ambulance response times | |
| NSW Ambulance has a response time target of 10.0 minutes for imminently life‑threatening incidents in New South Wales. | Data provided by the Ministry indicates NSW Ambulance response times for imminently life-threatening incidents of 7.5 minutes in 2016–17 was within the Ministry’s target. |
| 3.7 Transfer of care | |
| The Ministry has a target of 90 per cent for the number of ambulance arrivals within a 30 minute ‘transfer of care’ timeframe. | Data provided by the Ministry indicates the rate of ambulance arrivals within a 30 minute 'transfer of care' timeframe improved from 87.6 per cent in 2015–16 to 91.7 per cent in 2016–17, exceeding the Ministry’s target. |
| 3.8 Average length of stay in hospital | |
| Based on the Ministry’s 2016–17 data, the average length of stay for acute episodes was 3.0 days. The average length of stay in New South Wales hospitals is lower than the national average of 3.2 days (in 2015–16). | The Ministry’s data shows the average length of stay by patients for acute episodes has remained stable in New South Wales hospitals for four years. |
| 3.9 Elective surgery access performance | |
| Data provided by the Ministry indicates NSW Health continues to manage waiting times for elective surgery in public hospitals. | The Ministry’s data shows NSW Health improved on‑time admission of patients for elective surgery in 2016–17 despite a 1.8 per cent increase in admissions. While the result improved, only one of the three targets for elective surgery waiting times was met in 2016–17. |
| 3.10 Unplanned hospital re-admissions | |
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Data provided by the Ministry indicates NSW Health, on average, did not reduce the rate of unplanned hospital re‑admissions in 2016–17. The Ministry has a target of reducing unplanned hospital re‑admissions compared to the previous financial year. Low re‑admission rates may indicate good patient management practices and post-discharge care. |
The Ministry’s data shows eight local health district met the target to reduce the rate of re‑admissions compared to the previous financial year. The statewide average rate increased from 6.3 per cent to 6.4 per cent. |
| 3.11 Post discharge care for acute mental health patients | |
| NSW Health has a goal to increase community-based care to acute mental health patients after they are discharged. Continuity of care in the community can lead to reduced symptom severity, lower re‑admission rates, and improved quality of life. | The Ministry’s 2016–17 data shows the statewide average for post discharge follow-up of acute mental health patients within seven days was 70.0 per cent (66.0 per cent in 2015–16). The statewide average improved and met the NSW Health target of 70 per cent. Nine local health districts exceeded the NSW Health target. |
| 3.12 Mental health acute re-admissions | |
| NSW Health has a goal to reduce acute public sector mental health re-admissions. High re‑admission rates may indicate deficiencies in inpatient treatment and follow up care. | The Ministry’s data shows twelve local health districts did not achieve the NSW Health target of 13 per cent mental health acute re‑admissions in 2016–17. |
| 3.13 Unplanned and emergency re‑presentations | |
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NSW Health aims to reduce the number of unplanned and emergency re‑presentations to emergency departments. The Ministry’s 2016–17 data shows the State average of emergency department re‑presentations decreased marginally from 5.0 per cent in 2015–16 to 4.9 per cent. |
Patients attending rural emergency departments are more likely to re‑present within 48 hours of being discharged than those in regional or metropolitan emergency departments. |
| 3.14 Healthcare associated infection | |
| The national target for the rate of Staphylococcus aureus (golden staph) bloodstream infection is two cases per 10,000 bed days. | Data provided by the Ministry indicates the rate of golden staph bloodstream infection in New South Wales hospitals continues to be well below the target and national benchmark at 0.72 cases per 10,000 bed days in 2016–17 (0.75 in 2015–16). |
| 3.15 Patient experience and satisfaction | |
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The Bureau of Health Information analyses and reports on the results of patient surveys. The Bureau’s survey shows 65 per cent of adult admitted patients rated the care they received in hospital as ‘very good’ and 29 per cent rated it as ‘good’. |
NSW Health recognises that patient surveys are an important feedback mechanism on the health care system that can only come from personal experiences. |
State Finances 2017
Total State Sector Accounts received an unqualified audit opinion for the fifth consecutive year.
There was a $5.7 billion State budget surplus and continued investment in new infrastructure, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets. This report also comments on key accounting matters, including the correction of some previously reported balances and the first time reporting of combined Cabinet members’ compensation in the Total State Sector Accounts.
Pursuant to the Public Finance and Audit Act 1983, I present my Report on State Finances 2017.
You will note that the format of this report has changed from previous years.
The intent of this change is to draw attention to the key matters that have been the focus of our audit and highlight significant factors that have contributed to the outcome.
First, it is pleasing to report once again that I issued a clear audit opinion on the State’s consolidated financial statements. This outcome demonstrates the Government’s continued focus on the quality of financial reporting across the NSW public sector.
High quality financial management and reporting are crucial to properly inform the public and build community confidence in our system of government.
The Treasury’s Financial Management Transformation program also aims to improve financial governance, budgeting and reporting arrangements across the sector. My Office is working collaboratively with The Treasury on reforms to reduce the burden of reporting, without weakening established safeguards.
The reforms should include measures to provide independent assurance of the budget process, of outcome reporting by agencies, and the power to “follow the dollar” given the increasing use of non-government organisations to deliver Government programs.
This Report also highlights another year of strong financial performance. The State’s budget result was a $5.7 billion surplus, and investment in new infrastructure has continued, in part funded by the long-term leases of Ausgrid and Endeavour Energy assets.
Finally, could I take this opportunity to thank the staff of The Treasury for the way they approached this audit. Our partnership is critical to ensuring NSW is an exemplar of quality financial management and reporting.
Margaret Crawford
24 October 2017
A clear audit opinion on the State’s consolidated financial statements was issued.
Timely and accurate financial reporting is essential for informed decision making, effective management of public funds and enhancing public accountability.
This year’s clear audit opinion reflects the Government’s continued efforts to improve the quality of financial reporting across the NSW public sector.
Since the introduction of ‘early close procedures’ in 2011-12, the number of significant errors in financial statements of agencies has generally fallen largely due to identifying and resolving complex accounting issues early. Agencies’ 2016-17 financial statements submitted for audit contained nine errors exceeding $20 million. All errors were subsequently corrected in the individual agencies financial statements.
Agencies should continue to respond to key accounting issues as soon as they are identified. Where issues are identified, accounting position papers should be prepared for consideration by the Audit Office, their Audit and Risk Committee members, and when relevant, The Treasury.
The State addressed the following key accounting matters during 2016-17.
The State recognised rail tunnels and earthworks valued at $8.5 billion.
Some rail tunnels and earthworks have never been valued by the State. These include the City Circle, the country rail network and other tunnels and earthworks built before the year 2000. Some of these tunnels and earthworks date back to the early 1900s.
For many years, the State did not account for these assets as they believed that their value could not be reliably measured. This year an independent valuer was engaged to perform a comprehensive valuation. The methodology used demonstrated
that the assets could have been reflected in the financial statements earlier.
The State recorded an additional $8.5 billion to correct the value of infrastructure assets at 1 July 2016.
Cabinet member’s compensation and related party transactions were reviewed.
Due to changes in Accounting Standards, the State had to consider 'related party information' in the financial statements. Previously this only applied to for-profit entities.
This year, requirements to report related party information extended to members of Cabinet, considered to be “key management personnel” of the State, as defined by Accounting Standards.
The Treasury implemented a process to assess and report Cabinet member’s compensation, and transactions between Cabinet members and/or their close family members, and government agencies.
Collectively, Cabinet members’ remuneration was $8.8 million, which was mainly salaries and allowances, and $3.5 million of non-monetary benefits such as security and drivers. The Treasury determined there were no other specific “related party” transactions or balances that required disclosure in the State’s financial statements.
Information system limitations continue at TAFE NSW.
TAFE NSW has experienced ongoing issues with its student administration system.
TAFE NSW has again implemented additional processes to verify the accuracy and completeness of revenue from sales of goods and services.
TAFE NSW expects to spend up to $89 million on a new information system to address these issues. Modules of the new student enrolment system are expected to be in place for the 2018 enrolment period.
Restatements relating to the General Government Sector's investment in the commercial sector.
The State corrected two previously reported balances relating to the General Government Sector’s investment in the commercial sector.
Accounting Standards require the General Government Sector to effectively store gains or losses related to its investment in the commercial sector in reserves until the investment is derecognised.
When these investments are disposed of, the cumulative gains and losses must be cleared and recognised in the operating result. However, the Government had previously cleared the cumulative gains and losses directly to Accumulated Funds within equity.
To comply with Accounting Standards, a total of $6 billion previously reported as a movement in equity at 30 June 2016, has now been corrected to the operating result.
In addition, Accounting Standards only allow gains or losses on its investments to be stored in reserves. In past years, the State recognised all changes in the value of its investment in Available for Sale Reserves, including the capital contributed to establish the State’s investment. In 2016-17, a total of $23.4 billion of contributed capital was corrected to accumulated funds at 1 July 2015.
The State’s budget result was a $5.7 billion surplus, $2.0 billion higher than the budget estimate.
The Total State Sector comprises 310 entities controlled by the NSW Government.
Of the total, the General Government Sector comprises 215 entities that provide goods and services not directly paid for by consumers.
The non-General Government Sector comprises 95 Government businesses that provide goods and services such as water and electricity, or financial services.
A principal measure of a Government’s overall performance is its Net Operating Balance, or Budget Result. The Net Operating Balance reports the difference between the cost of General Government service delivery and the revenue earned to fund these sectors.
The State has recorded budget surpluses and exceeded the original budget result in nine of the last ten years.
The State maintained its AAA credit rating.
The object of the Act is to maintain the AAA credit rating.
NSW’s finances are managed in alignment with the Fiscal Responsibility Act 2012 (the Act).
The Act established the framework for fiscal responsibility and strategy needed to protect the State’s AAA credit rating and service delivery to the people of NSW.
The purpose of maintaining the AAA credit rating is to reduce the cost of, and ensure the broadest access to, borrowings.
A triple-A credit rating also helps maintain business and consumer confidence so economic activity and employment are sustained. The legislation sets out targets and principles for financial management to achieve this.
New South Wales has credit ratings of AAA/Negative from Standard & Poor’s and Aaa/Stable from Moody’s Investors Service.
The fiscal targets for achieving this objective are:
General Government expenditure growth is lower than long term revenue growth.
General Government expenditure growth was 4.2 per cent in 2016-17, below the long-term revenue growth of 5.6 per cent.
Eliminating unfunded superannuation liabilities by 2030.
The Act sets a target of eliminating unfunded defined benefit superannuation liabilities by 2030. The State’s net superannuation liability was $58.6 billion at 30 June 2017 ($71.2 billion at 30 June 2016).
The Government predicts the 2030 target will be achieved. 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 2016-17, the State made employer contributions of $1.5 billion, which is largely consistent with contributions over the past five years.
The liability values in the graph below do not reflect the values recorded in the Total State Sector Accounts. For financial reporting purposes, Accounting Standards (AASB 119 Employee Benefits) require the State to discount its superannuation liability using the government bond rate (refer to page 10 of this report).
The relevant government bond rate in the current economic climate is 2.62 per cent.
The State’s target for the unfunded superannuation liability is measured using AASB 1056 Superannuation Entities. This is because it adopts a measurement basis that reflects expected earnings on fund assets, which are currently between 5.9 and 7.4 per cent. Using these rates, the liability is $15.0 billion at 30 June 2017 ($16.1 billion at 30 June 2016). The unfunded liability is $2.4 billion less than when the Act was introduced.
The State’s assets grew by $31.6 billion during 2016-17 to $409 billion.
Valuing the State’s physical assets.
When we audit the financial statements, we focus on areas we consider as higher risk. These areas are often complex, and require the use of estimates and judgements.
The State has $307.2 billion of physical assets measured at fair value in accordance with Australian Accounting Standards. Fair value calculations are inherently complex and sensitive to assumptions and estimates, increasing the risk these assets are incorrectly valued.
In our audits, we assess the reasonableness and appropriateness of assumptions used in valuing physical assets. This includes obtaining an understanding of the valuation methodologies applied and judgements made. We also review the completeness of asset registers, and the mathematical accuracy of valuation models.
Net movements between years includes additions, disposals, depreciation and valuations. This year, valuations of physical assets added $16.2 billion to the State’s assets, comprising:
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Transport for NSW and Railcorp $8.5 billion
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New South Wales Land and Housing Corporation $4.8 billion
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Roads and Maritime Services $930 million
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Crown Entity $400 million.
The State’s financial assets increased $27.5 billion in 2016-17
The State’s financial assets have increased by 88 per cent over the past four years. In 2016-17, financial assets increased primarily due to proceeds from the sale of government assets and businesses.
The Government implemented reforms to better use the State’s financial assets. A key element was the creation of an Asset and Liability Committee (ALCO) to provide advice on ways to improve balance sheet management.
Since the creation of the ALCO, reforms include:
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Establishment of the New South Wales Infrastructure Future Fund (NIFF). The net proceeds from the State’s asset recycling program are invested into the NIFF, which is managed by TCorp, with a balance of $14.6 billion by 30 June 2017. Funds raised are invested through the NIFF until the Government requires them for critical infrastructure projects that are part of the Restart NSW and Rebuilding NSW program of works. ALCO and TCorp provide advice on the NIFF’s performance and management
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Establishment of the Social and Affordable Housing Fund ($1.1 billion at 30 June 2017). ALCO oversees the Fund to ensure an appropriate investment approach that will maintain funding certainty for new social and affordable housing stock
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Cash and liquidity management reforms to centralise cash previously held by agencies in the Treasury Banking System. This reform is designed to ensure agencies have adequate levels of liquidity but with surplus funds invested centrally for better returns.
The State’s liabilities decreased by $13.1 billion during 2016-17 to $182 billion.
Valuing the State’s liabilities relies on an actuarial assessment.
Nearly half of the State’s liabilities relate to its employees. This includes unfunded superannuation, and employee benefits, such as long service and recreation leave.
Valuation of these obligations is subject to complex estimation techniques and significant judgements. Small changes in assumptions can materially impact the financial statements.
We address the risk associated with auditing these balances:
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using actuarial specialists
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testing controls around underlying employee data used in data models, and testing the accuracy of the calculations
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evaluating assumptions applied in calculating employee entitlements such as the discount rate and the probability of long service leave vesting conditions being met.
The State’s superannuation obligations reduced by $12.6 billion in 2016-17.
The State’s $58.6 billion superannuation liability represents obligations for past and present employees, less the value of assets set aside to meet those obligations. The superannuation liability decreased from $71.2 billion to $58.6 billion, largely due to an increase in the discount rate from 1.99 per cent to 2.62 per cent. This alone reduced the liability by $9.2 billion
The State’s borrowings totalled $70.6 billion at 30 June 2017.
The State’s borrowings totalled $70.6 billion at 30 June 2017, $9.5 billion less than the previous year. This was largely due to the repayment of borrowings when the assets of Ausgrid and Endeavour Energy were leased to the private sector.
TCorp issues bonds to raise funds for NSW Government agencies. The bonds are actively traded in financial markets providing 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 is being restructured by replacing shorter-term debt with longer-term debt. This lengthens the portfolio to better match liabilities with the funding requirements of infrastructure assets and reduces refinancing risks. It also allows the Government to take advantage of the low interest rate environment.
The State recorded revenue of $83.5 billion in 2016-17, an increase of $5.3 billion from 2015-16.
The State’s results are underpinned by revenue growth in taxation, fees and fines.
Taxation, fees, fines and other revenue comprises $30.5 billion of taxation ($28.7 billion in 2015-16) and $5.3 billion of fees, fines and other revenue ($4.6 billion).
Tax revenue for the Total State Sector increased by $1.8 billion, or 6.4 per cent compared to 2015-16, primarily due to:
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one-off business asset sales and lease transactions, including $718 million in transfer duty from the Ausgrid and Endeavour Energy lease transactions
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$385 million increase in payroll tax from growth in NSW employment and average employee compensation
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a $426 million increase in land taxes.
Growth in stamp duty is expected to slow over the next 4 years.
General Government Sector stamp duties have increased from $6.2 billion in 2012-13 to $11.5 billion in 2016-17, an annual average growth rate of 16.5 per cent. The Government’s budget forecasts the growth in stamp duties to decline, to an average annual growth rate of 2.6 per cent between 2016-17 and 2020-21.
The State received Commonwealth grants and subsidies of $30.8 billion in 2016-17.
The State received $30.8 billion from the Commonwealth Government in 2016-17, $1.6 billion more than in 2015-16. This was primarily due to transaction based asset recycling grants of $1.0 billion and a $720 million increase in national land transport grants. This increase was offset by a $435 million decrease in General Purpose Grants, which mainly comprises New South Wales’ share of the Goods and Services Tax (GST).
The State spent $79.4 billion in 2016-17 to deliver services to the community, an increase of $3.9 billion from 2015-16.
Overall expenses increased 5.2 per cent from last year. Most of the increase was due to higher employee costs and operating costs.
Total salaries and wages increased by 4.2 per cent from 2015-16.
Total salaries and wages increased to $30 billion from $28.8 billion in 2015-16. The Government wages policy aims to limit the growth in remuneration and other employee costs to no more than 2.5 per cent per annum.
Operating expenses increased by 12.4 per cent from 2015-16.
Within operating expenses, payments for supplies, services and other expenses increased, in part, due to the State:
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reacquiring mining licenses worth $482 million and additional land remediation costs of $101 million
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spending more on health including additional drug supplies relating to Hepatitis C.
State spend on transport and communications increased by 68.1 per cent since 2012-13.
While spending on health and education remain the largest functional areas provided by Government, expenditure on transport and communication increased, on average, by 13.9 per cent annually between 2012-13 and 2016-17. This increase reflects the Government’s investment in transport infrastructure such as the Sydney Metro and Westconnex. Over the same period, spending on health increased by $3.9 billion.
Expenditure on fuel and energy has decreased by an average of 44.7 per cent since 2012-13, reflecting the State’s leases of electricity network assets.
In 2011, the Government established Restart NSW to fund high priority infrastructure projects.
Restart NSW projects are primarily funded from the proceeds from the asset recycling program enabling Government to deliver new infrastructure investment.
Restart NSW provides funding for the delivery of Rebuilding NSW, which is the Government’s 10-year plan to invest $20 billion in new infrastructure.
The State finalised long-term leases of Ausgrid and Endeavour Energy assets.
In June 2017, the Government finalised its long-term lease of 50.4 per cent of Endeavour Energy. This transaction follows on from the long-term leases of TransGrid in December 2015 and 50.4 per cent of Ausgrid in December 2016. Net proceeds of $15.0 billion were paid into Restart NSW relating to these transactions.
The Government also finalised an arrangement for the private sector to provide land titling and registry services to the public for 35 years. The State, through Restart NSW, received an upfront payment of $2.6 billion from the new operator.
Restart NSW is funding $29.8 billion of new infrastructure.
The Government has detailed its plan to invest $20 billion into the Rebuilding NSW plan from Restart NSW.
At 30 June 2017, around $2.9 billion has already been spent on Rebuilding NSW projects from Restart NSW, with a further $9 billion included in the budget aggregates. The Government has also earmarked a further $8.1 billion in Restart NSW for future projects.
The most significant project is the Sydney Metro. The Government has committed $7.0 billion from Restart NSW to build a 30-kilometre metro line, linking Sydney Metro Northwest at Chatswood, through new stations in the lower North Shore, the Sydney CBD and southwest to Bankstown. At 30 June 2017, $2.4 billion has been spent on this project from Restart NSW.
Other significant projects funded by Restart NSW include a $1.8 billion contribution to WestConnex and reserved funding of $1 billion towards the State’s Major Stadia Network program.
The Treasury initiated the Financial Management Transformation (FMT) program with the aim of changing and improving financial governance, budgeting and reporting arrangements of the New South Wales public sector.
FMT aims to deliver better outcomes for the people of New South Wales and focuses on transparency and accountability for expenditure, and better value for money.
New Financial Management System
PRIME is the Information Technology (IT) solution component of the FMT program, replacing several historical systems. PRIME will provide both financial and performance information within one IT platform for all agencies in the NSW public sector.
It is expected to give Government more timely information to plan and deliver its policy priorities and the budget.
Independent assurance over the budget process would improve confidence in the reliability of the State’s financial information.
Sydney Road Maintenance Contracts
In November 2013, Roads and Maritime Services (RMS) outsourced the maintenance of State roads in the Sydney region south and west zones using an innovative contracting approach called the Stewardship Maintenance Contract (SMC). The SMC links risk to reward, and uses a performance framework where outcomes should drive improved performance over time.
| WA | VIC | QLD | NSW | |
|---|---|---|---|---|
| Roads managed (lane kms) | 52,659 | 50,510 | 71,353 | 80,348 |
| Estimated spend ($/lane km) | 5,000 | 4,500 | 6,000 | 7,000 |
| Road quality measure (%) | 99 | 99 | 94 | 91 |
Parliamentary reference - Report number #288 - released 15 June 2017
NorthConnex
The processes used to assess NorthConnex adequately considered value for money for taxpayers.This report also found that the impact of tolling concessions on road users and the motorway network was consistent with policy objectives described in the 2012 NSW Long Term Transport Master Plan.
Parliamentary reference - Report number #287 - released 8 June 2017
Passenger Rail Punctuality
Rail agencies are well placed to manage the forecast increase in passengers up to 2019, including joining the Sydney Metro Northwest to the network at Chatswood. Their plans and strategies are evidence-based, and mechanisms to assure effective implementation are sound.
Appendix one - Response from the agencies
Appendix two - Response from Audit Office
Appendix three - About the audit
Appendix four - Accuracy of punctuality measurement
Appendix five - Train and customer punctuality
Parliamentary reference - Report number #281 - released 11 April 2017
