Unqualified audit opinions were issued on the 2019–20 financial statements of central agencies and the Legislature.

The audit opinion on the Social and Affordable Housing NSW Fund's compliance with the payment requirements of the Social and Affordable Housing NSW Fund Act 2016 was qualified.

All agencies met statutory deadlines for submitting
financial statements. 

• Insurance and Care NSW
• New South Wales Government Telecommunications Authority
• Rental Bond Board
• Independent Commission Against Corruption
• NSW Treasury
• Crown Entity
• Department of Premier and Cabinet.

High risk findings include:

• Insurance and Care NSW (icare) allocates service costs to the Workers Compensation Nominal Insurer, and the other schemes it supports. The documentation supporting cost allocations does not demonstrate how these allocations reflect actual costs. There is a risk of the Workers Compensation Nominal Insurer being overcharged.
• New South Wales Government Telecommunications Authority's delay in capitalisation and valuation of material capital projects; and insufficient work performed to implement the new accounting standard AASB 16 ‘Leases’.
• NSW Treasury's four-year plan to transition RailCorp to a for-profit State Owned Corporation called Transport Asset Holding Entity of New South Wales (TAHE) by 1 July 2019, remains to be implemented. On 1 July 2020, RailCorp converted to TAHE. A large portion of the planned arrangements are still to be implemented. As at the time of the audit, the TAHE operating model, Statement of Corporate Intent (SCI) and other key plans and commercial agreements were not finalised. In the absence of commercial arrangements with the public rail operators, there is a lack of evidence to demonstrate TAHE’s ability to create a commercial return in the long term. This matter has been included as a high risk finding in our management letter as there may be financial reporting implications to the State if TAHE does not generate a commercial return for its shareholders in line with the original intent. NSW Treasury and TAHE should ensure the commercial arrangements, operating model and SCI are finalised in 2020–21.

Of the 122 moderate risk issues, 36 per cent were repeat issues. The most common repeat issue related to weaknesses in controls over information technology user access administration, which increases the risk of inappropriate access to systems and records.

GovConnect NSW provides transactional and information technology services to central agencies. It engages an independent service auditor (service auditor) from the private sector to perform annual assurance reviews of controls at service providers, namely Infosys, Unisys and the Department of Customer Service (DCS). The service auditor issued:

• unqualified opinions on information technology and business process controls at Infosys and Unisys, but there was an increase in control deficiencies identified in the user access controls at these service providers
• a qualified opinion on DCS's information technology (IT) security monitoring controls because security tools were not implemented and monitored for the entire financial year. Responsibility for IT security monitoring transitioned from Unisys to DCS in 2019–20. These control deficiencies can increase the risk of fraud and inappropriate use of sensitive data.

These may impact on the ability of agencies to detect and respond to a cyber incident.

Recommendation:

We recommend DCS work with GovConnect service providers to resolve the identified control deficiencies as a matter of priority.

The NSW Cyber Security Policy requires agencies to provide a maturity self-assessment against the Australian Cyber Security Centre (ACSC) Essential 8 to the head of the agency and Cyber Security NSW annually. Completed self-assessment returns highlighted limited progress in implementing the Essential 8.

Repeat recommendation:

Cyber Security NSW and NSW government agencies need to prioritise improvements to their cyber security resilience as a matter of urgency

Costs are incurred by icare as the 'service entity' of the statutory scheme it administers, and then subsequently recovered from the schemes through 'service fees'. In the absence of documentation supported by robust supporting analysis, there is a risk of the schemes being overcharged, and the allocation of costs being in breach of legislative requirements.

Recommendation:

icare should ensure its approach to allocating service fees to the Workers Compensation Nominal Insurer and the other schemes it manages, is transparent and reflects actual costs.

Section highlights

• Unqualified audit opinions were issued on the 2019–20 financial statements of central agencies and the Legislature. All agencies met the statutory deadlines for submitting their financial statements.
• The audit opinion on the Social and Affordable Housing NSW Fund's compliance with the payment requirements of the Social and Affordable Housing NSW Fund Act 2016 was qualified as a result of a payment made without a Treasurer's delegation.
• Agencies were impacted by emergency events during 2019–20. This included additional grants to fund specific deliverables.
• The implementation of new accounting standards was challenging for many agencies. The New South Wales Government Telecommunications Authority was not well-prepared to implement AASB 16 'Leases' and had not completely assessed contracts that contained leases. This resulted in understatements of leased assets and liabilities by $56 million which were subsequently corrected.
• NSW Treasury did not adequately implement the new revenue standard AASB 1058 ‘Income of Not-for-Profit Entities’ for the Crown Entity. This resulted in understatements of $274 million in opening equity and $254 million to current year revenue in the financial statements. These misstatements were due to incorrect revenue calculations performed by the Transport agencies. The Crown Entity relies on information from Transport agencies as they are responsible for carrying out the State’s contractual obligations for Commonwealth funded transport projects. The extent of misstatements could have been reduced with more robust quality review processes in place by Treasury and Transport.

Section highlights

• The 2019–20 audits identified nine high risk and 122 moderate risk issues across the agencies. Of the 122 moderate risk issues, 44 (36 per cent) were repeat issues. The most common repeat issue relates to weaknesses in controls over information technology user access administration.
• Service NSW delivers grants responding to emergency events on behalf of other NSW Public Sector agencies. Since the first grant program commenced in January 2020, Service NSW processed approximately $791 million to NSW citizens and businesses impacted by these emergency events for the financial year ended 30 June 2020.
• GovConnect NSW engaged an independent auditor (the service auditor) from the private sector to evaluate the internal controls of its service providers. DCS's information technology security monitoring controls were qualified by the service auditor because security tools were not implemented and monitored for the entire financial year. These may impact on the ability of agencies to detect and respond to a cyber incident.
• NSW Government agency self-assessment results show that the NSW Public Sector's cyber security resilience needs urgent attention.
• The Workers Compensation Nominal Insurer, NSW Self Insurance Corporation and the Lifetime Care and Support Authority of NSW all had negative net assets at 30 June 2020. The financial statements for these entities continued to be prepared on a going concern basis as their liabilities are not all due for settlement within the next 12 months.
• icare did not comply with the Government Information (Public Access) Act 2009 (GIPA) contract disclosure requirements in 2019–20, and has not complied for several years. A total of 417 contracts were identified by management as not having been published on the NSW Government’s eTendering website. The final upload of these past contracts occurred on 20 August 2020.
• Machinery of Government (MoG) changes impacted the governance and business processes of affected agencies. Our audits identified and reported areas for improvement in the consolidation of corporate functions following MoG changes at Infrastructure NSW and in the Customer Service cluster.

Agencies implemented three new accounting standards during the year. Our audit of the Department identified there was a lack of quality assurance over the accuracy of lease information provided by Property NSW.

Recommendation:

The Department should:

• quality assure and validate the leasing information provided by Property NSW
• ensure changes made by Property NSW to lease data are supported and that assumptions and judgements applied are appropriate
• document their review of the data supplied.

We identified 30 internal control issues, including 16 findings that were raised with former agencies in previous years. Two matters from previous years have been elevated to high risk during 2019–20. Both matters related to Local Land Services:

• not completing all mandatory requirements as part of its early close procedures at 31 March 2020
• not performing annual fair value assessment of asset improvements on land reserves used for moving livestock.

Recommendation:

Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing high-risk and repeat issues.

Section highlights

• Unqualified audit opinions were issued for all cluster agencies' 30 June 2020 financial statements audits.
• Nine of the ten cluster agencies subject to statutory reporting deadlines met the revised timeline for submitting the financial statements. New South Wales Rural Assistance Authority missed the revised deadline by one day.
• Due to issues identified during audit, four financial statements audit were not completed and audit opinions issued by the statutory deadline.
• Emergency legislation allowing the Treasurer to continue authorising payments from the consolidated fund under the existing Appropriations Act enabled cluster agencies to prepare financial statements on a going concern basis.

Section highlights

• Two high-risk issues were identified during our audits. Both related to Local Land Services for:
  − not completing all mandatory requirements as part of its early close procedures at 31 March 2020
  − not performing annual fair value assessment of asset improvements on land reserves used for moving livestock
• More than one in two issues identified and reported to management in 2019–20 were raised in the former agencies.