Reports
Internal controls and governance 2021
This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, for the year ended 30 June 2021.
Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the ‘Report on State Finances’ focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the ‘Report on State Finances’ has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.
As there are no matters in this report impacting the Total State Sector Accounts we have decided to break with normal practice and table this report ahead of the ‘Report on State Finances’.
What the report is about
This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, for the year ended 30 June 2021.
What we found
Internal control trends
The proportion of control deficiencies identified as high risk this year increased to 2.8 per cent (2.5 per cent in 2019–20). Six high risk findings related to financial controls while three related to IT controls. Two were repeat findings from the previous year.
Repeat findings of control deficiencies now represent 49 per cent of all findings (42 per cent in 2019–20).
Information technology
We continue to see a high number of deficiencies relating to IT general controls, particularly around user access administration and privileged user access which affected 82 per cent of agencies.
Cyber security
Agencies' self-assessed maturity levels against the NSW Cyber Security Policy (CSP) mandatory requirements are low. Although agencies are required to demonstrate continuous improvement against the CSP, 20 per cent have not set target levels and of those that have set target levels, 40 per cent have not met their target levels.
Policies, processes and definition around security incidents and data breaches lack consistency. Improvement is required to ensure breaches are recorded in registers and action taken to address the root cause of incidents.
Conflicts of interest
Agencies' policies generally meet the minimum requirements of the Ethical Framework set out in the Government Sector Employment Act 2013. However, few meet the Independent Commission Against Corruption's best practice guidelines. Policies could be strengthened in relation to requirements around annual declarations of interests from employees and contractors.
Masterfile management
Policies governing the management of supplier masterfiles and employee masterfiles existed in 79 per cent and 54 per cent of agencies respectively.
Weaknesses were identified in those policies. Access restriction, segregation of duties and record keeping were the most common opportunities for improvement.
Tracking recommendations
Most agencies do not maintain a register to monitor recommendations from performance audits and public inquiries. Registers of recommendations could be improved to include risk ratings and record revisions to due dates. While recommendations can take several years to fully address, the oldest open items were originally due for completion by June 2016.
What we recommended
Agencies should:
- prioritise actions to address repeat control deficiencies, particularly those that have been repeated findings for a number of years
- prioritise improvements to their cyber security and resilience as a matter of urgency
- formalise and implement policies on tracking and monitoring the progress of implementing recommendations from performance audits and public inquiries.
Fast facts
The 25 largest NSW government agencies in this report cover all nine clusters and represent over 95 per cent of total expenditure for NSW public sector.
- 9 high risk audit findings were identified this year
- 40% of agencies have not formally accepted residual cyber risk based on their self-assessed maturity levels
- 52% of agencies do not have a policy on tracking recommendations from performance audits and public inquiries
- 50% of all internal control deficiencies identified in 2020–21 were repeat findings
- 75% is the average completion rate of annual staff declarations of interests.
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.
The scope of this year's report covers 25 general government sector agencies. Last year's report covered 40 agencies within the total state sector. For consistency and comparability, we have adjusted the 2020 results to include only the agencies remaining within scope of this year's report. Therefore, the 2020 figures will not necessarily align with those reported in our 2020 report.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency controls to manage key financial systems.
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security planning and governance arrangements.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' conflicts of interest management processes.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency's management of supplier and employee masterfiles.
Section highlights
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This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' processes to track and monitor the implementation of recommendations from performance audits and public inquiries.
Section highlights
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Planning, Industry and Environment 2021
This report analyses the results of our audits of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2021.
Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.
As there are no outstanding matters relating to audits in the Planning, Industry and Environment cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.
What the report is about
The results of the Planning, Industry and Environment cluster agencies' financial statements audits for the year ended 30 June 2021.
What we found
Unmodified audit opinions were issued for all completed 30 June 2021 financial statements audits of cluster agencies. Three audits are ongoing.
An 'Other Matter' paragraph was included in the Independent Planning Commission's (the IPC) audit opinion because the prior year comparative figures were not audited. Prior to 2020–21, the IPC was not required to prepare separate financial statements under the Public Finance and Audit Act 1983 (PF&A Act). The financial reporting provisions of the Government Sector Finance Act 2018 now require the IPC to prepare financial statements.
The number of identified misstatements increased from 51 in 2019–20 to 54 in 2020–21.
The 2010–11 to 2019–20 audits of the Water Administration Ministerial Corporation’s (the Corporation) financial statements are incomplete due to insufficient records and evidence to support the transactions of the Corporation, particularly for the earlier years. Management has commenced actions to improve the governance and financial management of the Corporation. These audits are currently in progress and the 2020–21 audit will commence shortly.
There are 609 State controlled Crown land managers (CLMs) across New South Wales that predominantly manage small parcels of Crown land.
Eight CLMs prepared and submitted 2019–20 financial statements by the revised deadline of 30 June 2021. A further 24 CLMs did not prepare financial statements in accordance with the PF&A Act. The remaining CLMs were not required to prepare 2019–20 financial statements as they met NSW Treasury's financial reporting exemption criteria.
The Department of Planning, Industry and Environment's (the department) preliminary assessment indicates that 60 CLMs are required to prepare financial statements in 2020–21. To date, no CLMs have prepared and submitted financial statements for audit in 2020–21.
There are also 120 common trusts that have never submitted financial statements for audit. Common trusts are responsible for the care, control and management of land that has been set aside for specific use in a certain locality, such as grazing, camping or bushwalking.
What the key issues were
The number of matters we reported to management increased from 135 in 2019–20 to 180 in 2020–21, of which 40 per cent were repeat findings.
Seven high-risk issues were identified in 2020–21:
- system control deficiencies at the department relating to user access to HR and payroll management systems, vendor master data management and journal processing, which require manual reviews to mitigate risks
- deficiencies related to the Centennial Park and Moore Park Trust's tree assets valuation methodology
- the Lord Howe Island Board did not regularly review and monitor privileged user access rights to key information systems
- the Natural Resources Access Regulator identified and adjusted three prior period errors retrospectively, which indicate deficiencies within the financial reporting processes
- deficiencies relating to the Parramatta Park Trust's tree assets valuation methodology
- lease arrangements have not been confirmed between the Planning Ministerial Corporation and Office of Sport regarding the Sydney International Regatta Centre
- the Wentworth Park Sporting Complex land manager (the land manager) has a $6.5 million loan with Greyhound Racing NSW (GRNSW). GRNSW requested the land manager to repay the loan. However, the land manager subsequently requested GRNSW to convert the loan to a grant. Should this request be denied, the land manager would not be able to continue as a going concern without financial support. This matter remains unresolved for many years.
There continues to be significant deficiencies in Crown land records. The department uses the Crown Land Information Database (CLID) to record key information relating to Crown land in New South Wales that are managed and controlled by the department and land managers (including councils and land managers controlled by the state). The CLID system was not designed to facilitate financial reporting and the department is required to conduct extensive adjustments and reconciliations to produce accurate information for the financial statements.
The department is implementing a new system to record Crown land (the CrownTracker project). The department advised that the project completion date will be confirmed by June 2022.
What we recommended
The department should ensure CLMs and common trusts meet their statutory reporting obligations.
Cluster agencies should prioritise and action recommendations to address internal control deficiencies, with a focus on addressing high-risk and repeat issues.
The department should prioritise action to ensure the Crown land database is complete and accurate. This will allow the department and CLMs to be better informed about the Crown land they control.
Fast facts
The Planning, Industry and Environment cluster aims to make the lives of people in New South Wales better by developing well-connected communities, preserving the environment, supporting industries and contributing to a strong economy.
There are 54 agencies, 609 State controlled Crown land managers that predominantly manage small parcels of Crown land and 120 common trusts in the cluster.
- 42% of the area of NSW is Crown land
- $33.2b water and electricity infrastructure as at 30 June 2021
- 100% unqualified audit opinions were issued for all completed 30 June 2021 financial statements audits
- 7 high-risk management letter findings were identified
- 54 monetary misstatements were reported in 2020–21
- 40% of reported issues were repeat issues
This report provides parliament and other users of the Planning, Industry and Environment cluster (the cluster) agencies’ 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 Planning, Industry and Environment cluster (the cluster) for 2021.
Section highlights
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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.
Section highlights
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Appendix one - Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright 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.
Premier and Cabinet 2021
This report analyses the results of our audits of the Premier and Cabinet cluster agencies for the year ended 30 June 2021.
Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.
As there are no outstanding matters relating to audits in the Premier and Cabinet cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.
What the report is about
The results of the Premier and Cabinet cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2021.
What we found
Unmodified audit opinions were issued for all Premier and Cabinet cluster agencies.
The number of monetary misstatements decreased from 49 in 2019–20 to 38 in 2020–21.
The Library Council of New South Wales corrected a prior period error of $325 million. In 2017, the council split its collection assets into six asset classes, but not the related asset revaluation reserves. To correct this error, some revaluation decrements previously recognised in asset revaluation reserves were reclassified to accumulated funds.
Eight agencies did not complete all of the mandatory early close procedures.
What the key issues were
The Premier and Cabinet cluster was impacted by three Machinery of Government (MoG) changes during 2020–21.
The changes resulted in the transfer of activities and functions in and out of the cluster and the creation of a new entity - Investment NSW.
The transferor entities continued to provide services to Investment NSW subsequent to 30 June 2021. There were no formal service level agreements in place for the provision of these services.
The New South Wales Electoral Commission (the Commission) and Sydney Opera House Trust obtained letters of financial support from their relevant Minister and/or NSW Treasury in 2020–21. The postponement of local government elections impacted the Commission's operations due to increased planned expenditure to support a COVID-safe election. Sydney Opera House Trust's ability to generate revenue was impacted due to the closure of the Concert Hall partly due to COVID-19 and planned renovations.
The number of repeated audit issues raised with management and those charged with governance increased from 22 in 2019–20 to 24 in 2020–21.
There were 47 moderate risk and 28 low risk findings identified. Of the total findings there were 24 repeat issues.
What we recommended
Investment NSW should ensure services received from other agencies are governed by service level agreements.
Fast facts
The Department of Premier and Cabinet supports the Premier and Cabinet to deliver the government's objectives, infrastructure, preparedness for disaster, incident recovery, arts and culture.
- $11.9b of property, plant and equipment as at 30 June 2021
- $4.4b total expenditure incurred in 2020-21
- 100% unqualified audit opinions were issued on agencies' 30 June 2021 financial statements
- 47 moderate risk findings were reported to management
- 38 monetary misstatements were reported in 2020-21
- 32% of all reported issues were repeat issues.
This report provides Parliament and other users of the Premier and Cabinet’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 Premier and Cabinet cluster (the cluster) for 2021.
Section highlights
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Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Premier and Cabinet cluster.
Section highlights
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Appendix one – Misstatements in financial statements submitted for audit
Appendix two – Early close procedures
Appendix three – Timeliness of financial reporting
Appendix four – Financial data
Copyright 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.
Universities 2020 audits
What the report is about
Results of the financial statement audits of the public universities in NSW for the year ended 31 December 2020.
What we found
Unqualified audit opinions were issued for all ten universities.
Two universities reported retrospective corrections of prior period errors.
Universities were impacted by the COVID-19 pandemic with student enrolments decreasing in 2020 compared to 2019 by 10,032 (3.3 per cent). Of this decrease 8,310 students were from overseas.
In response to the pandemic, each university provided welfare support, created student hardship funds, provided accommodation and flexibility on payment of course fees. State and Commonwealth governments provided additional support to the sector.
Six universities recorded negative net operating results in 2020 (two in 2019). The combined revenues of the ten universities from fees and charges decreased by $361 million (5.8 per cent).
Despite the impact of the COVID-19 pandemic, which will continue to impact the financial results of universities in 2021, enrolments of overseas students in semester one of 2021 increased at two universities. This growth meant that total overseas student enrolments increased by 7,944 or 5.8 per cent across the sector as a whole. However, eight universities experienced decreases in overseas student enrolments compared to semester one of 2020. All universities have experienced growth in domestic student enrolments.
What the key issues were
There were 110 findings reported to universities in audit management letters.
Three high risk findings were identified. One related to the continued work by the University of New South Wales to assess its liability for underpayment of casual staff entitlements. The other two deficiencies were at Charles Sturt University, relating to financial reporting implications of major contracts, and resolving issues identified by an internal review of its employment contracts to reliably quantify the university’s liability to its employees.
What we recommended
Universities should prioritise actions to address repeat findings. Forty-five findings were repeated from 2019, of which 23 related to information technology.
Fast factsThere are ten public universities in NSW with 51 local controlled entities and 23 overseas controlled entities.
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Further information
Please contact Ian Goodwin, Deputy Auditor-General on 9275 7347 or by email.
This report analyses the results of our audits of the financial statements of the ten universities in NSW for the year ended 31 December 2020. The table below summarises our key observations.
1. Financial reporting
| Financial reporting | The 2020 financial statements of all ten universities received unmodified audit opinions.
Two universities reported retrospective corrections of prior period errors. The University of Sydney reported errors relating to the underpayment of staff entitlements and the fair value of buildings. Charles Sturt University reported an error relating to how it had calculated right‑of‑use assets and lease liabilities on initial application of the new leasing standard in the previous year. |
| Impacts of COVID‑19 |
Student enrolments decreased in 2020 compared to 2019 by 10,032 (3.3 per cent). Of this decrease, 8,310 students were from overseas. The ongoing impact of COVID‑19 in the short‑term, on semester one enrolments for 2021 compared to semester one of 2020, has been mixed:
During 2020, universities provided welfare support to students, created student hardship funds, provided accommodation, and flexibility on payment of course fees. State and Commonwealth governments provided additional support to the sector:
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| Financial results |
Six universities recorded negative net operating results in 2020 (two in 2019). While most universities experienced decreased revenue in 2020, only four had reduced their expenses to a level that was less than revenue. |
| Revenue from operations |
Universities' revenue streams were impacted in 2020 by the COVID‑19 pandemic, with fees and charges decreasing by $361 million (5.8 per cent). Government grants as a proportion of total revenue increased for the first time in five years to 34 per cent in 2020. Nearly 40 per cent of universities' total revenue from course fees in 2020 (40.9 per cent in 2019) came from overseas students from three countries: China, India and Nepal (same in 2019). Students from these countries of origin contributed $2.2 billion ($2.4 billion in 2019) in fees. Some universities continue to be dependent on revenues from students from these destinations and their results are more sensitive to fluctuations in demand as a result. |
| Other revenues |
Overall philanthropic contributions to universities increased by 32.2 per cent in 2020 to $222 million ($167.9 million in 2019). The University of Sydney and the University of New South Wales attracted 75.2 per cent of the total philanthropic contributions in 2020 (69.5 per cent in 2019). Total research income for universities was $1.4 billion in 20191, with the University of Sydney and the University of New South Wales attracting 66.5 per cent of the total research income of all universities in NSW (65.2 per cent in 2018). |
| Expenditure | Universities initiated cost saving measures in response to the COVID‑19 pandemic. The cost of redundancy programs increased employee related expenses in 2020 by 4.4 per cent to $6.5 billion ($6.2 billion in 2019). The cost of redundancies offered in 2020 across the universities totalled $293.9 million. Combined other expenses decreased to $2.8 billion in 2020, a reduction of $436 million (13.4 per cent). |
2. Internal controls and governance
| Internal control findings | One hundred and ten internal control deficiencies were identified in 2020 (108 in 2019). Forty‑five findings were repeated from 2019, of which 23 related to information technology.
Recommendation: Universities should prioritise actions to address repeat findings on internal control deficiencies in a timely manner. Risks associated with unmitigated control deficiencies may increase over time. Three high risk internal control deficiencies were identified, namely:
Gaps in information technology (IT) controls comprised the majority of the remaining deficiencies. Deficiencies included a lack of sufficient privileged user access reviews and monitoring, payment files being held in editable formats and accessible by unauthorised persons, and password settings not aligning with the requirements of information security policies. |
| Business continuity and disaster recovery planning | All universities have a business continuity policy supported with a business impact analysis.
Except for Macquarie University, all other universities had disaster recovery plans prepared for all of the IT systems that support critical business functions. Macquarie University’s disaster recovery plans were still in progress at 31 December 2020. Only half of the universities' policies require regular testing of their business continuity plans and six universities' plans do not specify staff must capture, asses and report disruptive incidents. |
3. Teaching and research
| Graduate employment outcomes | Eight out of ten universities were reported as having full‑time employment rates of their undergraduates in 2020 that were greater than the national average.
Six universities were reported as having full‑time employment rates of their postgraduates in 2020 that were greater than the national average. |
| Student enrolments by field of education | Enrolments at universities in NSW decreased the most in Management and Commerce courses and Engineering and Related Technologies courses. The largest increase in enrolments was in Society and Culture courses. |
| Achieving diversity outcomes | Five universities in 2019 were reported as meeting the target enrolment rate for students from low socio‑economic status (SES) backgrounds.
Seven universities were reported to have increased their enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2019. The target growth rate for increases in enrolments of Aboriginal and Torres Strait Islander students (to exceed the growth rate of enrolments of non‑indigenous students by at least 50 per cent) was achieved in 2019. |
This report provides Parliament with the results of our financial audits of universities in NSW and their controlled entities in 2020, including our analysis, observations and recommendations in the following areas:
- financial reporting
- internal controls and governance
- teaching and research.
Financial reporting is an important element of governance. Confidence and transparency in university sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations on the financial reporting of universities in NSW for 2020.
Financial results
The graph below shows the net results of individual universities for 2020.
Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of universities.
This chapter outlines the internal controls related observations and insights across universities in NSW for 2020, including overall trends in findings, level of risk and implications.
Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant matters are reported to universities for management to address.
Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and their standing in international and Australian rankings.
This chapter outlines teaching and research outcomes for universities in NSW for 2020.
Planning, Industry and Environment 2020
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
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Audit opinions |
There are 45 separate entities in the cluster. Unqualified audit opinions were issued for 38 cluster agencies' 30 June 2020 financial statements audits. Four financial statements audits are still ongoing, and three agencies were not subject to audit due to NSW Treasury reporting exemptions. |
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Timeliness of financial reporting |
The majority of cluster agencies subject to statutory reporting deadlines met the revised timeline for submitting financial statements. Twenty‑four of the 26 cluster agencies required to submit early close financial statements met the revised timeframe. Due to issues identified during the audit, 13 financial statements audits were not completed and audit opinions not issued by the statutory deadline. |
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Implementation of AASB 16 'Leases' |
Significant deficiencies were identified in Property NSW's lease data maintenance and lease calculations. Recommendation (partially repeat): Property NSW should:
Our audits of the cluster agencies identified there was a lack of thorough quality assurance over the accuracy of lease information provided by Property NSW. Recommendation: The Department and cluster agencies should:
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Unprocessed Aboriginal land claims continued to increase |
In 2019–20, the Department resolved an additional 468 Aboriginal land claims compared to the prior year. However, the total number of unprocessed Aboriginal land claims increased by 914 to 36,769 at 30 June 2020. The number of claims remaining unprocessed for more than ten years after lodgement increased by 10.9 per cent from last year. Until claims are resolved, there is an uncertainty over who is entitled to the land and the uses and activities that can be carried out on the land. Auditor-General's Reports to Parliament since 2007 have recommended action to address the increasing number of unprocessed claims. To date, the Department has not been able to resolve this issue. During 2020–21, a performance audit will assess the effectiveness and efficiency of the administration of Aboriginal land claims. |
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Financial reporting of Crown land managers |
The Department will need to provide additional support and guidance to help Crown land managers (CLMs) meet their financial reporting obligations. Recommendation: The Department should:
During 2019–20, NSW Treasury established the reporting exemption criteria for the CLMs. Based on available information, the Department determined 31 CLMs would not meet the exemption criteria and therefore are required to prepare annual financial statements. |
2. Audit observations
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Internal controls |
Six high‑risk issues were identified across the cluster in 2019–20:
One in three internal control issues identified and reported to management in 2019–20 were repeat issues. Recommendation: Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing high‑risk and repeat issues. |
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Agencies response to recent emergencies |
The unprecedented bushfires and COVID‑19 pandemic presented challenges for the cluster. Agencies established taskforces or response teams to respond to these emergencies. With more staff working from home, agencies implemented protocols and procedures to manage risks associated with the remote working arrangements, and also needed to address certain technology issues. The Department is responsible for the new Planning System Acceleration Program, which aims to fast‑track planning assessments, boost the State's economy and keep people in jobs during COVID‑19 pandemic. Between April and October 2020, the Department announced and determined 101 major projects and planning proposals. |
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Recognition of Crown land |
Crown land is an important asset of the State. Management and recognition of Crown land assets is weakened when there is confusion over who is responsible for a particular Crown land parcel. Auditor-General's Reports to Parliament since 2017 have recommended that the Department should ensure the database of Crown land is complete and accurate. Whilst the Department has commenced actions to improve the database, this remained an issue in 2019–20. Recommendation (repeat issue): The Department should prioritise action to ensure the Crown land database is complete and accurate. This allows state agencies and local councils to be better informed about the Crown land they control. |
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Implementation of Machinery of Government (MoG) changes |
Since its creation on 1 July 2019, the Department has largely established its governance arrangements, including setting up the Audit and Risk Committee and internal audit function for the Department and relevant cluster agencies. The Department still operated three main financial reporting systems in 2019–20, and has commenced the process to consolidate some of the systems. The recent Regional NSW MoG change led to the transfer of $446 million net assets and $284 million 2019–20 budget from the Department to the newly created Department of Regional NSW on 2 April 2020. |
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.
Section highlights
The Department has not yet developed a statutory reporting framework for Crown land managers and will need to provide additional resources to help Crown land managers meet their financial reporting obligations. |
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.
Section highlights
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Universities 2019 audits
This report contains findings on the results of financial audits of NSW universities for the year ended 31 December 2019.
All ten NSW universities received unqualified audit opinions. The 2019 financial results for universities are reported as at 31 December and reflect results from operations before the impact of the COVID‑19 pandemic.
The combined revenues for all NSW universities increased by $381 million to $11.4 billion in 2019, driven by increases in student revenues. Revenue from overseas students continued to grow faster than that from domestic students and contributed $3.6 billion in course fees to NSW universities in 2019.
Overseas students from the top three countries of origin, being China, India and Nepal, represented 72.4 per cent of all enrolments of overseas students and 65.4 per cent of all overseas student revenues for 2019. Revenue from students from these three countries comprised 40.9 per cent of total student revenues for all NSW universities, creating a considerable concentration risk for NSW universities.
The COVID‑19 pandemic may significantly impact the financial results of NSW universities in 2020. NSW universities provided data on COVID‑19 impacted student enrolments for semester one 2020. Overall numbers of student enrolments in semester one 2020 were 5.8 per cent beneath projections. Overseas student enrolments were 13.8 per cent beneath expectations and domestic student enrolments were 2.4 per cent below expectations.
The report makes recommendations to the NSW universities, aimed at strengthening controls over information technology, cyber security, validating published performance information, procurement practices and the oversight of their overseas controlled entities' legal and policy compliance functions.
This report analyses the results of our audits of the financial statements of the ten NSW universities for the year ended 31 December 2019. The table below summarises our key observations.
1. Financial reporting
| Financial reporting |
The 2019 financial statements of all ten NSW universities received unmodified audit opinions. One controlled entity of the Western Sydney University received a qualified audit opinion. Five NSW universities finalised their audited financial statements this year on or before the date they did last year. New accounting standards, which changed how universities report income and treat operating leases, became effective from 1 January 2019. |
| Sources of revenue from operations |
Government grants as a proportion of the total income of NSW universities continued to decrease. Fee revenue from overseas students continued to grow faster than fees from domestic students. Forty-one per cent of NSW universities' total student revenue came from overseas students from three countries. Five NSW universities increased the proportion of revenue they receive from overseas students from a single country. Two universities sourced over 73 per cent of their total overseas student revenue from students from a single country of origin in 2019. |
| Other revenues | Two universities attracted over 69.5 per cent of the total philanthropic revenue of $174 million received by all NSW universities in 2019. |
| Operating expenditures | Combined total operating expenditure for NSW universities increased to $9.9 billion in 2019, a rise of 5.2 per cent from 2018. |
| Current ratio | At 31 December 2019, five NSW universities had a current ratio of less than one, meaning those universities need to actively manage their cash to meet current obligations. |
| Controlled entities |
All six NSW universities with overseas controlled entities have devolved responsibility for governance and legislative compliance to their overseas controlled entities. Recommendation (repeat issue): NSW universities should strengthen their governance arrangements to oversight their overseas controlled entities' legal and policy compliance functions. |
| COVID-19 impacts and responses |
The 2019 financial results for universities are reported as at 31 December. Consequently, the results for the 2019 year were unaffected by the impact of the COVID-19 pandemic. NSW universities provided data on the COVID-19 impacted student enrolments for semester one 2020. Overall numbers of student enrolments were 5.8 per cent beneath projections. Overseas student enrolments were 13.8 per cent beneath expectations and domestic student enrolments were 2.4 per cent beneath expectations. NSW universities are responding to the challenges presented by COVID-19 by moving course delivery online, expanding student support and introducing cost saving measures. |
2. Internal controls and governance
| Internal control findings |
Our audits identified 108 internal control deficiencies in 2019 (99 in 2018). Gaps in information technology (IT) controls comprised the majority of these deficiencies. Deficiencies included a lack of sufficient user access reviews, inadequate review and approval of change management processes, and issues with password settings. We identified one high risk financial control deficiency at the University of New South Wales, which resulted in the University providing for a potential underpayment of casual staff salaries. NSW universities continue to implement recommendations arising from 35 findings raised in previous years. |
| Performance reporting |
Five NSW universities still do not have formal processes to internally review and validate performance information published in their annual reports. Recommendation (repeat issue): NSW universities should strengthen processes to review and validate published performance information. |
| Cyber security |
Two universities have not yet implemented a cyber risk policy and three universities have not formally trained staff in cyber awareness. Recommendation (repeat issue): NSW universities should strengthen cyber security frameworks and controls to protect sensitive data and prevent financial and reputational losses. |
| Management of IT service providers | NSW universities have contracts with vendors to support their computer systems. Five universities have not formally established frameworks to manage these contracts. Poor contract management can compound risks associated with IT control deficiencies. |
| Data breach management | Universities are required to maintain the privacy of sensitive data which, if disclosed or used inappropriately, could result in harm to individuals, financial loss, or loss of intellectual property. Two NSW universities have not established formal policies to manage data breaches. |
| Procurement |
All universities have a procurement policy. Most universities have a documented procurement manual and contact management policy. Recommendation: NSW universities should review their procurement and contract management policies and procedures to ensure that they are relevant and effective in reducing risk and improving purchasing outcomes. |
3. Teaching and research
| Graduate employment outcomes | Eight out of ten NSW universities exceeded the national average for full-time employment rates of their undergraduates in 2019. Six universities performed better than the national average for full-time employment outcomes of their postgraduates in 2019. |
| Student enrolments by field of education | Enrolments at NSW universities increased the most in Management and Commerce courses in 2019. |
| Achieving diversity outcomes |
Five universities in 2018 (five in 2017) met the target enrolment rate for students from low socio-economic status (SES) backgrounds. Eight universities increased enrolments of students from Aboriginal and Torres Strait Islander backgrounds in 2018. |
This report provides Parliament with the results of our financial audits of New South Wales universities and their controlled entities in 2019, including our analysis, observations and recommendations in the following areas:
- financial reporting
- internal controls and governance
- teaching and research.
Financial reporting is an important element of governance. Confidence and transparency in university sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations on the financial reporting of NSW universities for 2019.
Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of NSW universities.
This chapter outlines the internal controls related observations and insights across NSW universities for 2019, including overall trends in findings, level of risk and implications.
Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant ones are reported to universities for them to address.
Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and international and Australian rankings.
This chapter outlines teaching and research outcomes for NSW universities for 2019.
Appendix one – List of 2019 recommendations
Appendix two – Status of 2018 recommendations
Appendix three – NSW universities’ controlled entities and associated entities
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.
Planning, Industry and Environment 2019
This report outlines the results of audits of the financial statements of agencies now grouped in the NSW Planning, Industry and Environment cluster.
Unqualified audit opinions were issued for 56 of the 66 cluster agencies’ 30 June 2019 financial statements. Ten audits remain incomplete. The cluster agencies need to improve the timeliness of financial reporting.
The Audit Office continued to identify issues regarding unprocessed Aboriginal land claims and the recognition of Crown land. ‘Auditor-General’s reports to parliament have recommended action to reduce the level of unprocessed land claims since 2007. However, the number of unprocessed claims continued to increase’, Margaret Crawford said.
One in five internal control findings were repeat issues. Key themes included information technology, asset management and improvements required to expense and payroll controls.
The report makes several recommendations including:
- Property NSW should urgently address the deficiencies in the lease data used to calculate the impact of the new leasing standard effective from 1 July 2019
- the Department of Planning, Industry and Environment should prioritise action to reduce unprocessed Aboriginal land claims
- the Department of Planning, Industry and Environment should ensure the Crown land database is complete and accurate so state agencies and local government councils are better informed about the Crown land they control.
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 2019. The table below summarises our key observations.
1. Machinery of Government changes
| Creation of the Planning, Industry and Environment cluster |
The Machinery of Government (MoG) changes abolished the former Planning and Environment cluster and former Industry cluster, and created the Planning, Industry and Environment cluster on 1 July 2019. The Department of Planning and Environment (DPE), the Department of Industry (DOI), the Office of Environment and Heritage, and the Office of Local Government were abolished and the majority of their functions were transferred to the new Department of Planning, Industry and Environment (DPIE). |
| The Department of Planning, Industry and Environment is still in the process of implementing changes |
The MoG changes bring risks and challenges to the cluster. A MoG Steering Committee, with the support of various project control groups and working groups, identified and developed responses to key risks arising from the changes. However, the DPIE will take some time to fully integrate the policies, systems and processes of the abolished Departments and agencies. |
2. Financial reporting
| Audit opinions | Unqualified audit opinions were issued for 56 of the 66 cluster agencies' 30 June 2019 financial statements audits. Ten financial statements audits are still ongoing. |
| Timeliness of financial reporting |
Fifty-five of the 57 agencies subject to statutory deadlines submitted their financial statements on time. Due to issues identified during the audit, 13 financial statements audits were not completed and audit opinions issued by the statutory deadline. Agencies prepared and submitted their early close procedures in accordance with the mandatory timeframe set by NSW Treasury. However, 17 of the 49 agencies where we reviewed early close procedures were assessed as either partially addressing or not addressing one or more of the mandatory requirements. The cluster agencies could benefit from an increased focus on early close procedures. |
| Introduction of AASB 16 'Leases' |
We noted errors in the lease data used in Property NSW's AASB 16 impact calculations, which affect both Property NSW and other government agencies. These errors were significant enough to present a risk of material misstatements to the financial statements of Property NSW and other government agencies in future reporting periods. We had similar findings in our recent performance audit on 'Property Asset Utilisation', which highlighted issues with the quality of Property NSW's records. Recommendation: Property NSW should urgently address the deficiencies in the lease data used to calculate the impact of the new leasing standard effective from 1 July 2019. |
| Unprocessed Aboriginal land claims have continued to increase |
Despite an increase in the number of claims resolved, the number of unprocessed Aboriginal land claims increased by 7.2 per cent from the prior year to 35,855 at 30 June 2019. Claims can be made over Crown land assets of the DPIE or other government agencies. Until claims are resolved, there is an uncertainty over who is entitled to the land and the uses and activities that can be carried out on the land. We first recommended action to address unprocessed claims in 2007. Recommendation (repeat issue): The DPIE should prioritise action to reduce unprocessed Aboriginal land claims. |
3. Audit observations
| Internal controls |
One in five internal control issues identified and reported to management in 2018–19 were repeat issues. The lack of user access review was the most common IT general control issue in the cluster. |
| Drought relief |
The NSW Government announced an emergency drought relief package of $500 million in 2018, in addition to other financial assistance measures already in place. Limited documentation and written agreements between relevant delivery agencies resulted in a $31.0 million misstatement relating to grant revenue. |
| Recognition of Crown land |
Crown land is an important asset of the state. Management and recognition of Crown land assets is weakened when there is confusion over who is responsible for a particular Crown land parcel. Last year we recommended the DOI should ensure the database of Crown land is complete and accurate. While the DOI has commenced actions to improve the database, this continued to be an issue in 2018–19. Recommendation (repeat issue): The DPIE should ensure the Crown land database is complete and accurate so state agencies and local government councils are better informed about the Crown land they control. |
| Developer contributions | The former DPE continued to accumulate more developer contributions revenues than it spent on infrastructure projects. Total unspent funds increased to $274 million at 30 June 2019. |
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.
This cluster was created by the Machinery of Government changes on 1 July 2019. This report is focused on agencies in the Planning, Industry and Environment cluster from 1 July 2019. However, these agencies were all in other clusters during 2018–19. Please refer to the section on Machinery of Government changes for more details.
Machinery of Government (MoG) refers to how the government organises the structures and functions of the public service. MoG changes are where the government reorganises these structures and functions that are given effect by Administrative orders.
The MoG changes, announced following the NSW State election on 23 March 2019, created the Planning, Industry and Environment (PIE) cluster. The Administrative Changes Orders issued on 2 April 2019, 1 May 2019 and 28 June 2019 gave effect to these changes. These orders became effective on 1 July 2019.
Section highlights
The 2019 MoG changes significantly impacted the former Planning and Environment, and Industry clusters and agencies.
- The PIE cluster combines most of the functions and agencies of the former Planning and Environment and Industry clusters from 1 July 2019.
- The Department of Planning, Industry and Environment is the principal agency in the PIE cluster.
- The MoG changes bring risks and challenges to the PIE cluster.
- A MoG Steering Committee was established to oversee the transitional processes.
- The full integration of the systems and processes will not be completed in the near future.
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 Planning, Industry and Environment (PIE) cluster for 2019. In this chapter, the Department of Planning, Industry and Environment is referred to as DPIE, the former Department of Planning and Environment as DPE, and the former Department of Industry as DOI.
Section highlights
- Unqualified audit opinions were issued for all completed 30 June 2019 financial statements audits. However, some cluster agencies can further enhance the quality of financial reporting.
- Timeliness of financial reporting remains an issue for 13 agencies.
- Deficiencies were identified in the data used to calculate the impact of AASB 16 ‘Leases’ effective from 1 July 2019. Property NSW should urgently address these deficiencies.
- Unprocessed Aboriginal land claims continue to increase. DPIE should prioritise action to reduce unprocessed Aboriginal land claims.
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 audit observations and insights from our financial statement audits of agencies in the Planning, Industry and Environment (PIE) cluster for 2019. In this chapter, the Department of Planning, Industry and Environment is referred to as DPIE, the former Department of Planning and Environment as DPE, and the former Department of Industry as DOI.
Section highlights
- One in five issues identified and reported to management in 2018–19 were repeat issues.
- The lack of user access review was the most common IT general control issue in the PIE cluster.
- The PIE cluster provided significant financial assistance for drought relief.
- There continues to be significant deficiencies in Crown land records. The DPIE should ensure the Crown land database is complete and accurate.
- Unspent developer contributions funds continued to build up in 2018–19.
Appendix one – List of 2019 recommendations
Appendix two – Status of 2018 recommendations
Appendix three – Cluster agencies
Appendix four – Financial data
Appendix five – Management letter findings
Appendix six – Timeliness of financial reporting
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.
Internal Controls and Governance 2019
This report covers the findings and recommendations from the 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies in the NSW public sector. The 40 agencies selected for this report constitute around 84 per cent of total expenditure for all NSW public sector agencies.
The report provides insights into the effectiveness of controls and governance processes across the NSW public sector. It evaluates how agencies identify, mitigate and manage risks related to:
- financial controls
- information technology controls
- gifts and benefits
- internal audit
- contingent labour
- sensitive data.
The Auditor-General recommended that agencies do more to prioritise and address vulnerabilities in their internal controls and governance. The Auditor-General also recommended agencies increase the transparency of their management of gifts and benefits by publishing their registers on their websites.
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 2019.
1. Internal control trends
| New, repeat and high risk findings |
There was an increase in internal control deficiencies of 12 per cent compared to last year. The increase is predominately due to a 100 per cent increase in repeat financial and IT control deficiencies. Some agencies attributed the delay in actioning repeat findings to the diversion of staff from their regular activities to implement and operationalise the recent Machinery of Government changes. As a result, actions to address audit recommendations have been deferred or re prioritised, as the changes are implemented. Agencies need to ensure they are actively managing the risks associated with having these vulnerabilities in internal control systems unaddressed for extended periods of time. |
| Common findings |
A number of findings were common to multiple agencies. These findings often related to areas that are fundamental to good internal control environments and effective organisational governance, such as:
|
2. Information technology controls
| IT general controls |
We examined information security controls over key financial systems that support the preparation of agency financial statements. We found:
We also found 20 per cent of agencies had deficient IT program change controls, mainly related to segregation of duties in approval and authorisation processes, and user acceptance testing of program changes prior to deployment into production environments. User acceptance testing helps identify potential issues with software incompatibility, operational workflows, absent controls and software issues, as well as areas where training or user support may be required. |
3. Gifts and benefits
| Gifts and benefits registers |
All agencies had a gifts and benefits policy and 90 per cent of agencies maintain a gifts and benefits register. However, 51 per cent of the gifts and benefits registers we examined contained incomplete declarations, such as missing details for the approving officer, value of the gift and/or benefit offered and reasons supporting the decision. In some cases, gaps in recorded information meant the basis for decisions around gifts and benefits was not always clear, making it difficult to determine whether decisions in those instances were appropriate, compliant with policy and were not direct or indirect inducements to the recipients to favour suppliers or service providers. Agencies should ensure their gifts and benefits register includes all key fields specified in the Public Service Commission's minimum standards for gifts and benefits. Agencies should also perform regular reviews of the register to ensure completeness and ensure any gift or benefit accepted by a staff member meets the public's expectations for ethical behaviour. |
| Managing gifts and benefits |
We found opportunities to improve gifts and benefits processes and enhance transparency. For example, only three per cent of agencies publish their gifts and benefits registers on their websites. Agencies can improve management of gifts and benefits by:
|
| Reporting and monitoring |
Only 35 per cent of agencies reported trends in the number and nature of gifts and benefits recorded in their registers to the agency's senior executive management and/or a governance committee. Agencies should regularly report to the agency executive or other governance committee on trends in the offer and acceptance of gifts and benefits. |
4. Internal audit
| Obtaining value from the internal audit function |
Agencies have established and maintained internal audit functions to provide assurance on the effectiveness of agency controls and governance systems. However, we identified areas where agencies' internal audit functions could improve their processes to add greater value. For example, only 73 per cent of CAEs regularly attend meetings of the agency board or executive management committee. Internal audit functions can add greater value by involving the CAE more extensively in executive forums as an observer. Internal audit functions should also consider producing an annual report on internal audit. An annual report allows the internal audit function to report on their performance and add value by drawing to the attention of audit and risk committees and senior management strategic issues, thematic trends and emerging risks. |
| Role of the Chief Audit Executive |
Forty-five per cent of agencies assigned responsibilities to the Chief Audit Executive (CAE) that were broader than internal audit, but 17 per cent of these had not documented safeguards to protect the independence of the CAE. The reporting lines and status of the CAE at some agencies also needs review. At two agencies, the CAE reported to the CFO. Agencies should ensure:
|
| Quality assurance and improvement program |
Thirty-five per cent of agencies did not have a documented quality assurance and improvement program for its internal audit function. The policy and the International Standards for the Professional Practice of Internal Auditing require agencies to have a documented quality assurance and improvement program. The results of this program should be reported annually. Agencies should ensure there is a documented and operational Quality Assurance and Improvement Program for the internal audit function that covers both internal and external assessments. |
5. Managing contingent labour
| Obtaining value for money from contingent labour |
According to NSW Procurement data, spend on contingent labour has increased by 75 per cent over the last five years, to $1.5 billion in 2018–19. Improvements in internal processes and a renewed focus on agency monitoring and oversight of contingent labour can help ensure agencies get the best value for money from their contingent workforces. Agencies can improve their management of contingent labour by:
We also found 57 per cent of the 23 agencies we examined with contingent labour spend of more than $5 million in 2018–19 have implemented the government's vendor management system and service provider 'Contractor Central'. |
6. Managing sensitive data
| Identifying and assessing sensitive data |
Sixty-eight per cent of agencies maintain an inventory of their sensitive data and where it resides. However, these inventories are not always complete and risks may be overlooked. Agencies can improve processes to manage sensitive data by:
|
| Managing data breaches |
Eighty-eight per cent of agencies have established policies to respond to potential data breaches when they are identified and 70 per cent of agencies maintain a register to record key information in relation to identified data breach incidents. Agencies should maintain a data breach register to effectively manage the actions undertaken to contain, evaluate and remediate each data breach. |
This report covers the findings and recommendations from our 2018–19 financial audits that relate to internal controls and governance at 40 of the largest agencies (refer to Appendix three) in the NSW public sector. The 40 agencies selected for this volume constitute around 84 per cent of total expenditure for all NSW public sector agencies.
Although the report includes several agencies that have changed as a result of the Machinery of Government changes that were effective from 1 July 2019, its focus on sector wide issues and insights means that its findings remain relevant to NSW public sector agencies, including newly formed agencies that have assumed the functions of abolished agencies.
This report offers insights into internal controls and governance in the NSW public sector
This is the third 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. For example, if they do not have strong information technology controls, sensitive information may be at risk of unauthorised access and misuse.
Areas of specific focus of the report have changed since last year
Last year's report topics included transparency and performance reporting, management of purchasing cards and taxi use, and fraud and corruption control. We are reporting on new topics this year and re-visiting agency management of gifts and benefits, which we first covered in our 2017 report. Re-visiting topics from prior years provides a baseline to show the NSW public sectors’ progress implementing appropriate internal controls and governance processes to mitigate existing, new and emerging risks in the public sector.
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 year the report focusses on:
- internal control trends
- information technology controls, including access to agency systems
- protecting sensitive information held within agencies
- managing large and diverse workforces (controls around employing and managing contingent workers)
- maintaining an ethical culture (management of gifts and benefits)
- effectiveness of internal audit function and its oversight by Audit and Risk Committees.
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, internal controls and audit observations are included in the individual 2019 cluster financial audit reports, which will be tabled in parliament from November to December 2019.
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.
Key conclusions and sector wide learnings
- out of date policies or an absence of policies to guide appropriate decisions
- poor record keeping and document retention
- incomplete or inaccurate centralised registers or gaps in these registers.
Policies, procedures and internal controls should be properly designed, be appropriate for the current organisational structure and its business activities, and work effectively.
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 controls to manage gifts and benefits.
Key conclusions and sector wide learnings
We found most agencies have implemented the Public Service Commission's minimum standards for gifts and benefits. All agencies had a gifts and benefits policy and 90 per cent of agencies maintained a gifts and benefits register and provided some form of training to employees on the treatment of gifts and benefits.
Based on our analysis of agency registers, we found some areas where opportunities existed to make processes more effective. In some cases, gaps in recorded information meant the basis for decisions around gifts and benefits was not always clear, making it difficult to determine whether decisions in those instances were appropriate and compliant with policy. Fifty-one per cent of the gifts and benefits registers reviewed contained declarations where not all fields of information had been completed. Seventy-seven per cent of agencies that maintained a gifts and benefits register did not include all key fields suggested by the minimum standards.
Areas where agencies can improve their management of gifts and benefits include:
- ensuring agency policies comprehensively cover the elements necessary to make it effective in an operational environment, such as identifying risks specific to the agency and actions that will be taken in the event of a policy breach
- establishing and publishing a statement of business ethics on the agency's website to clearly communicate expected behaviours to clients, customers,suppliers and contractors
- updating gifts and benefits registers to include all key fields suggested by the minimum standards, as well as performing regular reviews of the register to ensure completeness
- providing on-going training, awareness activities and support to employees, not just at induction
- regularly reporting gifts and benefits to executive management and/or a governance committee such as the audit and risk committee, focussing on trends in the number and types of gifts and benefits offered to and accepted by agency staff
- publishing their gifts and benefits registers on their websites to demonstrate a commitment to a transparently ethical environment.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency internal audit functions.
Key conclusions and sector wide learnings
We found agencies have established and maintained internal audit functions to provide assurance on the effectiveness of agency controls and governance systems as required by TPP15-03 'Internal Audit and Risk Management Policy for the NSW Public Sector'. However, we identified areas where agencies' internal audit functions could improve their processes to add greater value, including:
- documenting and implementing safeguards to address conflicting roles performed by the Chief Audit Executive (CAE)
- ensuring the reporting lines for the CAE comply with the NSW Treasury policy, and the CAE reports neither functionally or administratively to the finance function or other significant recipients of internal audit services
- involving the CAE more extensively in executive forums as an observer
- documenting a Quality Assurance and Improvement Program for the internal audit function and performing both internal and external performance assessments to identify opportunities for continuous improvement
- reporting against key performance indicators or a balanced scorecard and producing an annual report on internal audit to bring to the attention of the audit and risk committee and senior management strategic issues, thematic trends and emerging risks that may require further attention or resources.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of agency controls to on-board, manage and off-board contingent labour.
Key conclusions and sector wide learnings
Agencies have implemented controls to manage contingent labour and most agencies have some level of reporting and oversight of contingent labour at an executive level. However, the increasing trend in spend on contingent labour warrants a renewed focus on agency monitoring and oversight of their use of contingent labour. Over the last five years spend on contingent labour has increased by 75 per cent, to $1.5 billion in 2018–19.
There are also some key gaps that limit the ability of agencies to effectively manage contingent labour. Key areas where agencies can improve their management of contingent labour include:
- preparing workforce plans to inform their resourcing strategy, and confirm prior to engaging contingent labour, that this solution aligns with the strategy and best meets business needs
- involving agency human resources units in decisions about engaging contingent labour
- regularly reporting on contingent labour use to agency executive teams, particularly in terms of trends in agency spend, tenure and compliance with policies and procedures
- strengthening on-boarding and off-boarding processes, including establishing checklists to on-board and off-board contingent labour, making provisions for knowledge transfer, and assessing, documenting and capturing performance information.
This chapter outlines our audit observations, conclusions and recommendations, arising from our review of governance and processes in relation to the management of sensitive data.
Key conclusions and sector wide learnings
Information technology risks are rapidly increasing. More interfaces between agencies and greater connectivity means the amounts of data agencies generate, access, store and share continue to increase. Some of this information is sensitive information, which is protected by the Privacy Act 1988.
It is important that agencies understand what sensitive data they hold, the risks associated with the inadvertent release of this information and how they are mitigating those risks. We found that agencies need to continue to identify and record their sensitive data, as well as expand the methods they use to identify sensitive data. This includes data held in unstructured repositories, such as network shared drives and by agency service providers.
Eighty-eight per cent of agencies have established policies to respond to potential data breaches when they are identified and 70 per cent of agencies maintain a register to record key information in relation to identified data breach incidents.
Key areas where agencies can improve their management of sensitive data include:
- identifying sensitive data, based on a comprehensive and structured process and maintaining an inventory of the data
- assessing the criticality and sensitivity of the data so that the protection of high risk data can be prioritised
- developing comprehensive data breach management policies to ensure data breaches are appropriately managed
- maintaining a data breach incident register to record key information in relation to identified data breaches incidents, including the estimated cost of the breach
- providing on-going training and awareness activities to employees in relation to sensitive data and managing data breaches.
Appendix one – List of 2019 recommendations
Appendix two – Status of 2018 recommendations
Appendix three – In-scope agencies
© 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.
Universities 2018 audits
The Acting Auditor General of New South Wales, Ian Goodwin, released a report today on the results of financial audits of NSW universities for the year ended 31 December 2018.
All ten NSW universities received unqualified audit opinions.
This report analyses the results of our audits of financial statements of the ten NSW universities for the year ended 31 December 2018. The table below summarises our key observations.
This report provides Parliament with the results of our financial audits of New South Wales universities and their controlled entities in 2018, including our analysis, observations and recommendations in the following areas:
- financial reporting
- internal controls and governance
- teaching and research.
Financial reporting is an important element of governance. Confidence and transparency in university sector decision making are enhanced when financial reporting is accurate and timely.
This chapter outlines our audit observations on the financial reporting of NSW universities for 2018.
Appropriate and robust internal controls help reduce risks associated with managing finances, compliance and administration of NSW universities.
This chapter outlines the internal controls related observations and insights across NSW universities for 2018, including overall trends in findings, level of risk and implications.
Our audits do not review all aspects of internal controls and governance every year. The more significant issues and risks are included in this chapter. These along with the less significant ones are reported to universities for them to address.
Universities' primary objectives are teaching and research. They invest most of their resources to achieve quality outcomes in academia and student experience. Universities have committed to achieving certain government targets and compete to advance their reputation and international and Australian rankings.
This chapter outlines teaching and research outcomes for NSW universities for 2018.
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:
|
| 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.
