Reports
Machinery of government changes
What the report is about
The term ‘machinery of government’ refers to the way government functions and responsibilities are organised.
The decision to make machinery of government changes is made by the Premier. Changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day.
Larger machinery of government changes typically occur after an election or a change of Premier.
This report assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet (DPC) and NSW Treasury in overseeing machinery of government changes.
What we found
The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of benefits has not been monitored. The costs of the changes were not tracked or reported.
DPC and NSW Treasury provided principles to guide implementation but did not require departments to collect or report information about the benefits or costs of the changes.
The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled.
Major implementation challenges included negotiation about the allocation of corporate support staff and the integration of complex corporate and ICT systems.
What we recommended
DPC and NSW Treasury should:
- consolidate existing guidance on machinery of government changes into a single document that is available to all departments and agencies
- provide guidance for departments and agencies to use when negotiating corporate services staff transfers as a part of machinery of government changes, including a standard rate for calculating corporate services requirements
- progress work to develop and implement common processes and systems for corporate services in order to support more efficient movement of staff between departments and agencies.
Fast facts
- $23.7m is the estimated minimum direct cost of the 2019 DPIE changes to date, noting additional ICT costs will be incurred
- $4.0m is the estimated minimum direct cost of the 2020 DRNSW changes, with an estimated $2.7 million ongoing annual cost
- 40+ NSW Government entities affected by the 2019 machinery of government changes
The term ‘machinery of government’ refers to the way government functions and responsibilities are allocated and structured across government departments and agencies. A machinery of government change is the reorganisation of these structures. This can involve establishing, merging or abolishing departments and agencies and transferring functions and responsibilities from one department or agency to another.
The decision to make machinery of government changes is made by the Premier. These changes may be made for a range of reasons, including to support the policy and/or political objectives of the government of the day. Machinery of government changes are formally set out in Administrative Arrangements Orders, which are prepared by the Department of Premier and Cabinet, as instructed by the Premier, and issued as legislative instruments under the Constitution Act 1902.
The heads of agencies subject to machinery of government changes are responsible for implementing them. For more complex changes, central agencies are also involved in providing guidance and monitoring progress.
The NSW Government announced major machinery of government changes after the 2019 state government election. These changes took place between April and June 2019 and involved abolishing five departments (Industry; Planning and Environment; Family and Community Services; Justice; and Finance, Services and Innovation) and creating three new departments (Planning, Industry and Environment; Communities and Justice; and Customer Service). This also resulted in changes to the 'clusters' associated with departments. The NSW Government uses clusters to group certain agencies and entities with related departments for administrative and financial management. Clusters do not have legal status. Most other departments that were not abolished had some functions added or removed as a part of these machinery of government changes. For example, the functions relating to regional policy and service delivery in the Department of Premier and Cabinet were moved to the new Department of Planning, Industry and Environment.
Our Report on State Finances 2019, tabled in October 2019, outlined these changes and identified several issues that can arise from machinery of government changes if risks are not identified early and properly managed. These include: challenges measuring the costs and benefits of machinery of government changes; disruption to services due to unclear roles and responsibilities; and disruption to control environments due to staff, system and process changes.
In April 2020, the Department of Regional NSW was created in a separate machinery of government change. This involved moving functions and agencies related to regional policy and service delivery from the Department of Planning, Industry and Environment into a standalone department.
This audit assessed how effectively the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) managed their 2019 and 2020 machinery of government changes, respectively. It also considered the role of the Department of Premier and Cabinet and NSW Treasury in overseeing machinery of government changes. The audit investigated whether:
- DPIE and DRNSW have integrated new responsibilities and functions in an effective and timely manner
- DPIE and DRNSW can demonstrate the costs of the machinery of government changes
- The machinery of government changes have achieved or are achieving intended outcomes and benefits.
It is unclear whether the benefits of the machinery of government changes that created the Department of Planning, Industry and Environment (DPIE) and the Department of Regional NSW (DRNSW) outweigh the costs. The anticipated benefits of the changes were not articulated in sufficient detail and the achievement of directly attributable benefits has not been monitored. The costs of the changes were not tracked or reported. The benefits and costs of the machinery of government changes were not tracked because the Department of Premier and Cabinet (DPC) and NSW Treasury did not require departments to collect or report this information. The implementation of the machinery of government changes was completed within the set timeframes, and operations for the new departments commenced as scheduled. This was achieved despite short timelines and no additional budget allocation for the implementation of the changes.
The rationale for establishing DPIE was not documented at the time of the 2019 machinery of government changes and the anticipated benefits of the change were not defined by the government or the department. For DRNSW, the government’s stated purpose was to provide better representation and support for regional areas, but no prior analysis was conducted to quantify any problems or set targets for improvement. Both departments reported some anecdotal benefits linked to the machinery of government changes. However, improvements in these areas are difficult to attribute because neither department set specific measures or targets to align with these intended benefits. Since the machinery of government changes were completed, limited data has been gathered to allow comparisons of performance before and after the changes.
DPC and NSW Treasury advised that they did not define the purpose and benefits of the machinery of government changes, or request affected departments to do so, because these were decisions of the government and the role of the public service was to implement the decisions.
We have attempted to quantify some of the costs of the DPIE and DRNSW changes based on the information the audited agencies could provide. This information does not capture the full costs of the changes because some costs, such as the impact of disruption on staff, are very difficult to quantify, and the costs of ICT separation and integration work may continue for several more years. Noting these limitations, we estimate the initial costs of these machinery of government changes are at least $23.7 million for DPIE and $4.0 million for DRNSW. For DPIE, this is predominantly made up of ICT costs and redundancy payments made around the time of the machinery of government change. For DRNSW it includes ICT costs and an increase in senior executive costs for a standalone department, which we estimate is an ongoing cost of at least $1.9 million per year.
For the DPIE machinery of government change, there were risks associated with placing functions and agencies that represent potentially competing policy interests within the same 'cluster', such as environment protection and industry. We did not see evidence of plans to manage these issues being considered by DPIE as a part of the machinery of government change process.
The efficiency of machinery of government changes could be improved in several ways. This includes providing additional standardised guidance on the allocation of corporate functions and resources when agencies are being merged or separated, and consolidating guidance on defining, measuring and monitoring the benefits and costs of machinery of government changes.
Appendix one – Response from agencies
Appendix two – About the audit
Appendix three – Performance auditing
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Parliamentary reference - Report number #359 - released (17 December 2021).
