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Published

Actions for Newcastle Urban Transformation and Transport Program

Newcastle Urban Transformation and Transport Program

Transport
Planning
Compliance
Infrastructure
Management and administration
Procurement
Project management

The urban renewal projects on former railway land in the Newcastle city centre are well targeted to support the objectives of the Newcastle Urban Transformation and Transport Program (the Program), according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. The planned uses of the former railway land achieve a balance between the economic and social objectives of the Program at a reasonable cost to the government. However, the evidence that the cost of the light rail will be justified by its contribution to the Program is not convincing.

The Newcastle Urban Transformation and Transport Program (the Program) is an urban renewal and transport program in the Newcastle city centre. The Hunter and Central Coast Development Corporation (HCCDC) has led the Program since 2017. UrbanGrowth NSW led the Program from 2014 until 2017. Transport for NSW has been responsible for delivering the transport parts of the Program since the Program commenced. All references to HCCDC in this report relate to both HCCDC and its predecessor, the Hunter Development Corporation. All references to UrbanGrowth NSW in this report relate only to its Newcastle office from 2014 to 2017.

This audit had two objectives:

  1. To assess the economy of the approach chosen to achieve the objectives of the Program.
  2. To assess the effectiveness of the consultation and oversight of the Program.

We addressed the audit objectives by answering the following questions:

a) Was the decision to build light rail an economical option for achieving Program objectives?
b) Has the best value been obtained for the use of the former railway land?
c) Was good practice used in consultation on key Program decisions?
d) Did governance arrangements support delivery of the program?

Conclusion
1. The urban renewal projects on the former railway land are well targeted to support the objectives of the Program. However, there is insufficient evidence that the cost of the light rail will be justified by its contribution to Program objectives.

The planned uses of the former railway land achieve a balance between the economic and social objectives of the Program at a reasonable cost to the Government. HCCDC, and previously UrbanGrowth NSW, identified and considered options for land use that would best meet Program objectives. Required probity processes were followed for developments that involved financial transactions. Our audit did not assess the achievement of these objectives because none of the projects have been completed yet.

Analysis presented in the Program business case and other planning documents showed that the light rail would have small transport benefits and was expected to make a modest contribution to broader Program objectives. Analysis in the Program business case argued that despite this, the light rail was justified because it would attract investment and promote economic development around the route. The Program business case referred to several international examples to support this argument, but did not make a convincing case that these examples were comparable to the proposed light rail in Newcastle.

The audited agencies argue that the contribution of light rail cannot be assessed separately because it is a part of a broader Program. The cost of the light rail makes up around 53 per cent of the total Program funding. Given the cost of the light rail, agencies need to be able to demonstrate that this investment provides value for money by making a measurable contribution to the Program objectives.

2. Consultation and oversight were mostly effective during the implementation stages of the Program. There were weaknesses in both areas in the planning stages.

Consultations about the urban renewal activities from around 2015 onward followed good practice standards. These consultations were based on an internationally accepted framework and met their stated objectives. Community consultations on the decision to close the train line were held in 2006 and 2009. However, the final decision in 2012 was made without a specific community consultation. There was no community consultation on the decision to build a light rail.

The governance arrangements that were in place during the planning stages of the Program did not provide effective oversight. This meant there was not a single agreed set of Program objectives until 2016 and roles and responsibilities for the Program were not clear. Leadership and oversight improved during the implementation phase of the Program. Roles and responsibilities were clarified and a multi-agency steering committee was established to resolve issues that needed multi-agency coordination.
The light rail is not justified by conventional cost-benefit analysis and there is insufficient evidence that the indirect contribution of light rail to achieving the economic development objectives of the Program will justify the cost.
Analysis presented in Program business cases and other planning documents showed that the light rail would have small transport benefits and was expected to make a modest contribution to broader Program objectives. Analysis in the Program business case argued that despite this, the light rail was justified because it would attract investment and promote economic development around the route. The Program business case referred to several international examples to support this argument, but did not make a convincing case that these examples were comparable to the proposed light rail in Newcastle.
The business case analysis of the benefits and costs of light rail was prepared after the decision to build light rail had been made and announced. Our previous reports, and recent reports by others, have emphasised the importance of completing thorough analysis before announcing infrastructure projects. Some advice provided after the initial light rail decision was announced was overly optimistic. It included benefits that cannot reasonably be attributed to light rail and underestimated the scope and cost of the project.
The audited agencies argue that the contribution of light rail cannot be assessed separately because it is part of a broader Program. The cost of the light rail makes up around 53 per cent of the total Program funding. Given the high cost of the light rail, we believe agencies need to be able to demonstrate that this investment provides value for money by making a measurable contribution to the Program objectives.

Recommendations
For future infrastructure programs, NSW Government agencies should support economical decision-making on infrastructure projects by:
  • providing balanced advice to decision makers on the benefits and risks of large infrastructure investments at all stages of the decision-making process
  • providing scope and cost estimates that are as accurate and complete as possible when initial funding decisions are being made
  • making business cases available to the public.​​​​​​
The planned uses of the former railway land achieve a balance between the economic and social objectives of the Program at a reasonable cost to the government.

The planned uses of the former railway land align with the objectives of encouraging people to visit and live in the city centre, creating attractive public spaces, and supporting growth in employment in the city. The transport benefits of the activities are less clear, because the light rail is the major transport project and this will not make significant improvements to transport in Newcastle.

The processes used for selling and leasing parts of the former railway land followed industry standards. Options for the former railway land were identified and assessed systematically. Competitive processes were used for most transactions and the required assessment and approval processes were followed. The sale of land to the University of Newcastle did not use a competitive process, but required processes for direct negotiations were followed.

Recommendation
By March 2019, the Hunter and Central Coast Development Corporation should:
  • work with relevant stakeholders to explore options for increasing the focus on the heritage objective of the Program in projects on the former railway land. This could include projects that recognise the cultural and industrial heritage of Newcastle.
Consultations about the urban renewal activities followed good practice standards, but consultation on transport decisions for the Program did not.

Consultations focusing on urban renewal options for the Program included a range of stakeholders and provided opportunities for input into decisions about the use of the former railway land. These consultations received mostly positive feedback from participants. Changes and additions were made to the objectives of the Program and specific projects in response to feedback received. 

There had been several decades of debate about the potential closure of the train line, including community consultations in 2006 and 2009. However, the final decision to close the train line was made and announced in 2012 without a specific community consultation. HCCDC states that consultation with industry and business representatives constitutes community consultation because industry representatives are also members of the community. This does not meet good practice standards because it is not a representative sample of the community.

There was no community consultation on the decision to build a light rail. There were subsequent opportunities for members of the community to comment on the implementation options, but the decision to build it had already been made. A community and industry consultation was held on which route the light rail should use, but the results of this were not made public. 

Recommendation
For future infrastructure programs, NSW Government agencies should consult with a wide range of stakeholders before major decisions are made and announced, and report publicly on the results and outcomes of consultations. 

The governance arrangements that were in place during the planning stages of the Program did not provide effective oversight. Project leadership and oversight improved during the implementation phase of the Program.

Multi-agency coordination and oversight were ineffective during the planning stages of the Program. Examples include: multiple versions of Program objectives being in circulation; unclear reporting lines for project management groups; and poor role definition for the initial advisory board. Program ownership was clarified in mid-2016 with the appointment of a new Program Director with clear accountability for the delivery of the Program. This was supported by the creation of a multi-agency steering committee that was more effective than previous oversight bodies.

The limitations that existed in multi-agency coordination and oversight had some negative consequences in important aspects of project management for the Program. This included whole-of-government benefits management and the coordination of work to mitigate impacts of the Program on small businesses.

Recommendations
For future infrastructure programs, NSW Government agencies should: 

  • develop and implement a benefits management approach from the beginning of a program to ensure responsibility for defining benefits and measuring their achievement is clear
  • establish whole-of-government oversight early in the program to guide major decisions. This should include:
    • agreeing on objectives and ensuring all agencies understand these
    • clearly defining roles and responsibilities for all agencies
    • establishing whole-of-government coordination for the assessment and mitigation of the impact of major construction projects on businesses and the community.

By March 2019, the Hunter and Central Coast Development Corporation should update and implement the Program Benefits Realisation Plan. This should include:

  • setting measurable targets for the desired benefits
  • clearly allocating ownership for achieving the desired benefits
  • monitoring progress toward achieving the desired benefits and reporting publicly on the results.

Appendix one - Response from agencies    

Appendix two - About the audit

Appendix three - Performance auditing

 

Parliamentary reference - Report number #310 - released 12 December 2018

Published

Actions for Central Agencies 2018

Central Agencies 2018

Treasury
Premier and Cabinet
Finance
Financial reporting
Internal controls and governance
Management and administration
Risk

The Auditor-General for New South Wales, Margaret Crawford, released her report today on the results of the financial audits of NSW Government central agencies. The report focuses on key observations and findings from the most recent financial statement audits of agencies in the Treasury, Premier and Cabinet, and Finance, Services and Innovation clusters. While clear audit opinions were issued on all agency financial statements, the report notes that some complex accounting requirements caused significant errors in agency financial statements submitted for audit, which were corrected before the financial statements were approved. 

This report analyses the results of our audits of the Treasury, Premier and Cabinet and Finance, Services and Innovation cluster agencies for the year ended 30 June 2018. The table below summarises our key observations.

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

  • financial reporting
  • audit observations
  • liquidity risk management
  • government financial services.

The central agencies and their key responsibilities are set out below.

Central agencies Key central agency responsibilities Cluster responsibilities
The Treasury
  • Financial and economic advisor to NSW Government
  • Manages the NSW Government’s financial resources.

The cluster:

  • provides investment and debt management services though TCorp
  • manages residual business arising from privatisation of government businesses
  • provides insurance and compensation cover, including workers compensation insurance
  • includes NSW Government superannuation funds.
Department of Premier and Cabinet
  • Drives NSW Government’s objectives and sets targets
  • Works with clusters to coordinate policy and achieve NSW Government priorities.

The cluster:

  • includes integrity agencies, such as the Independent Commission Against Corruption, Audit Office of NSW and Ombudsman’s Office
  • other agencies, such as Barangaroo Delivery Authority and Infrastructure NSW.
Department of Finance, Services and Innovation
  • Supports agency service delivery in relation to the key enabling functions of NSW Government, including procurement, property and asset management, ICT and digital innovation.

The cluster:

  • is responsible for state revenue and rental bond administration
  • regulates statutory insurance schemes, workplace safety and consumer protection
  • provides access to a range of NSW Government services via Service NSW
  • manages the NSW Government communications network.
Public Service Commission
  • Works to promote and maintain a strong ethical culture across the government sector and improve the capabilities, performance and configuration of the sector’s workforce to deliver better services to the public.
  • The Public Service Commission is an independent agency within the Premier and Cabinet cluster.

Note: The Audit Office of NSW is an independent agency included in the Premier and Cabinet cluster for administrative purposes, but not commented on in this report.


A full list of agencies that this report covers by relevant cluster is included in Appendix three.

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, Premier and Cabinet and Finance, Services and Innovation clusters for 2018.

Observation Conclusions and recommendations
2.1 Quality of financial reporting
Unqualified opinions were issued for all agencies' financial statements submitted to the Audit Office.

Complex accounting requirements caused significant errors in some agency financial statements, which were corrected before the financial statements were approved.
Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement.
Recommendation: Agencies should respond to key accounting issues when they are identified by preparing accounting papers and engaging with Treasury, the Audit Office and their Audit and Risk Committee when these matters are identified.
2.2 Timeliness of financial reporting
Most agencies complied with the statutory timeframe for completion of early close procedures, 48 agencies in the Treasury cluster did not comply with the statutory requirement to prepare financial statements, and the audits of nine agencies in the Treasury cluster were not completed within the statutory timeframe.
All financial statement information of the 48 agencies that did not prepare financial statements has been captured in the consolidated financial statements of their parent entity, which was subject to audit.
Early close procedures allow financial reporting issues and risks to be addressed early in the audit process. The timeliness of financial reporting can be improved by performing more robust early close procedures.

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

This chapter outlines our observations and insights from:

  • our financial statement audits of agencies in the Treasury, Premier and Cabinet and Finance, Services and Innovation cluster for 2018
  • the areas of focus identified in the Audit Office work program.

The Audit Office 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
The 2017–18 audits found one high risk issue and 83 moderate risk issues across the agencies. Nineteen per cent of all issues were repeat issues. Agencies should focus on rectifying repeat issues.
The high risk issue at Service NSW related to several deficiencies in procurement and contract management processes. Service NSW may not be achieving value-for-money
from their procurement and contract management activities. The high risk issue should be rectified as a matter of priority. This includes updating and implementing its procurement, vendor and contract management frameworks and delivering training to key staff involved in procurement and contract management activities.
Property NSW has implemented several controls during the year to rectify the high risk issue identified last year related to its transition to a new property and facility management service provider. However, the service providers performance remains below expectations and there are further opportunities to improve oversight and lift performance. Property NSW can better define roles and accountabilities with the service provider and formalise policies and processes associated with its monitoring and oversight of the service provider.

Implementing relevant KPIs, receiving timely reports and providing timely review and feedback to the service provider may help to lift performance.
GovConnect received unqualified opinions from their service auditor on all business process controls, except for information technology controls provided by Unisys, where a qualified opinion was received from the service auditor. A qualified opinion was received because of several deficiencies in user access controls. These internal control deficiencies increase the risk of unauthorised access to key business systems, and increase audit effort and costs associated with addressing the risks arising from the deficiencies.
3.2 Audit Office annual work program

Remediation of the Barangaroo site is now estimated to cost the Barangaroo Delivery Authority in excess of net $400 million.
 
The increase in the estimate over the last five years is mainly due to the extent of remediation required, as more evidence of contamination has become known.

Measuring the remaining costs to remediate requires the use of estimation techniques and judgements, making the actual outcome inherently uncertain. We reviewed evidence to support the provision for remediation, including future costs estimates and this evidence supported management’s estimate.
The State Insurance Regulatory Authority have administered the refund of $138 million in Green slip refunds to policy holders through Service NSW during 2017–18. At 30 June 2018, $112 million in refunds are yet to be claimed.
 
We reviewed the systems and processes supporting the refund process. While we found that this supports the disbursement of refunds to policyholders there were some deficiencies in Service NSW’s project controls when the program was being developed.

 
Service NSW should apply the lessons learnt from this program to other programs it is delivering or will be delivering for agencies.
Revenue NSW recorded $30.4 billion from taxes, fines and fees in 2017–18 ($30.0 billion in 2016–17) to support the State’s finances. 
 
Crown revenue has steadily increased over the last five years predominately driven by rises in payroll tax and land tax and responsibility for collection of the Emergency Services Levy transferring to Revenue NSW under the Emergency Services Levy Act 2017 effective from July 2017. 
3.3 Managing maintenance
Place Management NSW manages significant commercial and retail leases and maintains public domain spaces and other assets around the harbour foreshore. It has consistently underspent its asset maintenance budget. In 2017–18, asset maintenance expenses were only 34 per cent of budgeted maintenance expense.

Currently, Place Management NSW does not use any ratios or benchmarks to determine the adequacy of its maintenance spend or to monitor whether it is achieving its budgeted maintenance program. 
This may be contributing to a high proportion of unplanned maintenance, which Place Management NSW reports was 38 per cent of total maintenance expense in 2017–18.

Place Management NSW is outsourcing its property and facilities management function from 1 December 2018 to an external service provider. 
 

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

Observation Conclusions and recommendation
5.1 Superannuation funds
The SAS Trustee Corporation (STC) Pooled Fund and the Parliamentary Contributory Superannuation (PCS) Fund are not required to comply with the prudential and reporting standards issued by the Australian Prudential Regulation Authority (APRA). 
However, legislation allows the responsible Minister to prescribe prudential standards, reporting and audit requirements. 
Structured and comprehensive prudential oversight of these Funds is important as they operate in a volatile financial sector, have 103,000 members and manage investments of $43.3 billion.
Recommendation: Treasury should consult with the Trustees of the STC Pooled Fund and PCS Fund to prescribe appropriate prudential standards and requirements, including oversight arrangements.
5.2 Insurance and compensation
Nominal Insurer and NSW Self Insurance Corporation investment performance marginally exceeded benchmark over the past five years. Investment returns can impact on the premiums required to maintain an adequate funding ratio in addition to other factors such as claims experience and discount rates.
The Workers Compensation Nominal Insurer (Nominal Insurer) and NSW Self Insurance Corporation's net collected premiums and contributions decreased over the past five years.  The insurance schemes' investment performance and stable claim payments have enabled less reliance on net collected premiums and contributions as a source of funding, over the past five years. 
Reforms were introduced to manage the Home Warranty Scheme's financial sustainability risks.  The Home Warranty Scheme has not collected sufficient premiums to fund expected claims costs, since commencing operations in 2011. In 2017–18, the Crown contributed $181 million for historical shortfalls. New reforms started on 1 January 2018 enabling the Scheme to price premiums based on risk. 

Published

Actions for Transport 2018

Transport 2018

Transport
Asset valuation
Compliance
Financial reporting
Infrastructure
Management and administration
Procurement
Risk
Service delivery
Workforce and capability

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.

Published

Actions for Internal Controls and Governance 2018

Internal Controls and Governance 2018

Education
Community Services
Finance
Health
Industry
Justice
Planning
Premier and Cabinet
Transport
Treasury
Whole of Government
Environment
Compliance
Cyber security
Financial reporting
Fraud
Information technology
Internal controls and governance
Management and administration
Procurement
Project management

The Auditor-General for New South Wales Margaret Crawford found that as NSW state government agencies’ digital footprint increases they need to do more to address new and emerging information technology (IT) risks. This is one of the key findings to emerge from the second stand-alone report on internal controls and governance of the 40 largest NSW state government agencies.

This report analyses the internal controls and governance of the 40 largest agencies in the NSW public sector for the year ended 30 June 2018.

This report covers the findings and recommendations from our 2017–18 financial audits that relate to internal controls and governance at the 40 largest agencies (refer to Appendix three) in the NSW public sector.

This report offers insights into internal controls and governance in the NSW public sector

This is our second report dedicated to internal controls and governance at NSW State Government agencies. The report provides insights into the effectiveness of controls and governance processes in the NSW public sector by:

  • highlighting the potential risks posed by weaknesses in controls and governance processes
  • helping agencies benchmark the adequacy of their processes against their peers
  • focusing on new and emerging risks, and the internal controls and governance processes that might address those risks.

Without strong governance systems and internal controls, agencies increase the risks associated with effectively managing their finances and delivering services to citizens. The way agencies deliver services increasingly relies on contracts and partnerships with the private sector. Many of these arrangements deliver front line services, but others provide less visible back office support. For example, an agency may rely on an IT service provider to manage a key system used to provide services to the community. The contract and service level agreements are only truly effective where they are actively managed to reduce risks to continuous quality service delivery, such as interruptions caused by system outages, cyber security attacks and data security breaches.

Our audits do not review all aspects of internal controls and governance every year. We select a range of measures, and report on those that present heightened risks for agencies to mitigate. This report divides these into the following five areas:

  1. Internal control trends
  2. Information technology (IT), including IT vendor management
  3. Transparency and performance reporting
  4. Management of purchasing cards and taxis
  5. Fraud and corruption control.

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 2018 cluster financial audit reports, which will be tabled in Parliament from November to December 2018.

The focus of the report has changed since last year

Last year's report topics included asset management, ethics and conduct, and risk management. We are reporting on new topics this year. We plan to introduce new topics and re-visit our previous topics in subsequent reports on a cyclical basis. This will provide a baseline against which to measure the NSW public sectors’ progress in implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.

Agencies selected for the volume account for 95 per cent of the state's expenditure

While we have covered only 40 agencies in this report, those selected are a large enough group to identify common issues and insights. They represent about 95 per cent of total expenditure for all NSW public sector agencies.

Internal controls are processes, policies and procedures that help agencies to:

  • operate effectively and efficiently
  • produce reliable financial reports
  • comply with laws and regulations
  • support ethical government.

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 presents this year’s controls and governance findings in more detail.

Observation Conclusions and recommendations
2.1 High risk findings
We found six high risk findings (seven in 2016–17), one of which was repeated from both last year and 2015–16. Recommendation: Agencies should reduce risk by addressing high risk internal control deficiencies as a priority.
2.2 Common findings
We found several internal controls and governance findings common to multiple agencies. Conclusion: Central agencies or the lead agency in a cluster can play a lead role in helping ensure agency responses to common findings are consistent, timely, efficient and effective.
2.3 New and repeat findings
Although internal control deficiencies decreased over the last four years, this year has seen a 42 per cent increase in internal control deficiencies. The increase in new IT control deficiencies and repeat IT control deficiencies signifies an emerging risk for agencies.
IT control deficiencies feature in this increase, having risen by 63 per cent since last year. The number of repeat IT control deficiencies has doubled and is driven by the increasing digital footprint left by agencies as government prioritises on-line interfaces with citizens, and the number of transactions conducted through digital channels increases

Recommendation: Agencies should reduce IT risks by:

  • assigning ownership of recommendations to address IT control deficiencies, with timeframes and actions plans for implementation
  • ensuring audit and risk committees and agency management regularly monitor the implementation status of recommendations.

 

Government agencies’ financial reporting is now heavily reliant on information technology (IT). IT is also increasingly important to the delivery of agency services. These systems often provide the data to help monitor the efficiency and effectiveness of agency processes and services they deliver. Our audits reviewed whether agencies have effective controls in place to manage both key financial systems and IT service contracts.

Observation Conclusions and recommendations
3.1 Management of IT vendors
Contract management framework 
Although 87 per cent of agencies have a contract management policy to manage IT vendors, one fifth require review.
 

Conclusion: Agencies can more effectively manage IT vendor contracts by developing policies and procedures to ensure vendor management frameworks are kept up to date, plans are in place to manage vendor performance and risk, and compliance with the framework is monitored by:

  • internal audit focusing on key contracting activities
  • experienced officers who are independent of contract administration performing spot checks or peer reviews
  • targeted analysis of data in contract registers.
Contract risk management
Forty-one per cent of agencies are not using contract management plans and do not assess contract risks. Half of the agencies that did assess contract risks, had not updated the risk assessments since the commencement of the contract.
 
Conclusion: Instead of applying a 'set and forget' approach in relation to management of contract risks, agencies should assess risk regularly and develop a plan to actively manage identified risks throughout the contract lifecycle - from negotiation and commencement, to termination.

Performance management
Eighty-six per cent of agencies meet with vendors to discuss performance. 

Only 24 per cent of agencies sought assurance about the accuracy of vendor reporting against KPIs, yet sixty-seven per cent of the IT contracts allow agencies to determine performance based payments and/or penalise underperformance.

Conclusion: Agencies are monitoring IT vendor performance, but could improve outcomes and more effectively manage under-performance by:

  • a more active, rigorous approach to both risk and performance management
  • checking the accuracy of vendor reporting against those KPIs and where appropriate seeking assurance over their accuracy
  • invoking performance based payments clauses in contracts when performance falls below agreed standards.

Transitioning services
Forty-three per cent of the IT vendor contracts did not contain transitioning-out provisions.

Where IT vendor contracts do make provision for transitioning-out, only 28 per cent of agencies have developed a transitioning-out plan with their IT vendor.

Conclusion: Contract transition/phase out clauses and plans can mitigate risks to service disruption, ensure internal controls remain in place, avoid unnecessary costs and reduce the risk of 'vendor lock-in'.
Contract Registers
Eleven out of forty agencies did not have a contract register, or have registers that are not accurate and/or complete.

Conclusion: A contract register helps to manage an agency’s compliance obligations under the Government Information (Public Access) Act 2009 (the GIPA Act). However, it also helps agencies more effectively manage IT vendors by:

  • monitoring contract end dates and contract extensions, and commence new procurements through their central procurement teams in a timely manner
  • managing their contractual commitments, budgeting and cash flow requirements.

Recommendation: Agencies should ensure their contract registers are complete and accurate so they can more effectively govern contracts and manage compliance obligations.

3.2 IT general controls
Governance
Ninety-five per cent of agencies have established policies to manage key IT processes and functions within the agency, with ten per cent of those due for review.
 
Conclusion: Regular review of IT policies ensures risks are considered and appropriate strategies and procedures are implemented to manage these risks on a consistent basis. An absence of policies can lead to ad-hoc responses to risks, and failure to consider emerging IT risks and changes to agency IT environments. 

User access administration
Seventy-two deficiencies were identified related to user access administration, including:

  • thirty issues related to granting user access across 43 per cent of agencies
  • sixteen issues related to removing user access across 30 per cent of agencies
  • twenty-six issues related to periodic reviews of user access across 50 per cent of agencies.
Recommendation: Agencies should strengthen the administration of user access to prevent inappropriate access to key systems.
Privileged access
Forty per cent of agencies do not periodically review logs of the activities of privileged users to identify suspicious or unauthorised activities.

Recommendation: Agencies should:

  • review the number of, and access granted to privileged users, and assess and document the risks associated with their activities
  • monitor user access to address risks from unauthorised activity.
Password controls
Twenty-three per cent of agencies did not comply with their own policy on password parameters.
Recommendation: Agencies should ensure IT password settings comply with their password policies.
Program changes
Fifteen per cent of agencies had deficient IT program change controls mainly related to segregation of duties and authorisation and testing of IT program changes prior to deployment.
Recommendation: Agencies should maintain appropriate segregation of duties in their IT functions and test system changes before they are deployed.

 

This chapter outlines our audit observations, conclusions and recommendations from our review of how agencies reported their performance in their 2016–17 annual reports. The Annual Reports (Statutory Bodies) Regulation 2015 and Annual Reports (Departments) Regulation 2015 (annual reports regulation) currently prescribes the minimum requirements for agency annual reports.

Observation Conclusion or recommendation
4.1 Reporting on performance

Only 57 per cent of agencies linked reporting on performance to their strategic objectives.

The use of targets and reporting performance over time was limited and applied inconsistently.

Conclusion: There is significant disparity in the quality and consistency of how agencies report on their performance in their annual reports. This limits the reliability and transparency of reported performance information.

Agencies could improve performance reporting by clearly linking strategic objectives to reported outcomes, and reporting on performance against targets over time. NSW Treasury may need to provide more guidance to agencies to support consistent and high-quality performance reporting in annual reports.

There is no independent assurance that the performance metrics agencies report in their annual reports are accurate.

Prior performance audits have noted issues related to the collection of performance information. For example, our 2016 Report on Red Tape Reduction highlighted inaccuracies in how the dollar-value of red tape reduction had been reported.

Conclusion: The ability of Parliament and the public to rely on reported information as a relevant and accurate reflection of an agency's performance is limited.

The relevance and accuracy of performance information is enhanced when:

  • policies and guidance support the consistent and accurate collection of data
  • internal review processes and management oversight are effective
  • independent review processes are established to provide effective challenge to the assumptions, judgements and methodology used to collect the reported performance information.
4.2 Reporting on reports

Agency reporting on major projects does not meet the requirements of the annual reports regulation.

Forty-seven per cent of agencies did not report on costs to date and estimated completion dates for major works in progress. Of the 47 per cent of agencies that reported on major works, only one agency reported detail about significant cost overruns, delays, amendments, deferments or cancellations.

NSW Treasury produce an annual report checklist to help agencies comply with their annual report obligations.

Recommendation: Agencies should comply with the annual reports regulation and report on all mandatory fields, including significant cost overruns and delays, for their major works in progress.

The information the annual reports regulation requires agencies to report deals only with major works in progress. There is no requirement to report on completed works.

Sixteen of 30 agencies reported some information on completed major works.

Conclusion: Agencies could improve their transparency if they reported, or were required to report:

  • on both works in progress and projects completed during the year
  • actual costs and completion dates, and forecast completion dates for major works, against original and revised budgets and original expected completion dates
  • explanations for significant cost overruns, delays and key project performance metrics.

 

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency preventative and detective controls over purchasing card and taxi use for 2017–18.

Observation Conclusion or recommendation
5.1 Management of purchasing cards
Volume of credit card spend
Purchasing card expenditure has increased by 76 per cent over the last four years in response to a government review into the cost savings possible from using purchasing cards for low value, high volume procurement.
 
Conclusion: The increasing use of purchasing cards highlights the importance of an effective framework for the use and management of purchasing cards.
Policy framework
We found all agencies that held purchasing cards had a policy in place, but 26 per cent of agencies have not reviewed their purchasing card policy by the scheduled date, or do not have a scheduled revision date stated within their policy.
Recommendation: Agencies should mitigate the risks associated with increased purchasing card use by ensuring policies and purchasing card frameworks remain current and compliant with the core requirements of TPP 17–09 'Use and Management of NSW Government Purchasing Cards'.
Preventative controls
We found that:
  • all agencies maintained purchasing card registers
  • seventy-six per cent provided training to cardholders prior to being issued with a card
  • eighty-nine per cent appointed a program administrator, but only half of these had clearly defined roles and responsibilities
  • thirty-two per cent of agencies place merchant blocks on purchasing cards
  • forty-seven per cent of agencies place geographic restrictions on purchasing cards.

Agencies have designed and implemented preventative controls aimed at deterring the potential misuse of purchasing cards.

Conclusion: Further opportunities exist for agencies to better control the use of purchasing cards, such as:

  • updating purchasing card registers to contain all mandatory fields required by TPP17–09
  • appointing a program administrator for the agency's purchasing card framework and defining their role and responsibility for the function
  • strengthening preventive controls to prevent misuse.

Detective controls
Ninety-two per cent of agencies have designed and implemented at least one control to monitor purchasing card activity.

Major reviews, such as data analytics (29 per cent of agencies) and independent spot checks (49 per cent of agencies) are not widely used.

Agencies have designed and implemented detective controls aimed at identifying potential misuse of purchasing cards.

Conclusion: More effective monitoring using purchasing card data can provide better visibility over spending activity and can be used to:

  • detect misuse and investigate exceptions
  • analyse trends to highlight cost saving opportunities.
5.2 Management of taxis
Policy framework
Thirteen per cent of agencies have not developed and implemented a policy to manage taxi use. In addition:
  • a further 41 per cent of agencies have not reviewed their policies by the scheduled revision date, or do not have a scheduled revision date
  • more than half of all agencies’ policies do not offer alternative travel options. For example, only 36 per cent of policies promoted the use of general Opal cards.
Conclusion: Agencies can promote savings and provide more options to staff where their taxi use policies:
  • limit the circumstances where taxi use is appropriate
  • offer alternate, lower cost options to using taxis, such as general Opal cards and rideshare.
Detective controls
All agencies approve taxi expenditure by expense reimbursement, purchasing card and Cabcharge, and have implemented controls around this approval process. However, beyond this there is minimal monitoring and review activity, such as data monitoring, independent spot checks or internal audit reviews.
Conclusion: Taxi spend at agencies is not significant in terms of its dollar value, but it is significant from a probity perspective. Agencies can better address the probity risk by incorporating taxi use into a broader purchasing card or fraud monitoring program.

 

Fraud and corruption control is one of the 17 key elements of our governance lighthouse. Recent reports from ICAC into state agencies and local government councils highlight the need for effective fraud control and ethical frameworks. Effective frameworks can help protect an agency from events that risk serious reputational damage and financial loss.

Our 2016 Fraud Survey found the NSW Government agencies we surveyed reported 1,077 frauds over the three year period to 30 June 2015. For those frauds where an estimate of losses was made, the reported value exceeded $10.0 million. The report also highlighted that the full extent of fraud in the NSW public sector could be higher than reported because:

  • unreported frauds in organisations can be almost three times the number of reported frauds
  • our 2015 survey did not include all NSW public sector agencies, nor did it include any NSW universities or local councils
  • fraud committed by citizens such as fare evasion and fraudulent state tax self-assessments was not within the scope of our 2015 survey
  • agencies did not estimate a value for 599 of the 1,077 (56 per cent) reported frauds.

Commissioning and outsourcing of services to the private sector and the advancement of digital technology are changing the fraud and corruption risks agencies face. Fraud risk assessments should be updated regularly and in particular where there are changes in agency business models. NSW Treasury Circular TC18-02 NSW Fraud and Corruption Control Policy now requires agencies develop, implement and maintain a fraud and corruption control framework, effective from 1 July 2018. 

Our Fraud Control Improvement Kit provides guidance and practical advice to help organisations implement an effective fraud control framework. The kit is divided into ten attributes. Three key attributes have been assessed below; prevention, detection and notification systems.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency fraud and corruption controls for 2017–18.

Observation Conclusion or recommendation
6.1 Prevention systems

Prevention systems
Ninety-two per cent of agencies have a fraud control plan in place, 81 per cent maintain a fraud database and 79 per cent report fraud and corruption matters as a standing item on audit and risk committee agendas.

Only 54 per cent of agencies have an employment screening policy and all agencies have IT security policies, but gaps in IT security controls could undermine their policies.

Conclusion: Most agencies have implemented fraud prevention systems to reduce the risk of fraud. However poor IT security along with other gaps in agency prevention systems, such as employment screening practices heightens the risk of fraud and inappropriate use of data.

Agencies can improve their fraud prevention systems by:

  • completing regular fraud risk assessments, embedding fraud risk assessment into their enterprise risk management process and reporting the results of the assessment to the audit and risk committee
  • maintaining a fraud database and reviewing it regularly for systemic issues and reporting a redacted version of the database on the agency's website to inform corruption prevention networks
  • developing policies and procedures for employee screening and benchmarking their current processes against ICAC's publication ‘Strengthening Employment Screening Practices in the NSW Public Sector’
  • developing and maintaining up to date IT security policies and monitoring compliance with the policy.
Twenty-three per cent of agencies were not performing fraud risk assessments and some agency fraud risk assessments may not be as robust as they could be.  Conclusion: Agencies' systems of internal controls may be less effective where new and emerging fraud risks have been overlooked, or known weaknesses have not been rectified.
6.2 Detection systems
Detection systems
Several agencies reported they were developing a data monitoring program, but only 38 per cent of agencies had already implemented a program.
 

Studies have shown data monitoring, whereby entire populations of transactional data are analysed for indicators of fraudulent activity, is one of the most effective methods of early detection. Early detection decreases the duration a fraud remains undetected thereby limiting the extent of losses.

Conclusion: Data monitoring is an effective tool for early detection of fraud and is more effective when informed by a comprehensive fraud risk assessment.

6.3 Notification systems
Notification system
All agencies have notification systems for reporting actual or suspected fraud and corruption. Most agencies provide multiple reporting lines, provide training and publicise options for staff to report actual or suspected fraud and corruption.
Conclusion: Training staff about their obligations and the use of fraud notification systems promotes a fraud-aware culture

 

Published

Actions for Mobile speed cameras

Mobile speed cameras

Transport
Compliance
Financial reporting
Information technology
Internal controls and governance
Management and administration
Regulation
Service delivery

Key aspects of the state’s mobile speed camera program need to be improved to maximise road safety benefits, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. Mobile speed cameras are deployed in a limited number of locations with a small number of these being used frequently. This, along with decisions to limit the hours that mobile speed cameras operate, and to use multiple warning signs, have reduced the broad deterrence of speeding across the general network - the main policy objective of the mobile speed camera program.

The primary goal of speed cameras is to reduce speeding and make the roads safer. Our 2011 performance audit on speed cameras found that, in general, speed cameras change driver behaviour and have a positive impact on road safety.

Transport for NSW published the NSW Speed Camera Strategy in June 2012 in response to our audit. According to the Strategy, the main purpose of mobile speed cameras is to reduce speeding across the road network by providing a general deterrence through anywhere, anytime enforcement and by creating a perceived risk of detection across the road network. Fixed and red-light speed cameras aim to reduce speeding at specific locations.

Roads and Maritime Services and Transport for NSW deploy mobile speed cameras (MSCs) in consultation with NSW Police. The cameras are operated by contractors authorised by Roads and Maritime Services. MSC locations are stretches of road that can be more than 20 kilometres long. MSC sites are specific places within these locations that meet the requirements for a MSC vehicle to be able to operate there.

This audit assessed whether the mobile speed camera program is effectively managed to maximise road safety benefits across the NSW road network.

Conclusion

The mobile speed camera program requires improvements to key aspects of its management to maximise road safety benefits. While camera locations have been selected based on crash history, the limited number of locations restricts network coverage. It also makes enforcement more predictable, reducing the ability to provide a general deterrence. Implementation of the program has been consistent with government decisions to limit its hours of operation and use multiple warning signs. These factors limit the ability of the mobile speed camera program to effectively deliver a broad general network deterrence from speeding.

Many locations are needed to enable network-wide coverage and ensure MSC sessions are randomised and not predictable. However, there are insufficient locations available to operate MSCs that meet strict criteria for crash history, operator safety, signage and technical requirements. MSC performance would be improved if there were more locations.

A scheduling system is meant to randomise MSC location visits to ensure they are not predictable. However, a relatively small number of locations have been visited many times making their deployment more predictable in these places. The allocation of MSCs across the time of day, day of week and across regions is prioritised based on crash history but the frequency of location visits does not correspond with the crash risk for each location.

There is evidence of a reduction in fatal and serious crashes at the 30 best-performing MSC locations. However, there is limited evidence that the current MSC program in NSW has led to a behavioural change in drivers by creating a general network deterrence. While the overall reduction in serious injuries on roads has continued, fatalities have started to climb again. Compliance with speed limits has improved at the sites and locations that MSCs operate, but the results of overall network speed surveys vary, with recent improvements in some speed zones but not others.
There is no supporting justification for the number of hours of operation for the program. The rate of MSC enforcement (hours per capita) in NSW is less than Queensland and Victoria. The government decision to use multiple warning signs has made it harder to identify and maintain suitable MSC locations, and impeded their use for enforcement in both traffic directions and in school zones. 

Appendix one - Response from agency

Appendix two - About the audit

Appendix three - Performance auditing

 

Parliamentary reference - Report number #308 - released 18 October 2018

Published

Actions for Procurement and reporting of consultancy services

Procurement and reporting of consultancy services

Finance
Education
Community Services
Industry
Justice
Planning
Premier and Cabinet
Health
Treasury
Transport
Environment
Information technology

Agencies need to improve their compliance with requirements governing the procurement of consultancy services. These requirements help agencies access procurement savings. Also, some agencies have under-reported consultancy fees in their annual reports for the 2016-17 financial year, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford. The report examined twelve agencies' compliance with procurement and reporting obligations for consultancy services. It notes that it is difficult to quantify total government expenditure on consultants as agencies define ‘consultants’ differently.

NSW Government agencies engage consultants to provide professional advice to inform their decision‑making. The spend on consultants is measured and reported in different ways for different purposes and the absence of a consistently applied definition makes quantification difficult.

The NSW Government’s procurement principles aim to help agencies obtain value for money and be fair, ethical and transparent in their procurement activities. All NSW Government agencies, with the exception of State Owned Corporations, must comply with the NSW Procurement Board’s Direction when engaging suppliers of business advisory services. Business advisory services include consultancy services. NSW Government agencies must disclose certain information about their use of consultants in their annual reports. The table below illustrates the detailed procurement and reporting requirements.

  Relevant guidance Requirements
Procurement of consultancy services PBD 2015 04 Engagement of major suppliers of consultancy and other services (the Direction) including the Standard Commercial Framework
(revised on 31 January 2018, shortly before it was superseded by 'PBD 2018 01')
 
Required agencies to seek the Agency Head or Chief Financial Officer's approval for engagements over $50,000 and report the engagements in the Major Suppliers' Portal (the Portal). 
  PBD 2018 01 Engagement of professional services suppliers
(replaced 'PBD 2015 04' in May 2018)
Requires agencies to seek the Agency Head or Chief Financial Officer's approval for engagements that depart from the Standard Commercial Framework and report the engagements in the Portal. Exhibit 3 in the report includes the key requirements of these three Directions.
 
Reporting of consultancy expenditure Annual Reports (Departments) Regulation 2015 and Annual Reports (Statutory Bodies) Regulation 2015 Requires agencies to disclose, in their annual reports, details of consultants engaged in a reporting year.
  Premier's Memorandum 
'M2002 07 Engagement and Use of Consultants'
 
Outlines additional reporting requirements for agencies to describe the nature and purpose of consultancies in their annual reports.

We examined how 12 agencies complied with their procurement and reporting obligations for consultancy services between 1 July 2016 and 31 March 2018. Participating agencies are listed in Appendix two. We also examined how NSW Procurement supports the functions of the NSW Procurement Board within the Department of Finance, Services and Innovation.

This audit assessed:

  • agency compliance with relevant procurement requirements for their use of consultants
  • agency compliance with disclosure requirements about consultancy expenditure in their annual reports 
  • the effectiveness of the NSW Procurement Board (the Board) in fulfilling its functions to oversee and support agency procurement of consultancy services. 
Conclusion
No participating agency materially complied with procurement requirements when engaging consultancy services. Eight participating agencies under reported consultant fees in their annual reports. The NSW Procurement Board is not fully effective in overseeing and supporting agencies' procurement of consultancy services.
All 12 agencies that we examined did not materially comply with the NSW Procurement Board Direction for the use of consultants between 1 July 2016 and 31 March 2018. 
Eight agencies did not comply with annual reporting requirements in the 2016–17 financial reporting year. Three agencies did not report expenditure on consultants that had been capitalised as part of asset costs, and one agency did not disclose consultancy fees incurred by its subsidiaries. Agencies also defined ‘consultants’ inconsistently.
The NSW Procurement Board's Direction was revised in January 2018, and mandates the use of the Standard Commercial Framework. The Direction aims to drive value for money, reduce administrative costs and simplify the procurement process. In practice, agencies found the Framework challenging to use. To better achieve the Direction’s intent, the Board needs to simplify procurement and compliance processes. 
The Board is yet to publish any statistics or analysis of agencies’ procurement of business advisory services due to issues with the quality of data and systems limitations. Also, the Board’s oversight of agency and supplier compliance with the Framework is limited as it relies on self reporting, and the information provided is insufficient to properly monitor compliance. NSW Procurement is yet to develop an effective procurement and business intelligence system for use by government agencies. Better procurement support, benefit realisation monitoring and reporting by NSW Procurement will help promote value for money in the engagement of consultants.

Published

Actions for Managing risks in the NSW public sector: risk culture and capability

Managing risks in the NSW public sector: risk culture and capability

Finance
Health
Justice
Treasury
Internal controls and governance
Management and administration
Risk
Workforce 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.

Conclusion
All four agencies examined in the audit are taking steps to strengthen their risk culture. In these agencies, senior management communicates the importance of managing risk to their staff. They have risk management policies and funded central functions to oversee risk management. We also found many examples of risk management being integrated into daily activities.
That said, three of the four case study agencies could do more to understand their existing risk culture. As good practice, agencies should monitor their employees’ attitude to risk. Without a clear understanding of how employees identify and engage with risk, it is difficult to tell whether the 'tone' set by the executive and management is aligned with employee behaviours.
Our survey of risk culture found that three agencies could strengthen a culture of open communication, 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.
Some agencies are performing better than others in building their risk capabilities. Three case study agencies have reviewed the risk-related skills and knowledge of their workforce, but only one agency has addressed the gaps the review identified. In three agencies, staff also need more practical guidance on how to manage risks that are relevant to their day-to-day responsibilities.
NSW Treasury provides agencies with direction and guidance on risk management through policy and guidelines. Its principles-based approach to risk management is consistent with better practice. Nevertheless, there is scope for NSW Treasury to develop additional practical guidance and tools to support a better risk culture in the NSW public sector. NSW Treasury should encourage 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. 

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.

Published

Actions for Volume Eight 2012 focusing on Transport and Ports

Volume Eight 2012 focusing on Transport and Ports

Transport
Industry
Compliance
Financial reporting
Fraud
Information technology
Infrastructure
Management and administration
Procurement
Project management
Regulation
Risk
Workforce and capability

We issued unqualified audit opinions on the transport entities’ 30 June 2012 financial statements.

Some of the findings of the report include:

  • government funding to the public transport operators totalled $4.4 billion in 2011-12 ($3.7 billion in 2010-11)

  • passenger services revenue only covered 20 per cent of RailCorp's operating costs

  • Transport for NSW has formalised a protocol to mitigate the risk of potential conflicts of interests

  • At present, no sustainability framework exists for the transport agencies around environment and sustainability. Transport for NSW should complete its Environment and Sustainability Policy Framework by June 2013 and should publicly report its results annually

  • Transport patronage continued to grow with 510 million journeys on train, bus and ferry services

  • CityRail had two peak hour periods where only 36 per cent and 39 per cent of services were on time

  • On-time running performance for Sydney Ferries was above the NSW 2021 plan target of 98.5 per cent for most routes in 2011-12

  • Customer surveys by transport agencies no longer specifically address crowding on public transport. Transport for NSW should observe and report on crowding on all transport modes

  • Over 2,500 transport staff, or 8.3 per cent of the workforce, have excessive leave balances. All transport entities should do more to reduce excessive annual leave balances to ensure they will comply with new targets set by the Premier.

 

Published

Actions for Volume Seven 2012 focusing on Law, Order and Emergency Services

Volume Seven 2012 focusing on Law, Order and Emergency Services

Justice
Compliance
Fraud
Internal controls and governance
Management and administration
Procurement
Project management
Workforce and capability

Since the Victims’ Compensation Scheme started in 1989, $1.6 billion has been paid to victims of crime, but only $57.4 million or nearly four per cent has been recovered from convicted offenders. The remaining 96 per cent has been funded by the taxpayer.

Published

Actions for Volume Five 2012 focusing on superannuation, compensation and housing

Volume Five 2012 focusing on superannuation, compensation and housing

Finance
Treasury
Premier and Cabinet
Community Services
Asset valuation
Compliance
Financial reporting
Information technology
Internal controls and governance
Procurement
Regulation

The NSW Government’s defined benefit superannuation funds have had positive returns for the last three years. However, the returns fell significantly in 2011-12. Global economic conditions led to substantial volatility and uncertainty in markets creating challenges for superannuation funds’ trustees.