About this report

Local councils in NSW manage a large proportion of roads across the state. Roads often represent a significant proportion of total council
expenditure.

How councils manage roads is impacted by their revenue, local conditions, and the needs of residents, businesses and other road users.

This audit was undertaken within the wider context of natural disasters and weather events that have significantly impacted the road network in NSW in recent years.

It assessed whether three councils had effectively managed their road assets to meet the needs of their communities, makes detailed findings and recommendations to each audited council, and identifies key lessons for the wider local government sector.

Key findings

All councils can improve how they link community consultation with planned service levels. Formalising these processes could help better demonstrate how current service levels meet community needs.

Clarence Valley Council

• has established a strategic priority for road asset management but not formal governance arrangements or a long-term capital works program
• is delivering and reporting on its work to respond to natural disasters but does not report against targets for road asset quality and service
• has set benchmarks for road asset maintenance, replacement and renewal but needs clear service levels.

Gwydir Shire Council

• did not have aligned, up-to-date asset plans during the audit period
• did not have a long-term capital works program but adopted a prioritisation program for capital works in August 2024
• did not effectively implement formal governance, or coordinate management oversight, to manage its road assets.

Wollondilly Shire Council

• has a strategic framework for road asset management and has used long-term plans to guide its asset capital and maintenance works
• has reported asset management outcomes against a planned capital works program but could improve how it uses KPIs to demonstrate performance.

This is the first performance audit of the local government sector that I am tabling in Parliament as Auditor-General for New South Wales.

Our performance audits are designed to provide valuable information to parliamentarians, sector stakeholders and the public. Ultimately, our aim is to ensure transparency, a principle that underpins effective and efficient use of public resources.

The management of roads and associated assets is a critical issue for local councils across the state. In recent years, many councils have had to contend with the immediate and ongoing effects of natural disasters.

These natural disasters, along with increased community expectations, population changes and complex regulatory obligations all contribute to financial sustainability risks for councils. Some councils have used short-term funding allocations (including emergency relief grants) to cover the costs of managing long-term assets. These councils do not have the capacity to generate sufficient income from their own sources, and therefore depend on assistance from other levels of government. Councils’ ability to plan and budget for the long term has also been disrupted by the need for new or restored infrastructure outside asset life cycles.

Several reports and inquiries in recent years have highlighted these significant financial sustainability risks. The parliamentary inquiry into the ‘Ability of local governments to fund infrastructure and services’,¹ due to be tabled soon, will be a critical input to a long-term solution.

The three councils audited in this report – Clarence Valley, Gwydir Shire and Wollondilly Shire –each experienced significant natural disasters, including fires, storms and floods during the audit period. Despite this, each audited council was able to deliver a large volume of road asset management works.

This report provides valuable lessons from these audited councils that can help all councils manage their roads more effectively in the face of evolving risks and competing resource demands.

I acknowledge this has been a difficult time for some councils across NSW. This report supports councils with practical steps to manage their roads as effectively as possible, improve their resilience to climate challenges and meet legislative requirements.

¹ The inquiry into the ‘Ability of local governments to fund infrastructure and services’ by the NSW Legislative Council Standing Committee on State Development commenced on 14 March 2024 to inquire into, and report on, the ability of local governments to fund infrastructure and services.

Background

Local councils in New South Wales (NSW) manage over 180,000 km of local and regional roads combined. These roads are crucial to travel within local government areas and across the state, improving community accessibility. Reliable roads ensure commercial and public transport can run on time, increase safety and keep the environment clean.

As roads age and deteriorate, they become more expensive to repair. Road surfaces and formations are vulnerable to both extreme heat and water exposure. These kinds of exposure have varying effects on the ways roads degrade, depending on the amount of traffic and the kinds of vehicles that use them.

Local conditions, business and road-user needs, and the impacts of natural disasters vary between councils and influence the way each council manages its roads. Regularly maintaining roads can keep roads functional and safe and prevent costly, unbudgeted repairs and replacements.

In the 2022–23 financial year (FY2022–23), the estimated total replacement cost of council road assets across NSW was around $102 billion. In the same year, local councils reported collective road asset maintenance expenditure of around $1 billion.

Since 2017, financial audits of local councils have identified asset management-related issues, including gaps in asset management processes, governance and systems. The Audit Office’s ‘Local Government 2023’ report outlined 266 asset management-related findings across the local government sector, including gaps in revaluation processes, maintenance of information in asset management systems and accounting practices.

Councils also provide a wide range of other services and infrastructure, including water and sewer infrastructure and services, waste management, environmental protection, housing, and community transport. Through integrated planning and reporting, councils determine how they will allocate resources to their services and infrastructure. Understanding community expectations for assets and services, alongside technical requirements, supports effective planning for function, cost and quality.

Audit objective

This audit assessed how effectively three councils – Clarence Valley Council, Gwydir Shire Council and Wollondilly Shire Council – are managing their road assets to meet the needs of their communities.

The audit assessed whether the selected councils:

• have a strategic framework in place for managing their road assets
• have effective governance, data and systems for road asset management
• are managing their road assets in line with planned service levels and quality outcomes.

Overview of findings

This audit assessed how effectively Clarence Valley Council, Gwydir Shire Council and Wollondilly Shire Council managed their road assets to meet the needs of their communities.

In assessing each Council’s performance, this audit concluded:

Clarence Valley Council has effectively established a strategic priority for road asset management, but delivery of this priority was not supported by formal governance arrangements or a long-term capital works program. While the Council is delivering and reporting on a large volume of road asset works in response to natural disasters, it does not report on consolidated targets for road asset quality and service. The Council has set benchmarks for maintenance, replacement and renewal of roads. It now needs to enhance this with clear service levels to ensure community needs and expectations are met.

Detailed conclusions and recommendations for the Council are outlined in sections 2.2 and 2.3. Recommendations include that Clarence Valley Council:

• updates and implements its asset management plan and associated improvement actions
• reviews and implements key performance indicators (KPIs)
• captures lessons learned from its natural disaster responses
• implements a long-term capital works program.

Gwydir Shire Council did not have aligned, up-to-date long-term asset management plans to support a strategic framework for road asset management across the audit period. The Council did not effectively implement formal governance and coordinated management oversight for its road assets. The Council implemented updates to its asset management plans in June 2024 and governance arrangements in July 2024.

The Council has reported on the large volume of works it is delivering, including in response to natural disasters, but is not reporting in the context of information about targets and quality benchmarks. The Council does not have a long-term capital works program, but adopted a prioritised rolling program of works in August 2024 to guide its priorities and efforts over time.

Detailed conclusions and recommendations for the Council are outlined in sections 3.2 and 3.3. Recommendations include that Gwydir Shire Council:

• implements its asset management plans and associated improvement actions
• formalises and documents community priorities and service level expectations for roads
• captures lessons learned from its natural disaster responses.

Wollondilly Shire Council has effectively applied a coordinated and strategic framework to deliver road asset management. The Council has long-term plans to guide its efforts and uses data to inform its approach. The Council has delivered a large volume of works in response to natural disasters during the audit period. The Council is reporting its road asset management outcomes and can demonstrate progress against a clearly defined capital works program, but its use of performance indicators could be improved.

Detailed conclusions and recommendations for the Council are outlined in sections 4.2 and 4.3. Recommendations include that Wollondilly Shire Council:

• finalises and implements its transport asset management plan
• reviews performance indicators for road assets
• formalises and documents community priorities within its integrated planning and reporting (IP&R) and asset management frameworks.

Key observations of good practice

While each council was separately audited, this report also identifies practices that contribute to effective road asset management across all local councils.

These include:

1. a good understanding and articulation of the community’s vision, priorities and purpose for local roads
2. asset management documents that are current and aligned with broader strategies and financial plans
3. long-term capital works planning that considers associated ongoing costs, and is supported by systematic prioritisation of works
4. clear and documented decision making processes
5. transparent performance reporting on progress and outcomes
6. reliable, accurate and assured data and systems
7. continuous improvement through both formal reviews and capturing lessons learned
8. resilience and responsiveness to natural disasters with a planned approach to disaster recovery.

Further lessons for local government can be found in Appendix 3.

Appendix 1 – Response from entity

Appendix 2 – Council expenditure profile

Appendix 3 – Lessons for local government road asset management

Appendix 4 – About the audit

Appendix 5 – Performance auditing

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Parliamentary reference - Report number #401 - released 21 November 2024.

About this report

The Regional Digital Connectivity program (RDCP) is intended to improve mobile coverage and internet connectivity in regional NSW.

The RDCP includes two funding programs, one for improving mobile coverage and the other for improving internet connectivity. Both programs provide grant funding to commercial telecommunications providers for eligible mobile and internet projects.

This audit assessed whether the Department of Regional NSW (the department) is effectively administering the RDCP to meet program objectives.

Findings

The department's approach to identifying priority areas for RDCP funding was comprehensive and it largely distributed funding in line with these priorities.

The department has not specifically defined the overall objectives of the RDCP. The department has developed business cases that set out each program’s respective objectives, but these do not consistently describe the objectives of the RDCP.

The department also has not developed an overarching investment strategy, which would assist it in addressing potentially conflicting priorities.

Deficiencies in project and risk management have contributed to delays in the department’s implementation of the program.

The department is not monitoring progress against outcomes, which limits its ability to demonstrate that the program is achieving its intended purpose.

The department did not meet its original mobile coverage performance target but met its internet connectivity target.

Recommendations

To improve RDCP administration, the report recommends that by June 2025, the department should:

1. develop an overarching investment strategy for the RDCP
2. outline the expected timelines for RDCP projects and ensure that these timelines are updated regularly
3. develop and report on RDCP outcome indicators
4. update the RDCP evaluation plan
5. update the expected benefits of the program to reflect changes in the RDCP.

The Regional Digital Connectivity program (RDCP) is funded through the Snowy Hydro Legacy Fund (SHLF). Under the Snowy Hydro Legacy Fund Act 2018 (SHLF Act), the purpose of the SHLF is to improve economic development in regional New South Wales and to fund infrastructure projects that primarily benefit regional New South Wales. A priority area for SHLF investment is delivering improved mobile coverage and internet connectivity in underserved and remote communities.

The RDCP has been implemented by the Department of Regional NSW (the department) since 2019. The RDCP is broadly split into two funding programs. The larger funding program is for improving mobile coverage and the other funding program is for improving internet connectivity and is referred to as the Gig State program. Both programs provide grant funding to commercial telecommunications providers for eligible mobile and internet projects.

Over $300 million from the RDCP was allocated to improve mobile phone coverage and increase the number of mobile service providers across regional NSW. The mobile coverage program is being delivered through the following sub-programs:

• Snowy Mountains Highway Safety project – co-funding with Snowy Hydro Limited to build five mobile towers along the Snowy Mountains Highway to improve mobile coverage.
• Active Sharing Partnership (ASP) pilot – co-funding with private providers to deliver active sharing mobile technology in regional areas.
• ASP main program – This is the main round of the mobile coverage program. A business case has been developed, but no funding has been distributed through this sub-program.
• Mobile Black Spot Program Round 5A – co-funding with the Australian Government’s Mobile Black Spot Program to deliver new or upgraded mobile towers in regional and remote locations.
• Mobile Black Spot Program Round 7 (MBSP7) – co-funding with the Australian Government’s Mobile Black Spot Program to deliver new mobile infrastructure.

Over $100 million from the RDCP was allocated to the Gig State program to improve regional internet connectivity through partnering with multiple providers and using a range of technologies suitable for rural and regional locations. The Gig State program was launched in 2019 and underwent significant changes in 2021 following an Infrastructure NSW deep dive review into the project. These changes to the program are referred to as the Gig State addendum. The Gig State program is being delivered through the following sub-programs:

• Cobar corridor connectivity – providing fixed wireless internet access to five locations between Narromine and Cobar.
• nbn regional NSW fixed wireless – co-funding with nbn to deliver new or co-located fixed wireless broadband towers in 56 locations.
• Wamboin, Bywong and Sutton connectivity – improving internet connectivity in these three towns as part of a NSW Government commitment.
• Regional Connectivity Program Round 3 (RCP3) – co-funding with the Australian Government’s Regional Connectivity Program to provide additional internet infrastructure.

The objective of this audit was to assess whether the Department of Regional NSW is effectively administering the Regional Digital Connectivity program to meet program objectives. The audit examined:

• how effectively the department identifies priority areas to target RDCP funding
• how effectively the department distributes RDCP funding in line with program objectives
• how effectively the department measures the performance of the RDCP.

The department has not specifically defined the overall objectives of the RDCP

The RDCP is delivered as part of the SHLF. Under the SHLF Act, the purpose of the SHLF is to improve economic development in regional New South Wales and, for that purpose, to fund infrastructure projects that primarily benefit regional New South Wales. One of the priority areas for SHLF investment is digital connectivity, which is being delivered through the RDCP.

While the purpose of the SHLF is set out in the SHLF Act, the department has not specifically set out the overall purpose and objectives of the RDCP and how it will focus the RDCP on achieving the SHLF’s purpose. Such a document would support future business case development, and support the coordination and prioritisation of objectives across the business cases that have already been developed.

While the overall objectives of the RDCP are yet to be defined, there are objectives set out in the business cases for the separate programs but these are not consistently described. The Gig State business case advises that the RDCP’s goal is to enable transformative long-term benefits for regional areas through investment in digital connectivity. This goal aligns with the purpose of the SHLF Act. However, this objective is not set out in the mobile coverage business case, or any other document, and it is not clear how the RDCP is intended to fulfil this objective.

The Gig State business case sets out three objectives for the RDCP that provide further definition to the SHLF Act’s purpose, though it is unclear how these were determined and whether these are intended to cover the entire RDCP:

• address the digital divide between regional and metro NSW
• resolve market failures in the regional NSW telecommunications market
• leverage Government assets and capabilities wherever possible.

The mobile coverage ASP pilot business case sets out a similar set of objectives, though there are some differences, such as the third objective being to ‘leverage Government assets and capabilities to achieve transformative results.’ It is important for the department to clarify the RDCP’s objectives to ensure a unified approach to investment decisions. At the time of the audit, the department’s website had a different set of objectives for the RDCP. They are:

• build digital infrastructure to increase capacity
• expand mobile coverage and provider choice
• improve internet service, speed and quality
• bridge the digital divide between regions and cities.

The department also provided a 2022–23 ‘division plan’, with goals for the mobile coverage and Gig State programs. These include:

•  extend and improve internet coverage to deserving locations in regional NSW
• investigate emerging digital technologies to improve connectivity
• deliver new and improved mobile coverage to regional NSW communities
• encourage competition in the regional telecommunications market.

While these different sets of objectives broadly align, there is no consistency across these business cases in describing the objectives of the RDCP. This indicates that there is a lack of clarity about the intended objectives of the RDCP. Further, the origin of the list of objectives in the ‘division plan’ is unclear. This reinforces the need to clearly define objectives for the overall RDCP.

Each business case the department has developed for RDCP programs has defined objectives that align with the SHLF’s purpose

The Gig state and mobile coverage business cases also define objectives for each program. These objectives align with the SHLF’s purpose, set out above. The Gig State business case advises that the purpose of the Gig State program is to:

• address the digital divide between metro and regional NSW so that the price, quality, and choice of digital connectivity options in metro areas are made available in regional areas of NSW
• resolve market failures in regional NSW telecommunications
• leverage Government assets or investment where appropriate to achieve transformative long-term benefits for regional areas.

The ASP pilot business case states similar objectives, though it does not mention the ‘price, quality, and choice’ stated in the Gig State business case. The ASP pilot business case also lists another three objectives:

• address mobile black spots where people live and work
• investigate new and emerging technologies to future proof mobile coverage in regional NSW
• promote consumer choice in the delivery of mobile services.

The ASP main program has a different set of objectives to the ASP pilot and include:

• reduce the digital divide and enhance social inclusion by improving mobile coverage in regional locations not covered by existing programs
• encourage competition in the regional telecommunications market to provide consumers greater choice, lower prices and improved services
• address commercial viability and technical constraints to providing mobile coverage in regional areas
• improve community resilience to emergency events through improved regional mobile service.

The RDCP program objectives align with relevant whole-of-government strategic objectives

There are several whole-of-government strategies that seek to guide government investment in digital infrastructure. While there is no document setting out the overarching objectives of the RDCP, the objectives set out for the mobile coverage program and the Gig State program align with these whole-of-government objectives.

The objectives align with the 2018 and 2021 ‘20 Year Economic Vision for Regional NSW’. For example, the 2018 ‘20 Year Economic Vision for Regional NSW’ sets out principles for regional NSW investment, including ‘Affordable, reliable and fast internet to support people and businesses.’

The RDCP sub-programs also align with the 2018 and 2022 State Infrastructure Strategies. In particular, the 2018 strategy has a set of recommendations around improving connectivity across NSW and another set of recommendations around investing in technology that improves productivity and social outcomes. One of the roles of the Gig State program is to help to implement the 2018 strategy’s recommendation to support statewide access to 50Mbps download and 10Mbps upload capacity by 2025. These speeds are specifically stated in the Gig State grant guidelines as an eligibility requirement for funded programs.

Both sub-programs of the RDCP also align with the NSW Connectivity Strategy. The NSW Connectivity Strategy has two directions of particular relevance: ‘All customers have metropolitan equivalent digital capacity’ and ‘Connectivity blackspots continually decrease across the State’. The first of these objectives has three strategic directions which are directly relevant to both the Gig State program and the mobile coverage program:

• remote, rural and peri-urban citizens can access and effectively use digital systems and services for employment, justice, education, health, social, personal and entertainment use
• Aboriginal and Torres Strait Islander communities have equitable access to connectivity that meets their local community needs
• connectivity services are affordable for citizens no matter where they live, with access to a choice of providers.

Elements of both the Gig State and mobile coverage programs align with these, including the focus on expanding access and affordability.

In regard to regional Aboriginal communities, the RDCP may also contribute to the NSW Closing the Gap Implementation Plan, as the merit criteria in the grant guidelines for mobile coverage and Gig State grants include the extent to which the project will contribute to sustainable procurement and employment outcomes, including supporting Aboriginal businesses and employment. The criteria for prioritising locations for mobile coverage also includes extending coverage to discrete Aboriginal communities as something which could improve the score given to an application. However, this is not set out as an explicit objective of the program.

The department has not set out an overarching investment strategy for the RDCP to address potentially conflicting priorities or identify situations where funding may not align with program objectives

As noted above, the overall objectives of the RDCP have not been defined. The department does not have an overarching strategy setting out program objectives, how funding will be aligned with these objectives, and how the objectives will be prioritised. It is important to set out funding principles to establish how the elements of the stated objectives will be delivered and prioritised. Not setting these out risks funding decisions that do not align with program objectives.

As noted above, the mobile coverage ASP pilot business case lists two objectives around addressing mobile black spots and promoting consumer choice in the delivery of mobile services. These objectives may be potentially in conflict as expanding coverage can be done by funding one carrier to expand their own network, while promoting consumer choice could conceivably be done by funding a carrier to expand their network into areas already covered by only one existing carrier, thus increasing competition in those areas.

The department has not set out the relative weighting of its objectives across the RDCP funding packages and how it will prioritise funding in accordance with them. An overarching strategy would assist the department with prioritising funding in accordance with the objectives of the program, including determining the relative weight of each objective.

In addition, the department has not described the extent to which price reductions in the cost of internet will be prioritised as an objective of the Gig State program. The Gig State business case sets out that one of the objectives of the program will be to provide metropolitan equivalent or better service, quality and pricing for internet services in regional areas. It is unclear how internet pricing fits into the overarching objectives of the RDCP given that it is not mentioned as an objective of the SHLF. There would be value in setting out strategic investment principles and objectives to guide this decision-making and clarify the extent to which internet investment is intended to fulfil this purpose.

A lack of clarity about program objectives may also have impacted decisions about funding priorities. For example, the Gig State program business case sets out a plan to invest in Low Earth Orbit (LEO) satellites through a subsidy program. As noted above, the Gig State business case sets out some objectives for the RDCP, including leveraging government assets. While an investment in LEO satellites through subsidies may assist with bridging the digital divide, it is not clear how this aligns with the objective of leveraging government assets. More clarity over program objectives and a clear investment strategy may assist with clarifying this and similar investment decisions in future. As discussed below, the investment in LEO satellites did not proceed.

The department comprehensively identified priority areas that require improved mobile coverage for the mobile coverage program

As outlined above, the final business case for the mobile coverage ASP pilot program identifies three objectives for the mobile coverage program, including addressing the digital divide between metropolitan and regional NSW, and resolving market failures in regional NSW telecommunications. The department identified priority areas for improved mobile coverage in line with these objectives. The department refined its approach to prioritising locations for the mobile coverage ASP main program which resulted in a more comprehensive analysis of potential sites.

The department developed and implemented a structured process using a range of criteria to identify and prioritise suitable locations for funding. Before allocating funding to its mobile coverage program, it was necessary for the department to determine areas that required additional mobile coverage. The department undertook this work for both its mobile coverage ASP pilot program and the ASP main program as part of designing the grant programs. A key source of information it relied on for identifying priority areas for the pilot program was the Australian Government’s National Mobile Black Spot Database. The database identified around 4,000 mobile black spot locations across NSW. This database is no longer in use as it relied on community reports of mobile black spots which were unverified.

For its mobile coverage ASP pilot program, the department applied a series of filters to the mobile black spots identified in the database. It removed metropolitan areas, areas within a 10km radius of an existing mobile tower site, and areas that had already been selected for funding under either Commonwealth or State funded programs, such as the Connecting Country Communities Fund. This left the department with a list of around 1,200 potential sites.

The department then mapped the 1,200 identified black spot sites to their respective 383 unique locations and assessed and prioritised the mobile black spots and locations against a range of economic, community and feasibility criteria. Under the economic criteria, the department prioritised areas that had higher numbers of employed persons and higher proportions of land being used for agriculture or farming. Under the community criteria, the department prioritised areas based on the increase in the population that would benefit from expanded coverage, the increase in Aboriginal and Torres Strait Islander people that would benefit from the coverage, the increase in the kilometres of highway and main roads that would benefit that were within five kilometres of a mobile black spot, and areas with more square kilometres prone to bushfires or flooding that would benefit. Under feasibility criteria, the department prioritised areas that were closer to government and nbn infrastructure. This process resulted in 50 prioritised locations containing 307 black spot sites across 34 Local Government Areas in NSW.

For its mobile coverage ASP main program, the department undertook a detailed coverage analysis to identify locations with no and limited mobile coverage. It identified these using the latest publicly available coverage maps from the three mobile network operators and the distance of locations from existing sites/towers as published by the Australian Communications and Media Authority and the Radio Frequency National Site Archive databases. Using this data as the key source of information in determining mobile coverage resulted in a more comprehensive outcome than relying on the National Mobile Black Spot Database. The department did not use the National Mobile Black Spot Database, as this information was considered unreliable and had not been updated since 2018, and the coverage maps were more reliable.

The analysis focused on locations with small populations, road corridors, and tourism locations. It identified 257 locations with no or poor coverage consisting of 68 small population locations, 117 road corridors and 72 tourism locations. The department then analysed these possible locations against a range of criteria. These included maximising the number of people and businesses that would be supported, increasing the extent of existing coverage, determining whether coverage would support government strategies or Premier’s Priorities, other positive social impacts, focusing on the greatest length of road and most heavily used roads, and maximising the number of tourism businesses and points of interest impacted.

The department conducted analysis based on these criteria and shortlisted 24 small population locations, 24 road corridor locations and 12 visitor economy locations. These locations were taken forward for concept design, cost estimation, and economic and financial appraisal as part of the final business case.

The department’s initial approach to prioritising Gig State funding was based around larger regional centres

The department undertook a two-stage process for identifying priority areas for Gig State program investment. The first involved the identification of larger NSW towns that would benefit from additional internet coverage and where data centres could be located, and the second involved a selection of more remote locations to receive additional funding.

The department did not undertake an initial detailed analysis of internet coverage across NSW to prioritise funding for the Gig State program. Undertaking this work would have been in line with the Gig State program objectives of addressing the digital divide between metropolitan and regional NSW and resolving market failures in regional NSW telecommunications. In order to meet these objectives, it was important to first establish the extent of the digital divide and market failure before seeking to resolve it.

Instead, it categorised NSW towns according to their relative size and importance from a connectivity perspective. It prioritised towns with larger populations and more business users to maximise the potential benefit of the infrastructure. The department also prioritised locations that were closer to other telecommunications infrastructure, and it also considered proximity to other potential elements of the Gig State network for greater connectivity and to ensure that it was taking a whole-of-State approach to investment decisions. This process identified 14 major regional towns.

The department then prioritised two of these regional towns, Dubbo and Wagga Wagga, due to the higher prices paid by NSW Government agencies in the two locations for average internet bandwidth usage when compared to other regional and metropolitan population centres across NSW. The costs to government were considered a proxy for how much business users are likely to be charged for connectivity services in regional NSW towns. The department conducted surveys in both towns indicating that business users were paying higher prices than their metropolitan counterparts for higher-grade connectivity. This aligned with the department’s Gig State program objectives which related to providing price, quality and choice.

The department also included five satellite towns along the road from Dubbo to Cobar (Cobar corridor) in the Gig State final business case as well as the towns of Wamboin, Bywong and Sutton. The department’s prioritisation of funding for these locations was not based on any detailed analysis of need. The department identified that as part of its initial plan to expand the internet connectivity from Dubbo to Cobar, it would be able to connect a number of towns between those two at a reduced cost. There was no analysis of alternative options for expending this money, such as expanding coverage to other areas, or to determine the extent of coverage required in each town. The Wamboin, Bywong and Sutton project was prioritised as a result of a $5 million NSW Government commitment. This project is discussed further below.

The department strengthened its approach to targeting Gig State funding in 2021

The department reviewed and updated its approach to the Gig State program in September 2021. As part of this, it revised its approach to targeting funding, including the use of additional data and identifying areas with greater digital connectivity issues. This represented an improved approach compared to the original business case and aligned more closely with the changes that were made to the Gig State program in 2021, outlined in the Gig State addendum, which focussed more on the delivery of fixed wireless services rather than data centres.

The department carried out an analysis of areas that only have satellite internet coverage (i.e., no fibre or fixed wireless internet availability) to identify areas suitable for different types of technology such as fibre optic cables, fixed wireless and LEO satellites. This was more in line with the Gig State program objectives of addressing the digital divide and resolving market failures. It identified that these locations had challenging digital connectivity issues that were not likely to be resolved without government intervention. This process identified around 1,000 locations. This list was then refined by looking to maximise the number of premises and businesses, maximising the density of premises, prioritising locations with other Government assets, mobile sites and other technology available in the area, and locations close to an existing exchange to leverage existing infrastructure.

The location list was then prioritised based on scoring criteria for economic drivers, feasibility, risk and stakeholders. The economic criteria included the number of residential and business premises, the number of businesses, and the estimated construction costs for the infrastructure. The feasibility criteria included availability of existing and planned infrastructure. Stakeholder related criteria included identifying synergies with other government led programs, as well as sites that scored low on Australian Digital Inclusion Index (ADII) scores and the Socio-Economic Indexes for Areas. These criteria are appropriate and align with the objectives of the Gig State program.

The department’s process resulted in a list of 23 prioritised areas. These were generally areas with a higher density of premises and affordable access to infrastructure for power supply and data transmission.

The department considered socio-economic data when planning for Gig State and mobile coverage programs but did not use this to inform its pilot mobile coverage program

NSW Government Business Case Guidelines (TPP18-06) state that one of the main reasons for government action is promotion of equity where the distribution of economic costs and benefits is considered inequitable. It is therefore important for the department to consider socio-economic data in the planning of the RDCP.

The department has included some socio-economic data and ADII scores in the profiles it developed for each Local Government Area. It applied socio-economic data to identify additional priority areas for new and improved internet coverage through the Gig State program. However, it did not apply this data to identify priority areas across the pilot mobile coverage program of the RDCP. It improved its approach when developing the ASP main program by including socio-economic data as a component of its scoring for prioritising locations.

The department considered socio-economic data when selecting locations for grant funding. The mobile coverage grant guidelines and the Gig State grant guidelines both include merit criteria that consider whether the proposed solution would address disadvantage within a community. Both guidelines ask the grant applicants to consider the Index of Relative Socio-economic Advantage and Disadvantage.

The department engaged with key stakeholders when developing the RDCP

Under TPP18-06, NSW Government departments are required to identify and consult with key stakeholders as they can contribute to the development of the investment proposal by providing their expert opinions, research, and evidence.

The department identified key stakeholders, developed stakeholder engagement plans, and used feedback gained through consultations to design and adjust the RDCP. Key stakeholders have been involved on the RDC Steering Committee and the RDC Project Control Group ensuring that they have an avenue to provide input into the overall RDCP. This includes the Commonwealth department responsible for telecommunications infrastructure and telecommunication providers.

The department engaged with stakeholders when developing the ASP pilot program. As discussed below, the department transitioned the program from a one-stage pilot program, where telecommunication providers would be procured to provide the solution, to a two-stage program where the department would first work with telecommunication providers to identify technical solutions and then carry out the procurement. This involved significant engagement with stakeholders to identify the technical solution and procurement model.

The department has assessed the suppliers of internet and mobile connectivity to determine their capacity and willingness to participate in RDCP sub-programs

As part of procurement planning, when building a business case, NSW Government agencies are required to analyse and engage with the market. This involves developing a profile of the market, the capabilities of suppliers, innovative and emerging technology, and factors that influence the market such as customer preferences and competition.

The department considered the capacity of telecommunications suppliers, their level of interest, and willingness to participate in the program when developing the business cases for its mobile and internet coverage programs. In addition to doing this when constructing initial business cases, the department adjusted its approach when market factors changed, as evidenced by the changes it made to its Gig State program in 2021. In September 2020, the nbn announced an expansion of its fibre network nationally, with a focus on regional improvements. This meant that internet coverage for some of the locations included in the Gig State business case would be addressed by nbn and continued investment was not needed in those areas. The initial Gig State business case also planned an initial investment in data centres in regional NSW. Following this, a private market operator also announced plans to construct 14 regional data centres across NSW. This meant that the planned Gig State data centres were no longer required. The department changed it approach to avoid duplication by ceasing its planned internet coverage expansion into regional centres, including the data centres, and prioritising a range of new sites for coverage.

Conflicts of interest and probity procedures have largely been followed, although there were some gaps in declarations

Maintaining a record of conflict of interest declarations is important to provide a higher level of transparency, and therefore control, over officials in high-risk roles. Disclosing an interest before it becomes a conflict of interest also reduces the likelihood that an official will be tempted to conceal or favour the interest.

Conflict of Interest declaration forms have been completed for staff involved in the mobile coverage program, Gig State program and the Australian Government co-funded Regional Connectivity Program Round 3 (RCP3) and Mobile Black Spot Program Round 7 (MBSP7). Whilst the list of declarations is extensive, it is unclear whether it includes all relevant staff from the department, the NSW Telco Authority and consultants involved with the program.

In relation to the mobile coverage and Gig State programs, there was no declaration recorded for one consultant and three staff from the department, including the program sponsor. These omissions have the potential to create risks that conflicts of interest go unmanaged. The department advises that the register is now complete for all those working directly on the program. It also advises that, due to the breadth of programs senior staff oversee, conflicts of interest are managed by the department's Governance team centrally through a Declarations App.

Four declarations of a ‘real, potential or perceived conflict of interest’ were made under the RCP3 and MBSP7 grant programs, which were co-funded with the Australian Government. No declared conflicts were made for the other programs. The identified conflicts of interest have documented actions to manage them, and there is evidence to indicate that these were implemented. For example, a senior staff member and a consultant excluded themselves from parts of a grant process due to declared conflicts.

The NSW Grants Administration Guide states that officials must seek probity advice for all grant opportunities that are complex, high-risk or high-value, to support the design, application, assessment and decision-making phases. The department followed appropriate probity processes throughout and these probity reports did not find any material breaches of probity in the grant processes.

There have been delays in all streams of the RDCP which may have been reduced through proactive project and risk management

The business cases set out expected timelines for each program of the RDCP. The department has not met any of these expected timelines, with some projects delayed by over a year compared to their initial planned timelines. Some of these delays have been caused by changes to the department’s approach to the mobile coverage and Gig State business cases. While some of these changes were outside of the department’s control, others could have been anticipated and better managed by a stronger approach to project management and risk management.

Exhibits 1 and 2 set out the status of each Gig State and mobile coverage project reviewed as part of this audit as at April 2024 and the planned completion date for that project at the outset of the program. Note that this does not include projects co-funded by the Australian Government due to the department’s limited ability to influence the process. This also excludes projects which have not yet distributed funding, such as the mobile coverage ASP main program.

Source: Audit Office analysis.

Source: Audit Office analysis.

As can be seen from Exhibits 1 and 2, each project in the RDCP has been delayed past its initially planned completion date, and the Wamboin, Bywong and Sutton project has been delayed past both its original planned completion date and also the revised completion date in the Gig State addendum.

Some of these delays can be accounted for by the fact that the department revised its approach to both the mobile coverage ASP pilot and the Gig State programs. While some of these changes were outside of the department’s control, others could have been anticipated and managed by more proactive risk management. In the case of the mobile coverage program, some of this change in approach may have been foreseeable. The March 2021 mobile coverage ASP pilot business case set out a one-stage tendering process with construction planned for completion in June 2022. The department revised this approach in July 2021, when it changed to a two-stage process involving a technical stage and then a grant process. This was the result of additional research by the department that identified that the market may not have sufficient interest in the initial proposed approach. Undertaking this additional research earlier may have allowed for this alternative approach to be identified sooner.

In addition, the department only allowed two months in the business case for contract negotiations with providers for the mobile coverage ASP pilot program, however this has taken a significantly longer time and in one case has been ongoing for over twelve months. Given the complexities of the funding deed negotiations, this may also have been foreseeable. The department advised that some delays in the mobile coverage program can be attributed to the proposed merger of major mobile network operators which delayed funding deed negotiations.

As with the mobile coverage program, the Gig State program was also delayed by a change in approach, though this was driven by market changes. As part of the original Gig State business case, the department intended to deliver data centres in regional NSW, as well as expanding internet coverage. The business case was approved in December 2019 and the department intended to complete the Gig State program in June 2022. Little progress had been made by the time that the Gig State program underwent a significant change in scope following a review in September 2021. The department removed some aspects of the original business case, such as the construction of data centres in regional NSW, and changed the approach to other parts of the business case. The revised business case, called the Gig State addendum, delayed the planned delivery date of some projects into 2022.

The most significantly delayed sub-program has been the expansion of internet access to the towns of Wamboin, Bywong and Sutton as part of the Gig State program. In January 2019, the NSW Government announced $5 million of funding to provide internet access to these towns. The department ran a tender for this work in mid-2021 with a plan to start construction in late 2021. However, this tender resulted in no contract being awarded due to no providers being willing to provide the project within the proposed $5 million budget. The department started working on technical solutions with providers in late 2021 and gave them until May 2022 to identify solutions and potential budgets. The contract for Wamboin, Bywong and Sutton was executed in June 2022, with an expected completion date of June 2024, though given delays with construction this date will not be met. As discussed below, if the department had provided better advice to Government on the expected costs at the planning stage, it may have reduced the delays in this sub-program.

The department has not effectively managed RDCP timelines

The department has provided limited evidence of effective project management in place to monitor overall progress against program timelines, such as regularly updating a detailed project plan. The department may have identified and managed the above delays sooner through a stronger project management approach.

The department set out timelines at the outset of each of the sub-programs. This was not always done in detail but for all the sub-programs at least key milestones were mapped. While this was done at the outset, there is no evidence that the department regularly updated timelines across the various sub-programs to ensure that these projects were on track and to monitor expected completion dates.

The department provided regular updates on project status to relevant governance committees. This included providing information on upcoming milestones and associated delays. However, holistic monitoring of program completion dates and the impact of delays on subsequent milestones was not presented to the governance committees. As a result, there has been little monitoring and oversight of how projects are tracking against their target end dates.

Gaps in the governance framework have limited the oversight of the implementation of the RDCP

There are three key committees that oversee the implementation of the RDCP: the SHLF Steering Committee, the RDC Steering Committee, and the RDC Program Control Group. These three committees are intended to provide oversight of the implementation of the RDCP, however there are deficiencies that limit the effectiveness of their oversight.

The SHLF Steering Committee is intended to provide oversight of all programs funded through the SHLF, including the RDCP. Despite an intended meeting schedule of quarterly, the committee only met once in 2023 and three times in each of 2021 and 2022. While the Committee did receive reports on each of the programs funded through the SHLF at these meetings, this reporting did not identify any key risks for these projects that might affect achieving the objectives of the SHLF. This reduces the level of oversight that the SHLF Steering Committee can provide for these projects.

The RDC Steering Committee provides oversight of the RDCP and is intended to act as an escalation point for key issues in the program. While the committee receives regular reports on the components of the RDCP, including on program risks, there are some gaps that limit the oversight it can provide. The committee operated throughout 2021, 2022 and 2023 without finalised terms of reference, which were finalised in February 2024. Prior to this, it was unclear how often the RDC Steering Committee was intended to meet, but it met only four times in 2023 compared to six in 2022.

The RDC Steering Committee terms of reference include a role for the committee in making key decisions around program strategy and implementation. Prior to 2023, the committee was involved in many key decisions. For example, in 2022 it endorsed decisions around the ASP pilot grant guidelines. By contrast, a review of meeting minutes since the start of 2023 shows that the RDC Steering Committee has not made decisions or provided endorsements for any key decisions. The committee was not involved in endorsing the MBSP7 and RCP3 grant guidelines in 2023 and was not involved in strategic decision-making about the budget reprofiling in 2023 and the decision to remove the LEO satellite pilot from the Gig State program scope.

The RDC Program Control Group did not have terms of reference until February 2024. The purpose of the RDC Program Control Group is to oversee and support the strategic direction and implementation of the RDCP. This should be carried out through regular meetings and reporting, however the control group only met six times in 2023 despite an intention that they would meet monthly. The expected meeting frequency has since changed to every six weeks.

The RDC governance committees routinely discuss risks, but the department did not identify or mitigate all key risks at the outset of the program

The department has a structured approach to risk management for the RDCP, though this risk management approach has not always succeeded at mitigating key risks. The RDCP program team identified a number of key risks at the outset of each program and designed mitigations for them. In addition, the RDC Steering Committee and RDC Project Control Group both receive risk reports and discuss risks at meetings where appropriate. This reporting indicates a proactive approach to risk management throughout the program.

However, not all key risks were successfully mitigated or identified at the outset of the program. For example, one of the key causes of delays with the mobile coverage program has been protracted contract negotiations. Despite the fact that the program team understood the complexities of the mobile contract negotiations that would be required, this was not identified as a risk at the outset of the program. Later in the program this was identified by the RDC Program Control Group and Steering Committee as a key risk. While the risk was identified, it was not sufficiently mitigated, as demonstrated by the delays that resulted from the contract negotiations.

Other risks were not identified at the outset of the program. For example, the Snowy Mountains Highway Safety program was delayed due to the need to get development approval from the National Parks and Wildlife Service. There is no separate risk register for the Snowy Mountains Highway Safety program, and the potential for delays due to approval processes is not mentioned in any of the overall mobile business cases. Stronger initial project management may have allowed for this to be identified.

The Wamboin, Bywong and Sutton internet coverage program has been delayed numerous times throughout the course of its delivery. One of the key delays in 2023 was that, after the contract was signed and building works had commenced, it was discovered that challenging ground conditions with a higher than anticipated rock concentration around the towns was delaying construction. Potential delays from construction issues were not foreseen in the Gig State program risk register. While the specific issues relating to ground conditions may not have been easily foreseeable at the outset of the program, the department’s evaluation of potential providers in 2021 noted that rock was present and could have an impact on the cost of the program. It is reasonable to expect that this would have led to additional risk mitigation at the time, detailing the potential impact of the rock concentration on both cost and timelines. When the issue was eventually discussed in the RDC Project Control Group in 2023, the only mitigation for the risk was to review and monitor the existing and future schedule. This was not sufficient to mitigate the risk.

The department conducted cost-benefit analyses for all RDCP sub-programs, but did not implement the element with the highest return on investment

The ‘NSW Government Guide to Cost-Benefit Analysis’ requires that a cost-benefit analysis (CBA) be undertaken for capital, recurrent or ICT projects valued at more than $10 million. Undertaking a CBA provides a benefit-cost ratio (BCR) which helps to determine if a program will provide a net benefit to the people of New South Wales. A BCR greater than one indicates that the benefits will exceed the costs. For programs funded through the SHLF, such as the RDCP, there is no requirement for a program to achieve a BCR of greater than one.

The department conducted a CBA for the Gig State and mobile coverage programs, as well as all the sub-programs under both programs, including revising the CBA for the Gig State program after it was reviewed in late 2021. The BCR for the mobile coverage and Gig State programs are shown in Exhibit 3. Only the Gig State initial business case achieved a BCR of one, meaning that it delivers benefits equivalent to its costs. However, when this program was amended in 2021, this BCR reduced to 0.62. When combined, the RDCP does not have a BCR greater than one, meaning that it represents a net cost to New South Wales. However, as noted above, there is no requirement for the RDCP to reach a BCR of one.

Source: Department of Regional NSW.

The highest BCR was calculated for the planned investment in Low-Earth Orbit (LEO) satellites which is an element of the Gig State addendum, but this investment did not go ahead. LEO satellites can be used to provide digital connectivity to isolated properties. They sit closer to the Earth’s surface than a geostationary satellite and can transmit data with lower delay and improved connectivity. This LEO satellite pilot was identified to deliver a BCR of 2.62, including approximately 40% of the benefits attributable to the Gig State addendum. The Gig State addendum anticipated that the pilot would commence in 2022, however the department did not proceed with this. The 2023 budget reduced the funding for the Gig State program, and the department decided to discontinue the proposed pilot. The department advises it plans to revisit the LEO satellite project in mid 2025.

The RDCP’s grant guidelines largely comply with mandatory NSW Government requirements

In September 2022, the NSW Government released the revised ‘Grants Administration Guide’ (the guide) which, among other things, sets out mandatory requirements for NSW Government grant guidelines. Premier’s Memorandum ‘M2022-07 Grants Administration Guide’ makes it mandatory for agencies to follow the requirements of the guide for all grants released from 19 September 2022.

The guide states that clear and consistent grant guidelines must be prepared that contain the purpose and objectives of the grant, selection criteria (comprising eligibility and assessment criteria) and assessment process, grant value, opening and closing dates, application outcome date, the source agency, and the decision-maker.

The department developed grant guidelines for grant schemes funded by the RDCP. The guidelines explain the application and selection process, eligibility criteria and assessment criteria, and key dates. These include:

• Mobile Coverage Project – Active Sharing Partnership Grant Guidelines (September 2022)
• Gig State Grant Guidelines (October 2022)
• NSW Government Co-Investment in RCP3 and MBSP7 Program Guidelines (July 2023).

The guidelines for these three grant programs largely align with the requirements of the guide, but there were some gaps. The ASP pilot and Gig State program guidelines both note the contact person for complaints, but the RCP3 and MBSP7 guidelines do not state this. While the RCP3 and MBSP7 guidelines set out the relevant decision-maker and the role of key individuals in the assessment process, the guidelines for the ASP pilot did not identify the decision-maker and the Gig State Grant Guidelines did not provide the membership of the assessment panel making the recommendations.

The department’s grant programs were designed to target identified priority locations

Across the RDCP sub-programs, the department designed grant programs in a way that targeted funding towards its priority locations and other locations that met its eligibility criteria. The department has not been prescriptive about locations that would be funded through grant programs, but designed the programs in a way that encouraged providers to co-fund either the target locations or those that fit the criteria that the department was interested in funding.

For the Gig State grant program, the department released a list of preferred locations to potential applicants. The grant guidelines make clear that any proposals to build infrastructure to provide coverage to these areas would be given preferential treatment. The merit criteria are also aligned with this as the department awarded additional points for providing coverage to the target areas. Locations outside the preferred list were also eligible, provided they met the grant program’s objectives and eligibility criteria.

Similarly, for the mobile coverage ASP pilot program, the department released a list of preferred locations to potential applicants. The grant guidelines similarly encouraged potential applicants to follow this target list, both in terms of eligibility and also in terms of the way that the grants program provided additional points for providing coverage to the target areas. In addition, applicants could consider locations outside of the preferred list provided they met the grant program’s objectives and eligibility criteria set out in the grant guidelines.

For the co-funding opportunity with the Australian Government’s RCP3 and MBSP7 programs, a list of target locations was again provided. Applicants could consider locations outside of the target locations provided they were still eligible under Australian Government requirements for the RCP3 and MBSP7. Alternative solutions that provide mobile coverage on road corridors and mobile solutions for First Nations communities in other remote and very remote NSW locations could also be considered, however, funding was to be allocated to target locations and target transport corridors as a priority.

The department was not able to demonstrate a similar approach for the co-investment in the Mobile Black Spot Program Round 5A. The Australian Government developed eligibility criteria for the program, which align with the department’s mobile program objectives.

The department has selected grant recipients in line with its funding priorities

The department developed grant guidelines and an assessment methodology for the Gig State program and the ASP pilot program to guide its assessment panel, and applicants, through the process. The department assessed the applications for the Gig State and the ASP pilot grant programs against the eligibility and merit criteria contained in its guidelines, and in accordance with its assessment methodology. This resulted in the department funding locations that aligned with its target locations or areas that were in line with the purpose of each grant opportunity.

For the Gig State grant program, the department determined that projects were to be located in one of the 93 regional NSW Local Government Areas (LGA) identified in the grant guidelines. Eligible locations were in areas where internet access was via satellite services only and there were no committed or planned projects for fixed services in the area. The assessment panel for the Gig State grants recommended projects in 34 eligible locations from four applicants, for funding totalling $58.3 million (excl. GST), intended to bring improved connectivity to around 13,900 premises.

For the ASP pilot program, eligible locations were areas of regional NSW, where there was no existing handheld coverage provided by any Mobile Network Operators (MNO) or existing handheld coverage was provided by only one MNO. The assessment panel for the ASP pilot grants recommended 32 projects for funding totalling $30.4 million (excl. GST), intended to improve mobile coverage across ten regional LGAs. All other projects were considered not suitable for funding or ineligible.

The department provided a list of preferred locations for both grant programs. Applicants received a marginally higher score against assessment criteria if they put forward a preferred location but the location they identified could still be accepted if it was not in a preferred location but met the eligibility criteria. Funding was allocated to the majority of the Gig State program preferred locations identified in the Gig State business case addendum, but funding was allocated to only two of the 23 preferred locations identified in the business case for the ASP main program.

For the grants co-funded by the Australian Government (RCP3 and MBSP7), the department prioritised and selected grant recipients based on whether they met the eligibility criteria. It developed an assessment methodology to guide the assessment panel through this process. A probity advisor was present at both assessment panel meetings.

The department intends to further verify the RCP3 and MBSP7 application’s compliance with the RDCP objectives and eligibility criteria, following the assessment of applications by the Australian Government. Once verified, deeds will be negotiated and issued.

The department did not advise Government on the full cost of the Wamboin, Bywong and Sutton project, leading to a protracted and difficult process

The department’s process for awarding the grant to construct a fibre network for internet connectivity in the Wamboin, Bywong and Sutton regions was complex. The department appears to have estimated the initial costs of this program to be significantly higher than the funds allocated to the project. The department did not advise Government of this, and conducted the tender process based on the budget of $5 million committed by the Government. This budget proved insufficient, and the department had to request additional funds to contract the project. Not providing this advice to Government at an earlier stage means that the process which followed was more complex and protracted than it may have been if the department had provided this advice.

In January 2019, the NSW Government announced that it would provide $5 million to upgrade internet in the Wamboin, Bywong and Sutton region based on costings undertaken by a local community organisation. The department included this cost in the Gig State business case in December 2019 and also the Gig State addendum in September 2021. Documentation from late 2020 indicates that the department conducted an initial estimate that the full cost of the Wamboin, Bywong and Sutton project would be up to $16.3 million. It is unclear whether this was conducted before the Gig State business case was completed. The department was unable to provide the analysis that led to this initial cost estimate to the audit team. However, this indicates that the department was aware that the cost of the project would be greater than $5 million but did not provide this advice to Government. The additional cost was to be funded from the remainder of the Gig State business case.

In mid-2021, the department commenced a tender process with a budget of $5 million in January 2021. Only two applicants responded to this initial request for tender, and only one was evaluated as meeting the technical and construction requirements of the project. The cost estimates provided in the complying tender response were significantly higher than $5 million. As a result, the department did not award a contract following this tender.

The department then planned to undertake an in-depth analysis into alternative technology options. It noted the most promising option in terms of speed of delivery, quality of service, and value for money was LEO satellites. The department was unable to provide a copy of this analysis and so it is unclear the extent of the work undertaken to find alternative solutions for Wamboin, Bywong and Sutton rather than the construction of a fibre network to the premises.

After the initial market approach resulted in no contract being awarded, the department altered its procurement approach. A closed Expression of Interest (EOI) was sent to both respondents to the request for tender in November 2021 seeking a recommended technical solution, a proposed delivery method and timeframes. Both respondents achieved satisfactory scores for the EOI and were invited to submit a detailed design. As the department had determined through the tender process that the budget of $5 million was insufficient to ensure that it could provide internet services across the Wamboin, Bywong and Sutton region, the budget limit for the procurement was increased.

Both respondents submitted a detailed design and in May 2022 the department received approval to negotiate. The unsuccessful respondent scored marginally higher against the selection criteria. However, the assessment team considered that their proposal contained too much unmitigated risk. In May 2022, the department received approval to proceed to the negotiation phase with the successful proponent. Following this negotiation, a $9.5 million grant was awarded to the successful respondent to connect 1,352 premises. Around 140 premises were not included in the scope due to the significantly higher costs in connecting these premises.

The project cost has since increased to over $12 million, in part due to challenging terrain and ground conditions. Additional funding of around $1.7 million was also approved to connect an additional 134 properties that were identified during the detailed design phase. The department advises that these were initially missed due to boundary changes, incorrect council records and quality issues in the geospatial databases. It indicated that this is a separate group of properties to the 140 premises that were excluded due to higher connection costs.

The fact that the Wamboin, Bywong and Sutton project has a total cost of over $12 million, more closely aligned with the department’s internal cost estimate, indicates that fully advising Government of the costs may have saved significant time in the delivery of the project.

The department monitors the progress of its grant agreements but has not formalised its acquittal process

The department receives progress reports and milestone reports from grant recipients to assist in monitoring the progress of RDCP projects and assess if works provided match the requirements listed in the grant funding agreements. It also advises it has regular meetings with grant recipients, although no minutes are kept of these meetings.

The projects that have progressed to the construction phase are:

• Mobile coverage to Brewarrina and Wilcannia through the mobile coverage ASP pilot
• Improved internet to Wamboin, Bywong and Sutton.

The department receives regular progress reports for both projects, including some photographs and technical drawings. The reports provide information on progress against milestones and any changes to expected completion dates.

The department receives quarterly progress reports on improved internet for the Cobar corridor and the 56 other sites scheduled for fixed wireless internet, which are yet to progress to construction. The current scheduled completion date is March 2025. It also receives monthly reports on progress with mobile towers it is co-funding with the Australian Government as part of the Mobile Black Spot Program Round 5A.

The department provided few acquittal process documents or milestone acquittal documents, apart from the site qualification report for the Cobar corridor and its evaluation of the detailed design for the Wamboin, Bywong and Sutton project. The department advises it has an acquittal process in place for processing milestone reports, however it is yet to formalise this process. The three projects which have progressed enough to require acquittal are Wamboin, Bywong and Sutton, Wilcannia and Brewarrina, and the Cobar corridor.

The department has provided funding deeds for each project it has funded. Whilst the deeds include milestones, they do not include the dates for each milestone making it more difficult for the department to track the progress of each project.

The department’s approach to reporting its expenditure on consultants is inconsistent and does not always meet reporting requirements

Under the Annual Reports (Departments) Regulation 2015 agencies are required to report any consultancy engagements over $50,000 in their annual reports. The NSW Procurement Board Direction PBD-2023-05 Engagement of professional services suppliers defines a consultancy agreement as a type of professional services agreement where a person or organisation is engaged to provide recommendations or professional advice to assist decision-making by management.

The department has several professional services agreements as part of the RDCP, some of which are consultancy engagements within this definition and some of which contain elements of the contract that would be considered a consultancy agreement. For example, one of the major consultancy agreements involves providing strategic advice across the Gig State program, as well as providing advice on market engagement, and reviewing technical advice. This aligns with the definition of a consultancy agreement as the contracted organisation is providing professional advice to assist decision-making by management.

The department has not reported any of its agreements used as part of the RDCP in its annual reports, despite having several agreements that exceeded the $50,000 threshold which may fall into this definition.

The department advises that the agreements are categorised in the General Ledger as contractors and as such, are not required to be reported in the Department’s Annual Report. This interpretation is not in accordance with NSW Treasury and NSW Procurement Board requirements. It also identifies one contracted consultant as a ‘consultancy’ in its contract variation documentation but has not reported this expenditure in its annual reports.

Further, the department has not applied its interpretation consistently. For example, it has reported the preparation of some strategic and business planning documents as consultancies in its annual reports and not others.

The department is not monitoring the outcomes of the RDCP

Measuring outcomes of a program is important to determine whether that program is fulfilling its intended purpose. While many elements of the RDCP are still at an early stage, there is value in monitoring the outcomes of those elements which have completed construction to inform project implementation. There are no outcome measures for the effectiveness of the RDCP as a whole, and only limited measures for the mobile and Gig State programs. The department has the following outcome that it has set out for the Gig State program:

• Improve the digital connectivity (accessibility) in rural and remote NSW communities.

When developing the final business case for the Gig State program, the department utilised the ADII scores to identify the digital divide between Metropolitan Sydney and rural NSW. The ADII uses data from the Australian Internet Usage Survey to measure digital inclusion across three dimensions of access, affordability and digital ability. While the department utilised the ADII to determine the baseline for accessibility of digital connectivity in regional and remote NSW communities, the department is not using the ADII to measure whether the program has led to improvements in these communities. This limits the department’s ability to determine whether the RDCP has met its objectives.

At the time of the Gig State business case being developed, rural NSW ADII scores were reported, allowing the department to utilise the figures as a baseline, but since 2020 these are not publicly reported. The department is in the process of determining how it can use ADII scores to measure the performance of the program over time.

In addition to the Gig State program outcome measure, the department has one outcome measure for its mobile coverage program:

• Square kilometres with improved mobile coverage in regional NSW.

This outcome measure will not allow the department to understand the impact of the RDCP’s mobile coverage program. While measuring the number of square kilometres of coverage will allow the department to determine whether the mobile towers it is funding are achieving the intended extent of new mobile coverage, it will not allow the department to measure the quality of service, price of coverage, and other key information that could measure the impact of the new coverage.

In December 2023, the NSW Telco Authority released the NSW Digital Connectivity Index (DCI), which provides an overview of connectivity in each LGA and suburb across NSW. Each LGA and suburb is given a score out of 100 for access, affordability and demographics (as a proxy for the ability to use technology). The DCI includes several data points, including coverage from telecommunications providers, mobile signal strength, and internet speed. Given that the DCI includes useful data points and can allow for data to be inspected at the suburb level, there is an opportunity for the department to use this to identify the impact of its program both at a statewide level and in regions targeted for funding. However, the department has no plans to utilise the DCI to measure program performance.

In addition to not collecting data to measure the overall effectiveness of the RDCP, the department is also not collecting data to measure whether a number of the objectives of the Gig State and mobile coverage programs are being achieved. For example, both programs aim to reduce the price of digital services in regional areas, however there is no measurement of price in place to determine whether this is being achieved. Similarly, there is no plan in place to measure the speed of internet services or signal strength for mobile services, despite improvements in these things being part of the objectives of both programs as set out in their business cases.

The department is also not measuring whether there are improvements in competition in the mobile market through the mobile coverage program, despite one of the objectives of that program being to encourage competition in the regional telecommunications market. The department also has no plans to measure its contribution to the Closing the Gap target to understand the impact of the RDCP on Aboriginal communities. This is despite it identifying that seven locations with current or pending funding will support discrete Aboriginal communities. Four of these locations are part of the ASP project for Wilcannia and Brewarrina, and the other three are funded through the MBSP7 project.

The department has some output performance measures in place for the RDCP, but these focus on contracted outputs rather than outcomes

The department has identified performance measures for the program in reporting templates, in its final business cases for the Gig State and mobile coverage programs, and in its evaluation plan for the RDCP. These performance indicators measure the outputs of the program rather than the outcomes that would demonstrate whether program objectives have been met.

The measures that the department uses to report to NSW Treasury as part of its budgeting process have changed over time. Until June 2023, the department used two key output measures to determine the progress of the RDCP:

• Number of premises covered by signed contracts to deliver upgraded internet connectivity.
• Number of sites with signed contracts for new mobile coverage.

As noted, these are output measures and will not enable the department to determine whether the project is delivering its intended purpose. Since July 2023, the department has used two output measures:

• Number of premises covered by signed contracts to deliver upgraded internet connectivity.
• Contracted square kilometres for new and improved mobile coverage.

These four measures relate only to contracted coverage and do not provide a clear picture of ongoing progress with the construction and connection of new mobile and internet projects. Projects can have long lead times for a variety of reasons such as acquiring access to land, designing a solution and the time required to construct the solution. In addition, only measuring contracted coverage will not enable the department to determine whether these outputs are being delivered and will not reflect delays in those stages, nor will it enable the department to determine whether the towers are achieving their intended purpose. While there is value in measuring contracted coverage as an early lead indicator of performance, there is also value in reflecting the current state more accurately through measuring the progress of the construction of each project.

The department did not meet its original mobile coverage performance targets but met its Gig State program target

As noted above, the department had three metrics that it was using to measure the RDCP until June 2023. The department successfully achieved its Gig State program target but did not achieve its mobile coverage program targets. Exhibit 4 shows the results against targets for the RDCP measures. As can be seen, the result for square kilometres of improved mobile coverage delivered was significantly below the target.

* This comprises two towers funded through the ASP project and 22 towers co-funded through the Australian Government’s Mobile Black Spot Round 5A. This does not include five small towers for the Snowy Mountains Highway Safety project as the department has identified these as a temporary service.

Source: Audit Office analysis.

The department revised its performance measures after June 2023. This included revising output targets for the mobile and Gig state programs. The updated performance targets can be seen in Exhibit 5. The mobile coverage program performance measure was changed to measure the contracted square kilometres of new coverage rather than the actual square kilometres of new coverage. At the same time, the target value increased from 36,000 square kilometres to 60,000 square kilometres. The target value for the Gig State program was also updated compared to the 2023–24 target.

Source: Department of Regional NSW.

The department had nearly achieved its December 2025 target for contracted upgrades to internet connectivity by June 2023. As can be seen in Exhibit 4, 13,330 premises were covered by signed contracts to deliver upgraded internet connectivity as at June 2023.

In early 2023, the department estimated that it would have 12,279 square kilometres of new or improved mobile coverage delivered by December 2025. The department advised that it is likely to deliver on this forecast as early as December 2024, through its co-funding of two ASP locations and 22 locations under the Commonwealth’s Mobile Back Spot Program 5A.

There is uncertainty around whether the data the department is using is reliable to measure its performance

The department is collecting or planning to collect data from grant recipients to determine whether they are delivering the intended projects to the required quality. The funding deeds contain obligations on the quality and extent of the services to be provided by grant recipients and require that the contracted organisations report to the department on the construction and the extent of coverage (new ground covered for the mobile towers and number of premises connected for internet coverage). This aligns with the output measures set out above. The department is not collecting information that it could use to inform outcome measurement as part of its grant funding deeds with each grant recipient.

Grant recipients provide the department with the data that it has requested in line with the terms of the funding deeds. This information is collected through a regular schedule of status reporting. These status reports include information on progress with internet or mobile coverage, including the number of premises that will be able to connect to a service.

Information on the availability of fixed fibre connections to premises should be reliable, as with the Wamboin, Bywong and Sutton project. However, data on the availability and quality of fixed wireless internet connectivity and mobile coverage is likely to vary with terrain. While the department is collecting this information, it currently has no plans or a formal process to undertake validation testing following each project completion. This means that the department will not be able to provide assurance that the information collected is accurate.

The department has not updated the expected benefits of the program despite significant changes in scope

In September 2021, following a review of the Gig State program, the department prepared an addendum to the original Gig State business case to change the program from capital expenditure to operational expenditure, and set out a range of other changes. The department’s addendum to the business case noted that the approach to delivering benefits would remain the same, and it did not revisit the benefits realisation register nor attempt to recalculate expected benefits. Given the significant scope changes in the business case addendum, it is likely that there would have been an impact on expected benefits that would justify recalculating the program benefits.

This was not the only time where significant changes in the Gig State program’s operations did not result in an updated benefits realisation register. As noted in the introduction, the RDCP budget was reduced in the 2023 budget, and the remaining budget was extended out to 2028. As discussed above, the change in budget coincided with the department’s decision to discontinue the LEO satellite pilot, which was anticipated to deliver 40% of the financial benefits of the program. The change in budget profile for the program has likely led to a change in the benefits profile of the program, however the department has not updated its program assumptions in line with this change.

The department has documented key lessons learned from its funding rounds to date

Documenting lessons learned from early delivery of any given program is important, particularly pilot programs, to ensure that these can be incorporated into future program development. The department has documented lessons learned across the two programs of the RDCP, including the early grant rounds.

For its Gig State program, the department documented lessons learned in relation to the management of grants, industry engagement, the grant guidelines, the assessment of grants, and the time that the grants went to market. These lessons include reinforcing positive experiences, such as releasing a list of preferred locations to applicants, which the department believes served to encourage funds to be directed to those areas. The department also identified potential improvements, including how it communicated with industry and the data that it would request from future applicants. There have been no grant programs run through the Gig State program since these lessons were documented so it is not yet clear whether the department will implement changes as a result of these lessons learned.

As noted above, the mobile coverage ASP pilot program was delivered across two phases: the first phase involved working with industry to determine potential technical solutions, and the second phase was a grant program to deliver the preferred solutions. The department commissioned a lessons learned report of the first phase of the ASP pilot program with the intention of using this to inform the mobile coverage ASP main program business case development. The lessons learned report and the mobile coverage ASP main program business case were both completed in the same month, however, meaning that lessons could not be fully incorporated into that business case. The department has also identified additional lessons learned specifically in relation to the grant process. There have been no grant programs run through the mobile coverage ASP main program since these lessons were documented so it is not yet clear whether the department will implement changes as a result of these lessons learned.

In addition, the department has conducted an internal audit on the governance of the RDCP. The internal audit had largely positive findings about the governance structures and the grant guidelines. The internal audit did not make findings on the governance issues outlined above, such as not having finalised terms of reference. However, the internal audit did note that not all probity advice had been documented and some had been provided verbally, which increased the risk of grant processes not being undertaken with integrity.

The department has planned evaluations for all grant programs within the RDCP

The department has a draft evaluation plan for the RDCP that includes evaluations for each program to validate whether they have achieved their objectives, as well as finalised evaluation plans for each of the programs. Both process and outcome evaluations are planned. Process evaluations ensure that planned processes were followed and that lessons are learned for future grant programs. The department is planning process evaluations for when all funding deeds have been signed and outcome evaluations are planned for after project delivery is largely complete.

The sub-programs have not yet reached the point where the department will undertake outcome evaluations. The department has indicated that the outcome evaluations will be undertaken when each project has been delivered, which means that while it will determine whether the project has achieved its objectives, it will not be measuring outcomes on an ongoing basis to determine whether changes are needed for the program to meet its objectives. The funding deeds with grant recipients make it clear that the department will undertake an evaluation and may collect relevant information for this purpose. While the department should be able to collect information, the limitations in data collection noted above may need to be resolved to ensure that required data is available.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

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

Parliamentary reference - Report number #397 released 27 June 2024.

What this report is about

WestInvest is a $5 billion funding program announced in September 2021 to provide ‘local infrastructure to help communities hit hard by COVID-19’ in 15 local government areas (LGAs) selected by the government. It was divided into three parts: $3 billion for NSW government agency projects; $1.6 billion for competitive grants to councils and community groups; and $400 million for non-competitive grants to councils.

Following the change of government at the 2023 election, the program was renamed the Western Sydney Infrastructure Grants Program. Funding decisions made for the community and local government grants were retained, but multiple funding decisions for the NSW government projects were changed.

The audit objective was to assess the integrity of the design and implementation of the program and the award of program funding.

Findings

The design of the program lacked integrity because it was not informed by robust research or analysis to justify the commitment of public money to a program of this scale.

The then government did not have sufficient regard to the implications for the state's credit rating. A risk to the credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than pay down its debt.

Decisions about program design were made by the then Treasurer's office without consultation with affected communities. The rationale for these decisions was not documented or made public.

For the NSW government projects, funding allocations did not follow advice from departments. Many funded projects did not meet the objectives of the program.

The two other rounds of the program were administered effectively, except for some gaps in documentation and quality assurance. The program guidelines did not require an equitable or needs-based distribution of funding across LGAs and there was a significant imbalance in funding between the 15 LGAs.

Recommendations

Our recommendations for the administration of future funding programs included:

• considering whether competitive grants are the best way to achieve the program's purpose
• completing program design and guidelines before announcements
• ensuring adequate quality assurance.

We also recommended that when providing advice for submissions by Ministers to Cabinet, agencies should ensure that departmental advice is clearly identified and is distinct from other advice or political considerations. 

WestInvest is a $5 billion funding program that was announced in September 2021. The program was established with the stated aim of building ‘new and improved facilities and local infrastructure to help communities hit hard by COVID-19’.

WestInvest was divided into three funding streams:

• $3 billion NSW government projects round open to NSW government agencies
• $1.6 billion community projects competitive round administered as a competitive grant program that was open to local councils, non-government organisations, Local Aboriginal Land Councils, and educational institutions in the 15 eligible LGAs
• $400 million local government projects round administered as a non-competitive grant round only open to the 15 eligible councils, with each council receiving a pre-determined share of the $400 million.

The WestInvest program was administered by NSW Treasury and the Premier's Department (previously the Department of Premier and Cabinet). Decisions about funding allocations were made by the former Treasurer in his role as the statutory decision-maker and announced by the former government in the lead up to the March 2023 NSW State election, but no funding was paid prior to the election.

Following the change of government, the funding decisions for the community projects competitive round and local government projects round were confirmed and negotiation of funding deeds commenced. The current government reviewed the decisions for the NSW government projects round and made changes to multiple decisions as part of the 2023–24 NSW Budget process. The current government has also changed the name of the program to the Western Sydney Infrastructure Grants Program.

The objective of the audit was to assess the integrity of the design and administration of the WestInvest program. This included assessing the processes used in the design and implementation of the program and award of funding.

The audit did not re-assess the merits of individual projects that were submitted for funding consideration and did not examine the implementation of projects that were allocated funding.

Decisions about the objectives and focus areas for the program were made without advice or analysis from the agencies that administered the program

The WestInvest program involved the commitment of $5 billion as a stimulus measure linked to economic recovery from the COVID-19 pandemic. However, there was no business case or other economic analysis conducted to support consideration of the potential benefits and costs of the program. Media releases and the public guidelines for WestInvest stated that western Sydney was affected by the COVID-19 pandemic more severely than other parts of Sydney and regional NSW. These assertions were not supported by evidence or analysis.

Evidence from NSW Treasury provided for this audit indicates that it was asked to prepare the initial proposal for the WestInvest program within a very short timeframe. This limited its ability to conduct research, analysis and consultation that could have informed the development of the program. This is particularly important for the integrity of decisions involving large-scale spending. Staff from NSW Treasury and the Premier's Department advised the audit team that the areas of focus for WestInvest were decided by Ministers and their staff without advice from the audited agencies. There is no documented analysis justifying the decision to focus the program on community infrastructure, or the six ‘areas of focus’ that were selected. The Premier's Department commissioned research from Western Sydney University after the areas of focus for the program had been decided. This did not inform decisions about the program focus but aimed to provide baseline information about community infrastructure in the 15 eligible LGAs which could be used in program evaluation.

The rationale for making 15 LGAs eligible for the program was not clear

It is not clear how the government decided which LGAs would be eligible for WestInvest funding. Public communication about the program referred to the western Sydney region and commented on areas that had been ‘hit hard’ by the COVID-19 pandemic. The specific factors that were used to decide which LGAs were eligible were not explained publicly or documented.

In the 2019–20 NSW Budget papers, "western Sydney" was defined as 12 LGAs. All of these were included as eligible for the WestInvest program. The additional three LGAs that were made eligible for the WestInvest program (Burwood, Canterbury-Bankstown, and Strathfield) were not within the NSW Budget papers definition but were designated "areas of concern" during the COVID-19 pandemic, which meant they were subject to more restrictions than other LGAs at certain points.

Georges River and Bayside LGAs both made public statements that drew attention to the fact that they were not made eligible for the WestInvest program despite being designated areas of concern. Several of the 15 LGAs that were made eligible for WestInvest had not been designated areas of concern during the pandemic, including Penrith, The Hills, and Blue Mountains. 

There was no consultation with eligible councils or other key stakeholders before the program design was decide

The program design had not been subject to consultation with councils or other relevant organisations in western Sydney. This meant that the views of eligible councils and community organisations on strategic priorities in their respective communities were not considered before decisions on program design were made.

Staff from some councils interviewed by the audit team indicated that while funding for community infrastructure is welcome, some councils had other priority areas for infrastructure development that were at least as high as new community infrastructure. As independent entities, each council has its own strategic planning processes to identify and plan for infrastructure projects and other areas of need. These were not considered in the design of the WestInvest program.

Staff at several councils we spoke to highlighted delivery risks to the projects for which they had been allocated funding. These included:

• the short timetable set by the then government (considering the amount of funding available and the requirements for applications) meant that full project development and assurance processes were not completed for most applications when they were submitted
• difficulty complying with the government’s administrative and assurance requirements for funding recipients, such as detailed planning and reporting.

When early planning for WestInvest was being done, both NSW Treasury and the Premier's Department identified the risk that applicants may not be able to deliver funded projects on time or within budget. The absence of consultation, research and analysis before the program design was finalised meant that these factors were not considered before the government had committed to the program. We did not see evidence that the then government had considered the cumulative impact of an additional $5 billion in infrastructure projects on the costs of materials and skilled labour concentrated in the eligible LGAs.

The Premier's Department conducted an online survey (WestInvest 'Have Your Say'), between 23 February 2022 and 31 March 2022. This was open to the public and asked questions about which of the six ‘areas of focus’ were most important to them and what type of community infrastructure projects they would like to see. This found higher levels of community support for two of the six areas (community infrastructure and green and open space).

On 18 April 2022, the Premier's Department released a summary report on the findings of the WestInvest ‘Have Your Say’ Survey. The Premier's Department noted that the survey was for consultation purposes only and did not form part of the application process for the WestInvest program. The Premier's Department stated in its summary report that the survey results 'will feed into the assessment process across the WestInvest Program'.

However, the Premier's Department staff interviewed by the audit team told us that the survey results did not play any formal role in the assessment process or funding recommendations for projects. The survey did not provide data that could be used to inform assessment decisions because:

• responses could be submitted by any member of the public who accessed the survey, not just those living in the LGAs that were eligible for the program, so the data could not be taken as representative of the views of the residents of eligible LGAs
• many survey responses were ruled ineligible as they were deemed to be associated with a community campaign that related to projects outside the focus areas of WestInvest.

The government did not have sufficient regard to risks to the State's credit rating when establishing the WestInvest program

The NSW Government has a policy of maintaining a AAA credit rating for the State of New South Wales. This is codified in the Fiscal Responsibility Act 2012. The NSW Government did not have sufficient regard to the implications and risks of committing $5 billion of funding to the WestInvest program to its credit rating. A risk to the State's credit rating arose because the government may have been perceived to be using proceeds from major asset sales to fund new expenditure, rather than paying down State debt.

The $3 billion NSW government projects round was open to NSW government agencies and administration of the round was led by NSW Treasury. Funding allocated through this round was not subject to the NSW Grants Administration Guide. This is because the funding was awarded to NSW government agencies rather than organisations external to government, so it did not meet the definition of a grant program. Projects were submitted by NSW government agencies to NSW Treasury and were assessed against program criteria by staff from NSW Treasury and the Premier's Department. Each project received a score and advice on whether it was suitable for funding or not. The WestInvest steering committee considered these and provided advice to the then Treasurer.

NSW Treasury prepared guidelines for the $3 billion NSW government projects round, but these were not approved by the then Treasurer until after the program assessment had commenced

NSW Treasury prepared guidelines for the NSW government projects round in September 2021. These were submitted to the then Treasurer for approval in December 2021 but were not approved. This meant that the process for assessing applications for NSW government projects was not agreed between government agencies and the then Treasurer, who was the statutory decision-maker of the allocations of funding. NSW Treasury subsequently prepared an assessment plan based on the unapproved guidelines, which set out more details about the process to be used for assessing applications for the NSW government projects round. The program guidelines were not published, which meant there was no public information about the process for assessing the largest component of the WestInvest program.

In May 2022, the then Treasurer’s Office requested that NSW Treasury make changes to the unapproved guidelines so that projects that delivered 'business as usual' state government infrastructure such as schools, roads, and health infrastructure were no longer considered ineligible for the program. These revised guidelines were approved in June 2022, but were not published. The changes were not consistent with the initial purpose of the WestInvest program which was to fund ‘transformational’ community infrastructure.

The funding advice from the WestInvest steering committee was not followed by the then Treasurer and the justifications for the funding allocation decisions were not documented

One-third of the projects that were allocated funding (9 out of 27) had been assessed by the WestInvest steering committee as having low or moderate merit. These projects were allocated combined funding of $1.1 billion. Reasons that the steering committee gave for assessing these projects as not suitable for funding through the WestInvest program included the absence of completed business cases, incomplete project development, and poor alignment to the objectives and criteria for the WestInvest program as outlined in the original program guidelines.

Staff from NSW Treasury and the Premier's Department put considerable resources into preparing guidelines and assessing and providing advice on the merits and eligibility of applications against these guidelines, but in most cases the advice was not followed by the then Treasurer. There was no documentation of reasons for the departures from steering committee advice. The NSW government projects round was not subject to the NSW Grants Administration Guide, so the requirement under those guidelines for documenting reasons for departures from advice on funding decisions did not apply. However, when the WestInvest program was established, it was noted that any departures from the funding advice from the steering committee would be documented by the then Treasurer. This applied to the entire WestInvest program. None of the projects that were allocated funding through the NSW government projects round were actually given funding, as only allocations of funding were approved by the then Treasurer.

Most of the funding was allocated to projects that did not align with the purpose of WestInvest or meet the assurance requirements of the program

Of the 27 projects that were allocated funding (Exhibit 3), 12 were from the Department of Education and seven from Transport for NSW. This resulted in over $2 billion, or 69% of the funding available through the NSW government projects round, being allocated to state school and road projects. Most of these projects were not aligned with any of the six focus areas of the WestInvest program. In addition, these projects were examples of ‘business as usual’ activities of NSW government agencies that did not clearly align with the initial purpose of the program to deliver transformational community infrastructure that would improve liveability in the 15 eligible LGAs.

Source: NSW Treasury documents.

Conditions were attached to the approval of funding allocations for 21 of the 27 projects. Most of these conditions related to the completion of a business case and other project assurance requirements, which were required under the program guidelines.

Projects approved through the WestInvest program were to receive funding from the Community Services and Facilities Fund (CSFF), which is a legislative fund created under the NSW Generations Funds Act 2018 (the Act). The Act states that the purpose of the CSFF is to provide funding for ‘cost-effective facilities and services’ (s.12(1)). The absence of business cases and other assurance requirements from most of the projects approved created the risk of legislative non-compliance, as many of the projects that had been allocated funding could not clearly demonstrate that they would be cost-effective.

NSW Treasury and the Premier's Department’s assessment of the first group of projects submitted for the NSW government projects round indicated that agencies applying for funding did not understand the purpose or requirements of the program. NSW Treasury and the Premier's Department received 153 applications after the first call for proposals. Most did not align with the stated purpose of WestInvest or meet the assurance requirements that had been set for the program. For example:

• 90 project proposals (59% of those submitted) were assessed as ineligible. Thirty-five of the 90 did not include any infrastructure, which was the main purpose of the WestInvest program. The other 55 proposed infrastructure projects were not consistent with any of six areas of focus for the program.
• 118 proposals (77% of proposals submitted) did not have a business case, which was a requirement of the WestInvest program guidelines.

As the first request for project proposals did not generate enough suitable applications, the then Treasurer made a second request to NSW government agencies in August 2022 seeking additional project proposals. This occurred after the guidelines for the NSW government projects round had been broadened to allow more projects to be considered for funding (discussed above).

Multiple state school projects were allocated funding after being assessed by the WestInvest steering committee as ineligible or unsuitable for funding

The Westmead Education Campus project, valued at $308 million, was rated as ineligible by NSW Treasury and the Premier's Department because it did not address any of the six specified focus areas for the WestInvest program. This meant it did not go through a full assessment against the program criteria and was not submitted to the then Treasurer for funding consideration.

The project was later re-submitted and the then Treasurer subsequently approved it for funding allocation. This occurred after the guidelines for the NSW government projects round had been broadened (discussed above). NSW Treasury's advice on this submission noted that the project had not been fully developed, with key decisions about the delivery model not made, and it did not have a final business case.

The Box Hill (Terry Road) new school project, valued at $112 million was rated as ‘moderate – not suitable for funding consideration at this time’ by the WestInvest steering committee. It was subsequently approved for funding by the then Treasurer.

Nine school upgrade projects with a total value of $478 million were allocated funding by the then Treasurer. Each of these had been assessed as ineligible by NSW Treasury and the Premier's Department against the original program guidelines because they did not meet any of the WestInvest focus areas and were not considered 'transformational'. There were a further 14 similar proposals for school upgrades that were also assessed as ineligible but were not allocated funding.

Funding allocations from the WestInvest program were changed after the 2023 NSW State election

Following the change of government at the 2023 NSW state election, most of the funding decisions announced by the former government were changed. The new government had announced during the election campaign that, if elected, it would redirect some WestInvest funding 'to rebuild Western Sydney schools and Western Sydney hospitals'. Eleven of the 27 projects that had been announced by the former government were not funded by the new government. The combined value of these projects was at around $1.5 billion (Exhibit 4). The seven roads projects that had been allocated funding through WestInvest, valued at $1 billion, were also removed from the WestInvest funding allocation but these still received funding from a different source.

Source: NSW Treasury documents.

The funding was reallocated to 17 projects that the new government had announced as election commitments during the 2023 State election campaign. This comprised ten school infrastructure projects, five health infrastructure projects, and two transport infrastructure projects. All of these projects had a cost of more than $10 million each, which means they are subject to NSW Government business case and gateway assurance requirements. Business cases had been completed for the two transport projects. The other 15 projects did not have business cases.

Source: NSW Treasury documents.

After these changes, the $3 billion NSW government projects round funding distribution was:

• Nine school upgrades, valued at $478 million, that had been allocated funding by the former government (see Exhibit 3).
• 17 new projects, with a total value of around $2.3 billion, that had been announced as election commitments by the new government (Exhibit 5). All of these are state school, health, or transport infrastructure.
• Three projects that covered administrative costs associated with the WestInvest program, with a total value of around $230 million (not previously announced).

The $1.6 billion community project grants - competitive round was open to local councils, NGOs, Local Aboriginal Land Councils, and educational institutions, across 15 eligible LGAs in western Sydney. Exhibit 6 shows a timeline of key dates for the community project grants - competitive round.

The $400 million local government projects round was administered as a non-competitive grant round that was only open to the 15 eligible councils. Each council was allocated a portion of the $400 million funding via a formula that provided a base allocation and an additional amount based on the population of each LGA. Each council received between $21 million and $35 million.

Applications for funding were submitted to the Premier's Department for assessment. Proposed projects were required to be eligible for the program and be rated as having merit against the published program criteria, which were the same as those for the competitive round. Exhibit 12 shows a timeline of key dates for the Local government projects competitive round.

Appendix one – Responses from audited agencies

Appendix two – About the audit

Appendix three – Performance auditing

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

Parliamentary reference - Report number #391 - released 28 February 2024.

What this report is about

Results of the audit of the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023.

Findings

The audit opinion on the 2022–23 Consolidated State Financial Statements was qualified in relation to two issues and included an emphasis of matter.

The first qualification matter is a continuation of the prior year limitation of scope on the audit relating to the Catholic Metropolitan Cemeteries Trust (CMCT), a controlled state entity, who continued to deny access to its management, books and records for the purposes of a financial audit. As a result, the Audit Office was unable to obtain sufficient appropriate audit evidence to support the assets, liabilities, income and expenses relating to CMCT recorded in the TSS and the equity investment recognised in the GGS relating to the net assets of CMCT.

The second qualification matter relates to the limitations on the accuracy and reliability of financial information relating to Statutory Land Managers (SLMs) and Common Trust entities (CTs) controlled by the State and were either exempted from requirements to prepare financial reports, or who were required to submit financial reports and have not done so. The Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities, income and expenses that should be recognised in the 2022–23 Consolidated State Financial Statements and which have not been recorded in the Consolidated State Financial Statements.

The independent audit opinion also includes an emphasis of matter drawing attention to key decisions made by the NSW Government regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE).

Recommendations

The report includes recommendations for NSW Treasury to address several high-risk findings, including:

• ensuring accurate and reliable financial information is available to recognise the non-land balances of SLMs and CTs
• ensuring the CMCT, SLMs and CTs meet their statutory reporting obligations
• conducting a broader review of the financial reporting exemption framework
• continued monitoring of TAHE's control over its assets
• providing timely guidance to the sector relating to legislative or policy changes that impact financial reporting
• developing an accounting policy for the reimbursement of unsuccessful tender bid cost contributions.

Pursuant to section 52A of the Government Sector Audit Act 1983, I am pleased to present my Report on State Finances, for the year ended 30 June 2023. 

The report highlights the maturity of financial reporting across the sector, with most New South Wales (NSW) government agencies that consolidate into the whole-of-government accounts having unqualified audit reports.  

This report also highlights important areas for improvement. Improving the timely completion of the NSW Government's consolidated financial statements, and resolving matters on the quality of the Total State Sector Accounts that have resulted in modifications to the independent audit opinion, should be a key focus.  

Colleagues in NSW Treasury and key agencies, along with staff of the Audit Office, have worked extremely hard and collaboratively throughout the year to resolve significant accounting and audit matters, and address recommendations from past audits. I thank them for their diligence and commitment to ensuring the quality and timeliness of financial management and reporting in the NSW public sector.  

This level of professionalism needs to be sustained in view of the significant challenges that lie ahead, including embedding sustainability reporting and the disclosure of climate-related financial information. The State and the Audit Office are well placed to meet these challenges.  

As this is the last report I will present on State Finances during my term as Auditor-General, I would like to conclude by saying what an honour it has been to serve the Parliament of NSW in such an important role. A commitment to independent assurance and transparent reporting on the activities of government have been a hallmark of NSW for two centuries. We should all take pride in and protect this commitment to good government.

Margaret Crawford PSM 

Auditor-General for New South Wales

The Independent Auditor's report was qualified 

The audit opinion on the Consolidated State Financial Statements of the New South Wales General Government Sector (GGS) and Total State Sector (TSS) for the year ended 30 June 2023 was qualified in relation to two issues and included an emphasis of matter. These matters are detailed below. 

From here on, the Consolidated State Financial Statements are referred to as the Total State Sector Accounts (TSSA), in line with NSW Treasury's naming convention. 

The audit opinion continued to be qualified due to a limitation on the scope of the audit relating to the Catholic Metropolitan Cemeteries Trust 

The first qualification matter is a continuation of the prior year limitation of scope relating to the Catholic Metropolitan Cemeteries Trust (CMCT), who continued to deny access to its management, books and records for the purposes of a financial audit. 

NSW Treasury's position remains that CMCT is a controlled entity of the State for financial reporting purposes. This means CMCT is a GSF agency and is obliged under Section 7.6 of the Government Sector Finance Act 2018 (GSF Act) to prepare financial statements and give them to the Auditor-General for audit. 

To date, CMCT has not met its statutory obligations under the GSF Act. CMCT has not submitted its financial statements to the Auditor-General for audit despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. As a controlled entity, NSW Treasury is required by Australian Accounting Standards to consolidate the CMCT into the TSSA. 

Consequently, the Audit Office was unable to obtain sufficient appropriate audit evidence on the carrying amount of assets and liabilities recognised in the TSS as at 30 June 2023 and of the amount of income and expenses for the year then ended. The value of the net assets of CMCT consolidated into the TSS is $321 million, and the total comprehensive income of CMCT consolidated into the TSS for the year is $25.8 million. The GGS financial statements for the year ended 30 June 2023 also recognised an equity investment in the net assets of CMCT ($321 million). 

This limitation of scope resulted in a qualified audit opinion being issued on the TSS and the GGS. 

Section 3 of this report titled 'Limitation of scope relating to CMCT' discusses this matter in further detail. 

The audit opinion was qualified due to a limitation on the scope of the audit relating to the non-land assets, liabilities, income and expenses of controlled entities that manage crown land and associated assets and for which reliable financial information is not available 

There are 579 Category 2 Statutory Land Managers and 119 Commons Trust entities controlled by the State. 

A category 2 Statutory Land Manager (SLM) is a type of Crown Land Manager that is controlled by the State. It excludes other Crown Land Managers such as councils, metro cemeteries and Crown Holiday Parks land managers. Commons Trusts (CT) are responsible for the care, control and management of commons for which the trust is established. A common is a parcel of land that has been set aside by the Governor or the Minister for specific use in a certain locality, such as grazing, camping or bushwalking.

NSW Treasury has determined that SLMs and CTs are controlled entities of the State. Consequently these should be recognised in the TSSA as required by Australian Accounting Standards. However, the non-land assets, liabilities, income and expenses of SLMs and CTs have not been recognised in the TSSA. 

Most of these entities have not prepared financial statements, upon which to consolidate the non-land assets, liabilities, income and expenses of SLMs and CTs into the TSSA. This is because they have either not complied with their financial reporting obligations under section 7.6 of the GSF Act, or they were not required to prepare financial statements as they met the prescribed reporting exemption criteria set out in the Government Sector Finance Regulation 2018. 

In 2022–23 NSW Treasury reviewed available financial information to estimate the aggregate value of non-land assets, liabilities, income and expenses relating to SLMs and CTs that were not recognised in the TSSA. 

NSW Treasury estimates the aggregate value of non-land assets not recognised in the TSSA to be in the range of $351.6 million to $382.4 million. However, there are significant limitations on the accuracy and reliability of financial information that support these estimates. Only 12 entities were supported by what NSW Treasury defined as ‘highly reliable financial data’. Two hundred and eighty-four entities provided self-reported information and 288 entities had not submitted any financial data. The balances of the remaining entities were supported by what NSW Treasury defined as ‘somewhat reliable financial data’. This included ‘lower-quality’ financial statements and assessments of asset values performed by the former Department of Planning and Environment (DPE). 

Because of the limitations on the accuracy and reliability of financial information relating to SLMs and CTs, the Audit Office was unable to obtain sufficient appropriate audit evidence to determine the impact on the value of non-land assets and liabilities that should be recognised in the TSSA as at 30 June 2023 and of the amount of income and expenses that should be recognised in the TSSA for the year then ended. 

Accordingly, this limitation of scope resulted in a qualified audit opinion being issued on the TSSA. 

Section 4 of this report titled 'Limitation of scope relating to Category 2 Statutory Land Managers and Commons Trusts' discusses this matter in further detail. 

The audit opinion included an emphasis of matter drawing attention to key decisions regarding the future of the Transport Asset Holding Entity of New South Wales (TAHE) 

The Independent Auditor’s Report also includes an emphasis of matter, drawing attention to key decisions made by the government in August 2023 regarding the future of TAHE. 

The decisions are likely to have a significant impact on TAHE's financial position and future operating model, including converting TAHE from a for-profit State Owned Corporation (SOC) to a non-commercial Public Non-Financial Corporation (PNFC). 

These decisions may impact the future commercial agreements with the public rail operators and the future valuation of TAHE’s assets that are consolidated in the TSS. The decisions also mean that cash contributions made to TAHE are treated as grant expenses, rather than equity investments, the audit matter that has previously been reported. 

Section 5 of this report titled 'Investment in TAHE' discusses this matter in further detail. 

Other significant matters relating to the TSSA audit are covered in Section 6 titled 'Key audit findings'.

The number of identified errors increased in 2022–23 

In 2022–23, agency financial statements presented for audit contained 29 errors, where each error exceeded $20 million (20 errors in 2021–22). The total value of these errors was $2.5 billion, an increase from the previous year ($973 million in 2021–22). 

The following graph shows the number of reported errors (both corrected and uncorrected), exceeding $20 million over the past five years in agencies’ financial statements presented for audit. 

Most errors related to: 

• the incorrect application of Australian Accounting Standards and NSW Treasury policies 
• issues with the data, judgements and assumptions used when valuing non-current physical assets and liabilities 
• non-recognition of provisions related to the enhanced paid parental leave scheme that became effective 1 October 2022.

CMCT continues to deny the NSW Government and the Auditor-General access to its management, books and records 

NSW Treasury has reconfirmed the CMCT is a controlled entity of the State. The Audit Office accepts the position of NSW Treasury. 

The reaffirmation of this position means CMCT is a GSF agency under the provisions of the GSF Act. Section 7.6 of the GSF Act places an obligation on CMCT to prepare financial statements and give them to the Auditor-General. Further, section 34 of the Government Sector Audit Act 1983 (the GSA Act) requires the Auditor-General to furnish an audit report on these financial statements. 

The Audit Office recommended in the ‘State Finances 2022’ report that NSW Treasury and DPE should ensure CMCT meets its statutory reporting obligations. CMCT continues to contest NSW Treasury’s determination and asserts they are not a controlled entity of the NSW Government. 

To date, CMCT has not met its statutory obligations to prepare financial statements under the GSF Act and provide them to the Auditor-General for audit. CMCT has not submitted their financial statements to the Auditor-General for audit despite repeated requests and has not provided access to its books and records for the purposes of a financial audit. There continued to be correspondence between the Audit Office of NSW, CMCT, NSW Treasury and DPE in 2022–23 regarding this matter.

Category 2 Statutory Land Managers and Commons Trusts should be consolidated in the TSSA 

A category 2 Statutory Land Manager (SLM) is a type of Crown Land Manager that is controlled by the State. It excludes other Crown Land Managers such as councils, metro cemeteries and Crown Holiday Parks land managers. SLMs are persons or entities appointed by the Minister to be responsible for the care, control and management of Crown reserves on behalf of the people of New South Wales. 

Commons Trusts (CTs) are responsible for the care, control and management of commons for which the trust is established. A common is a parcel of land that has been set aside by the Governor or the Minister for specific use in a certain locality, such as grazing, camping or bushwalking. CTs are considered to be controlled entities of the Minister who administers the Commons Management Act 1989. CTs are not SLMs. 

Category 2 SLMs and CTs are controlled entities of the State and should be consolidated in the Total State Sector Accounts as required by Australian Accounting Standards. 

Most of these entities have not prepared audited financial statements, upon which to consolidate the non-land assets, liabilities, income and expenses of SLMs and CTs into the Total State Sector Accounts. This is because they have either not complied with their financial reporting obligations under section 7.6 of the GSF Act or they were not required to prepare audited financial statements as they met the prescribed reporting exemption criteria set out in the Government Sector Finance Regulation 2018. Further information on this compliance matter is included in Section 6 of this report titled 'Key audit findings'. 

Insufficient financial information is available to estimate the value of non-land assets, liabilities, revenues and expenses of SLMs and CTs that should be consolidated in the TSSA 

In 2022–23, NSW Treasury reviewed the available financial information to estimate the aggregate value of assets, liabilities, income, and expenses relating to SLMs and CTs that should be consolidated in the TSSA. 

Land managed by the SLMs and CTs is valued each year by the former Department of Planning and Environment (DPE) and included in the TSSA in aggregate ($466 million, 2021–22: $318 million). However, there were significant issues with the accuracy and reliability of financial information to support non-land assets, liabilities, income and expenses of SLMs and CTs. 

NSW Treasury considered the financial statements of 30 of the largest SLMs and CTs, self-reported financial information for around 400 SLMs and CTs, asset valuations, aerial photography, review of business operations, risks, legal claims, insurance arrangements and limitations imposed due to the scale and bespoke nature of the operations. DPE facilitated further engagement with SLMs and CTs to identify additional information.

NSW Treasury estimates the aggregate value of non-land assets not recognised in the TSSA to be in the range of $351.6 million to $382.4 million. However, there are significant limitations on the accuracy and reliability of financial information that support these estimates. Only 12 entities were supported by what NSW Treasury defined as ‘highly reliable financial data’. Two hundred and eighty-four entities provided self-reported information and 288 entities had not submitted any financial data. The balances of the remaining entities were supported by what NSW Treasury defined as ‘somewhat reliable financial data’. This included ‘lower-quality’ financial statements and assessments of asset values performed by DPE. 

Although the review provided some information about the SLMs and CTs, NSW Treasury concluded that there were significant limitations in the financial information available from the SLMs and CTs, and limited information to support compliance with accounting policies and relevant Treasurer’s directions. 

The TSSA audit opinion was qualified in relation to SLMs and CTs 

The opinion in the TSSA’s audit report was qualified due to the limitations on the accuracy and reliability of financial information relating to SLMs and CTs. This is a new audit qualification for 2022–23. 

This limitation was appropriately disclosed in Note 1 'Statement of Significant Accounting Policies' of the TSSA. The Statement of Compliance signed by the Secretary of NSW Treasury and the Treasurer on 18 January 2024 was also updated to acknowledge the disclosure in Note 1 regarding SLMs and CTs.

In September 2023, the NSW Government announced its intention to convert TAHE into a non-commercial PNFC. 

TAHE’s new operating model is expected to be implemented in three phases: 

• Phase 1: the government expects to transition TAHE to not-for-profit status by taking administrative actions under the State Owned Corporations Act 1989. 
• Phase 2: the government expects to introduce an initial wave of legislative changes to allow for the introduction of the new operating model. 
• Phase 3: the government expects to introduce further legislative changes to remove TAHE’s status as a SOC. The corporation is expected to be renamed. 

Cash contributions from NSW Treasury to TAHE in 2022–23 have been expensed and are no longer treated as equity contributions 

In prior years the cash transfers from NSW Treasury (an entity in the GGS) to TAHE, an entity controlled by the State that is classified in the PNFC sector, were treated as equity contributions. 

The equity contributions were recognised on the basis there was a reasonable expectation to earn a sufficient rate of return of 2.5% (including recovering any holding losses) on the investment in TAHE. The exception to this treatment is if there is no reasonable expectation of a sufficient rate of return on the contribution, in which case, the transfer should be recorded as a capital transfer expense. Returns include dividends, income tax equivalents and holding gains or losses. 

The accounting treatment of the cash contributions to TAHE has been an area of significant audit focus in previous years, and significant audit findings reported to Parliament. The significant uncertainty relating to the assumptions and estimates used to forecast a 2.5% return on GGS investments into TAHE, that supported the recognition of an equity contribution in the prior year, was reported as an emphasis of matter in the 2021–22 TSSA audit report. 

In 2022–23 the government changed the intent and expectations in relation to the future operating model of TAHE. This change in direction meant the government will no longer account for cash contributions to TAHE as equity, but rather will treat such contributions as an expense. This is because the government is no longer demonstrating that there is a reasonable expectation of a sufficient rate of return on the contributions made by the GGS to TAHE. 

As a result, from 1 July 2022, the capital funding of $1.6 billion provided to TAHE in 2022–23 has been recorded as a capital transfer expense in the GGS Statement of Comprehensive Income. 

The emphasis of matter included in last year’s TSSA audit report relating to the significant uncertainty relating to the assumptions and estimates used to forecast returns on GGS investments into TAHE is no longer relevant this year. However, the Audit Office have included a new emphasis of matter in the 2022–23 TSSA audit report, drawing attention to the key decisions made by the government in August 2023 regarding the future of TAHE. 

'Emphasis of matter' paragraphs are included in an agency's Independent Auditor's Report for matters that have been presented or disclosed by the agency in its certified financial statements. Whilst they do not constitute an audit qualification, they do highlight matters that are, in our judgment, relevant to the users' understanding of the financial statements. 

Further information on last year's audit of the government's investment in TAHE can be found in our ‘State Finances 2022’ report.

Valuation of TAHE assets in TAHE's accounts

At 30 June 2023, TAHE reported $16.5 billion in property, plant and equipment and related intangibles within the cash generating units (CGUs) – a $2.8 billion or 15% decrease from the same time last year (2021–22: $19.3 billion). The fair value of these assets at balance date is determined using the income approach – appropriate for TAHE given its current for-profit status. Such an approach is reliant on, and is sensitive to TAHE’s judgements, estimates and assumptions. 

The reduction in the carrying value of reported assets was largely driven by the uncertainty of TAHE's future operating model under the new government, which increased the risk and discount rates applied to the valuation model. 

Given the uncertainty over the future of TAHE, NSW Treasury and TAHE will need to assess whether the income approach remains an appropriate basis of valuation going forward. 

Control of TAHE assets 

TAHE's position on control of assets for the current year was accepted 

TAHE assessed that it maintains control of its assets as it has exercised authority and power over its assets during the year, as well as continuing to operate as an independent SOC. 

Consistent with the prior year, the audit did not find evidence that the assets held by TAHE are not controlled by TAHE. However, given the constraints that can be imposed through the operating licence, there is a risk that limitations could be placed on the operations or functions of TAHE. Future limitations to the degree of control TAHE, and its board, can exercise over it functions may impact the degree of control TAHE has over its assets going forward. The current operating licence issued by the Minister for Transport expires on 30 June 2024. 

Furthermore, the government’s decision to change the operating model for TAHE in future years could impact the control TAHE has over its assets. The control of these assets by TAHE will be a continued area of audit focus.

Performance audit on the design and implementation of TAHE 

In January 2023, the Auditor-General tabled a performance audit on the 'Design and implementation of the Transport Asset Holding Entity', which assessed the effectiveness of NSW government agencies' design and implementation of TAHE. The audit included TAHE, Transport for NSW and NSW Treasury. 

The audit found the design and implementation of TAHE, which spanned seven years, was not effective. 

The process was not cohesive or transparent. It delivered an outcome that is unnecessarily complex in order to support an accounting treatment to meet the NSW Government's short-term Budget objectives, while creating an obligation for future governments.

The budget benefits of TAHE were claimed in the 2015–16 NSW Budget before the enabling legislation was passed by Parliament in 2017. This committed the agencies to implement a solution that justified the 2015–16 Budget impacts, regardless of any challenges that arose. 

Rail safety arrangements were a priority throughout TAHE's design and implementation, and risks were raised and addressed. 

Agencies relied heavily on consultants on matters related to the creation of TAHE, but failed to effectively manage these engagements. Agencies failed to ensure that consultancies delivered independent advice as an input to decision-making. A small number of firms were used repeatedly to provide advice on the same topic. The final cost of TAHE-related consultancies was $22.6 million compared to the initial estimated cost of $12.9 million.

Deficit of $10.6 billion compared with a budgeted deficit of $11.3 billion 

The General Government Sector (GGS) comprises of 210 entities and provides public services or carries out policy or regulatory functions. Agencies in this sector are funded centrally by the State. 

A principal measure of the government's overall activity and policies is its net operating balance (budget result). This is the difference between the cost of general government service delivery and the revenue earned to fund these sectors. 

Outside the GGS, a further 104 government-controlled entities are included within the TSSA. These entities form part of the PNFC (32) and PFC (72) sectors, and generally provide goods and services for which consumers pay for directly (including water and electricity). 

The GGS's budget result for the 2022–23 financial year was a deficit of $10.6 billion compared to an original forecast of a budget deficit of $11.3 billion.

Revenues increased $6.6 billion to $113.2 billion 

The State’s total revenues increased $6.6 billion to $113.2 billion, an increase of 6.2% compared to the previous year. Total revenue growth in 2021–22 was 18.2%. The State's increase in revenue was mostly from $2 billion in sale of goods and services, $1.5 billion in fines, regulatory fees and other revenue, and $1.4 billion in interest. 

Sale of goods and services increased by 14.8% 

Sale of goods and services revenue increased by $2 billion, mainly due to the return of the State's operations and services post the COVID-19 pandemic, including the: 

• return of elective surgery, increased patient services and sale of high-cost drugs under the Pharmaceutical Benefits Scheme co-payment for Section 100 Highly Specialised Drugs for both private and public patients 
• increased user demand for public transport 
• re-opening of schools contributing to higher revenue from student fees, sports and extracurricular activities. 

Fines, regulatory fees and other revenue increased by 19.8% 

Fines, regulatory fees and other revenue increased by $1.5 billion, mainly due to higher mining royalties collected by the State of $949 million. Extracted volume and weight of coal, gold and copper increased in 2022–23, as the COVID-19 pandemic lockdown restrictions eased, increasing the demand for export commodities. 

Interest revenue increased by 137.6% 

Interest revenue increased by $1.5 billion because of the strong interest rate environment and increases in the cash rate impacting securities, investment deposits and government agencies. As a result, this is passed on to new client loans as TCorp’s own borrowing costs increase.

Assets grew by $75.1 billion to $651 billion 

The State’s assets include physical assets such as land, buildings and infrastructure systems, and financial assets such as cash, and other financial instruments and equity investments. The value of total assets increased by $75.1 billion or 13.1% to $651 billion. The increase was largely due to increases in the carrying value of land, buildings and infrastructure systems. 

Valuing the State’s physical assets 

The State’s physical assets were valued at $489 billion 

The value of the State’s physical assets increased by $52.6 billion to $489 billion in 2022–23 ($46.7 billion increase in 2021–22). The State’s physical assets include land and buildings ($214 billion), infrastructure systems ($256 billion) and plant and equipment ($19.4 billion). 

The movement in physical asset values between years includes additions, disposals, depreciation and valuation adjustments. Other movements include assets reclassified to held for sale.

Appendix one – Prescribed entities

Appendix two – TSS sectors and entities

© 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.

What this report is about

Result of the Transport portfolio of agencies' financial statement audits for the year ended 30 June 2023.

The audit found

Unqualified audit opinions were issued for all Transport portfolio agencies.

An 'emphasis of matter' paragraph was included in the Transport Asset Holding Entity of New South Wales' (TAHE) independent auditor's report, which draws attention to management's disclosure regarding proposed changes to TAHE's operating model.

Government's decision to convert TAHE into a non-commercial Public Non-Financial Corporation may impact the future valuation and the control of TAHE's assets.

Transport for NSW's valuation of roads and bridges resulted in a net increase to its asset value by $15.7 billion.

Transport for NSW and Sydney Metro have capitalised over $300 million of tender bid costs paid to unsuccessful tender bidders relating to significant infrastructure projects. Whilst NSW Treasury policy provides clarity on the reimbursement of unsuccessful bidders' costs, clearer guidance on how to account for these costs in agency's financial statements is required.

The key audit issues were

The number of issues reported to management decreased from 53 in 2021–22 to 49 in 2022–23.

High-risk findings include:

• gaps in how Sydney Metro manages its contractors and how conflicts of interest are recorded and managed
• future financial reporting implications to account for government's proposed changes to TAHE's future operating model, including asset valuations and control assessments of assets and operations
• Parramatta Park Trust's tree assets' valuation methodology needs to be addressed.

Recommendations were made to address the identified deficiencies.

This report provides Parliament and other users of the Transport portfolio of agencies’ financial statements with the results of our audits, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.

This chapter outlines our audit observations related to the financial reporting of agencies in the Transport portfolio of agencies (the portfolio) for 2023.

Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision-making.
This chapter outlines our observations and insights from our financial statement audits of agencies in the Transport portfolio.

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 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.

What this report is about

Results of the Planning and Environment portfolio financial statement audits for the year ended 30 June 2023.

The audit found

Unqualified audit opinions were issued for all completed Planning and Environment portfolio agencies. Seven audits are ongoing.

The Catholic Metropolitan Cemeteries Trust (CMCT) did not comply with its obligations under the Government Sector Finance Act 2018 (GSF Act) to prepare and submit financial statements for audit.

The Department of Planning and Environment (the department) has not yet provided their assessment of the financial reporting requirements for the 579 Category 2 Statutory Land Managers (SLMs) for 2022–23.

One-hundred-and-nineteen Commons Trusts are non-compliant with the GSF Act as they have not submitted their financial statements for audit.

We issued unqualified opinions on the Water Administration Ministerial Corporation's 2020–21, 2021–22 and 2022–23 financial statements.

The number of monetary misstatements identified in our audits decreased from 59 in 2021–22 to 51 in 2022–23, however the gross value of misstatements increased.

The key audit issues were

The former Resilience NSW and NSW Reconstruction Authority (the Authority) re-assessed the accounting implications arising from contractual agreements relating to temporary housing assets associated with the Northern Rivers Temporary Homes Program. This resulted in adjustments to recognise the associated assets and liabilities.

We continue to identify significant deficiencies in NSW Crown land information records.

The department has not been effective in addressing the differing practices for the financial reporting of rural firefighting equipment vested to councils under section 119 (2) of the Rural Fires Act 1997.

The number of findings across the portfolio reported to management increased from 132 in 2021–22 to 140 in 2022–23. Thirty per cent of issues were repeated from the prior year.

Seven high-risk issues were identified. These related to the findings outlined above, deficiencies in quality reviews of asset valuations, internal control processes and IT general controls.

The audit recommended

Recommendations were made to the department and portfolio agencies to address these deficiencies.

This report provides Parliament and other users of the Planning and Environment portfolio of agencies’ financial statements with the results of our audits, 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 and Environment portfolio of agencies (the portfolio) for 2023.

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 portfolio.

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 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.

What this report is about

Results of the Enterprise, Investment and Trade portfolio of financial statement audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued for all completed Enterprise, Investment and Trade portfolio agencies.

An 'other matter' paragraph was included in the Jobs for NSW Fund's 30 June 2022 independent auditor's report to reflect the non-compliance with the Jobs for NSW Act 2015 (the Act). The Act requires the board to consist of seven members that include the Secretary of the Treasury, the Secretary of the Premier's Department, and five ministerial appointments. The board has consisted of two secretaries since 24 May 2019 when the independent members resigned. The remaining five members have not been appointed by the ministers as required by section 5(2) of the Act.

Financial statements were not prepared for the Responsible Gambling Fund, a special deposit account. Financial statements should be prepared unless NSW Treasury releases a Treasurer's Direction under section 7.8 of the GSF Act that will exempt the SDA from financial reporting requirements.

What the key issues were

The number of issues reported to management decreased from 65 in 2021–22 to 44 in 2022–23. Forty-six per cent of issues were repeated from the prior year.

Two high-risk issues were identified across the portfolio. One was a repeat issue where the Jobs for NSW Fund did not comply with legislation. The other high-risk issue was first identified in 2022–23 when the Department for Enterprise, Investment and Trade incorrectly recorded grants that did not meet the requirements of Australian Accounting Standards.

What we recommended

The Department should develop a robust model to ensure it only provides for grants that meet the eligibility criteria.

This report provides Parliament and other users of the Enterprise, Investment and Trade portfolio of agencies’ financial statements with the results of our audits, 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 Enterprise, Investment and Trade portfolio of agencies (the portfolio) for 2023.

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 Enterprise, Investment and Trade portfolio.

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 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.

What this report is about

Results of the Regional NSW financial statements audits for the year ended 30 June 2023.

What we found

Unqualified audit opinions were issued on all completed audits in the Regional NSW portfolio agencies.

The number of monetary misstatements identified in our audits increased from 28 in 2021–22 to 30 in 2022–23.

What the key issues were

Effective 1 July 2023, staff employed in the Northern Rivers Reconstruction Corporation Division of the Department of Regional NSW transferred to the NSW Reconstruction Authority Staff Agency.

The Regional NSW portfolio agencies were migrated into a new government wide enterprise resourcing planning system.

The total number of audit management letter findings across the portfolio of agencies decreased from 36 to 23.

A high risk matter was raised for the NSW Food Authority to improve the internal controls in the information technology environment including monitoring and managing privilege user access.

What we recommended

Local Land Services should prioritise completing all mandatory early close procedures.

Portfolio agencies should:

• ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards
• prioritise and address internal control deficiencies identified in audit management letters.

This report provides Parliament and other users of the Regional NSW portfolio of agencies financial statements with the results of our audits, 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 Regional NSW portfolio of agencies (the portfolio) for 2023.

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 Regional NSW portfolio.

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 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.

What the report is about

Effective radio communications are crucial to NSW's emergency services organisations.

The Critical Communications Enhancement Program (CCEP) aims to deliver an enhanced public safety radio network to serve the five emergency services organisations (ESOs), as well as a range of other users.

This report assesses whether the NSW Telco Authority is effectively managing the CCEP.

What we found

Where it has already been delivered (about 50% of the state), the enhanced network meets most of the requirements of ESOs.

The CCEP will provide additional infrastructure for public safety radio coverage in existing buildings agreed to with ESOs. However, radio coverage inside buildings constructed after the CCEP concludes will be at risk because building and fire regulations do not address the need for in-building public safety radio coverage.

Around 98% of radios connected to the network can be authenticated to protect against cloning, though only 42% are.

The NSW Telco Authority has not settled with ESOs on how call encryption will be used across the network. This creates the risk that radio interoperability between ESOs will not be maximised.

When completed, the public safety radio network will be the only mission critical radio network for ESOs. It is unclear whether governance for the ongoing running of the network will allow ESOs to participate in future network operational decisions.

The current estimated capital cost for the NSW Telco Authority to complete the CCEP is $1.293 billion. This is up from an estimated cost of $400 million in 2016. The estimated capital cost was not publicly disclosed until $1.325 billion was shown in the 2021–22 NSW Budget Papers.

We estimate that the full cost to government, including costs to the ESOs, of implementing the enhanced network is likely to exceed $2 billion.

We made recommendations about

• The governance of the enhanced Public Safety Network (PSN) to support agency relationships.
• The need to finalise a Traffic Mitigation Plan for when the network is congested.
• The need to provide advice to the NSW Government about the regulatory gap for ensuring adequate network reach in future buildings.
• The need to clarify how encryption and interoperability will work on the enhanced network.
• The need for the NSW Telco Authority to comply with its policy on Infrastructure Capacity Reservation.
• Expediting measures to protect against the risk of cloning by unauthenticated radios.

Public safety radio networks are critical for operational communications among Emergency Services Organisations (ESOs), which in New South Wales include:

• NSW Ambulance
• Fire and Rescue NSW
• NSW Police Force
• NSW Rural Fire Service
• NSW State Emergency Service.¹

Since 1993, these five ESOs have had access to a NSW Government owned and operated radio communications network, the Public Safety Network (PSN), to support their operational communications. Around 60 to 70 other entities also have access to this network, including other NSW government entities, Commonwealth government entities, local councils, community organisations, and utility companies.

Pursuant to the Government Telecommunications Act 2018 ('the Act'), the New South Wales Government Telecommunications Authority ('NSW Telco Authority') is responsible for the establishment, control, management, maintenance and operation of the PSN.²

Separate to the PSN, all ESOs and other government entities have historically maintained their own radio communication capabilities and networks. Accordingly, the PSN has been a supplementary source of operational radio communications for these entities.

These other radio networks maintained by ESOs and other entities are of varying size and capability, with many ageing and nearing their end-of-life. There was generally little or no interoperability between networks, infrastructure was often co-located and duplicative, and there were large gaps in geographic coverage.

In 2016, the NSW Telco Authority received dedicated NSW Government funding to commence the Critical Communications Enhancement Program (CCEP).

According to NSW Telco Authority's 2021–22 annual report, the CCEP is a transformation program for operational communications for NSW government agencies. The CCEP '…aims to deliver greater access to public safety standard radio communications for the State’s first responders and essential service agencies'. The objective of CCEP is to consolidate the large number of separate radio networks that are owned and operated by various NSW government entities and to enhance the state’s existing shared PSN. The program also aims to deliver increased PSN coverage throughout New South Wales.

The former NSW Government intended that as the enhanced PSN was progressively rolled-out across NSW, ESOs would migrate their radio communications to the enhanced network, before closing and decommissioning their own networks.

About this Audit

This audit assessed whether the CCEP is being effectively managed by the NSW Telco Authority to deliver an enhanced PSN that meets ESOs' requirements for operational communications.

We addressed the audit objective by answering the following two questions:

1. Have agreed ESO user requirements for the enhanced PSN been met under day-to-day and emergency operational conditions?
2. Has there been adequate transparency to the NSW Government and other stakeholders regarding whole-of-government costs related to the CCEP?

In answering the first question, we also considered how the agreed user requirements were determined. This included whether they were supported by evidence, whether they were sufficient to meet the intent of the CCEP (including in considering any role for new or alternative technologies), and whether they met any relevant technical standards and compliance obligations (including for cyber security resilience).

While other NSW government agencies and entities use the PSN, we focused on the experience of the five primary ESOs because these will be the largest users of the enhanced PSN.

Both the cost and time required to complete the CCEP roll-out have increased since 2016. While it was originally intended to be completed in 2020, this is now forecast to be 2027. Infrastructure NSW has previously assessed the reasons for the increases in time and cost. A summary of the findings made by Infrastructure NSW is presented in Chapter 1 of this report. Accordingly, as these matters had already been assessed, we did not re-examine them in this performance audit.

The auditee for this performance audit is the NSW Telco Authority, which is a statutory authority within the Department of Customer Service portfolio.

In addition to being responsible for the operation of the PSN, section 5 of the Act also prescribes that the NSW Telco Authority is:

• to identify, develop and deliver upgrades and enhancements to the government telecommunications network to improve operational communications for government sector agencies
• to develop policies, standards and guidelines for operational communications using telecommunications networks.

The NSW Telco Authority Advisory Board is established under section 10 of the Act. The role of the board is to advise the NSW Telco Authority and the minister on any matter relating to the telecommunications requirements of government sector agencies and on any other matter relating to the functions of the Authority. As of 2 June 2023, the responsible minister is the Minister for Customer Service and Digital Government.

The five identified ESOs are critical stakeholders of the CCEP and therefore they were consulted during this audit. However, the ESOs were not auditees for this performance audit.

The NSW Telco Authority established and tracked its own costs for the CCEP

Over the course of the program from 2016, the NSW Telco Authority prepared a series of business cases and program reviews that estimated its cost of implementing the program in full, including those shown in Exhibit 6 below.

In response to the 2016 CCEP business case, the then NSW Government approved the NSW Telco Authority implementing the CCEP in full, with funding provided in stages. The NSW Telco Authority tracked its costs against approved funding, with monthly reports provided to the multi-agency Program Steering Committee

Throughout the program, the NSW Government was informed of increasing costs being incurred by the NSW Telco Authority for the CCEP

The various business cases, program updates, and program reviews prepared by the NSW Telco Authority were provided to the NSW Government through the required Cabinet process when seeking approval for the program proceeding and requests for both capital and operational funding. These provided clear indication of the changing overall cost of the CCEP to the NSW Telco Authority, as well as the delays that were being experienced.

There was no transparency to the Parliament and community about changes in the capital cost of the CCEP until the 2021–22 NSW Budget

As the business cases for the CCEP were not publicly available, the only sources of information about capital cost were NSW Budget papers and media releases. The information provided in the annual Budget papers prior to the 2021–22 NSW Budget provided no visibility of the estimated full capital cost to complete all stages of the CCEP. As shown in Exhibit 7 below, this information was fragmented and complex.

Media releases about the progress of the CCEP did not provide the estimated total cost to the NSW Telco Authority of $1.325 billion to complete all stages of the CCEP until June 2021. Prior to this date, media releases only provided funding for the initial stages of the program or for the stages subject to a funding announcement.

Even during the September 2019 and March 2020 Parliamentary Estimate Committee hearings where the costings and delays to the CCEP were raised, the estimated full cost of the CCEP was not revealed.

The original business case for the CCEP included estimated ESO costs, though these costs were not tracked throughout the program

Estimates for ESO costs for operating and maintaining their own radio networks over the four years from 2016–17 were included in the original March 2016 business case. They included $75.2 million for capital expenditure and $95 million for one-off operating costs. These costs, as well as costs incurred by ESOs due to the delay in the program, were not subsequently tracked by the NSW Telco Authority.

In January 2017, Infrastructure NSW reviewed the CCEP business case of March 2016. In this review, Infrastructure NSW recommended that the NSW Telco Authority identify combined and apportioned costs and cashflow for all ESOs over the CCEP funding period reflecting all associated costs to deliver the CCEP. These to include additional incidental capital costs accruing to ESOs, transition and migration to the new network and the cost (capital and operational) of maintaining existing networks. This recommendation was implemented in the November 2017 program review, with ESO capital costs estimated as $183 million.

In 2019, Infrastructure NSW conducted a Deep Dive Review on the progress of the CCEP. In this review, Infrastructure NSW made what it described as a 'critical recommendation' that the NSW Telco Authority:

It should be noted that the delay to CCEP completion now is seven years and that further ‘operational bridging solutions’ have been needed by the ESOs.

'Stay Safe and Keep Operational' costs incurred by ESOs will be significantly higher than originally estimated

Stay Safe and Keep Operational (SSKO) funding was established to provide funding to ESOs to maintain their legacy networks while the CCEP was refreshing and enhancing the PSN. This recognised that much of the network infrastructure relied on by ESOs had reached – or was reaching – obsolescence and would either require extensive maintenance or replacement before the PSN was available for ESOs to migrate to it. ESOs may apply to NSW Treasury for SSKO funding, with their specific proposals being reviewed (and endorsed, where appropriate) by the NSW Telco Authority. Accordingly, SSKO expenditure does not fall within the CCEP budget allocation.

As shown in the table below, extracted from the March 2016 CCEP business case, the total expected cost for SSKO purposes over the course of the CCEP was originally $40 million, assuming the enhanced PSN would be fully available by 2020.

In October 2022, the expected completion date for the CCEP was re-baselined to August 2027. Accordingly, ESOs will be required to continue to maintain their radio networks using legacy equipment for seven years longer than the original 2020 forecast. This will likely become progressively more expensive and require additional SSKO funding. For example, NSW Telco Authority endorsed SSKO bids for 2022–23 exceeded $35 million for that year alone.

Compared to the original forecast made in the March 2016 CCEP business case of $40 million, we found ESOs had estimated SSKO spending to 2027 will be $292.5 million.

A refresh of paging network used by ESOs and the decommissioning of redundant sites were both removed from the original 2016 scope of the CCEP

Paging

A paging network is considered an important user requirement by the Fire and Rescue NSW, NSW Rural Fire Service, and NSW State Emergency Service. The 2016 CCEP business case included a paging network refresh within the program scope of works. This was reiterated in the November 2017 internal review of the program. These documents did not estimate a cost for this refresh. The March 2020 and October 2020 business cases excluded paging from the program scope. The audit is unable to identify when, why or by whom the decision was made to remove paging from the program scope, something that was also not well communicated to the affected ESOs.

In 2021, after representations from the affected ESOs, the NSW Telco Authority prepared a separate business case for a refresh of the paging network at an estimated capital cost of $60.31 million. This program was subsequently approved by the NSW Government and included in the 2022–23 NSW Budget.

In determining an estimated full whole-of-government cost of delivering the enhanced PSN, we have included the budgeted cost of the paging network refresh on the basis that:

• it was expressly included in the original approved March 2016 business case
• the capability is deemed essential to the needs of three ESOs.

Decommissioning costs

The 2016 CCEP business case included cost estimates for decommissioning surplus sites (whether ‘old’ GRN sites or sites belonging to ESOs’ own networks). These estimates were provided for both the NSW Telco Authority ($38 million) and for the ESOs ($55 million). However, while these estimates were described, they were not included as part of the NSW Telco Authority's estimated capital cost ($400 million) or (more relevantly) operating cost ($37.3 million) for the CCEP. This is despite decommissioning being included as one of eight planned activities for the rollout of the program.

In the October 2020 business case, an estimate of $201 million was included for decommissioning agency networks based on a model whereby:

• funding would be coordinated by the NSW Telco Authority
• scheduling and reporting through an inter-agency working group and
• where appropriate, agencies would be appointed as the most appropriate decommissioning party.

This estimated cost is not included in the CCEP budget.

In determining an estimated full whole-of-government cost of the enhanced PSN, we have included the estimated cost of decommissioning on the basis that:

• decommissioning was included in the 2016 CCEP business case as one of eight 'planned activities for the rollout of the program'
• effective decommissioning of surplus sites and equipment (including as described in the business case as incorporating asset decommissioning, asset re-use, and site make-good) is an inherent part of the program management for an enhanced PSN
• costs incurred in decommissioning are entirely a consequence of the CCEP program.

The estimated minimum cost of building an enhanced PSN consistent with the original proposal is over $2 billion

We have derived two estimated minimum whole-of-government costs for delivering an enhanced PSN. These are:

• $2.04 billion when calculated from NSW Telco Authority data – shown as estimate A in Exhibit 9 below.
• $2.26 billion when calculated from ESO supplied data – shown as estimate B in Exhibit 9.

Both totals include:

• budgeted amounts for both CCEP capital expenditure ($1,292.8 million) and operating expenditure ($139 million)
• the NSW Telco Authority's 2020 estimated cost for decommissioning ($201 million)
• the NSW Telco Authority's approved funding for paging refresh ($60.3 million).

The two estimated totals primarily vary around the capital expenditure of ESOs (particularly SSKO funding). To determine these costs, we used ESO provided actual SSKO costs to date, as well as their estimates for maintaining their legacy radio networks through to 2027.

The equivalent cost estimates from the NSW Telco Authority were sourced from the November 2017 internal review and the October 2020 business case for CCEP. It should be noted that the amounts for both estimates are not audited, or verified, but do provide an indication of how whole-of-government costs have grown over the course of the program.

The increase in and reasons for the increase in total CCEP costs (capital and one-off operating) incurred or forecast by the NSW Telco Authority (from $437.3 million in 2016 to $1,431.8 million in 2022) have been provided to the NSW Government through various business cases and reviews prepared by the NSW Telco Authority, as well as by reviews conducted by Infrastructure NSW as part of its project assurance responsibilities.

However, the growth in ESO costs and other consequential costs, such as paging and decommissioning, from around $263 million in the 2016 CCEP business case to between $600 million and $800 million, has to a large degree remained invisible and unexplained to the NSW Government and other stakeholders

Appendix one – Response from agency

Appendix two – Trunked public safety radio networks

Appendix three – About the audit

Appendix four – Performance auditing

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Parliamentary reference - Report number #383 - released 23 June 2023

What this report is about

This report draws together the financial impact of natural disasters on agencies integral to the response and impact of natural disasters during 2021–22.

What we found

Over the 2021–22 financial year $1.4 billion from a budget of $1.9 billion was spent by the NSW Government in response to natural disasters.

Total expenses were less than the budget due to underspend in the following areas:

• clean-up assistance, including council grants
• anticipated temporary accommodation support
• payments relating to the Northern Rivers Business Support scheme for small businesses.

Natural disaster events damaged council assets such as roads, bridges, waste collection centres and other facilities used to provide essential services. Additional staff, contractors and experts were engaged to restore and repair damaged assets and minimise disruption to service delivery.

At 30 June 2022, the estimated damage to council infrastructure assets totalled $349 million.

Over the first half of the 2022–23 financial year, councils experienced further damage to infrastructure assets due to natural disasters. NSW Government spending on natural disasters continued with a further $1.1 billion spent over this period.

Thirty-six councils did not identify climate change or natural disaster as a strategic risk despite 22 of these having at least one natural disaster during 2021–22.