Reports
Planning and Environment 2018
The Auditor-General for New South Wales, Margaret Crawford, released her report today on the NSW Planning and Environment cluster. The report focuses on key observations and findings from the most recent financial audits of these agencies. Unqualified audit opinions were issued for all agencies' financial statements. However, some cultural institutions had challenges valuing collection assets in 2017–18. These issues were resolved before the financial statements were finalised.
This report analyses the results of our audits of financial statements of the Planning and Environment cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides parliament and other users of the Planning 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
- service delivery.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making is enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Planning and Environment cluster for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all agencies' financial statements. | The quality of financial reporting remains high across the cluster. |
| 2.2 Key accounting issues | |
| There were errors in some cultural institutions' collection asset valuations. | Recommendation: Collection asset valuations could be improved by:
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| 2.3 Timeliness of financial reporting | |
| Except for two agencies, the audits of cluster agencies’ financial statements were completed within the statutory timeframe. | Issues with asset revaluations delayed the finalisation of two environment and heritage agencies' financial statement audits. |
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 Planning and Environment cluster for 2018
- the areas of focus identified in the Audit Office 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 | |
| One in five internal control weaknesses reported in 2017–18 were repeat issues. | Delays in implementing audit recommendations can prolong the risk of fraud and error. Recommendation (repeat issue): Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing repeat issues. |
| One extreme risk was identified relating to the National Art School. The School does not have an occupancy agreement for the Darlinghurst campus. | Lack of formal agreement creates uncertainty over the School's continued occupancy of the Darlinghurst site. The School should continue to liaise with stakeholders to formalise the occupancy arrangement. |
| 3.2 Information technology controls | |
| The controls and governance arrangements when migrating payroll data from the Aurion system to SAP HR system were effective. | Data migration from the Aurion system to SAP HR system had no significant issues. |
| The Department can improve controls over user access to SAP system. | The Department needs to ensure the SAP user access controls are appropriate, including investigation of excess access rights and resolving segregation of duties issues. |
| 3.3 Annual work program | |
| Agencies used different benchmarks to monitor their maintenance expenditure. | The cluster agencies under review operate in different industries. As a result, they do not use the same benchmarks to assess the adequacy of their maintenance spend. |
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 Planning and Environment cluster, and to collate and present service information for different segments of the cluster 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 the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all relevant agency data sources.
Transport 2018
The Auditor-General for New South Wales, Margaret Crawford released her report today on key observations and findings from the 30 June 2018 financial statement audits of agencies in the Transport cluster. Unqualified audit opinions were issued for all agencies' financial statements. However, assessing the fair value of the broad range of transport related assets creates challenges.
This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2018. The table below summarises our key observations.
This report provides Parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations related to the financial reporting of agencies in the Transport cluster for 2018.
| Observation | Conclusions and recommendations |
| 2.1 Quality of financial reporting | |
| Unqualified audit opinions were issued for all agencies' financial statements | Sufficient audit evidence was obtained to conclude the financial statements were free of material misstatement. |
| 2.2 Key accounting issues | |
| Valuation of assets continues to create challenges. Although agencies complied with the requirements of the accounting standards and Treasury policies on valuations, we identified some opportunities for improvements at RMS. |
RMS incorporated data from its asset condition assessments for the first time in the valuation methodology which improved the valuation outcome. Overall, we were satisfied with the valuation methodology and key assumptions, but we noted some deficiencies in the asset data in relation to asset component unit rates and old condition data for some components of assets. Also, a bypass and tunnel were incorrectly excluded from RMS records and valuation process since 2013. This resulted in an increase for these assets’ value by $133 million. The valuation inputs for Wetlands and Moorings were revised this year to better reflect the assets' characteristics resulting in a $98.0 million increase. |
| 2.3 Timeliness of financial reporting | |
| Residual Transport Corporation did not submit its financial statements by the statutory reporting deadline. | Residual Transport Corporation remained a dormant entity with no transactions for the year ended 30 June 2018. |
| With the exception of Residual Transport Corporation, all agencies completed early close procedures and submitted financial statements within statutory timeframes. | Early close procedures allow financial reporting issues and risks to be addressed early in the reporting and audit process. |
| 2.4 Financial sustainability | |
| NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations reported negative net assets of $75.7 million and $89,000 respectively at 30 June 2018. | NSW Trains and the Chief Investigator of the Office of Transport Safety Investigations continue to require letters of financial support to confirm their ability to pay liabilities as they fall due. |
| 2.5 Passenger revenue and patronage | |
| Transport agencies revenue growth increased at a higher rate than patronage. | Public transport passenger revenue increased by $114 million (8.3 per cent) in 2017–18, and patronage increased by 37.1 million (5.1 per cent) across all modes of transport based on data provided by TfNSW. |
| Negative balance Opal Cards resulted in $3.8 million in revenue not collected in 2017–18 and $7.8 million since the introduction of Opal. A total of 1.1 million Opal cards issued since its introduction have negative balances. | Transport for NSW advised it is liaising with the ticketing vendor to implement system changes and are investigating other ways to reduce the occurrences. |
| 2.6 Cost recovery from public transport users | |
| Overall cost recovery from users has decreased. | Overall cost recovery from public transport users (on rail and bus services by STA) decreased from 23.2 per cent to 22.4 per cent between 2016–17 and 2017–18. The main reason for the decrease is due to expenditure increasing at a faster rate than revenue in 2017–18. |
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from:
- our financial statement audits of agencies in the Transport cluster for 2018
- the areas of focus identified in the Audit Office annual work program.
The Audit Office Annual Work Program provides a summary of all audits to be conducted within the proposed time period as well as detailed information on the areas of focus for each of the NSW Government clusters.
| Observation | Conclusions and recommendations |
| 3.1 Internal controls | |
| There was an increase in findings on internal controls across the Transport cluster. | Key themes related to information technology, employee leave entitlements and asset management. Eighteen per cent of all issues were repeat issues. |
| 3.2 Audit Office Annual work program | |
| The Transport cluster wrote-off over $200 million of assets which were replaced by new assets or technology. |
Majority of this write-off was recognised by RMS, with $199 million relating to the write-off of existing assets which have been replaced during the year. |
| RailCorp is expected to convert to TAHE from 1 July 2019. | Several working groups are considering different aspects of the TAHE transition including its status as a for-profit Public Trading Enterprise and which assets to transfer to TAHE. We will continue to monitor developments on TAHE for any impact to the financial statements. |
| RMS' estimated maintenance backlog at 30 June 2018 of $3.4 billion is lower than last year. Sydney Trains' estimated maintenance backlog at 30 June 2018 increased by 20.6 per cent to $434 million. TfNSW does not quantify its backlog maintenance. | TfNSW advised it is liaising with Infrastructure NSW to develop a consistent definition of maintenance backlog across all transport service providers. |
| Not all agencies monitor unplanned maintenance across the Transport cluster. | Unplanned maintenance can be more expensive than planned maintenance. TfNSW should develop a consistent approach to define, monitor and track unplanned maintenance across the cluster. |
This chapter outlines certain service delivery outcomes for 2017–18. The data on activity levels and performance is provided by Cluster agencies. The Audit Office does not have a specific mandate to audit performance information. Accordingly, the information in this chapter is unaudited.
We report this information on service delivery to provide additional context to understand the operations of the Transport cluster and to collate and present service information for different modes of transport in one report.
In our recent performance audit, Progress and measurement of Premier's Priorities, we identified 12 limitations of performance measurement and performance data. We recommended that the Department of Premier and Cabinet ensure that processes to check and verify data are in place for all agency data sources.
Mobile speed cameras
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.
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
Universities 2017
The Auditor-General, Margaret Crawford released her report today on the results of financial audits of NSW universities for the year ended 31 December 2017. No qualified audit opinions were issued for any university and the quality and timeliness of financial reporting continues to improve.
This report analyses the results of our audits of financial statements of the ten NSW universities and their controlled entities for the year ended 31 December 2017. The table below summarises our key observations.
This report focuses on our observations on the common issues identified in our audits of the financial statements of the ten NSW universities and their controlled entities in 2017. The universities and controlled entities are listed in Appendix three and four respectively.
The report provides our analysis of universities’ results and findings in the following areas:
- Financial reporting and performance
- Teaching and research
- Financial controls and governance.
Accurate and timely financial reporting is important for universities to make efficient and effective economic decisions. Sound financial performance provides the platform for universities to deliver high quality teaching and research outcomes.
This chapter outlines our audit observations on the financial reporting and performance of NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 3.1 Financial reporting | |
| Audit results | |
| The financial statements of all ten NSW universities and 66 out of 69 of their controlled entities received unmodified audit opinions. | Two controlled entities did not fully comply with the financial reporting and audit requirements of the Public Finance and Audit Act 1983 as they did not submit their financial statements to the Auditor-General. One of these entities was audited under the requirements applicable in its foreign jurisdiction. A third controlled entity submitted financial statements, but only after the statutory due date. |
| Quality and timeliness of financial reporting | |
| The number of uncorrected misstatements continues to decrease. | The quality of financial statements of the universities improved in 2017. |
| Two universities simplified disclosures in their financial statements. | The financial statements of the University of Sydney and Macquarie University are more concise, readable and understandable than those of other universities. |
| Six universities finalised their financial statements earlier than in previous years. | Universities that performed aspects of early close procedures improved the timeliness of their financial reporting and helped us conclude our audits earlier. |
| Eight universities are yet to quantify the impact of new accounting standards applicable in future years. | The two universities that have assessed the impact of the new accounting standards believe the impact will be material. |
| An accounting issue was identified relating to the recognition and measurement of payroll tax liabilities on employees' defined benefit superannuation contributions payable to the superannuation funds. | Recommendation: NSW universities should clarify the recognition and measurement of their liability for payroll tax on their defined benefit superannuation obligations before 31 December 2018. |
| 3.2 Financial performance | |
| Sources of revenue from operations | |
| Government grants as a proportion of total revenue decreased over the past five years by 6.4 per cent. |
The Australian Government announced funding freezes to Australian Government grants revenue for the next two years. Universities are expanding other revenue streams to decrease their reliance on grant funding. The revenue stream that has increased the most significantly over the past five years is overseas student revenue. |
| Revenue from overseas student course fees increased by 23 per cent in the last year and contributed $2.8 billion to the NSW university sector in 2017. | Overseas student revenue exceeded domestic student revenue by 37 per cent, and comprised over a quarter of NSW universities' total revenues in 2017. The growth in overseas student revenue has not been shared equally in the sector. Some universities are more dependent on overseas student revenue than others. |
| Revenue from overseas students from four countries comprised 37 per cent of total student revenues for all NSW universities. | Recommendation: NSW universities should assess their student market concentration risk where they rely heavily on students from a single country of origin. This increases their sensitivity to economic or political changes in that country. Universities' data shows as much as 71 per cent of their overseas student revenue comes from a single country of origin. |
| Research income of NSW universities was $1.1 billion in 2016 and has grown by 9.8 per cent between 2012 and 2016. | Two universities attracted 65.2 per cent of the total research income received by all NSW universities. |
| Other revenues | |
| Total philanthropic revenue increased by 1.0 per cent to $151 million in 2017. |
Philanthropic revenue has been increasing for the past five years. Two universities attracted 76.8 per cent of the total philanthropic dollars received by all NSW universities. |
| Average investment returns fell from 7.0 per cent in 2013 to 5.8 per cent in 2017, while total investments grew to $5.4 billion in 2017 from $3.5 billion in 2013. |
Universities have structured their investment portfolios between fixed and non-fixed income assets, seeking to optimise their returns in a low interest rate environment within the limits of their risk management strategies. Investment income is a significant source of revenue for some, but not all universities. Two universities' investment funds represented 52.3 per cent of the total investment funds of all NSW universities combined. |
| Low interest rates have made investment in fixed income assets less attractive for universities. Over the last five years universities have increased their investment in non-fixed income (or market based) assets by 67.1 per cent. | |
| Most NSW universities have established investment governance frameworks. | |
| Financial sustainability indicators | |
| Operating expenditure per equivalent full-time student load (EFTSL) increased by 3.0 per cent in 2017. | The universities that have been able to attract international students to grow their operational revenues have been able to leverage economies of scale to maximise their average margin per EFTSL. Other universities have had to rely on containing costs to achieve higher EFTSL margins. |
| For six universities, the growth in operating expenditure has exceeded the growth in operating revenue, reducing operating margins. The risk associated with narrowing margins is compounded where universities have a high reliance on student revenues from a single source. Sudden changes in demand can challenge the ability of those universities to adjust their cost structures. |
As the margin between operating revenue and operating expenditure decreases, operational results are more at risk from unexpected fluctuations, such as Australian Government higher education reforms and reduced overseas student enrolments. Smaller operating margins reduce the funds available to invest in upgrading infrastructure and implement corporate strategies to meet future challenges. |
| Eight universities have current ratios greater than one in 2017. | |
| Controlled entities | |
| Sixteen of the universities' 58 controlled entities that operate business activities reported losses in 2017 (15 in 2016). | Overall, the financial performance of controlled entities operating business activities was positive, but results in 2017 were lower than in 2016. |
| The total profit of controlled entities operating business activities decreased 5.5 per cent to $77.5 million in 2017 ($82.6 million in 2016). | Universities may be able to improve their overall performance by reassessing the viability of business ventures that continue to make losses and/or rely on them for financial support. |
| Eighteen controlled entities relied on guarantees of financial support from their parent entity in 2017 (19 in 2016). | |
Teaching and research are key objectives of universities and they invest most of their resources in achieving high quality academic and research outcomes to maintain or advance their reputations and rankings in Australia and abroad. Universities have also committed to achieving certain government objectives.
This chapter outlines teaching and research outcomes for NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 4.1 Teaching outcomes | |
| Achieving Australian Government target | |
| NSW universities met the Australian Government target of having 40 per cent of 25 to 34 year-olds with bachelor degrees ten years earlier than the original target date of 2025. |
The proportion of 25 to 34 year-olds in NSW holding a bachelor degree increased to 43.4 per cent in 2017. In 2009, when the target was originally set, only 35.5 per cent of 25 to 34 year-olds held a bachelor degree. |
| Graduate employment rates | |
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Seven universities exceeded the national average of 71.8 per cent for the proportion of their undergraduates who obtain full-time employment. Four universities achieved better than the national average of 86.1 per cent for the proportion of their postgraduates who obtain full-time employment. |
Most NSW universities' employment outcomes are better than the national average. |
| Student enrolments by field of education | |
| NSW universities have increased enrolments in fields of study that align with known skills shortages in NSW identified by the Australian Government for 2016 and 2017. | Alignment of student intake with identified shortages helps ensure graduates secure timely employment on completion of their studies. |
| Achieving diversity outcomes | |
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NSW universities agreed to targets set by the Australian Government for enrolments of students from low socio economic status (SES) and Aboriginal or Torres Strait Islander backgrounds. |
NSW universities can improve outcomes for these students by implementing policies to increase enrolments and support students to graduation. |
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Three universities exceeded the target of 20 per cent of low SES student enrolments in 2017. Six universities met their Indigenous student enrolment target in 2017. The target is having a growth rate in the enrolment of Indigenous students that is more than 50 per cent higher than the growth rate of non-Indigenous student enrolments. |
At the current rate, it is unlikely most universities will reach the agreed low SES target by 2020. |
Appropriate financial controls help ensure efficient and effective use of resources, and the implementation and monitoring of university policies. Governance consists of frameworks, processes and behaviours that enable the universities to operate effectively and comply with relevant laws and policies.
This chapter outlines our audit observations on the financial control and governance of NSW universities for 2017.
| Observation | Conclusion or recommendation |
| 5.1 Internal controls | |
| Internal control findings | |
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Eighty-three internal control deficiencies were identified during our audits, of which 40 related to Information Technology (IT). |
Recommendation: NSW universities should ensure controls, including information technology controls, are properly designed and operate effectively to protect intellectual property, staff and student data, and assets. Universities should rectify identified deficiencies in a timely manner. |
| Repeat findings Twenty-four findings were repeat internal control deficiencies, of which 18 related to IT. |
IT issues can take some time to rectify because specialist skill and/or partnering with software suppliers is often required to implement new controls. However, until rectified, the vulnerabilities those control deficiencies present can be significant. |
| Cyber security Our audits identified opportunities to improve cyber security controls and processes to reduce risks, including risks relating to financial loss, reputational damage and breaches of privacy laws. |
Recommendation: NSW universities should strengthen their cyber security frameworks to manage cyber security risks. This includes developing:
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Use of credit card and work-related travel The risks of unauthorised use can be mitigated by regular monitoring, and reporting breaches for investigation and disciplinary action. |
Appropriately designed and implemented preventive and detective controls are most effective when enforcement and disciplinary activities are oversighted by university audit and risk committees. |
Volume Eight 2011 Focus on Transport and Ports
The report includes comments on financial audits of government agencies in the Transport and Ports sectors. The audit of corporations’ financial statements for the year ended 30 June 2011 resulted in unmodified audit opinions within the Independent Auditor’s Reports. A key recommendation from the report is that Sydney Ports Corporation should continue working with other government authorities and industry stakeholders to improve the effectiveness of program initiatives for increasing container freight movements by rail. The Corporation should review the underlying causes hindering growth in the rail mode and develop and implement strategies to address the unfavourable trend.
Volume Six 2011 focus on Environment, Water and Regional Infrastructure
The Environment Protection Authority’s expenditure for the financial year 2010/11 was $92 million - $76 million of this was for environment protection and regulation. The Office of Environment and Heritage and the Environment Protection Authority commenced 145 prosecutions for environmental offences and 106 were completed in the financial year 2010/11, down from the 134 prosecutions completed in 2009/10. Financial penalties for 2010/11 totalled $969,000 down from $1,403,000 in 2009/10. The average fine decreased from $10,468 in 2009/10 to $9,141 in 2010/11.
Improving road safety: Young drivers
The audit concluded that the RTA’s licence testing and regulation has been generally effective in ensuring the safety of young drivers. There has been a significant reduction in crash and fatality rates involving young drivers over the last decade, more so than for drivers 26 years and older. This has coincided with the introduction by the RTA of an enhanced GLS. International and national research has demonstrated graduated licensing systems to be effective in reducing crashes and saving lives. Despite these improvements, young drivers are more likely to be involved in fatal crashes than other drivers.
Parliamentary reference - Report number #217 - released 19 October 2011
Government expenditure and transport planning in relation to implementing Barangaroo
Barangaroo is an ambitious and significant development on Government-owned Sydney Harbour foreshore. Construction on the 22 hectare CBD site is expected to take 12 years to 2023. Developer contributions to Government of $1 billion are to provide for public domain and other Government development costs, including a six hectare Headland Park. When completed the precinct is to service an anticipated 26,000 workers and residents and up to 33,000 visitors a day. The Auditor-General concluded that while there was extensive transport planning and extensive documentation supporting Government financial forecasts, considerable risks remain for the implementation of the Barangaroo project.
Parliamentary reference - Report number #214 - released 15 June 2011
Transport of Dangerous Goods
Dangerous goods make up 10-15% of domestic freight and have potential to harm people, property and the environment. They include substances such as explosives, flammable liquids and gases, and oxidising agents. However, Government inspection programs were limited. The Office of Environment and Heritage carried out very few checks in the four years up to 2010, with no inspections made in the metropolitan area. This is despite Port Botany handling around 50,000 containers of dangerous goods per year. Statewide, only 303 inspections were made in 2009/10 and only 20 in 2008/09.
Parliamentary reference - Report number #212 - released 10 May 2011
Volume One 2011
The level of non compliance with the requirements of this Premier’s Memorandum is concerning, particularly considering the NSW Procurement Reforms were effective since 2006. The implementation strategy for procurement reform was announced as early as 2001. We recommend the governing bodies of agencies and management review, not only the processes their agencies have in place to comply with procurement reforms and requirements, but also more broadly how agencies identify and comply with laws, regulations, Treasury policy pronouncements, Premier’s memoranda and other obligations.
