Reports
Local Government 2023
What this report is about
Results of the local government sector financial statement audits for the year ended 30 June 2023.
Findings
Unqualified audit opinions were issued for 85 councils, eight county councils and 12 joint organisations.
Qualified audit opinions were issued for 36 councils due to non-recognition of rural firefighting equipment vested under section 119(2) of the Rural Fires Act 1997.
The audits of seven councils, one county council and one joint organisation remain in progress at the date of this report due to significant accounting issues.
Fifty councils, county councils and joint organisations missed the statutory deadline of submitting their financial statements to the Office of Local Government, within the Department of Planning, Housing and Infrastructure, by 31 October.
Audit management letters included 1,131 findings with 40% being repeat findings and 91 findings being high-risk. Governance, asset management and information technology continue to represent 65% of the key areas for improvement.
Fifty councils do not have basic governance and internal controls to manage cyber security.
Recommendations
To improve quality and timeliness of financial reporting, councils should:
- adopt early financial reporting procedures, including asset valuations
- ensure integrity and completeness of asset source records
- perform procedures to confirm completeness, accuracy and condition of vested rural firefighting equipment.
To improve internal controls, councils should:
- track progress of implementing audit recommendations, and prioritise high-risk repeat issues
- continue to focus on cyber security governance and controls.
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State Finances 2023
What this report is about
Results of the audit of the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023.
Findings
The audit opinion on the 2022–23 Consolidated State Financial Statements was qualified in relation to two issues and included an emphasis of matter.
The first qualification matter is a continuation of the prior year limitation of scope on the audit relating to the Catholic Metropolitan Cemeteries Trust (CMCT), a controlled state entity, who continued to deny access to its management, books and records for the purposes of a financial audit. As a result, the Audit Office was unable to obtain sufficient appropriate audit evidence to support the assets, liabilities, income and expenses relating to CMCT recorded in the TSS and the equity investment recognised in the GGS relating to the net assets of CMCT.
The second qualification matter relates to the limitations on the accuracy and reliability of financial information relating to Statutory Land Managers (SLMs) and Common Trust entities (CTs) controlled by the State and were either exempted from requirements to prepare financial reports, or who were required to submit financial reports and have not done so. The Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities, income and expenses that should be recognised in the 2022–23 Consolidated State Financial Statements and which have not been recorded in the Consolidated State Financial Statements.
The independent audit opinion also includes an emphasis of matter drawing attention to key decisions made by the NSW Government regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE).
Recommendations
The report includes recommendations for NSW Treasury to address several high-risk findings, including:
- ensuring accurate and reliable financial information is available to recognise the non-land balances of SLMs and CTs
- ensuring the CMCT, SLMs and CTs meet their statutory reporting obligations
- conducting a broader review of the financial reporting exemption framework
- continued monitoring of TAHE's control over its assets
- providing timely guidance to the sector relating to legislative or policy changes that impact financial reporting
- developing an accounting policy for the reimbursement of unsuccessful tender bid cost contributions.
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Treasury 2023
What this report is about
Result of the Treasury portfolio of agencies’ financial statement audits for the year ended 30 June 2023.
The results of the audit of the NSW Government’s consolidated Total State Sector Accounts (TSSA), which are prepared by NSW Treasury, will be reported separately in our report on ‘State Finances 2023’.
The audit found
Unqualified audit opinions were issued on all general purpose financial statement audits.
Qualified audit opinions were issued on two of the 24 other engagements prepared by portfolio agencies. These related to payments made from Special Deposit Accounts that did not comply with the relevant legislation.
The number of monetary misstatements identified in our audits increased from 29 in 2021–22 to 39 in 2022–23.
The new parental leave policy impacted agencies across all portfolios. NSW Treasury should perform annual assessments to identify changes in legislation and regulation and provide timely guidance to the sector.
Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders’ costs, clearer guidance on how to account for these costs in agencies’ financial statements is required.
The key audit issues were
Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account. Two repeat issues referred to the need to improve quality review processes over financial reporting and the timely approval of administration costs.
Portfolio agencies should prioritise and action recommendations to address internal control deficiencies.
This report provides Parliament and other users of the Treasury portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Treasury portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all Treasury portfolio agencies’ 2022–23 financial statements.
- Two qualified audit opinions were issued on special purpose financial reports, relating to whether payments from the Electricity Retained Interest Corporation – Ausgrid (ERIC-A) Fund and the Electricity Retained Interest Corporation – Endeavour (ERIC-E) Fund, complied with the relevant legislation.
- The total number of errors (both corrected and uncorrected) in the financial statements increased from 29 in 2021–22 to 39 in 2022–23.
Reported corrected misstatements increased from 15 in 2021–22 to 25 with a gross value of $7.1 billion in 2022–23. Reported uncorrected misstatements increased from 13 in 2021–22 to 14 in 2022–23, with a gross value of $277.6 million in 2022–23.
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Treasury portfolio.
Section highlights
- Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account.
- A further 35 moderate risk findings were reported in 2022–23, of which ten were repeat findings.
- Some agencies have again spent monies without an authorised delegation.
- The quality of information provided for audit purposes needs to improve.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Appendix five – Acquittals and other opinions
© 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 2023
What this report is about
Results of the Health portfolio of agencies' financial statement audits for the year ended 30 June 2023.
The audit found
Unmodified audit opinions were issued for all Health portfolio agencies' financial statements.
The number of monetary misstatements increased in 2022–23, driven by key accounting issues, including the first-time recognition of paid parental leave and plant and equipment fair value adjustments.
The key audit issues were
NSW Health identified errors regarding the recognition and calculation of long service leave entitlements for employees with ten or more years of service that had periods of part time service in the first ten years, resulting in prior period restatements.
Comprehensive revaluation of buildings at the Graythwaite Charitable Trust found errors in the previous year's valuation, resulting in prior period restatements.
New parental leave legislation increased employee liabilities for portfolio agencies. The Ministry of Health corrected the consolidated financial statements to record parental leave liabilities for all agencies within the Health portfolio.
A repeat high-risk issue relates to processing time records by administrators that have not been reviewed prior to running the pay cycle.
Thirty per cent of reported issues were repeat issues.
The audit recommended
Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards.
Portfolio agencies should address deficiencies that resulted in qualified reports on:
- the design and operation of shared service controls
- prudential non-compliance at residential aged care facilities.
This report provides Parliament and other users of the Health portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Health portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued for all portfolio agencies required to prepare general purpose financial statements.
- The total number of errors (including corrected and uncorrected) in the financial statements increased compared to the prior year.
- The Ministry of Health retrospectively corrected an $18.9 million adjustment in its financial statements relating to long service leave entitlements for certain employees.
- Graythwaite Charitable Trust retrospectively corrected a $4.2 million adjustment in its financial statements related to prior period valuations.
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 observations and insights from our financial statement audits of agencies in the Health portfolio.
Section highlights
- The 2022–23 audits identified one high-risk and 57 moderate risk issues across the portfolio.
- The high-risk matter related to the forced-finalisation of time records.
- The total number of findings increased from 67 to 111 in 2022–23.
- Thirty per cent of the issues were repeat issues. Most repeat issues related to internal control deficiencies or non-compliance with key legislation and/or central agency policies.
- Forced-finalisation of time records, accounting for the new paid parental leave provision and user access review deficiencies were the most commonly reported issues.
- Qualified Assurance Practitioner's reports were issued on:
- the design and operation of controls as documented by HealthShare NSW
- the Ministry's Annual Prudential Compliance Statements in relation to residential aged care facilities.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
© Copyright 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 2023
What this report is about
Result of the Transport portfolio of agencies' financial statement audits for the year ended 30 June 2023.
The audit found
Unqualified audit opinions were issued for all Transport portfolio agencies.
An 'emphasis of matter' paragraph was included in the Transport Asset Holding Entity of New South Wales' (TAHE) independent auditor's report, which draws attention to management's disclosure regarding proposed changes to TAHE's operating model.
Government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE's assets.
Transport for NSW's valuation of roads and bridges resulted in a net increase to its asset value by $15.7 billion.
Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders' costs, clearer guidance on how to account for these costs in agency's financial statements is required.
The key audit issues were
The number of issues reported to management decreased from 53 in 2021–22 to 49 in 2022–23.
High-risk findings include:
- gaps in how Sydney Metro manages its contractors and how conflicts of interest are recorded and managed
- future financial reporting implications to account for government's proposed changes to TAHE's future operating model, including asset valuations and control assessments of assets and operations
- Parramatta Park Trust's tree assets' valuation methodology needs to be addressed.
Recommendations were made to address the identified deficiencies.
This report provides Parliament and other users of the Transport portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Transport portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all the portfolio agencies’ 30 June 2023 financial statements.
- An 'Emphasis of Matter' paragraph was included in the Transport Asset Holding Entity of New South Wales’ (TAHE) Independent Auditor's Report to draw attention to management's disclosure regarding the proposed changes to TAHE's future operating model.
- The total number of errors (including corrected and uncorrected) in the financial statements increased by 59% compared to the prior year.
- The recent government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE’s assets.
- Transport for NSW needs to further improve its quality assurance processes over comprehensive valuations, in particular, ensuring key inputs used in the valuations are properly supported and verified.
- Transport for NSW and Sydney Metro capitalised over $300 million of bid costs paid to unsuccessful bidders. NSW Treasury’s Bid Cost Contributions Policy does not contemplate how these costs should be recognised in agency’s financial statements. Transport agencies should work with NSW Treasury to develop an accounting policy for the bid cost contributions to ensure consistent application across the sector.
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 portfolio.
Section highlights
- The 2022–23 audits identified four high risks and 28 moderate risk issues across the portfolio. Thirty-nine per cent of issues were repeat findings.
- Four high risk findings include:
- TAHE’s asset valuations (new)
- TAHE’s control of assets and operations (new)
- Sydney Metro’s management of contractors and conflicts of interest (new)
- Parramatta Park Trust’s valuation of trees (repeat).
- The total number of findings decreased from 53 in 2021–22 to 49 in 2022–23. Many repeat findings related to control weaknesses over the asset valuation, payroll processes, conflicts of interest and information technology user access administration.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
© Copyright 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.
Regional NSW 2023
What this report is about
Results of the Regional NSW financial statements audits for the year ended 30 June 2023.
What we found
Unqualified audit opinions were issued on all completed audits in the Regional NSW portfolio agencies.
The number of monetary misstatements identified in our audits increased from 28 in 2021–22 to 30 in 2022–23.
What the key issues were
Effective 1 July 2023, staff employed in the Northern Rivers Reconstruction Corporation Division of the Department of Regional NSW transferred to the NSW Reconstruction Authority Staff Agency.
The Regional NSW portfolio agencies were migrated into a new government wide enterprise resourcing planning system.
The total number of audit management letter findings across the portfolio of agencies decreased from 36 to 23.
A high risk matter was raised for the NSW Food Authority to improve the internal controls in the information technology environment including monitoring and managing privilege user access.
What we recommended
Local Land Services should prioritise completing all mandatory early close procedures.
Portfolio agencies should:
- ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards
- prioritise and address internal control deficiencies identified in audit management letters.
This report provides Parliament and other users of the Regional NSW portfolio of agencies financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Regional NSW portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of the portfolio agencies. Two audits are ongoing.
- The total number of errors (including corrected and uncorrected) in the financial statements increased compared to the prior year.
- Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
- Portfolio agencies continue to provide financial assistance to communities affected by natural disasters.
- A change to the NSW paid parental leave scheme, effective October 2023, created a new legal obligation that needed to be recognised by impacted government agencies. Impact to the agencies' financial statements were not material.
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 Regional NSW portfolio.
Section highlights
- The 2022–23 audits identified one high risk and nine moderate risk issues across the portfolio. Of these, one was a moderate risk repeat issue.
- The total number of findings decreased from 36 to 23 which mainly related to deficiencies in internal controls.
- The high risk matter relates to the monitoring and managing of privilege user access at NSW Food Authority.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
© Copyright 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.
Premier and Cabinet 2023
What this report is about
Results of the Premier and Cabinet portfolio of agencies' financial statement audits for the year ended 30 June 2023.
What we found
Unqualified audit opinions were issued for all Premier and Cabinet portfolio agencies.
What the key issues were
The Administrative Arrangements Orders, effective 1 July 2023, changed the name of the Department of Premier and Cabinet to the Premier's Department and transferred parts of Department of Premier and Cabinet to The Cabinet Office.
The number of monetary misstatements identified in our audits decreased from 15 in 2021–22 to 12 in 2022–23.
The total number of management letter findings across the portfolio of agencies increased from ten in 2021–22 to 20 in 2022–23.
Thirty per cent of all issues were repeat issues. The most common repeat issues related to deficiencies in controls over financial reporting.
What we recommended
Portfolio agencies should:
- ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards
- prioritise and address internal control deficiencies identified in Audit Office management letters.
This report provides Parliament and other users of the Premier and Cabinet portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Premier and Cabinet portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all the portfolio agencies 2022–23 financial statements.
- The total number of errors (including corrected and uncorrected) in the financial statements decreased compared to the prior 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 Premier and Cabinet portfolio.
Section highlights
- The 2022–23 audits identified eight moderate risk issues across the portfolio of agencies. Of these, two were repeat issues, and related to password and security configuration and management of excessive annual leave.
- The total number of findings increased from ten to 20, which mainly related to deficiencies in controls over financial reporting and governance and oversight.
- The most common repeat issues related to weaknesses in controls over financial reporting.
Appendix one – Early close procedures
© 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.
Stronger Communities 2023
What this report is about
Results of the Stronger Communities financial statement audits for the year ended 30 June 2023.
What we found
Unqualified audit opinions were issued on all completed Stronger Communities portfolio agencies.
Machinery of government changes during the year returned the sports-related agencies to the Stronger Communities portfolio.
Resilience NSW was abolished on 16 December 2022 with most of its functions transferred to the newly created NSW Reconstruction Authority.
The Trustee for the First Australian Mortgage Acceptance Corporation (FANMAC) is a prescribed entity under the Government Sector Finance Regulation 2018. The Trustee should have presented the FANMAC's financial statements for audit after it became a GSF agency on 1 July 2020.
The number of monetary misstatements identified in our audits decreased from 42 in 2021–22 to 29 in 2022–23.
What the key issues were
In 2022–23, agencies in the portfolio recorded net revaluation uplifts to land and buildings totalling $643 million.
Out of home care and permanency support grant expenditure has increased by 27% since 2019–20. An upcoming performance audit report will focus on the timeliness and quality of the child protection services provided by the department and its non-government service providers.
A high-risk matter was raised for the department over segregation of duties deficiencies in the Justice Link system.
Four high-risk matters reported in 2021–22 have been resolved.
Thirty-three agencies were onboarded into a new government-wide enterprise resource planning system. Additional agencies will be onboarded in three tranches from April 2024 through to October 2024.
What we recommended
Portfolio agencies should:
- ensure any changes to employee entitlements are assessed for their financial statement impact under the relevant Australian Accounting Standards
- prioritise and address internal control deficiencies identified in our management letters.
This report provides Parliament and other users of the Stronger Communities portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Stronger Communities portfolio of agencies (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all completed 30 June 2023 financial statements audits of portfolio agencies, including the audit of the Crown Solicitor's Office's Trust Account for compliance with clause 14 of the Legal Profession Uniform Law Application Regulation 2015.
- The financial statement audits of the NSW Trustee and Guardian Common Funds (the common funds) – year ended 30 June 2022 were certified by management on 6 December 2022 and independent auditor's reports issued 21 December 2022. The 30 June 2023 financial statements audits of the common funds are ongoing.
- A variation to an agreement between the Commonwealth Attorney-General and the Legal Aid Commission of New South Wales for legal services to support the Royal Commission into Violence, Neglect and Exploitation of people with disability program extended the reporting period from 30 June 2023 to 29 September 2023 – the conclusion of the Royal Commission. The audit of the financial report acquitting expenditure under the agreement is expected to be completed before 28 February 2024.
- The audit of the Home Purchase Assistance Fund's (the fund) 30 June 2022 financial statements remains incomplete. Those charged with governance of the fund have not provided sufficient and appropriate evidence to support the carrying value of material investments reported in the fund's financial statements. The financial audit of the fund's 2023 financial statements remain incomplete as a result.
- The Trustee for the First Australian Mortgage Acceptance Corporation Master and Pooled Super Trusts had not prepared general purpose financial statements since 30 June 2021 when the financial reporting provisions of the Government Finance Sector Act 2018 were enacted and the Trustee was prescribed as a GSF agency under the regulations. The audits of these financial statements are ongoing.
- Reported corrected misstatements decreased from 28 in 2021–22 to six with a gross value of $8.8 million in 2022–23 ($277 million in 2021–22).
- Portfolio agencies met the statutory deadline for submitting their 2022–23 early close financial statements and other mandatory procedures.
- In 2022–23, portfolio agencies collectively recorded net revaluation uplifts to the carrying values of land and buildings totalling $643 million (2021–22: $993 million) initiated through a combination of comprehensive and desktop valuations.
- The Department of Communities and Justice (the department) had previously deferred performing a comprehensive revaluation of its land and building portfolio relating to the Corrective Services and Youth Justice functions. The deferral was due to the challenges in providing valuers sufficient access to the facilities due to the pandemic. The department is scheduled to perform a comprehensive revaluation of its full land and building portfolio in 2023–24.
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 Stronger Communities portfolio.
Section highlights
- The number of findings reported to management has decreased from 142 in 2021–22, to 71 in 2022–23, and 35% were repeat issues (36% in 2021–22). Repeat issues related to non-compliance with key legislation and/or agency policies, information technology and internal control deficiencies.
- A long-standing issue about segregation of duties over the JusticeLink system managed by the department has been elevated from moderate to high risk.
- Four out of six high-risk issues reported in the prior year have been addressed.
- Of the 15 newly identified moderate risk issues, 11 related to information technology and internal control deficiencies.
Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
© Copyright 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.
Education 2023
What this report is about
Results of the Education portfolio of agencies’ financial statements audits for the year ended 30 June 2023.
What we found
Unqualified audit opinions were issued for all Education portfolio agencies.
An ‘other matter’ paragraph was included in the TAFE Commission’s independent auditor’s report as it did not have a delegation or sub-delegation from the Minister for Education and Early Learning to incur expenditure on grants from other portfolio agencies.
What the key issues were
Comprehensive valuations of buildings at the Department of Education (the department) and at the TAFE Commission found that certain assumptions applied in previous years needed to be updated, resulting in prior period restatements.
The department prepaid a building contractor for early works on a project and some of the prepayment is in legal dispute.
The department duplicated a claim for project funding from Restart NSW in 2021.
New parental leave legislation increased employee liabilities for portfolio agencies. The department and the NSW Education Standards Authority (the Authority) updated their financial statements to record parental leave liabilities.
A high risk matter was raised for the Authority to improve the quality and timeliness of information to support their financial statement close process.
What we recommended
Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards.
The department should:
- improve processes to ensure project claims are not duplicated
- assess the risks associated with providing prepayments to contractors.
This report provides Parliament and other users of the Education portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision-making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Education portfolio (the portfolio) for 2023.
Section highlights
- Unqualified audit opinions were issued on all the portfolio agencies 2022–23 financial statements.
- An ‘other matter’ paragraph was included in the independent auditor’s report for the Technical and Further Education Commission (the TAFE Commission) as it did not have a delegation or sub-delegation from the Minister for Education and Early Learning to incur expenditure on grants from other portfolio agencies.
- Comprehensive valuations of buildings in the current year identified that certain assumptions applied in previous years were incorrect. The effects of these corrections are disclosed as prior period errors in the financial statements of the Department of Education (the department) and the TAFE Commission.
- The department made corrections to its financial statements to reflect increases to NSW teachers’ wages announced post balance date. This impacted amounts recorded as liabilities for a range of employee benefits and entitlements totalling $225.4 million, of which $147.9 million is accepted by the Crown and $77.5 million is borne by the department.
- A change to the NSW paid parental leave scheme, effective October 2022, created a new legal obligation that needed to be recognised by impacted government agencies. Of the three affected portfolio agencies, only the department and the NSW Education Standards Authority recognised a liability to account for this change. The aggregated unrecorded liabilities of other agencies in the portfolio totalled $2.4 million. The errors within the individual agencies’ financial statements were not material.
- The total number of errors (including corrected and uncorrected) in the financial statements increased compared to the prior year.
- The NSW Childcare and Economic Opportunity Fund should prepare financial statements unless NSW Treasury releases a Treasurer’s Direction under section 7.8 of the GSF Act that will exempt the SDA from financial reporting requirements.
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 Education portfolio.
Section highlights
- The 2022–23 audits identified one high risk and 20 moderate risk issues across the portfolio. Of these, one was a high risk repeat issue and four were moderate risk repeat issues.
- The total number of findings increased from 29 to 36, which mainly related to deficiencies in financial reporting, information technology, payroll and purchasing controls.
- The high risk matter relates to the lack of quality and timely information to support the financial statement close process at the NSW Education Standards Authority.
Appendix one – Early close procedures
© 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.
Financial Management and Governance in MidCoast Council
Introduction
The Auditor-General's financial and performance audits of local councils aim to improve financial management, governance and public accountability across the local government sector.
Annual Local Government reports to Parliament have consistently highlighted risks and weaknesses across the sector in relation to financial management and governance. We will continue to focus on these matters as a priority area in our forward work program.
While this report focuses on MidCoast Council, the findings should be considered by all councils to better understand the challenges and opportunities when addressing financial sustainability and financial management needs.
Findings and recommendations around the effectiveness of long-term financial planning, comprehensive and timely financial reporting and financial management governance arrangements are relevant for all councils.
What this report is about
The Local Government Act 1993 requires councils to apply sound financial management principles, including sustainable expenditure, effective financial management and regard to intergenerational equity.
This audit assessed whether MidCoast Council has effective financial management arrangements that support councillors and management to fulfill their responsibilities as financial stewards.
What we found
MidCoast Council has not met all legislative and policy requirements for long-term financial planning.
From FY2019–20 to FY2020–21, the Council had financial management and governance gaps. Some gaps were addressed throughout FY2021–22.
MidCoast Council experienced significant challenges in its implementation of a consolidated financial management system following amalgamation in 2016 and the merging of MidCoast Water in 2017. This led to gaps in finance processes and data quality.
What we recommended
The report recommends that MidCoast Council should:
- ensure its long-term financial plan meets legislative and policy requirements
- undertake service reviews to better understand net costs to inform budget and financial planning decisions
- improve the quality of asset management information to inform budget and financial planning decisions
- use the financial management components of the MC1 system to its full potential
- address control and process gaps identified in audits and reviews
- ensure competency of those responsible for finance and budget
- ensure financial sustainability initiatives account for the cost of services and asset management information.
Effective financial management is important in ensuring that councils achieve their long-term objectives, remain financially viable and deliver intended benefits to the community.
Sustainable financial management has been a priority for the local government sector since 2013 and continues to be one of the highest rated risks and priorities among councils in 2023.
According to data provided by the Department of Planning and Environment, during FY2020–21, NSW local councils:
- collected $7.8 billion in rates and annual charges
- received $5.8 billion in grants and contributions
- incurred $4.8 billion of employee benefits and on costs
- held $16.8 billion of cash and investments
- managed $175.2 billion in infrastructure, property plant and equipment
- entered into $3.7 billion of borrowings.
The Local Government Act 1993 (LG Act) requires local councils to apply sound financial management principles including responsible and sustainable expenditure, investment, and effective financial and asset management. Under the LG Act and the Local Government Regulation 2021 (LG Regulation) councils are required to:
- establish and monitor their budget position
- clearly establish approaches to raise revenue, including from rates and other sources
- develop and implement integrated planning to ensure financial sustainability in line with community priorities and needs
- regularly report on their financial performance through financial statements.
The objective of the audit is to assess whether MidCoast Council (the Council) has effective financial management arrangements that support councillors and management to fulfil their financial stewardship responsibilities. It considers whether:
- the Council has an effective governance framework for financial management, through the existence of governance, risk management, internal controls and provision of adequate financial management training, including whether:
- governance, risk management and internal controls are in place for financial management
- adequate financial management and governance training and support has been provided to councillors, management and operational managers.
- the Council has quality and comprehensive internal financial management reporting, including whether:
- councillors and management have identified and implemented essential internal financial management reporting elements
- council’s financial systems and data have integrity, and support identified financial management report production requirements
- council reports are relevant, consistent, reliable, understandable, and tailored towards the requirements of key users (appendix two provides more information about the characteristics of effective financial management reporting).
- the financial management governance and reporting arrangements support councillors and management to fulfil their financial stewardship responsibilities, including whether councillors and management use internal financial management reporting to:
- support budget decisions, resource allocation and cost setting (for example fees and charges)
- monitor financial sustainability
- assess operational efficiency, financial services and investments
- make improvements where necessary.
This audit completed fieldwork during November 2022 to February 2023. The audit period of review was from 1 July 2019 to 30 June 2022.
Conclusion
MidCoast Council has not effectively carried out long-term financial planning to address its identified long-term financial sustainability challenges.
MidCoast Council has not met all legislative and policy requirements to effectively carry out long-term financial planning. It has not effectively considered and communicated how it will achieve financial sustainability goals and has not identified options to achieve such goals through its long-term financial plan.
Since 2020, and throughout 2021 and 2022, MidCoast Council has identified a need to focus on developing strategies for financial sustainability following the projected operating deficit for its general fund over the next ten years.
In September 2022, the Council took early steps to implement plans that aim to address the identified financial sustainability issues, but the Council has not yet established effective processes to analyse the true cost of services and address its unreliable asset condition data. Both are required to accurately inform its long-term resourcing strategy.
Between FY2019–20 and FY2020–21, MidCoast Council had gaps in its financial management and governance arrangements. The Council has taken some actions to address the gaps throughout FY2021–22.
Between FY2019–20 and FY2020–21, MidCoast Council did not ensure effective financial management governance and reporting arrangements. Over that time, the Council did not perform monthly reconciliation and reporting processes that would provide timely information and assurance to management and councillors over the Council's finances. It did not ensure that all financial management reporting met statutory deadlines for submission to councillors.
During this period, reviews, financial audits and internal audits identified risks to, and gaps in, finance processes, systems and controls. The consequences of these gaps were increased use of manual processes, and risks to the integrity of financial data and information used by management.
During FY2021–22, MidCoast Council implemented actions and processes that have increased transparency and led to improved financial governance. These include addressing and implementing some audit recommendations, and implementing monthly financial management reporting and month-end reconciliations.
MidCoast Council has commenced a $21 million program to improve its customer experience, asset management, ICT and back office business processes. The Council advises that this program has a five-year implementation timeframe and it expects to achieve financial benefits over the ten years following commencement.
MidCoast Council experienced significant challenges in its implementation of a consolidated financial management system following amalgamation in 2016 and the merging of MidCoast Water functions in 2017. This has led to gaps in finance processes and data quality within the system.
In 2016, following amalgamation, MidCoast Council commenced work to procure and implement an enterprise resource planning system which included a consolidated financial management system. In 2017, Council further merged with MidCoast Water and arrangements were made to implement the system (MC1) after the functions of MidCoast water were incorporated. The Council continued to use four separate financial management systems until it commenced a progressive implementation of MC1 from 2019 to 2021. Across MC1's implementation, the Council experienced significant challenges relating to change management, user functionality and configuration.
This meant that the Council did not ensure that all of its staff were using MC1 effectively and efficiently, which led to gaps in finance processes and data quality, and delays in delivering integrated and automated financial processes across the amalgamated Council.
Since implementation, MidCoast Council has used MC1 to carry out finance processes required to collect rates, prepare budgets, monitor expenditure and income and prepare financial statements.
Appendix one – Response from agency
Appendix two – Characteristics of effective financial management reporting
Appendix three – About the audit
Appendix four – Performance auditing
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Parliamentary reference - Report number #381 - released 16 June 2023
