The Auditor-General for New South Wales, Margaret Crawford, released a report today examining the effectiveness of Service NSW’s handling of customers’ personal information to ensure its privacy.

The audit found that Service NSW is not effectively handling personal customer and business information to ensure its privacy. Service NSW continues to use business processes that pose a risk to the privacy of personal information. This includes the routine emailing of personal information between Service NSW service centres and other agencies, which is one of the processes that contributed to the data breach earlier this year. The audit found that previously identified risks and recommended solutions had not been implemented on a timely basis.

The Auditor-General made eight recommendations aimed at ensuring improved processes, technologies, and governance arrangements for how Service NSW handles customers’ personal information.

The Hon. Victor Dominello, MP, Minister for Customer Service, requested this audit under section 27(B)(3)(c) of the Public Finance and Audit Act 1983 following public reports in May 2020 of a cyber security attack which had led to a breach of Service NSW customer information. This audit also included the Department of Customer Service which supports Service NSW with privacy, risk and governance functions.

Service NSW was established in 2013 with the intention that it would, over time, 'become the primary interaction point for customers accessing New South Wales Government transaction services'.

Service NSW's functions are set out in the Service NSW (One stop Access to Government Services) Act 2013. This legislation allows for other NSW Government agencies to delegate to and enter into agreements with the Chief Executive Officer of Service NSW in order for Service NSW to undertake service functions for the agency.

Service NSW now has agreements with 36 NSW Government client agencies to facilitate over 1,200 types of interactions and transactions for the community.

The nature of each agreement between Service NSW and its client agencies varies. Some client agencies have delegated authority to allow Service NSW staff to conduct transactions on their behalf in the agencies' systems. Other arrangements do not include the same degree of delegation. In these cases, Service NSW provides services such as responding to enquiries and validating documents.

In addition, Service NSW conducts transactions for its own programs, such as the Seniors Card. Personal information for these programs, as well as information for customers' MyServiceNSW accounts, are stored by Service NSW on its Salesforce Customer Relationship Management (CRM) system.

In March 2020, Service NSW suffered two cyber security attacks in short succession. Technical analysis undertaken by the Department of Customer Service (DCS) concluded that these attacks resulted from a phishing exercise through which external threat actors gained access to the email accounts of 47 staff members. These attacks resulted in the breach of a large amount of personal customer information that was contained in these email accounts. See Section 1.1 for further details.

This audit is being conducted in response to a request from the Hon. Victor Dominello, Minister for Customer Service, under section 27B(3)(c) of the Public Finance and Audit Act 1983. Minister Dominello requested that the Auditor General conduct a performance audit in relation to Service NSW's handling of sensitive customer and business information.

This audit assessed how effectively Service NSW handles personal customer and business information to ensure its privacy.

It addressed the following:

• Does Service NSW have processes and governance in place to identify and manage risks to the privacy of personal customer and business information?
• Does Service NSW have policies, processes and systems in place that support the effective handling of personal customer and business information to ensure its privacy?
• Has Service NSW effectively implemented its policies, processes and systems for managing personal customer and business information?

1. Key findings

Service NSW identifies privacy risks, but the controls and processes it put in place to mitigate these privacy risks were not adequate to prevent or limit the extent of the data breach that occurred in March 2020

Service NSW’s approach to risk management is framed by its Risk Management Guideline, which defines 'privacy and compliance' as one of the key types of risk for the agency. Service NSW's enterprise risk register identifies four strategic privacy related risks. Service NSW has set out a zero level appetite for privacy risk in its risk appetite statement.

Service NSW has assessed the adequacy of its controls for privacy risks as needing improvement. To be fully effective, the Risk Management Guideline says that these controls should have a focus that is ‘largely preventative and address the root causes’.

One of the business processes that was a key contributing factor to the data breach was the emailing of personal information by Service NSW staff to client agencies.

This process had been identified as a risk prior to the breach and some steps had been put in place to mitigate the risk. In particular, staff were required to manually delete emails that contained personal information. However, these measures were ineffective in preventing the breach, as the external threat actors still gained access to 47 staff email accounts that contained a large amount of personal information.

It is unclear why Service NSW did not effectively mitigate this risk prior to the breaches. However, Service NSW has advised that it implemented measures in June and October 2020 to automatically archive emails likely to contain personal information. This is expected to limit the quantity of information retained in email accounts for extended periods.

Service NSW has not put in place any technical or other solutions to avoid Service NSW staff having to scan and email personal information to some client agencies. Urgent action is needed to remove the requirement for staff to email personal information to client agencies, thereby mitigating the risk inherent in sending and storing this information using email.

There are weaknesses in the general IT and security controls implemented by Service NSW over its Salesforce CRM system, which holds the personal information of over four million customers

There are weaknesses in the general IT and security controls implemented by Service NSW over its Salesforce CRM system. These weaknesses include deficiencies in governance of role based access, monitoring and audit of staff access, and partitioning of program specific transaction information. These deficiencies create an increased risk of unauthorised access to the personal information of over four million customers which is stored in this system.

In addition, there is an absence of important controls to safeguard customers' privacy, such as multi factor authentication and reviewable logs of access history to their information. Such controls, when properly implemented, would enhance the control that customers are able to exercise over their personal information.

A privacy impact assessment conducted on Service NSW’s Salesforce CRM system in 2015 recommended that the system include the ability for customers to review access history to their personal information, as well as the option for customers to apply multi factor authentication to their accounts. While both these recommendations appeared positively received by Service NSW, neither have been implemented.

Since its inception, Service NSW’s use of Salesforce has extended to storing transaction data, particularly for transactions for which Service NSW is responsible, such as the Seniors Card. It also holds details of over four million MyServiceNSW account holders, including name, email address and phone number, and optional address details. It was not originally intended for the system to hold this volume and nature of customer information.

Lines of responsibility for meeting privacy obligations are unclear between Service NSW and its client agencies

Service NSW's privacy management plan does not clearly set out the privacy obligations of Service NSW and its client agencies. It sets out that 'compliance with the privacy principles will primarily be the responsibility of that [client] agency'. However, Service NSW has its own obligations under the security principles of the Privacy and Personal Information Protection Act 1998 (PPIP Act) to take reasonable steps to prevent unauthorised access to personal information, which is not made clear in the privacy management plan.

The agreements between Service NSW and client agencies reviewed for this audit only include general and high level references to privacy. Most do not include details of each parties' privacy responsibilities such as: which agency will provide the customer with a privacy notice explaining how their personal information will be handled, how personal information will be kept secure, how long Service NSW will retain information, what processes will be followed for internal reviews, and what specific planning is in place to respond to data breaches.

Service NSW's privacy management plan has not been updated to include new programs and governance changes

Service NSW's privacy management plan includes most of the matters required by law or good practice, with some exceptions. It does not explain any exemptions that the agency commonly relies on under the PPIP Act and does not address any health information that Service NSW may handle. It had also not been updated to reflect governance changes and the fact that, at the time this audit commenced, Service NSW was disclosing the content of internal review applications (the formal expression for 'complaints') to the Department of Customer Service (DCS). These governance changes were part of the centralisation of Service NSW's corporate support functions into DCS in late 2019, though internal review staff were seconded back into Service NSW during the course of this audit.

The current July 2019 privacy management plan has also not been updated since the rollout of a number of major new initiatives in 2020. These include 2019–20 bushfire emergency recovery initiatives (such as small business grants) and COVID 19 pandemic response initiatives (such as small business grants, border permits and the COVID safe check in app).

Service NSW routinely conducts privacy impact assessments for new initiatives, though privacy risks remain in legacy systems and processes

Service NSW routinely conducts privacy impact assessments for major new initiatives and the assessments reviewed for this audit largely accorded with good practice guidance.

Service NSW does not routinely review existing processes and systems to ensure that they are effective in ensuring the privacy of customer personal information. Business processes that create the highest risk to privacy, such as emailing of personal information, are more common in these longstanding legacy systems.

Service NSW's significant and rapid growth has outpaced the establishment of a robust control environment which has exacerbated privacy risks

Since it was established in 2013, Service NSW has experienced significant growth in the number and diversity of the types of transactions it provides, as well as the number of client agencies with which it works. The pace and extent of this growth has contributed to important controls not being properly implemented on a timely basis, which has heightened privacy risks, particularly in regard to existing, legacy systems and processes.

The pace of change and increasing demand for new program implementation has limited the opportunity for Service NSW, in collaboration with its client agencies, to revisit and redesign legacy business practices which pose a greater privacy risk. This includes the scanning and emailing of personal information.

While 2019–20 has seen additional demands placed on Service NSW in responding to the 2019–20 bushfire emergency and COVID 19 pandemic, it is the nature of the agency’s work that it operates in a fast paced and complex environment, where it is required to respond to multiple client agencies and stakeholders. Ensuring customer privacy should be integral to Service NSW’s business as usual operations.

2. Recommendations

Service NSW commissioned a number of external reviews and investigations stemming from the data breaches. The Auditor General's recommendations below have taken these other reviews into account. In order to offer assurance that it is appropriately protecting the privacy of its customers, Service NSW should address the full breadth of findings and recommendations made across all relevant reviews.

As a matter of urgency, Service NSW should:

1. in consultation with relevant client agencies and the Department of Customer Service, implement a solution for a secure method of transferring personal information between Service NSW and client agencies

2. review the need to store scanned copies of personal information and, if still required, implement a more secure method of storing this information and regular deletion of material.

By March 2021, Service NSW should:

3. ensure that all new agreements entered into with client agencies from 1 April 2021 address the deficiencies identified in this audit, including that they provide clarity on:

• the content and provision of privacy collection notices
• the terms by which personal information will be retained, stored, archived, and disposed of when no longer required
• steps that will be taken by each agency to ensure that personal information is kept secure
• the circumstances in which, and processes by which, applications for internal review will be referred by one agency to the other
• how identified breaches of privacy will be handled between agencies

4. in collaboration with the Department of Customer Service, review its privacy management plan to address the deficiencies raised in this audit, including:

• to clarify Service NSW's understanding of how responsibility for meeting privacy obligations are delineated between Service NSW and client agencies
• to better reflect the full scope and complexity of personal information handled by Service NSW
• to better explain how applications for internal review are handled between Service NSW and the Department of Customer Service
• to ensure regular ongoing review, either according to a schedule or when Service NSW experiences substantial change to its programs and handling of personal information

5. in consultation with the Department of Customer Service, review its policies and processes for the management of privacy risks, including to:

• ensure that there are appropriate mechanisms to escalate identified privacy risks from business units to the Executive Leadership Team
• ensure that there are action plans to address strategic privacy risks that are assessed as having ineffective controls.

By June 2021, Service NSW should:

6. address deficiencies in the controls over, and security for, its Salesforce customer relationship management and related systems that hold customer personal information, including:

• establish policies and processes for regular access reviews and monitoring of user activity in these systems, including for privileged users
• enable partitioning and role based access restrictions to personal information collected for different programs
• provide customers the choice to use multi factor authentication to further secure their MyServiceNSW accounts
• enable customers to view the transaction history of their personal information to detect possible mishandling.

By December 2021, Service NSW should:

7. ensure that all existing agreements with client agencies address the deficiencies identified in this audit, including that they provide clarity on:

• the content and provision of privacy collection notices
• the terms by which personal information will be retained, stored, archived, and disposed of when no longer required
• steps that will be taken by each agency to ensure that personal information is kept secure
• the circumstances in which, and processes by which, applications for internal review will be referred by one agency to the other
• how identified breaches of privacy will be handled between agencies

8. carry out a risk assessment of all processes, systems and transactions that involve the handling of personal information and undertake a privacy impact assessment for those that:

• are identified as high risk and have not previously had a privacy impact assessment
• have had major changes or updates since the privacy impact assessment was completed.

Appendix one – Responses from agencies

Appendix two – About the audit

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The Auditor-General for New South Wales, Margaret Crawford, released a report today reviewing the additional entitlements claimed by Members of the New South Wales Parliament (Members) under the Parliamentary Remuneration Tribunal’s Determination (the Determination).

The Auditor-General found three material instances of Member non-compliance with the Determination. The Department of Parliamentary Services has subsequently requested the three Members repay amounts incorrectly claimed.

The report also acknowledges that the Department has worked with the Tribunal to address two of the three recommendations made in the 2019 Auditor-General’s review. These are now reflected in the 2020 Determination. The Department expects to address the third recommendation in the 2021 Determination.

The Auditor General has reviewed the compliance of the Members of the NSW Parliament (Members) with certain requirements outlined in the Parliamentary Remuneration Tribunal's Determination (the Determination) for the year ended 30 June 2020.

The Auditor General's review of Members' compliance with the Determination analyses claims made by Members during the 2019–20 financial year by testing a sample of transactions. Our sample included 66 claims submitted by 43 of the 136 Members.

Results

Our review identified three instances of material non compliance with the Determination for the year ended 30 June 2020:

• one Member claimed the General Travel Allowance for the full cost of a charter flight used to both attend a family event and perform the Member's parliamentary duties instead of estimating and claiming only the cost related to the Member's parliamentary duties
• one Member claimed the Communications Allowance for the same expenditure twice
• one Member elected to repay the allowance claimed in lieu of providing evidence to support their claims. The Member claimed the Sydney Daily Allowance and advised that they did not have records to support that the purpose of the travel related to their parliamentary duties.

The Determination requires Members to maintain appropriate records of expenditure for the purpose of any audit or assurance engagements. Repeated reviews have identified Members who elect to repay the allowances claimed in lieu of providing supporting documents. Justifying a claim for an allowance with supporting documents should not rely on the Auditor-General's review. Last year, we recommended the Department of Parliamentary Services (the Department) work with the Tribunal to provide additional guidance to Members to clarify the definition of parliamentary duties, the activities that meet the definition and the requirements for retaining documents. The recommendation is currently being considered by the Department.

Our review also identified 22 other departures from the administrative requirements of the Determination:

• two Members did not make the required authorisations and attributions on a publication to claim the expenditure from the Communications Allowance
• seven reconciliations for the Sydney Allowance were submitted after the due date
• 13 Members' claims were not submitted to the Department for payment within 60 days of receipt or occurrence of the expense.

Our audit procedures identified three other departures from the Department's administrative guidelines, which support the application of the Determination. Three Members submitted their annual loyalty scheme declarations after the due date specified in the guidelines (31 July 2020). The Declaration is important because it affirms that loyalty scheme benefits accrued using the Member's parliamentary allowances and entitlements were not used for private purposes.

Background

The Parliamentary Remuneration Tribunal (the Tribunal) determines the salary and additional entitlements of Members of NSW Parliament (Members), which are set out in the Tribunal's annual Determination

Appendix one – Response from Department of Parliamentary Service

This report analyses the results of our audits of financial statements of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

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

• financial reporting
• audit observations
• the impact of emergencies and the pandemic.

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.

The COVID‑19 Legislation Amendment (Emergency Measures–Treasurer) Act 2020 amended legislation administered by the Treasurer to implement further emergency measures as a result of the COVID‑19 pandemic. These amendments:

• allowed the Treasurer to authorise payments from the Consolidated fund until the enactment of the 2020–21 budget – impacting the going concern assessments of cluster agencies
• revised budgetary, financial and annual reporting time frames – impacting the timeliness of financial reporting
• exempted certain statutory bodies and departments from preparing financial statements.

This chapter outlines our audit observations related to the financial reporting of agencies in the Planning, Industry and Environment cluster for 2020, including any financial implications from the recent emergency events.

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 statements audits of agencies in the Planning, Industry and Environment cluster
• assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies
• review of how the cluster agencies managed the increased risks associated with new programs aimed at stemming the spread of COVID-19 and stimulating the economy.

Cluster agencies experienced a range of control and governance related issues in recent years. An increased number of high risk issues and greater proportion of repeat issues were identified as part of our audits. It is important for cluster agencies to promptly address these issues.

Appendix one – List of 2020 recommendations

Appendix two – Status of 2019 recommendations

Appendix three – Financial data

Appendix four – Management letter findings

Appendix five – Timeliness of financial reporting

Appendix six – Selected agencies for review of response to emergency events

The Auditor-General for New South Wales, Margaret Crawford today released her report on the findings and recommendations from the 2019–20 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector.

The bushfire and flood emergencies and the COVID‑19 pandemic continue to have a significant impact on the people and public sector of New South Wales. The scale of the government response to these events has been significant. The report focuses on the effectiveness of internal controls and governance processes, including relevant agencies’ response to the emergencies. In particular, the report focuses on:

• financial and information technology controls
• business continuity and disaster recovery planning arrangements
• procurement, including emergency procurement
• delegations that support timely and effective decision-making.

Due to the ongoing impact of COVID‑19 agencies have not yet returned to a business‑as‑usual environment. ‘Agencies will need to assess their response to the recent emergencies and update their business continuity, disaster recovery and other business resilience frameworks to reflect the lessons learnt from these events’ the Auditor-General said.

The report noted that special procurement provisions were put in place to allow agencies to better respond to the COVID-19 pandemic. The Auditor-General recommended agencies update their procurement policies to reflect the current requirements of the NSW Procurement Framework and the emergency procurement requirements.

Read the PDF report

This report analyses the internal controls and governance of 40 of the largest agencies in the NSW public sector for the year ended 30 June 2020. These 40 agencies constitute an estimated 85 per cent of total expenditure for all NSW public sector agencies.

1. Internal control trends

2. Information technology controls

3. Business continuity and disaster recovery planning

4. Procurement, including emergency procurement

5. Delegations

6. Status of 2019 recommendations

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 audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies we found across agencies. The rest of this report presents this year’s controls and governance findings in more detail.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to manage key financial systems.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency business continuity and disaster recovery planning arrangements.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of procurement agency procurement policies and procurement activity.

This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency compliance with financial and human resources delegations.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations

Appendix three – Cluster agencies

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The Auditor-General for New South Wales, Margaret Crawford, released a report today on how well four councils managed their local infrastructure contributions during the 2017-18 and 2018-19 financial years. 

Local infrastructure contributions, also known as developer contributions, are collected from developers to pay for local infrastructure such as drainage, local roads, open space and community facilities. Controls over local infrastructure contributions help to ensure that all contributions owed are collected, funds are spent as intended, and any contributions paid in the form of works-in-kind or dedicated land are correctly valued.

The audit found that Blacktown City Council and City of Sydney Council provided effective governance over their local infrastructure contributions whereas Central Coast and Liverpool City Councils’ governance arrangements require improvement.

The audit found that three councils had spent local infrastructure contributions in accordance with approved contributions plans. Central Coast Council and the former Gosford City Council had spent $13.2 million on administration costs in breach of the Environmental Planning and Assessment Act 1979. These funds were repaid into the council’s local infrastructure fund during the course of the audit.

The Auditor-General made a number of recommendations for each council relating to improving controls over contributions and increasing transparency. 

Read full report (PDF)
 

This audit examined the effectiveness of governance and internal controls over local infrastructure contributions, also known as developer contributions, held by four councils during the 2017–18 and 2018–19 financial years.

This performance audit was conducted with reference to the legislative and regulatory planning framework that was in place during that period.

Our work for this performance audit was completed at the end of March 2020 when we issued the final report to the four audited councils and the Department of Planning, Industry and Environment. We received their respective formal responses to the report’s recommendations during April and May 2020.

Concurrently to this audit, we sought Crown Solicitor’s advice (the ‘Advice’) regarding the use of local infrastructure contributions collected by local councils under the Environmental Planning and Assessment Act 1979 (‘the EPA Act’) for our financial audit work. The Advice clarified the applicable legislative requirements with reference to the application, investment and pooling of local infrastructure contributions. The Advice is included in Appendix 2 of this report. The Advice has not impacted on the findings and recommendations of this report.

Councils collect Local Infrastructure Contributions (LICs) from developers under the Environmental Planning and Assessment Act (1979), the Local Government Act (1993) and the City of Sydney Act (2000) (EP&A Act, LG Act and City of Sydney Act) to fund infrastructure required to service and support new development. At 30 June 2018, councils across NSW collectively held more than $3.0 billion in LICs collected from developers. Just over $1.37 billion in total was held by ten councils. Councils collecting LICs must prepare a contributions plan, which outlines how LICs will be calculated and apportioned across different types of infrastructure. Councils that deliver water and sewer services prepare a development servicing plan (DSP) which allows them to collect contributions for water and sewer infrastructure.

Development timeframes are such that there is often several years between when LICs are collected and the infrastructure is required. Good governance and internal controls are needed over these funds to ensure they are available when needed and spent appropriately.

This audit assessed the effectiveness of governance and internal controls over LICs collected by four councils during the 2017–18 and 2018–19 financial years: Blacktown City Council, Central Coast Council, City of Sydney Council and Liverpool City Council. As at June 2018 these councils held the four highest LIC balances, each in excess of $140 million.

A strong governance framework is important at each council to ensure that the funds are managed well, available when needed and spent as intended. The audit examined the following features of each council's governance framework as they apply to LICs:

• decision-making by councillors and council officers relating to LICs
• monitoring delivery of contributions plans and DSPs including:
  • reviewing assumptions underlying the plans
  • monitoring projected status of plans.

Internal controls over LICs are important to promote accountability, prevent fraud and deliver infrastructure to the required standard at the best possible price. If financial controls are weak or are not implemented well, there is a risk that LICs are misspent or that councils pay too much for infrastructure.

Not all councils' internal controls adequately addressed risks associated with the administration of LICs

The audit examined a number of internal controls that manage risks related to LICs. These included:

• financial controls over receipt and expenditure of LIC funds
• management of conflicts-of-interest when dealing with developers
• independent valuations of works-in-kind and dedicated land
• ensuring delivery and quality of works-in-kind, and obtaining security from developers in the event of non-delivery or poor quality work
• management of variations to VPAs and works-in-kind agreements.

We reviewed controls included in policies and procedures and then checked samples of work to ensure that controls were implemented. We found variation in the controls that councils implemented, and some weaknesses in controls. It is a matter for each council to assess their financial risk and develop internal controls that support the collection, management, and expenditure of LICs. However, councils must be able to assure their communities and developers that they are doing everything possible to collect all LICs owing and that work conducted by developers in lieu of cash payments is properly valued and carried out to the required standard.

Further information about audit findings in relation to internal controls for each council are included in chapters five to eight. The exhibit below demonstrates variation in several controls implemented in the audited councils.

In a 2018 report, the Independent Commission Against Corruption noted that 'the appetite for transparency is expanding in both the public and private sectors'.

The Practice Note and S64 Guidance refer to transparency, including the importance of transparency over:

• calculation and apportionment of LICs
• funding of infrastructure, including where and when infrastructure is delivered
• arrangements made with developers through VPAs.

The LIC system is largely transparent for community members who know where to look

Contributions plans and DSPs are public documents, exhibited to the public before being adopted by council. Councils included in the audit publish their contributions plans and DSPs on their websites and meet statutory requirements with regard to reporting and accessibility of information.

However, other public information relating to the LIC system is fragmented across different websites and reports and varies in detail across councils.

The Practice Note states that councils are accountable for providing the infrastructure for which contributions are collected. Demonstrating that infrastructure has been provided is difficult with fragmented information. As an example of transparent reporting, Blacktown City Council's 2018–19 annual report includes information about infrastructure that has been delivered for every contributions plan, providing transparency over how LICs have been spent.

Use of LICs collected under VPAs is not always transparent

Contributions collected under VPAs are not required to demonstrate the same relationship to a development as LICs collected under section 7.11 of the EP&A Act. VPAs are often negotiated because a developer requests a change to a planning instrument, and it is important that these arrangements, and their outcomes, are transparent to the community.

The EP&A Regulation includes mechanisms to ensure that VPAs are partially transparent. VPAs are exhibited to the public and approved by the elected council. Councils must maintain a VPA Register and make the VPA Deeds of Agreement available on request. However, there is no obligation on council to report on the outcomes or delivery of developers' obligations under VPAs. The four audited councils vary in transparency and accessibility of information available about VPAs.

The Practice Note suggests that councils incorporate the intended use of LICs collected under VPAs in the Deed of Agreement, but there is no guidance relating to transparency over where and when funds have actually been spent. There is merit in councils providing greater transparency over public benefits delivered through VPAs to give communities confidence in VPAs as a planning tool.

Credit arrangements with developers are not always well documented or monitored

When levying LICs, section 7.11(6) of the EP&A Act requires councils to take into account land, money, or works-in-kind that the developer has contributed on other development sites over and above their LIC obligations. This section of the EP&A Act allows a developer to offset a LIC owed on one site against land or works contributed on another. This leads to some developers carrying 'credits' for work delivered to councils, to be paid back by reduced LICs on a future development. Blacktown City Council and Central Coast Council allow developers to carry credits. Liverpool City Council and City of Sydney Council do not permit credits and instead pay the developers for any additional work undertaken.

Councils should formally document credit arrangements and have a robust process to validate and keep track of credit balances and report on them. Central Coast Council does not keep good track of credit arrangements and neither Blacktown City Council or Central Coast Council aggregate or report on outstanding credit balances.

Appendix one – Responses from councils and the Department of Planning, Industry and Environment

Appendix two – Advice from the Crown Solicitor

Appendix three – About the audit

Appendix four – Performance auditing

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Parliamentary reference - Report number #339 - released 17 August 2020

This report outlines whether the Department of Customer Service (the department) has effective controls in place to ensure the integrity of data in the Births, Deaths and Marriages Register (the register), and to prevent unauthorised access and misuse.

The audit found that the department has processes in place to ensure that the information entered in the register is accurate and that any changes to it are validated. Although there are controls in place to prevent and detect unauthorised access to, and activity in the register, there were significant gaps in these controls. Addressing these gaps is necessary to ensure the integrity of information in the register.

The Auditor-General made nine recommendations to the department, aimed at strengthening controls to prevent and detect unauthorised access to, and activity in the register. These included increased monitoring of individuals who have access to the register and strengthening security controls around the databases that contain the information in the register.

The NSW Registry of Births Deaths and Marriages is responsible for maintaining registers of births, deaths and marriages in New South Wales as well as registering adoptions, changes of names, changes of sex and relationships. Maintaining the integrity of this information is important as it is used to confirm people’s identity and unauthorised access to it can lead to fraud or identity theft.

Read full report (PDF)

The NSW Registry of Births Deaths and Marriages (BD&M) is responsible for maintaining registers of births, deaths and marriages in New South Wales. BD&M is also responsible for registering adoptions, changes of name, changes of sex and relationships. These records are collectively referred to as 'the Register'. The Births, Deaths and Marriages Registration Act 1995 (the BD&M Act) makes the Registrar (the head of BD&M) responsible for maintaining the integrity of the Register and preventing fraud associated with the Register. Maintaining the integrity of the information held in the Register is important as it is used to confirm people's identity. Unauthorised access to, or misuse of the information in the Register can lead to fraud or identity theft. For these reasons it is important that there are sufficient controls in place to protect the information.

BD&M staff access, add to and amend the Register through the LifeLink application. While BD&M is part of the Department of Customer Service, the Department of Communities and Justice (DCJ) manages the databases that contain the Register and sit behind LifeLink and is responsible for the security of these databases.

This audit assessed whether BD&M has effective controls in place to ensure the integrity of data in the Births, Deaths and Marriages Register, and to prevent unauthorised access and misuse. It addressed the following:

• Are relevant process and IT controls in place and effective to ensure the integrity of data in the Register and the authenticity of records and documents?
• Are security controls in place and effective to prevent unauthorised access to, and modification of, data in the Register?

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Copyright notice

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

Parliamentary reference - Report number #330 - released 7 April 2020.

The State Insurance Regulatory Authority’s (SIRA) ‘green slip refund’ campaign, and the TAFE semester one 2018 student recruitment campaign, complied with most requirements of the Government Advertising Act 2011 and the Government Advertising Guidelines, according to a report released today by the Auditor-General for New South Wales, Margaret Crawford.

The Government Advertising Act 2011 (the Act) requires the Auditor-General to conduct a performance audit on the activities of one or more government agencies in relation to government advertising campaigns in each financial year. The performance audit assesses whether a government agency or agencies has carried out activities in relation to government advertising in an effective, economical and efficient manner and in compliance with the Act, the regulations, other laws and the Government Advertising Guidelines (the Guidelines).

This audit examined two campaigns conducted in 2017–18:

• the 'Green slip refund' campaign run by the State Insurance Regulatory Authority (SIRA)
• the semester one component of the 'TAFE NSW 2018 Student Recruitment Annual Campaign Program' run by the NSW TAFE Commission (TAFE).

Section 6 of the Act prohibits political advertising. Under this section, material that is part of a government advertising campaign must not contain the name, voice or image of a minister, member of parliament or a candidate nominated for election to parliament or the name, logo or any slogan of a political party. Further, a campaign must not be designed to influence (directly or indirectly) support for a political party.

The State Insurance Regulatory Authority (SIRA) conducted the 'Green slip refund' campaign between March and June 2018. SIRA ran this campaign to raise awareness of the Compulsory Third Party (CTP) refunds and reforms after the Motor Accidents Injuries Act 2017 commenced in December 2017. SIRA's view is that the reforms include a reduced cost for CTP insurance, benefits for at-fault drivers, reduced opportunity for fraud and attempts to lower insurance company profits. Green slip holders are also able to claim partial refunds on their 2017 green slip insurance premium. The campaign aimed to make green slip holders aware of the refunds available, encourage them to claim online and to inform people about the changes to the green slip scheme. The campaign focused on the first two of these objectives. The total cost of the campaign was $1.9 million. See Appendix two for more details on this campaign.

Campaign materials we reviewed did not breach section 6 of the Act

Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:

• be designed to influence (directly or indirectly) support for a political party
• contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
• contain the name, logo, slogan or any other reference to a political party.

The audit team found no breaches of section 6 of the Act in the campaign material we reviewed.
 
Before the start of the campaign, SIRA conducted a survey which asked people whether they agreed ‘that the NSW Government is helping to reduce the cost of living by making positive reforms to:

• reduce the cost of green slips
• reduce the cost of health insurance
• increase the number of jobs
• increase investment in the state.'

SIRA's initial submission to peer review listed one of the campaign objectives as improving the perception of the government as a positive reformer. DPC advised SIRA that this should not be included. SIRA removed this objective.

Even though SIRA appropriately removed this objective, the post-campaign evaluation still measured agreement with the above statements, three of which did not relate to this campaign or SIRA's responsibilities. SIRA advised that these three additional statements were included to provide a broader context for any change in the green slip campaign survey results. For example, if all four measures reported an increase in positive responses of roughly the same size, then the increase may have been due to factors other than the advertising campaign.

This is not an appropriate use of the post-campaign evaluation, which should measure the success of the campaign against its stated objectives. The Guidelines list the purposes that government advertising may serve and none of these relate to improving the perception of the government. The inclusion of the above questions in SIRA's post-campaign evaluation creates a risk that the results may be used for party political purposes.

The campaign met most targets, however some were not challenging to achieve

The post-campaign evaluation demonstrated that the campaign met the targets for 12 of its 13 objectives including the targets relating to raising awareness of the refunds and the proportion of people claiming their refunds online. A fourteenth objective, the percentage of people aware that they should contact SIRA after a road accident injury, did not have a target set, meaning that it is not possible to say whether the campaign had the desired impact in this case.

In August 2017, before the campaign commenced, SIRA conducted a survey to determine the baselines for some of its objectives. This is a good practice to support an effective post campaign evaluation process. The survey found that 20 per cent of people were aware of the green slip reforms. SIRA's objective was to raise this to 25 per cent, which represents a small gain relative to the proposed campaign expenditure. The campaign aimed for 40 per cent of motorists to be aware of refunds, which is very low given that this was the primary focus of the campaign. SIRA followed the advice of its survey provider when setting these targets. 

In the survey carried out after the campaign, 66 per cent of people were aware of the availability of green slip refunds for most motorists. The campaign also aimed to get 83 per cent of motorists to claim their refunds via online channels. It met this target, with a total of 84 per cent. Finally, 62 per cent of people in the post-campaign survey were aware of the green slip reforms. This result is discussed further below.

The overall target for total number of refunds claimed is 85 per cent of eligible drivers, that is to say CTP holders. SIRA will evaluate the results of this objective after the conclusion of the refund period in June 2019.

The campaign did little to inform the public about the broader green slip reforms

One objective of the green slip refund campaign was to inform the public about the green slip reforms. The final campaign creative material focused almost entirely on the green slip refunds rather than the range of other reforms. This was because the peer review raised concerns that the creative material was attempting to deliver too many messages. 
 
The campaign submission stated that the advertising campaign would raise awareness of the broader reforms to the CTP scheme, citing several examples such as reduced opportunities for fraud and reduced insurer profits. SIRA also advised the Minister for Finance, Services and Property that secondary messaging in the campaign would benefit public understanding of the reforms.

Some of the television and radio advertisements referred to ‘more protection’ or ‘better protection’ for people injured on New South Wales roads, however advertisements did not refer to other elements of the reforms. Other campaign creative materials contained messages solely relating to the green slip refund and made no further reference to the broader reforms. SIRA used other communication channels, such as giving wallet cards to health service providers, to spread these messages to people, particularly those who had been injured.

Sixty two per cent of people in the post-campaign survey were aware of the green slip reforms. SIRA asked these people which benefits they associated with the reforms. The results of this survey are in Exhibit 4. Seventy-one per cent of this sample identified the reduced costs of green slips as one of the changes, but awareness of other elements of the reforms remains low. Though 29 per cent of people perceive the reforms to make the green slip scheme ‘fairer’, no more than 15 per cent of people could list a specific benefit which did not relate to insurance prices.

Another campaign target was to ensure that people understood that they should contact SIRA in case of an injury. None of the campaign creative materials contained this information. SIRA did some limited work to inform the public about this through its social media channels. One of the pieces of creative material directed the reader to SIRA's website for further information on the reforms, which contained this information. During the campaign period, there was an increase in the number of calls received by SIRA's CTP Assist phone line. However, in the post-campaign evaluation, only two per cent of surveyed people identified that they should contact SIRA in case of an injury.

The media plan allowed sufficient time for cost-efficient media placement

During the peer review process, DPC provides advice to agencies about the time they should allow to ensure cost-efficient media placement. For example, DPC advise that agencies book television advertising six to 12 weeks in advance and that agencies book radio advertising two to eight weeks in advance.

SIRA allowed sufficient time between the completion of the peer review process and the commencement of the first advertising. SIRA signed the agreement with the approved Media Agency Services provider eight weeks before the campaign started, meaning that it could achieve cost-efficient media placement for all types of media used in this campaign.

SIRA directly negotiated with a single supplier, making it difficult to demonstrate value for money

SIRA directly negotiated with a single supplier to procure the campaign's creative material. A direct negotiation occurs when an agency negotiates with a proponent without first undergoing a competitive process. It is difficult to demonstrate value for money using direct negotiation due to the lack of competition. 

ICAC's 'Guidelines for managing risks in direct negotiations' (ICAC Guidelines) provide guidance on how to undertake direct negotiations. SIRA has a direct negotiation checklist that aligns to the ICAC Guidelines. The SIRA checklist advises that staff should confirm that existing New South Wales prequalification schemes cannot provide the procurement before undertaking a direct negotiation. SIRA did not do this.

To procure creative materials, agencies can access the Advertising and Digital Communication Services prequalification scheme (the prequalification scheme). Using the prequalification scheme allows agencies to quickly seek quotes from suppliers who have a demonstrated track record and expertise. While agencies are not required to use the prequalification scheme, the NSW Procurement Board advises that agencies should use prequalification schemes where they are available to promote competition. 

By using direct negotiation when the prequalification scheme was available, and by not seeking quotes from other suppliers, SIRA was acting in a way that reduced competition. This increases the risk that SIRA did not achieve value for money in its procurement of creative materials.

SIRA advised that it sought to ensure value for money by comparing the quote from its selected supplier with the amount spent on creative materials in other campaigns of similar size. SIRA did not document this analysis at the time or include it as part of the briefing note staff used to seek approval for undertaking direct negotiation. As a result, decision-makers were not fully informed when approving this engagement. 

SIRA reported in a briefing note that it engaged in direct negotiations because:

• it believed that the original timeframe did not allow for a competitive tender process
• the supplier had done previous work on a related campaign for SIRA
• the supplier provided sample work which received positive feedback from focus groups.

In July 2017, when peer review commenced, SIRA planned to launch the campaign in November 2017 to coincide with the beginning of the green slip reforms. SIRA believed that this timeframe was narrow enough to warrant entering direct negotiations. The ICAC Guidelines advise that a narrow timeframe is not a valid reason to enter into a direct negotiation. In late October 2017, the campaign launch was delayed until March 2018 to stagger the demand on the resources of Service NSW, which is administering the refund. 

The ICAC Guidelines also advise against re-appointing a supplier because it has performed previous work. Instead, agencies could consider previous experience as one of several factors when deciding between quotes. In cases where an agency asks a supplier to provide sample work, the ICAC Guidelines advise that agencies should request sample work from multiple potential suppliers to promote competition.

The campaign's cost benefit analysis complied with the Act and Guidelines 

The Act requires a cost benefit analysis (CBA) for any government advertising campaign likely to exceed $1.0 million in value. Section six of the Guidelines set out the requirements for a government advertising CBA. The campaign's CBA complied with the requirements of the Act and the Guidelines.

The campaign CBA could have demonstrated further cost effectiveness if it considered alternative media mixes as outlined in NSW Treasury's 'Cost Benefit Analysis Framework for Government Advertising and Information Campaigns'. This would also have been consistent with the Handbook.

The cluster Secretary signed the compliance certificate instead of the head of SIRA

The Act requires the head of the agency running the campaign to sign a compliance certificate. 

The Secretary of the Department of Finance, Services and Innovation, the cluster to which SIRA belongs, signed the campaign's compliance certificate. However, section 17(2) of the State Insurance and Care Governance Act 2015 states that SIRA is ‘for the purposes of any Act, a NSW Government agency.’ Given this, the Chief Executive of SIRA was responsible for signing the compliance certificate for this campaign.

This is a minor non-compliance with the Act because the Chief Executive had reviewed the campaign and recommended that the Secretary sign the compliance certificate.  

The NSW TAFE Commission (TAFE) ran the 'TAFE NSW 2018 Student Recruitment Annual Campaign Program' from November 2017 to September 2018. The aim of the campaign was to assist TAFE in achieving its 2018 student enrolment target by improving the perception of TAFE's brand and generating student enquiries. This is the first state-wide campaign run by TAFE operating under the One TAFE model. Previously, each TAFE Institute ran its own campaigns. The total budget of the campaign was $19.5 million. This audit examined only the semester one 2018 component of the campaign, which ran from November 2017 to April 2018 at a total cost of $9.5 million. See Appendix two for more details on this campaign.

The campaign materials we reviewed did not breach section 6 of the Act

Section 6 of the Act prohibits political advertising as part of a government advertising campaign. A government advertising campaign must not:

• be designed to influence (directly or indirectly) support for a political party
• contain the name, voice or image of a minister, a member of parliament or a candidate nominated for election to parliament
• contain the name, logo, slogan or any other reference to a political party.

The audit team found no breaches of section 6 of the Act in the campaign material we reviewed.

The campaign achieved 16 of 24 objectives, but did not reach its enrolment target

The campaign had 24 objectives which had a target for semester one. TAFE set these targets using a combination of previous experience, corporate objectives and brand surveys.

The overall objective of the combined semester one and two campaigns was to support TAFE achieving its 2018 total enrolment target of 549,636. TAFE's semester one target was 361,350, which it did not achieve. This indicates that the campaign was not fully effective.

The campaign achieved 11 of its 16 output objectives. The output targets related to TAFE's media placements and ability to reach an audience efficiently. TAFE tracked progress against many of the campaign's output objectives daily. TAFE altered its media channels throughout the campaign meaning that some of the output objectives were not met because TAFE decided to focus on alternative media channels. The campaign also achieved all seven of its outcome objectives. The outcome objectives related to changing the public perception of TAFE.

TAFE's initial media plan allowed for efficient media placement

During the peer review process, DPC provides advice to agencies about the time they should allow to ensure cost-efficient media placement. For example, DPC advise that agencies book television advertising six to 12 weeks in advance and that agencies book radio advertising two to eight weeks in advance. 

While TAFE's initial media plan allowed sufficient time between the approval of the campaign and its launch, a delay in receiving final approval for the campaign meant TAFE could not purchase media placements until two months later than planned. Most purchases still remained within DPC's recommended timeframes, but Indigenous television advertisements and metropolitan out of home advertisements both fell outside DPC's recommended time periods by one week. These delays did not impact on TAFE's efficiency.

TAFE re-used many creative materials, achieving some cost-savings

Rather than commissioning new creative materials, TAFE re-used many creative materials from the previous campaign and supplemented these with a selection of new creative materials. TAFE advised that this led to a cost saving of approximately $130,000.
TAFE sought quotes from suppliers on the government's Advertising and Digital Communication Services prequalification scheme for two creative material contracts. These contracts covered updates to existing materials and a selection of new materials.

The campaign's cost-benefit analysis did not comply with three requirements of the Guidelines

The Act requires an agency to conduct a cost-benefit analysis (CBA) if the cost of an advertising campaign is likely to exceed $1.0 million. The Guidelines set out the requirements of this CBA. TAFE did not comply with three of these requirements, outlined in Exhibit 5.

In this circumstance, section 6.2 of the Guidelines required the CBA to identify the number of enrolments TAFE would expect if it did not advertise. TAFE advised us that it is not possible to say what this scenario would look like because there had always been some degree of advertising, however, this argument is not reflected in the CBA. 

TAFE used 2017 as the baseline in the CBA. In 2017, TAFE spent $13.2 million on advertising. As such, the CBA was only able to isolate the impact of the increased expenditure rather than the impact of the campaign's entire $19.5 million expenditure. TAFE advised that 2017 had the most reliable state-wide data and this contributed to the decision to use it as the baseline.

During the audit, TAFE sought advice from NSW Treasury regarding whether a 2017 baseline was appropriate and NSW Treasury advised that it was. Regardless, TAFE did not receive this advice prior to writing the CBA and did not put commentary around this in the CBA. This would also not be sufficient for fulfilling the requirements of the Guidelines.

The CBA did not comply with sections 6.3 and 6.4 of the Guidelines. The CBA briefly considered the impact of spending the campaign budget directly on new training courses, however there was no sustained analysis of this option. TAFE staff advised that there are no realistic alternatives to advertising for achieving the campaign's objectives. However we did not see analysis to support this conclusion in documents provided to us. 

The campaign CBA could have better demonstrated cost effectiveness if it considered alternative media mixes as outlined in NSW Treasury's 'Cost Benefit Analysis Framework for Government Advertising and Information Campaigns'. This would also have been consistent with the Handbook.

TAFE made one inaccurate claim in its advertising and overstated a second

The Guidelines set out rules regarding the content of a government advertising campaign. Exhibit 6 sets out one of the principles with which agencies must comply.

TAFE made one inaccurate claim in its advertising and overstated a second.

In some campaign creative material, TAFE claimed that 78 per cent of its own graduates are employed after training (Exhibit 15 in Appendix 2). According to the National Centre for Vocational Education Research, 78 per cent of New South Wales Vocational Education and Training (VET) graduates (i.e. from all training providers) are employed after training. The result for TAFE graduates is 70.4 per cent.

One of the campaign's television advertisements refers to TAFE as ‘Australia's most reputable education provider’. This statement referred to a survey of current TAFE students who were asked where they would consider studying in future: TAFE, University or a private college. The current TAFE students selected TAFE by a large margin. The limited scope of TAFE's student survey and its results do not support the claim that it is ‘Australia's most reputable education provider’.

DPC did not consistently communicate the transitional arrangements for the Brand Guidelines and as such much of TAFE's creative material did not comply at campaign launch

On 7 August 2017, the government released the NSW Government Brand Guidelines (Brand Guidelines), setting out how agencies use the NSW Government logo. The Brand Guidelines replaced the Branding Style Guide which had been in place since September 2015. Some agencies were exempt from using the Branding Style Guide and the introduction of the new Brand Guidelines required these agencies to apply for a new exemption.

TAFE had recently commenced the peer review process for this campaign when the Brand Guidelines were released. TAFE was exempt from the requirements of the Branding Style Guide and as such the material which TAFE was planning to re-use in the new campaign did not contain the NSW Government logo.

Communication about how long agencies had to make themselves compliant with the Brand Guidelines was unclear. On 11 August 2017, the Chair of the Cabinet Standing Committee on Communication and Government Advertising (the Committee) sent a letter to the Secretary of the Department of Industry informing him that the Department must update all its material to be compliant with the Brand Guidelines ‘as soon as practicable within an 18-month transition period’. The Department of Industry advised TAFE that new advertising would need to be immediately compliant, however it was not clear if this included materials which agencies were re-using from previous campaigns. DPC advised the audit team that it expected re-used materials to be compliant when agencies launched new campaigns. DPC provided this advice to some agencies but did not communicate it more broadly. We could not source evidence that DPC provided this advice to TAFE.

DPC ran workshops to explain the transitional arrangements in September 2017 for the changes in the Brand Guidelines, however these did not specifically address the transitional timeframes for new advertising campaigns.

The Department of Industry, on behalf of TAFE, applied to the Committee for approval to co-brand the TAFE logo with the NSW Government logo. This was approved in October 2017. The requirements for co-branding are in Exhibit 7.

Appendix one - Responses from agencies 

Appendix two - About the campaigns

Appendix three - About the audit

Appendix four - Performance auditing

Parliamentary reference - Report number #311 - released 18 December 2018

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?

Appendix one - Response from agencies    

Appendix two - About the audit

Appendix three - Performance auditing

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

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. 

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.

Appendix one - Status of 2016 and 2017 recommendations

Appendix two - Cluster agencies 

Appendix three - Financial data 

Appendix four - Bus contracts regions 

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.

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.

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.

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.

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.

Appendix one - List of 2018 recommendations

Appendix two - Status of 2017 recommendations

Appendix three - Cluster agencies