Reports
Unsolicited proposal process for the lease of Ausgrid
In October 2016, the NSW Government accepted an unsolicited proposal from IFM Investors and AustralianSuper to lease 50.4 per cent of Ausgrid for 99 years. The deal followed the Federal Government’s rejection of two bids from foreign investors, for national security reasons.
A performance audit of the lease of Ausgrid has found shortcomings in the unsolicited proposal process. Releasing the audit findings today, the Auditor-General for New South Wales, Margaret Crawford said ‘this transaction involved a $20 billion asset owned by the people of New South Wales. As such, it warranted strict adherence to established guidelines’.
Ausgrid is a distributor of electricity to eastern parts of Sydney, the Central Coast, Newcastle and the Hunter Region.
In June 2014, the then government announced its commitment to lease components of the state's electricity network as part of the Rebuilding NSW plan. Implementation of the policy began after the government was re-elected in 2015. Between November 2015 and August 2016, the NSW Government held a competitive tender process to lease 50.4 per cent of Ausgrid for 99 years. The NSW Government abandoned the process on 19 August 2016 after the Australian Treasurer rejected two bids from foreign investors, for national security reasons. That day, the Premier and Treasurer released a media statement clarifying the government's objective to complete the transaction via a competitive process in time to include the proceeds in the 2017–18 budget.
On 31 August 2016, the state received an unsolicited proposal from IFM Investors and AustralianSuper to acquire an interest in Ausgrid under the same terms proposed by the state during the tender process. In October 2016, the government accepted the unsolicited proposal.
This audit examined whether the unsolicited proposal process for the partial long-term lease of Ausgrid was effectively conducted and in compliance with the government’s 2014 Unsolicited Proposals: Guide for Submission and Assessment (Unsolicited Proposals Guide or the Guide).
The audit focused on how the government-appointed Assessment Panel and Proposal Specific Steering Committee assessed key requirements in the Guide that unsolicited proposals must be demonstrably unique and represent value for money.
The evidence available does not conclusively demonstrate the unsolicited proposal was unique, and there were some shortcomings in the negotiation process, documentation and segregation of duties. That said, before the final commitment to proceed with the lease, the state obtained assurance that the proposal delivered value for money.
It is particularly important to demonstrate unsolicited proposals are unique, in order to justify the departure from other transaction processes that offer greater competition, transparency and certainty about value for money.
The Assessment Panel and the Proposal Specific Steering Committee determined the Ausgrid unsolicited proposal was unique, primarily on the basis that the proponent did not require foreign investment approval from the Australian Treasurer, and the lease transaction could be concluded earlier than through a second tender process. However, the evidence that persuaded the Panel and Committee did not demonstrate that no other proponent could conclude the transaction in time to meet the government’s deadline.
It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.
The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. It also does not demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.
The Panel, Committee and financial advisers determined that the final price represented value for money, and that retendering offered a material risk of a worse financial outcome. However, an acceptable price was revealed early in the negotiation process, and doing so made it highly unlikely that the proponent would offer a higher price than that disclosed. The Department of Premier and Cabinet (DPC) and NSW Treasury were not able to provide a documented reserve price, bargaining strategy or similar which put the negotiations in context. It is not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance.
Key aspects of governance recommended by the Guide were in place. Some shortcomings relating to role segregation, record keeping and probity assurance weakened the effectiveness of the unsolicited proposal process adopted for Ausgrid.
The reasons for accepting that the proposal and proponent were unique are not compelling.
The Unsolicited Proposals Guide says the 'unique benefits of the proposal and the unique ability of the proponent to deliver the proposal' must be demonstrated.
The conclusion reached by the Panel and Committee that the proposal offered a ‘unique ability to deliver (a) strategic outcome’ was primarily based on the proponent not requiring foreign investment approval from the Australian Treasurer, and allowing the government to complete the lease transaction earlier than by going through a second tender process.
It is not appropriate to determine an unsolicited proposal is unique because it delivers an earlier outcome than possible through a tender process. The Panel and Committee did not contend, and it is not evident, that the unsolicited proposal was the only way to meet the government’s transaction deadline.
The evidence does not demonstrate that the proponent was the only party that would not have needed foreign investment approval to participate in the transaction. Nor does it demonstrate that the requirement for foreign investment approval would have reduced the pool of foreign buyers to the degree that it would be reasonable to assume none would emerge.
That said, the Australian Treasurer’s decision to reject the two bids from the previous tender process created uncertainty about the conditions under which he would approve international bids. The financial advisers engaged for the Ausgrid transaction informed the Panel and Committee that:
- it was not likely another viable proponent would emerge soon enough to meet the government’s transaction deadline
- the market would be unlikely to deliver a better result than offered by the proponent
- going to tender presented a material risk of a worse financial result.
The Unsolicited Proposals Guide says that a proposal to directly purchase or acquire a government-owned entity or property will generally not be unique. The Ausgrid unsolicited proposal fell into this category.
Recommendations:
DPC should ensure future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:
- recognise that when considering uniqueness they should:
- require very strong evidence to decide that both the proponent and proposal are the only ones of their kind that could meet the government’s objectives
- give thorough consideration to any reasonable counter-arguments against uniqueness.
- rigorously consider all elements of the Unsolicited Proposals Guide when determining whether a proposal should be dealt with as an unsolicited proposal, and document these deliberations and all relevant evidence
- do not use speed of transaction compared to a market process as justification for uniqueness.
The Panel and Committee concluded the price represented value for money, based on peer-reviewed advice from their financial advisers and knowledge acquired from previous tenders. The financial advisers also told the Panel and Committee that there was a material risk the state would receive a lower price than offered by the unsolicited proposal if it immediately proceeded with a second market transaction.
The state commenced negotiations on price earlier than the Guide says they should have. Early disclosure of a price that the state would accept reduced the likelihood of achieving a price greater than this. DPC says the intent of this meeting was to quickly establish whether the proponents could meet the state’s benchmark rather than spending more time and resources on a proposal which had no prospect of proceeding.
DPC and NSW Treasury were not able to provide a documented reserve price, negotiation strategy or similar which put the negotiations and price achieved in context. It was not evident that the Panel or Committee authorised, justified or endorsed negotiations in advance. However, the Panel and Committee endorsed the outcomes of the negotiations.
The negotiations were informed by the range of prices achieved for similar assets and the specific bids for Ausgrid from the earlier market process.
Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government business or asset:
- document a minimum acceptable price, and a negotiating strategy designed to maximise price, before commencing negotiations
- do not communicate an acceptable price to the proponent, before the negotiation stage of the process, and then only as part of a documented bargaining strategy.
The state established a governance structure in accordance with the Unsolicited Proposals Guide, including an Assessment Panel and Proposal Specific Steering Committee. The members of the Panel and Steering Committee were senior and experienced officers, as befitted the size and nature of the unsolicited proposal.
The separation of negotiation, assessment and review envisaged by the Guide was not maintained fully. The Chair of the Assessment Panel and a member of the Steering Committee were involved in negotiations with the proponent.
DPC could not provide comprehensive records of some key interactions with the proponent or a documented negotiation strategy. The absence of such records means the Department cannot demonstrate engagement and negotiation processes were authorised and rigorous.
The probity adviser reported there were no material probity issues with the transaction. The probity adviser also provided audit services. This is not good practice. The same party should not provide both advisory and audit services on the same transaction.
Recommendations:
DPC should ensure any future Assessment Panels and Steering Committees considering a proposal to acquire a government entity or asset:
• maintain separation between negotiation, assessment and review in line with the Unsolicited Proposals Guide
• keep an auditable trail of documentation relating to the negotiation process
• maintain separation between any probity audit services engaged and the probity advisory and reporting services recommended in the current Guide.
Appendix one - Response from agency
Appendix two - NSW Government’s summary of assessment of the Ausgrid unsolicited proposal
Appendix three - The definition and nature of unsolicited proposals
Appendix four - Ausgrid unsolicited proposal process
Appendix five - About the audit
Appendix six - Performance auditing
Parliamentary reference - Report number #309 - released 11 December 2018
Transport 2018
The Auditor-General for New South Wales, Margaret Crawford released her report today on key observations and findings from the 30 June 2018 financial statement audits of agencies in the Transport cluster. Unqualified audit opinions were issued for all agencies' financial statements. However, assessing the fair value of the broad range of transport related assets creates challenges.
This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides Parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
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 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all agencies' financial statements | Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. |
| 2.2 Key accounting issues | |
| Valuation of assets continues to create challenges. Although agencies complied with the requirements of the accounting standards and Treasury policies on valuations, we identified some opportunities for improvements at RMS. |
RMS incorporated data from its asset condition assessments for the first time in the valuation methodology which improved the valuation outcome. Overall, we were satisfied with the valuation methodology and key assumptions, but we noted some deficiencies in the asset data in relation to asset component unit rates and old condition data for some components of assets. Also, a bypass and tunnel were incorrectly excluded from RMS records and valuation process since 2013. This resulted in an increase for these assets’ value by $133 million. The valuation inputs for Wetlands and Moorings were revised this year to better reflect the assets' characteristics resulting in a $98.0 million increase. |
| 2.3 Timeliness of financial reporting | |
| Residual Transport Corporation did not submit its financial statements by the statutory reporting deadline. | Residual Transport Corporation remained a dormant entity with no transactions for the year ended 30 June 2018. |
| With the exception of Residual Transport Corporation, all agencies completed early close procedures and submitted financial statements within statutory timeframes. | Early close procedures allow financial reporting issues and risks to be addressed early in the reporting and audit process. |
| 2.4 Financial sustainability | |
| NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations reported negative net assets of $75.7 million and $89,000 respectively at 30 June 2018. | NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations continue to require letters of financial support to confirm their ability to pay liabilities as they fall due. |
| 2.5 Passenger revenue and patronage | |
| Transport agencies revenue growth increased at a higher rate than patronage. | Public transport passenger revenue increased by $114 million (8.3 per cent) in 2017–18, and patronage increased by 37.1 million (5.1 per cent) across all modes of transport based on data provided by TfNSW. |
| Negative balance Opal Cards resulted in $3.8 million in revenue not collected in 2017–18 and $7.8 million since the introduction of Opal. A total of 1.1 million Opal cards issued since its introduction have negative balances. | Transport for NSW advised it is liaising with the ticketing vendor to implement system changes and are investigating other ways to reduce the occurrences. |
| 2.6 Cost recovery from public transport users | |
| Overall cost recovery from users has decreased. | Overall cost recovery from public transport users (on rail and bus services by STA) decreased from 23.2 per cent to 22.4 per cent between 2016–17 and 2017–18. The main reason for the decrease is due to expenditure increasing at a faster rate than revenue in 2017–18. |
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 for 2018
- the areas of focus identified in the Audit Office annual work program.
The Audit Office Annual Work Program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each of the NSW Government clusters.
| Observation | Conclusions and recommendations |
| 3.1 Internal controls | |
| There was an increase in findings on internal controls across the Transport cluster. | Key themes related to information technology, employee leave entitlements and asset management. Eighteen per cent of all issues were repeat issues. |
| 3.2 Audit Office Annual work program | |
| The Transport cluster wrote-off over $200 million of assets which were replaced by new assets or technology. |
Majority of this write-off was recognised by RMS, with $199 million relating to the write-off of existing assets which have been replaced during the year. |
| RailCorp is expected to convert to TAHE from 1 July 2019. | Several working groups are considering different aspects of the TAHE transition including its status as a for-profit Public Trading Enterprise and which assets to transfer to TAHE. We will continue to monitor developments on TAHE for any impact to the financial statements. |
| RMS' estimated maintenance backlog at 30 June 2018 of $3.4 billion is lower than last year. Sydney Trains' estimated maintenance backlog at 30 June 2018 increased by 20.6 per cent to $434 million. TfNSW does not quantify its backlog maintenance. | TfNSW advised it is liaising with Infrastructure NSW to develop a consistent definition of maintenance backlog across all transport service providers. |
| Not all agencies monitor unplanned maintenance across the Transport cluster. | Unplanned maintenance can be more expensive than planned maintenance. TfNSW should develop a consistent approach to define, monitor and track unplanned maintenance across the cluster. |
This chapter outlines certain service delivery outcomes for 2017–18. The data on activity levels and performance is provided by Cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited.
We report this information on service delivery to provide additional context to understand the operations of the Transport cluster and to collate and present service information for different modes of transport in one report.
In our recent performance audit, Progress and measurement of Premier's Priorities, we identified 12 limitations of performance measurement and performance data. We recommended that the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all agency data sources.
Progress and measurement of the Premier's Priorities
The Premier’s Implementation Unit uses a systematic approach to measuring and reporting progress towards the Premier’s Priorities performance targets, but public reporting needed to improve, according to a report released today by the Auditor-General of NSW, Margaret Crawford.
The Premier of New South Wales has established 12 Premier’s Priorities. These are key performance targets for government.
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Source: Department of Premier and Cabinet, Premier’s Priorities website.
Each Premier’s Priority has a lead agency and minister responsible for achieving the performance target.
The Premier’s Implementation Unit (PIU) was established within the Department of Premier and Cabinet (DPC) in 2015. The PIU is a delivery unit that supports agencies to measure and monitor performance, make progress toward the Premier’s Priorities targets, and report progress to the Premier, key ministers and the public.
This audit assessed how effectively the NSW Government is progressing and reporting on the Premier's Priorities.
The Premier’s Implementation Unit (PIU) is effective in assisting agencies to make progress against the Premier’s Priorities targets. Progress reporting is regular but transparency to the public is weakened by the lack of information about specific measurement limitations and lack of clarity about the relationship of the targets to broader government objectives.The PIU promotes a systematic approach to measuring performance and reporting progress towards the Premier’s Priorities’ performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives.
The PIU provides a systematic approach to measuring performance and reporting progress towards the Premier's Priorities performance targets. Public reporting would be improved with additional information about the rationale for choosing specific targets to report on broader government objectives. The data used to measure the Premier’s Priorities comes from a variety of government and external datasets, some of which have known limitations. These limitations are not revealed in public reporting, and only some are revealed in progress reported to the Premier and ministers. This limits the transparency of reporting.
The PIU assists agencies to avoid unintended outcomes that can arise from prioritising particular performance measures over other areas of activity. The PIU has adopted a collaborative approach to assisting agencies to analyse performance using data, and helping them work across organisational silos to achieve the Premier’s Priorities targets.
Data used to measure progress for some of the Premier’s Priorities has limitations which are not made clear when progress is reported. This reduces transparency about the reported progress. Public reporting would also be improved with additional information about the relationship between specific performance measures and broader government objectives.
The PIU is responsible for reporting progress to the Premier, key ministers and the public. Agencies provide performance data and some play a role in preparing progress reports for the Premier and ministers. For 11 of the Premier's Priorities, progress is reported against measurable and time-related performance targets. For the infrastructure priority, progress is reported against project milestones.
Progress of some Priorities is measured using data that has known limitations, which should be noted wherever progress is reported. For example, the data used to report on housing completions does not take housing demolitions into account, and is therefore overstating the contribution of this performance measure to housing supply. This known limitation is not explained in progress reports or on the public website.
Data used to measure progress is sourced from a mix of government and external datasets. Updated progress data for most Premier’s Priorities is published on the Premier’s Priorities website annually, although reported to the Premier and key ministers more frequently. The PIU reviews the data and validates it through fieldwork with front line agencies. The PIU also assists agencies to avoid unintended outcomes that can arise from prioritising single performance measures. Most, but not all, agencies use additional indicators to check for misuse of data or perverse outcomes.
We examined the reporting processes and controls for five of the Premier’s Priorities. We found that there is insufficient assurance over the accuracy of the data on housing approvals.
The relationships between performance measures and broader government objectives is not always clearly explained on the Premier’s Priority website, which is the key source of public information about the Premier’s Priorities. For example, the Premier’s Priority to reduce litter volumes is communicated as “Keeping our Environment Clean.” While the website explains why reducing litter is important, it does not clearly explain why that particular target has been chosen to measure progress in keeping the environment clean.
By December 2018, the Department of Premier and Cabinet should:
- improve transparency of public reporting by:
- providing information about limitations of reported data and associated performance
- clarifying the relationship between the Premier’s Priorities performance targets and broader government objectives.
- ensure that processes to check and verify data are in place for all agency data sources
- encourage agencies to develop and implement additional supporting indicators for all Premier’s Priority performance measures to prevent and detect unintended consequences or misuse of data.
The Premier's Implementation Unit is effective in supporting agencies to deliver progress towards the Premier’s Priority targets.
The PIU promotes a systematic approach to monitoring and reporting progress against a target, based on a methodology used in delivery units elsewhere in the world. The PIU undertakes internal self-evaluation, and commissions regular reviews of methodology implementation from the consultancy that owns the methodology and helped to establish the PIU. However, the unit lacks periodic independent reviews of their overall effectiveness. The PIU has adopted a collaborative approach and assists agencies to analyse performance using data, and work across organisational silos to achieve the Premier’s Priorities targets.
Agency representatives recognise the benefits of being responsible for a Premier's Priority and speak of the value of being held to account and having the attention of the Premier and senior ministers.
By June 2019, the Department of Premier and Cabinet should:
- establish routine collection of feedback about PIU performance including:
- independent assurance of PIU performance
- opportunity for agencies to provide confidential feedback.
Appendix one: Response from agency
Appendix three: About the audit
Appendix four: Performance auditing
Parliamentary reference - Report number #307 - released 13 September 2018
HealthRoster benefits realisation
The HealthRoster system is delivering some business benefits but Local Health Districts are yet to use all of its features, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. HealthRoster is an IT system designed to more effectively roster staff to meet the needs of Local Health Districts and other NSW health agencies.
The NSW public health system employs over 100,000 people in clinical and non-clinical roles across the state. With increasing demand for services, it is vital that NSW Health effectively rosters staff to ensure high quality and efficient patient care, while maintaining good workplace practices to support staff in demanding roles.
NSW Health is implementing HealthRoster as its single state-wide rostering system to more effectively roster staff according to the demands of each location. Between 2013–14 and 2016–17, our financial audits of individual LHDs had reported issues with rostering and payroll processes and systems.
NSW Health grouped all Local Health Districts (LHDs), and other NSW Health organisations, into four clusters to manage the implementation of HealthRoster over four years. Refer to Exhibit 4 for a list of the NSW Health entities in each cluster.
- Cluster 1 implementation commenced in 2014–15 and was completed in 2015–16.
- Cluster 2 implementation commenced in 2015–16 and was completed in 2016–17.
- Cluster 3 began implementation in 2016–17 and was underway during the conduct of the audit.
- Cluster 4 began planning for implementation in 2017–18.
Full implementation, including capability for centralised data and reporting, is planned for completion in 2019.
This audit assessed the effectiveness of the HealthRoster system in delivering business benefits. In making this assessment, we examined whether:
- expected business benefits of HealthRoster were well-defined
- HealthRoster is achieving business benefits where implemented.
The HealthRoster project has a timespan from 2009 to 2019. We examined the HealthRoster implementation in LHDs, and other NSW Health organisations, focusing on the period from 2014, when eHealth assumed responsibility for project implementation, to early 2018.
Business benefits identified for HealthRoster accurately reflect business needs.
NSW Health has a good understanding of the issues in previous rostering systems and has designed HealthRoster to adequately address these issues. Interviews with frontline staff indicate that HealthRoster facilitates rostering which complies with industrial awards. This is a key business benefit that supports the provision of quality patient care. We saw no evidence that any major business needs or issues with the previous rostering systems are not being addressed by HealthRoster.
In the period examined in this audit since 2015, NSW Health has applied appropriate project management and governance structures to ensure that risks and issues are well managed during HealthRoster implementation.
HealthRoster has had two changes to its budget and timeline. Overall, the capital cost for the project has increased from $88.6 million to $125.6 million (42 per cent) and has delayed expected project completion by four years from 2015 to 2019. NSW Health attributes the increased cost and extended time frame to the large scale and complexity of the full implementation of HealthRoster.
NSW Health has established appropriate governance arrangements to ensure that HealthRoster is successfully implemented and that it will achieve business benefits in the long term. During implementation, local steering committees monitor risks and resolve implementation issues. Risks or issues that cannot be resolved locally are escalated to the state-wide steering committee.
NSW Health has grouped local health districts, and other NSW Health organisations, into four clusters for implementation. This has enabled NSW Health to apply lessons learnt from each implementation to improve future implementations.
NSW Health has a benefits realisation framework, but it is not fully applied to HealthRoster.
NSW Health can demonstrate that HealthRoster has delivered some functional business benefits, including rosters that comply with a wide variety of employment awards.
NSW Health is not yet measuring and tracking the value of business benefits achieved. NSW Health did not have benefits realisation plans with baseline measures defined for LHDs in cluster 1 and 2 before implementation. Without baseline measures NSW Health is unable to quantify business benefits achieved. However, analysis of post-implementation reviews and interviews with frontline staff indicate that benefits are being achieved. As a result, NSW Health now includes defining baseline measures and setting targets as part of LHD implementation planning. It has created a benefits realisation toolkit to assist this process from cluster 3 implementations onwards.
NSW Health conducted post-implementation reviews for clusters 1 and 2 and found that LHDs in these clusters were not using HealthRoster to realise all the benefits that HealthRoster could deliver.
By September 2018, NSW Health should:
- Ensure that Local Health Districts undertake benefits realisation planning according to the NSW Health benefits realisation framework
- Regularly measure benefits realised, at state and local health district levels, from the statewide implementation of HealthRoster
- Review the use of HealthRoster in Local Health Districts in clusters 1 and 2 and assist them to improve their HealthRoster related processes and practices.
By June 2019, NSW Health should:
- Ensure that all Local Health Districts are effectively using demand based rostering.
Appendix one - Response from agency
Appendix two - About the audit
Appendix three - Performance auditing
Parliamentary reference - Report number #301 - released 7 June 2018
Managing risks in the NSW public sector: risk culture and capability
The Ministry of Health, NSW Fair Trading, NSW Police Force, and NSW Treasury Corporation are taking steps to strengthen their risk culture, according to a report released today by the Auditor-General, Margaret Crawford. 'Senior management communicates the importance of managing risk to their staff, and there are many examples of risk management being integrated into daily activities', the Auditor-General said.
We did find that three of the agencies we examined could strengthen their culture so that all employees feel comfortable speaking openly about risks. To support innovation, senior management could also do better at communicating to their staff the levels of risk they are willing to accept.
Effective risk management is essential to good governance, and supports staff at all levels to make informed judgements and decisions. At a time when government is encouraging innovation and exploring new service delivery models, effective risk management is about seizing opportunities as well as managing threats.
Over the past decade, governments and regulators around the world have increasingly turned their attention to risk culture. It is now widely accepted that organisational culture is a key element of risk management because it influences how people recognise and engage with risk. Neglecting this ‘soft’ side of risk management can prevent institutions from managing risks that threaten their success and lead to missed opportunities for change, improvement or innovation.
This audit assessed how effectively NSW Government agencies are building risk management capabilities and embedding a sound risk culture throughout their organisations. To do this we examined whether:
- agencies can demonstrate that senior management is committed to risk management
- information about risk is communicated effectively throughout agencies
- agencies are building risk management capabilities.
The audit examined four agencies: the Ministry of Health, the NSW Fair Trading function within the Department of Finance, Services and Innovation, NSW Police Force and NSW Treasury Corporation (TCorp). NSW Treasury was also included as the agency responsible for the NSW Government's risk management framework.
In assessing an agency’s risk culture, we focused on four key areas:
Executive sponsorship (tone at the top)
In the four agencies we reviewed, senior management is communicating the importance of managing risk. They have endorsed risk management frameworks and funded central functions tasked with overseeing risk management within their agencies.
That said, we found that three case study agencies do not measure their existing risk culture. Without clear measures of how employees identify and engage with risk, it is difficult for agencies to tell whether employee's behaviours are aligned with the 'tone' set by the executive and management.
For example, in some agencies we examined we found a disconnect between risk tolerances espoused by senior management and how these concepts were understood by staff.
Employee perceptions of risk management
Our survey of staff indicated that while senior leaders have communicated the importance of managing risk, more could be done to strengthen a culture of open communication so that all employees feel comfortable speaking openly about risks. We found that senior management could better communicate to their staff the levels of risk they should be willing to accept.
Integration of risk management into daily activities and links to decision-making
We found examples of risk management being integrated into daily activities. On the other hand, we also identified areas where risk management deviated from good practice. For example, we found that corporate risk registers are not consistently used as a tool to support decision-making.
Support and guidance to help staff manage risks
Most case study agencies are monitoring risk-related skills and knowledge of their workforce, but only one agency has addressed the gaps it identified. While agencies are providing risk management training, surveyed staff in three case study agencies reported that risk management training is not adequate.
NSW Treasury provides agencies with direction and guidance on risk management through policy and guidelines. In line with better practice, NSW Treasury's principles-based policy acknowledges that individual agencies are in a better position to understand their own risks and design risk management frameworks that address those risks. Nevertheless, there is scope for NSW Treasury to refine its guidance material to support a better risk culture in the NSW public sector.
Recommendation
By May 2019, NSW Treasury should:
- Review the scope of its risk management guidance, and identify additional guidance, training or activities to improve risk culture across the NSW public sector. This should focus on encouraging agency heads to form a view on the current risk culture in their agencies, identify desirable changes to that risk culture, and take steps to address those changes.
Appendix one - Response from agencies
Appendix three - About the audit
Appendix four - Performance auditing
Parliamentary reference - Report number #298 - released 23 April 2018
Connecting with public transport
We see considerable potential for the Ministry of Transport to plan and manage interchanges more effectively, so as to make better use of our public transport network. We believe that the Ministry now needs to focus more on multi-modal transport planning and interchange performance. It needs to assign responsibility for the coordination and oversight of inter-modal operations to an entity resourced for the purpose. Without this it will continue to be very difficult to identify and address unmet needs, seek and secure stakeholder funding, and monitor and evaluate system performance.
Parliamentary reference - Report number #168 - released 6 June 2007
Readiness to respond: Follow-up audit
The Ambulance Service of New South Wales has substantially implemented the 28 recommendations of the 2001 audit report that it accepted. It has also introduced significant new initiatives to improve performance that were not part of the 2001 recommendations. It has made substantial changes to its organisation and operations to implement these changes. Many of the changes are still proceeding. The Service has addressed a key finding of the 2001 audit report - that it did not have adequate, relevant or credible management data for decision making. The Service now has five years of operational data from the Computer Aided Dispatch (CAD) system.
Parliamentary reference - Report number #167 - released 6 June 2007
Responding to homelessness
Many projects, both Partnership Against Homelessness and by individual agencies, have shown good results or led to improvements. One example is helping mental health patients maintain stable housing. Another is providing street outreach services to homeless people in inner Sydney. Despite these efforts, we were unable to determine how well the government is responding to homelessness statewide. This is because there are no statewide performance measures or targets on homelessness. Also there is limited benchmarking, and no formal means of spreading information on homelessness initiatives and projects.
Parliamentary reference - Report number #165 - released 2 May 2007
