About this report

Internal controls are key to the accuracy and reliability of agencies’ financial reporting processes. This report analyses the internal controls and governance of 26 of the NSW public sector’s largest agencies for the 2023–24 financial year.

Findings

There are gaps in key business processes, which expose agencies to risks. These gaps are identified in 121 findings across the 26 agencies—including 4 high risk, 73 moderate risk and 44 low risk findings. All four high-risk issues related to IT controls and 19% of control deficiencies were repeat issues. Thirty-five per cent of agencies had deficiencies in control over privileged access.

Shared IT services

Six agencies provide IT shared services to 120 other customer agencies. All six had control deficiencies—three of these were high risk. Four agencies provide no independent assurance to their customers about the effectiveness of their own IT controls.

Cyber security

Eighteen agencies assessed cyber risk as being above their risk appetite. Fourteen of these agencies had not set a timeframe to resolve these risks and two agencies have not funded plans to improve cyber security.

Fraud and corruption control

Agencies need to improve fraud and corruption control. Instances of non-compliance with TC18-02 NSW Fraud and Corruption Policy were identified, including gaps such as a lack of comprehensive employment screening policies and not reporting matters to the audit and risk committee.

Gifts and benefits

Management of gifts and benefits requires better governance and transparency. All agencies had policy and guidance but all had gaps in management and implementation—such as not publishing registers nor providing ongoing training.

Information Technology

Nine agencies did not effectively restrict or monitor user access to privileged accounts.

Recommendations

The report makes recommendations to agencies to implement proper controls and improve processes in relation to:

• organisational processes
• information technology
• cyber security
• fraud and corruption, and
• gifts and benefits.

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Australian Registry Investments (trading as NSW Land Registry Services) was granted the right to operate the titling and registry operations of New South Wales in April 2017, under a 35-year concession which commenced on 1 July 2017. The NSW Government continues to own the land titles register and guarantees title under the Torrens Assurance Fund. The Office of the Registrar General regulates NSW Land Registry Services (NSW LRS) as the operator of the NSW land titles registry under a regulator-operator model. 

This audit will assess the effectiveness of the Office of the Registrar General in overseeing and monitoring the operation and maintenance of the land titles registry by a private operator to ensure the integrity and security of the registry. The audit will address the following questions: 

• Does the Office of the Registrar General ensure that appropriate measures are taken to establish, maintain and protect the integrity (including quality) and security of information held on the land titles registry?
• Does the Office of the Registrar General ensure that there are effective arrangements for responding and resolving breaches of performance standards or obligations relating to the integrity, quality or security of information held on the land titles registry?

The Office of the Registrar General is situated in the Better Regulation Division of the Department of Customer Service.

Estimated tabling date: February 2025

Department of Customer Service and NSW Treasury.

About this report

The Department of Communities and Justice (DCJ) is responsible for safeguarding the rights of Aboriginal children, families, and communities when they encounter the child protection system. These rights are known as the Aboriginal and Torres Strait Islander Principles (the Principles), which are set out in legislation.

DCJ provides early intervention, prevention and out of home care services and also subcontracts non-government organisations to provide these services.

This audit assessed whether DCJ, and five funded non-government organisations that provide out of home care services, are effectively safeguarding the rights of Aboriginal children in the child protection system.

Findings

DCJ cannot demonstrate its compliance with the Principles. DCJ has not embedded the Principles in its governance, accountability arrangements, policy and day-to-day casework practice.

Insufficient governance and accountability arrangements have contributed to DCJ's failure to deliver on Aboriginal strategies and reforms in the last five years.

DCJ has not developed holistic family preservation models based on Aboriginal ways of healing.

DCJ is aware that its structured decision-making tools, used to make significant casework decisions, adversely affect Aboriginal children and their families. However, DCJ continues to use the tools.

DCJ has no quality assurance mechanisms over its child protection system and casework practice.

As system steward, DCJ has not provided non-government organisations with means to satisfy the Principles.

Recommendations

The audit recommends that DCJ:

• establish governance and accountability arrangements that provide oversight of the safeguards and outcomes for Aboriginal children and families
• develop and implement a quality assurance framework to ensure compliance with safeguards for Aboriginal children at all points in the child protection system
• fulfil its commitment to develop and implement a healing framework for child protection services
• commission family preservation services consistent with the principles of self-determination and participation set out in the Principles.

In this report, the term Aboriginal people is used to describe Aboriginal and Torres Strait Islander peoples. The Audit Office of NSW acknowledges the diversity of traditional Nations and Aboriginal language groups across the state of New South Wales.

The Department of Communities and Justice (DCJ) is responsible for the administration of the child protection system in NSW.

Aboriginal children and their families' rights in the child protection system are contained in the Children and Young Persons (Care and Protection) Act 1998 and the United Nations Conventions on the Rights of the Child and the Declaration on the Rights of Indigenous Peoples. These rights are also binding on DCJ funded non-government organisations (NGOs) through the administration of service contracts.

In 2022–23, DCJ spent $3.1 billion on child protection and out of home care services. This includes $1.9 billion on out of home care services, $800 million on child protection services and $405 million on early and intensive family preservation services.

DCJ subcontracts various early intervention, prevention programs and out of home care services to NGOs. However, DCJ is responsible, as system steward, for the effectiveness of the entire child protection system.

This audit assessed whether DCJ and five of its funded NGOs are effectively safeguarding the rights of Aboriginal children in the child protection system. The audit period was June 2018 to June 2023 (five years). In this report, children and young people under 18 are described together as children.

We addressed the audit objective by answering three questions:

1. Does DCJ and its funded non-government organisations have established governance and accountability arrangements to understand and track performance in safeguarding the rights of Aboriginal children in the child protection system?
2. Does DCJ and its funded non-government organisations have effective policies, practices, systems, and resources to support and enable staff to safeguard the rights of Aboriginal children in the child protection system?
3. Does DCJ and its funded non-government organisations have effective monitoring and quality assurance systems to ensure that the outcomes for Aboriginal children in the child protection system are consistent with their legislative rights and their human rights?

This audit was conducted concurrently with the Oversight of the child protection system performance audit.

The child protection system aims to protect children and young people from the risks of abuse, neglect and harm. This report refers to several parts of the child protection system including:

• Helpline: DCJ receives and triages reports about children suspected to be at risk of significant harm
• Investigation of reports (mostly performed at community service centres): DCJ determines if reports meet the suspected risk of significant harm threshold and the subsequent assessment and investigation of suspected risk of significant harm reports
• Case work: where risk of significant harm has been substantiated, DCJ provides and procures services to prevent a child’s entry into the child protection system
• Entry into care decisions: DCJ determines when a child enters out of home care
• Out of home care services: where a child cannot safely remain at home, DCJ or a contract service provider, place the child in foster care, kinship care, temporary care arrangements or residential care.

DCJ is not monitoring or reporting on safeguards for the rights of Aboriginal children 

Decisions and actions that affect families and children in contact with the child protection system are often made within the context of complex circumstances. They are also deeply impactful on children and their families and can have lifelong implications in areas such as mental health and wellbeing, social inclusion and the likelihood for descendants to also be in contact with the child protection system. Legislative safeguards exist to ensure that the rights of children are paramount.

DCJ governance arrangements are not informed by, and do not reflect, legislative safeguards for the rights of Aboriginal children. Such safeguards include the Convention on the Rights of the Child or the Declaration on the Rights of Indigenous Peoples and the Aboriginal and Torres Strait Islander Principles (the Principles) contained in sections 11 to 13 of the Children and Young Persons (Care and Protection) Act 1998.

DCJ has not established mechanisms to:

• address the reasons, including those arising from its own process deficiencies, that Aboriginal children are disproportionately reported at suspected Risk of Significant Harm, seen by caseworkers and enter statutory out of home care
• assess and hold its funded non-government organisations (NGO) accountable for the quality and outcomes of family preservation services that aim to prevent Aboriginal children entering out of home care
• hold departmental districts and NGOs accountable for outcomes for Aboriginal children in out of home care.

Department districts are instead held accountable against nine key performance indicators at Quarterly Business Review Meetings. The performance indicators reflect activity in the child protection and out of home care system. None are disaggregated by Aboriginality, and no indicators require districts to demonstrate casework outcomes for Aboriginal children and families.

DCJ has not developed effective accountability mechanisms for its staff to safeguard the rights of Aboriginal children in the child protection system

DCJ does not have formal accountability mechanisms for any of its staff to safeguard the rights of Aboriginal children. Because of this, DCJ does not have a framework to address staff non-compliance with safeguards for Aboriginal children and their families.

DCJ does not collect data to demonstrate adherence to the Principles or consistently collect feedback from the Aboriginal community to understand its performance. Without Aboriginal outcomes focused data and feedback from Aboriginal stakeholders, DCJ cannot understand its performance or hold its staff accountable for complying with the Principles.

DCJ advises that it plans to introduce a new performance framework that will require senior executives to demonstrate their performance with respect to Aboriginal children in the child protection system. DCJ has not nominated when the framework will come into effect.

DCJ has made negligible progress in implementing key recommendations, strategies and reforms designed to improve outcomes for Aboriginal children and their families

DCJ has not delivered on any Aboriginal specific child protection reform strategy and made negligible progress in implementing key recommendations from the Family is Culture report.

Exhibit 5 identifies major Aboriginal specific reforms to address longstanding issues that impact Aboriginal children and their families. These reviews attempted to reorient the system toward preventing children from entering care and focused on improving outcomes for Aboriginal children in contact with the child protection and out of home care system.

DCJ’s organisational structure and governance arrangements are not enabling the system reform needed to meet the NSW Government’s commitment to Closing the Gap Target 12

The NSW Government is a signatory to the National Agreement on Closing the Gap 2021-2031. The objective of the Agreement ‘is to overcome the entrenched inequality faced by Aboriginal and Torres Strait Islander people so that their life outcomes are equal to all Australians’. The agreement commits the NSW Government to ‘mobilise all avenues and opportunities available, to meet the objectives’.

DCJ established a temporary Deputy Secretary Transforming Aboriginal Outcomes (TAO) role and associated unit in November 2021 to lead its Closing the Gap targets, which includes Target 12 (to reduce the proportion of Aboriginal children in out of home care by 45% by 2031). The TAO unit does not have decision-making powers over policy, commissioning of DCJ funded services or operational decisions. Instead DCJ has nominated a series of 18 disparate projects to achieve Target 12, which are monitored by TAO.

DCJ districts make significant child protection decisions that would likely contribute to achieving Target 12, including whether Aboriginal children enter out of home care and whether Aboriginal children currently in out of home care are restored to their families. However, there are no targets, measures or data to hold districts accountable to demonstrate progress in these key areas which would likely contribute to achieving Target 12.

Although senior executives meet regularly, the meetings are not used to drive the structural reform needed to achieve Target 12. DCJ is not on track to achieve Target 12.

Aboriginal children are over-represented in the child protection system. Approximately 6,500 Aboriginal children were in out of home care as at 30 June 2023, making up 45% of the out of home care population. By comparison, around seven per cent of children in NSW are Aboriginal. Aboriginal children are three times more likely than non-Aboriginal children to be reported at risk of significant harm and four times more likely to be allocated to a community service centre for a caseworker to undertake a face-to-face safety assessment. One in eight Aboriginal children seen by caseworkers enters out of home care.

DCJ does not have a quality assurance framework in child protection to safeguard the rights of Aboriginal children

DCJ has no quality assurance framework over systems and processes prior to the removal of a child into out of home care. Without such a framework, DCJ cannot be assured of its compliance with legislative safeguards afforded to Aboriginal children.

In late 2022, DCJ engaged a consultant to examine Aboriginal quality assurance for the child protection system. In July 2023, the consultant report highlighted deficient quality assurance systems and concerns with cultural capacity of staff to support Aboriginal families and children. DCJ has not indicated how or when it plans to address this deficiency.

DCJ does not have assurance that out of home care services are safeguarding the rights of every Aboriginal child in out of home care

The Office of the Children’s Guardian accredits out of home care providers, including DCJ and its funded NGOs, to a minimum standard set out in the Child Safe Standards for Permanent Care. As a result, DCJ and NGOs can demonstrate a range of internal quality controls and processes for children in out of home care to support the Office of the Children’s Guardian accreditation process.

However, the Office of the Children’s Guardian cannot provide qualitative assurance that DCJ and the NGOs have adhered to safeguards for each of the approximately 6,500 Aboriginal children in statutory out of home care at any given time. For example, the Office of the Children’s Guardian looks at whether a cultural plan exists for an Aboriginal child, but generally does not provide feedback for agencies to improve cultural plans.

DCJ, as the system steward, has a duty of care to ensure that it, and all NGOs it contracts with, have quality assurance processes to demonstrate compliance with safeguards for every Aboriginal child that is placed in out of home care. DCJ needs to do more than the minimum requirements of Office of the Children’s Guardian accreditation to gain assurance, commensurate with the risk of poor compliance and practice set out in this report, that it is adequately safeguarding the rights of every Aboriginal child in out of home care.

DCJ contracts NGOs to provide out of home care services through Service Level Agreements, aligned with the Principles in the Children and Young Persons (Care and Protection) Act 1998. This audit assessed whether NGOs are effectively safeguarding the rights of Aboriginal children in out of home care.

Five NGOs were selected as auditees for this performance audit. Selection of the providers was based on criteria which included:

• a mix of faith- and non-faith-based entities
• Aboriginal and non-Aboriginal entities
• number of children in care
• funding
• location
• service model.

Collectively, the NGOs selected for this audit were contracted to provide 2,600 foster care places in the 2021–22 financial year. This equated to one third of the total number of contracted foster care places in NSW in 2021–22. The two Aboriginal Community Controlled NGOs selected case managed about 20% of Aboriginal children in out of home care who were contracted out to NGOs.

Appendix one – Response from entities

Appendix two – The Aboriginal and Torres Strait Islander Principles (extract from the Children and Young Persons (Care and Protection) Act 1998

Appendix three – Data tables

Appendix four – About the audit

Appendix five – 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 #395 - released 6 June 2024.

What this report is about

Workers compensation schemes in NSW provide compulsory workplace injury insurance. The effective management of workers compensation is important to ensure injured workers are provided with prompt support to ensure timely, safe and sustainable return to work.

Insurance and Care NSW (icare) manages workers compensation insurance. The State Insurance Regulatory Authority (SIRA) regulates workers compensation schemes. NSW Treasury has a stewardship role but does not directly manage the schemes.

This audit assessed the effectiveness and economy of icare’s management of workers compensation claims, and the effectiveness of SIRA’s oversight of workers compensation claims.

Findings

icare is implementing major reforms to its approach to workers compensation claims management - but it is yet to demonstrate if these changes are the most effective or economical way to improve outcomes.

icare’s planning and assurance processes for its reforms have not adequately assessed existing claims models or analysed other reform options.

icare's activities have not focused enough on its core responsibilities of improving return to work and maintaining financial sustainability.

SIRA has improved the effectiveness of its workers compensation regulatory activities in recent years. Prior to 2019, SIRA was mostly focussed on developing regulatory frameworks and was less active in its supervision of workers compensation schemes.

NSW Treasury's role in relation to workers compensation has been unclear, which has limited its support for performance improvements.

Recommendations

icare should:

• Ensure that its annual Statement of Business Intent clearly sets out its approach to achieving its legislative objectives.
• Monitor and evaluate its workers compensation scheme reforms.
• Develop a quality assurance program to ensure insurance claim payments are accurate.

NSW Treasury should:

• Work with relevant agencies to improve public sector workers compensation scheme outcomes.
• Engage with the icare Board to ensure icare's management is in line with relevant NSW Treasury policies.

SIRA should:

• Address identified gaps in its fraud investigation.
• Develop a co-ordinated research strategy.

Workers compensation schemes in New South Wales provide workplace injury insurance for around 4.7 million workers. The effective management of workers compensation is important to ensure injured workers are appropriately supported and provided with prompt treatment to ensure timely, safe and sustainable return to work. There were around 110,000 injured workers compensation claims in 2022–23.

The two main workers compensation schemes in NSW are the Nominal Insurer (NI), which is for the private sector and is funded by premiums paid by employers, and the Treasury Managed Fund (TMF) which covers public sector workers and is funded by the NSW Government.

Insurance and Care NSW (icare) is responsible for managing the provision of workers compensation insurance, as well as several other insurance schemes. The State Insurance Regulatory Authority (SIRA) is responsible for regulating workers compensation and other insurance schemes. NSW Treasury has an oversight and monitoring role but does not directly manage or regulate workers compensation schemes.

icare outsources the management of workers compensation claims to several external insurance agents, which it refers to as claims service providers (CSPs). Tasks completed by CSPs include registering and assessing workers compensation claims, managing payments to injured workers, and liaising with injured workers, employers, and medical providers to support injury management and return to work.

The objective of this audit was to assess the effectiveness and economy of icare’s management of workers compensation claims, and the effectiveness of SIRA’s oversight of workers compensation claims. To address this objective, the audit considered whether icare’s reforms to its workers compensation claims management models are effective and economical, and whether there is an effective performance and accountability framework for the NI and TMF.

icare did not assess its existing claims management model or conduct a comprehensive options analysis assessing alternative claims management models before selecting its new claims management model for the Nominal Insurer

In 2021, icare decided to change the claims management model for the Nominal Insurer (NI) from a single outsourced claims service provider (CSP) to a model using multiple CSPs. icare did not conduct a detailed analysis of options before deciding on its new claims management model for the NI. icare did not complete a business case or undertake analysis of costs and benefits of the chosen model compared to other options, such as in-house provision of services by icare, a hybrid delivery model, or remaining with a single-provider model with improved support and performance incentives.

icare completed a procurement strategy which acknowledged a potential alternative model based on icare delivering claims management services. However, there was no detailed analysis or costing of this or other models for comparison with the outsourced model that had been chosen. The in-house provision option was not recommended because it was stated that ‘competition between external service providers can drive better performance than what icare could achieve’. The 2019 Independent Review Report on the NI recommended that icare use additional providers to reduce the pressure on its single provider. It was appropriate for icare to consider this recommendation when developing its new claims model, but it does not remove the need for icare to conduct its own detailed analysis to support decision making on major projects.

The absence of a business case or other similar detailed analysis reduces icare’s accountability for improved outcomes. It also means the stated benefits and costs of icare’s claims services model have not been fully tested. Introducing competition and performance-based payments to CSPs might improve return to work and financial sustainability outcomes but could create perverse incentives or increase the risk of CSPs withdrawing from contracts. A business case would have also provided information that could have been used to inform an evaluation framework for the new claims services model, including interim measures to help assess whether intended benefits are on track.

A business case is the primary document to outline the case for change and analysis of alternative options, as well as the costs, benefits and financial viability of the proposal. icare’s procurement policy does not require the development of a business case, but the NSW Procurement Strategy and NSW Treasury Business Case Guidelines require agencies to demonstrate value for money by submitting a business case to NSW Treasury for investment proposals over $10 million. At the point when icare sought approval from the icare Board to commence the procurement process, the maximum total contract value for the engagement of the six providers was estimated at between $3.7 billion and $6.4 billion over ten years.

icare conducted a comprehensive procurement process to select CSPs for its new NI claims management model

The procurement process for new providers for the NI involved an open market process that included extensive engagement with potential CSPs. This allowed icare to improve its understanding of the capacity and capability of providers and work collaboratively to refine the details of its claims management model.

icare developed a detailed procurement strategy that outlined the objectives of the new model, expected costs, services sought, governance framework, and an evaluation plan. icare provided regular updates to the icare Board on the progress of the procurement process and sought approval for key decisions about the changes being made.

icare met its planned timeframe for having contracts with multiple CSPs in place by 1 January 2023. icare’s contracts provide it with flexibility to adjust the performance measures after three years if required. The contracts also require 12 months’ notice from the CSP if they wish to withdraw from the contract. This helps icare to manage the risk of a reduction in capacity to manage claims if an existing CSP withdraws.

icare is implementing a new remuneration structure for CSPs which aims to provide better financial incentives to improve performance

The icare Board approved the introduction of a multiple provider model as part of its NI Improvement Program in December 2021. As a part of planning for the change, icare developed a different remuneration structure for the new CSP contracts that aim to create stronger incentives for innovation to improve performance. The previous remuneration model for providers involved a guaranteed fee that was set at 110% of the estimated cost of providing the service and had no financial penalties if CSPs did not meet performance targets. The new remuneration model splits the fees paid to CSPs into three categories:

1. a base fee, a guaranteed fixed fee which covers 95% of a benchmarked cost agreed by icare and CSPs (this was the estimated cost of providing the service in an efficient way)
2. a quality fee, which may be positive (up to ten per cent of the benchmarked cost) or negative (up to five per cent) depending on the CSP’s performance against the quality measures specified in the contract. These are mostly related to compliance with claims management processes such as timeliness, accuracy, and record keeping
3. an outcome fee up to 50% of the benchmarked cost depending on the CSP’s performance against the outcome measures specified in the contract. These relate to the key performance measures in the system such as return to work rates, claim payments made, and medical costs. The outcomes fee can only be earned if the CSP achieves acceptable performance in the quality measures.

This remuneration model aims to provide CSPs with financial incentives to improve performance. Setting the 'base fee' at slightly below the expected cost of providing the service should mean that CSPs need to meet their quality measures to ensure they cover costs and would need to exceed performance targets in order to increase its profit margin. The success of this model will depend on factors including the appropriateness of the base fee and performance targets, and the behaviour of CSPs. These changes are not yet fully implemented and icare is taking a staged approach to the transition of new CSPs, so it is too early to judge their effectiveness.

icare’s new remuneration structure will increase payments to CSPs for the NI without initially requiring improved performance

The new provider model is expected to cost up to $100 million more per year compared to icare’s previous, single provider model. This fee increase depends on the extent to which CSPs achieve its outcome targets. For example, if all CSPs improve their performance to a level where they meet all of their performance targets, the full $100 million would be paid to CSPs. A lower amount would be paid if some CSPs did not achieve outcome targets. icare’s modelling indicates that the extra costs in payments to CSPs would be offset by reductions in payments to injured workers as a result of improvements in return to work rates.

For at least the first year of the new model, icare has committed to paying a proportion of the outcome fees to CSPs even if they do not achieve their performance targets. This is intended to support CSPs to invest in their systems with the goal of achieving better longer-term performance. However, it means that icare will initially pay higher fees for similar or potentially lower performance.

icare lowered the return to work rate targets in 2023 compared to 2022 to account for the impact of the transition to the new multiple provider claims management model. Exhibit 9 shows the differences between the targets in 2021–22 and 2022–23.

Source: icare planning documents (unpublished).

CSP remuneration has increased from around $251 million in 2018–19 to almost $379 million in 2022–23, an increase of more than 50%. CSP remuneration has increased in each financial year during this period (Exhibit 10).

icare’s focus for reforming the TMF is not based on addressing key strategic challenges for the scheme

icare initiated a ‘TMF transformation program’ in 2022. The business case for the TMF transformation program did not include an assessment of the key strategic challenges for the TMF or describe how the transformation would improve return to work rates. Instead, it focused predominantly on the implementation of a single IT platform for managing workers compensation claims. While a single IT platform may be an important technological enabler for claims management, it does not address the underlying strategic issues that contributed to a decline in claims management performance and increase in costs in the TMF.

icare’s analysis indicates that the implementation of the new IT system will cause a short-term decline in return to work rates for the TMF. Reducing performance in return to work rates, even if only temporarily, can have a long-term impact on outcomes for affected workers and for scheme costs. icare’s internal modelling indicates that if the early stages of a claim are not managed well, claimants are much more likely to have a long-term claim.

The primary purpose of the workers compensation scheme is to optimise return to work outcomes for injured workers and to maintain the financial sustainability of the schemes. Previous reviews have stated that icare should apply a return to work focus for all its activities because this is the outcome on which it is judged by Parliament, workers, employers and the community.

icare has commenced a procurement process for the TMF without conducting detailed analysis of its claims management model

In December 2023, icare completed a procurement strategy for approval by the icare Board to guide its procurement of CSPs for the TMF. The TMF procurement strategy refers to the broader improvement objectives for the TMF, which include improving return to work performance and increasing capability to manage psychological injury claims. It contains a brief analysis of an in-house claims management model compared to an out-sourced approach. However, it does not include detailed analysis of options for its claims management model. This analysis contained a similar amount of detail as the procurement strategy for the NI (see Chapter 2). It did not include any evaluation of the outsourced model that icare has used previously and did not assess options for hybrid models that use a mixture of in-house and outsourced services. icare has had the same claims management model for the TMF, using the same three CSPs prior to its establishment in 2015. icare inherited contractual arrangements with three CSPs that had commenced in 2010. Its most recent procurement process for CSPs took place in 2019. Before commencing this procurement, icare did not evaluate the effectiveness of the arrangements that were in place from 2010 to 2019 or analyse alternative options for claims management models.

icare plans to draw on the work done for the NI procurement of CSPs in 2022 by using clauses in the NI contracts to extend them to cover TMF work. icare has also commenced an open expression of interest process to engage with other potential CSPs for the TMF.

The TMF procurement strategy sets out options for a revised performance and remuneration framework for CSPs in the TMF. This is based on the work done for the NI procurement and has the same goal of providing stronger financial incentives for CSPs to improve their claims management performance.

icare’s analysis estimates that these changes will lead to savings because the new remuneration model will improve CSP performance, which will reduce overall scheme costs. However, the estimates presented in the TMF procurement strategy, which was presented to the icare Board for approval, do not have supporting analysis or completed modelling of costs. A key gap is the details used to estimate the actual costs for CSPs to deliver the services, which underpins the payment amounts under the revised remuneration framework. The strategy also does not include analysis of risks, such as impacts to return to work rates because of the transition to a new model. Without these details, icare cannot demonstrate that its planned approach is likely to deliver value for money.

Fees paid to CSPs for the TMF have increased significantly in recent years despite previous forecasts of reductions in fees paid and improvements in performance

icare’s payments to CSPs managing TMF claims has increased by around 30% in the last five years, rising from around $90 million in 2018–19 to around $125 million in 2022–23. This increase in payments to CSPs occurred during a period when return to work performance declined by two percentage points and the total payments for workers compensation claims increased by around 60%. The number of claims received also increased significantly in this time, as noted in Chapter 1.

Some of icare’s reform activities aim to improve return to work and financial sustainability

One of the stated goals of icare’s NI improvement program is ‘getting injured workers back to work sooner’ and the improvement program includes implementing a new claims management model for the NI (discussed in Chapter 2). Alongside this program, icare has made other changes that aim to improve the day-to-day claims management processes. In recent years icare has begun working to clarify roles and responsibilities for the claims management process. This has included consultation with CSPs and producing written documents that specify which issues should be handled by CSPs and which should be referred to icare.

icare has also developed a Professional Standards Framework that aims to provide a consistent set of standards that case managers are expected to adhere to. This framework sets out minimum standards and capability expected of CSP staff. It is a contractual requirement for NI providers to comply with the framework through its recruitment and training for staff. The framework is intended to also apply to the TMF but is not yet included in TMF provider contracts. Since 2021, icare has also provided training material to CSPs focussing on key aspects of claims management. Training covers topics that have previously been identified as areas of weakness, such as the calculation of weekly payments, initial contact, and injury management.

icare’s accountability for achieving scheme outcomes is not clear enough

While the practical changes discussed have the potential to help improve claims management performance, icare’s acceptance of overall accountability for scheme outcomes remains unclear. In 2021, icare considered several ‘business models’ that would guide its overall approach to reforming its workers compensation claims models. It decided to adopt what it described as a ‘platform’ model, which positioned icare as a facilitator and focused on self-direction and choice for employers and employees. Among the models that it chose not to adopt was a ‘scheme administrator’ model, which was characterised by transparency and clear accountability for performance.

This underlying approach can be seen in icare’s reforms to the claims management model for the NI. Some elements of the reforms target improvements in return to work outcomes, such as the introduction of performance-based payments to CSPs (discussed in Chapter 2). However, icare described the goal of the reforms as creating a competitive market of CSPs that would provide choice to employers, which indicates icare taking accountability for implementing system changes but not for the achievement of outcomes. icare’s plans for reforms to the TMF are similarly focused on icare’s accountability for providing support systems for workers compensation schemes, rather than accepting responsibility for ensuring the key outcomes are achieved.

The management of workers compensation schemes is a complex task. There are external factors outside icare’s control that influence the key performance measures of return to work and scheme financial viability. However, as the provider of workers compensation schemes, icare is primarily accountable for improving return to work rates for the NI and TMF and its strategies and activities should be focused accordingly. icare’s most recent corporate strategy documents described its current phase of its organisational strategy as ‘increase focus on those we serve’. This is a positive change from the previous year when the same phase was described as ‘simplify for improved outcomes’.

icare has committed significant resources to internal organisational improvement programs

icare has committed significant resources to an organisational improvement program in recent years. The program responds to the recommendations of previous external reviews (summarised in Chapter 1). These reviews made a combined total of 107 recommendations. Of these, 98 related to ‘enterprise improvement’, covering internal processes such as governance, procurement and risk management. The focus of the recommendations on internal processes reflects the terms of reference for these reviews. As a result, icare’s improvement program has a focus on internal organisational change, rather than a broader strategic assessment of the key challenges to the performance of workers compensation schemes, such as the rise in psychological injury claims.

The program has been overseen by an external advisor and quarterly reports have been published that outline progress, with the first report published in December 2021 and the most recent in August 2023. Accountability for implementing recommendations of external reviews is important. However, the strong focus on internal organisational projects has contributed to increases in icare’s operating expenses without fully addressing the strategic challenges to the key legislative objectives of workers compensation schemes – optimising return to work outcomes and ensuring financial sustainability.

icare’s employee and other operating expenses have increased significantly during a period when workers compensation scheme performance has not improved

According to its annual financial reports, icare’s total employee expenses have increased significantly in recent years. The total number of employees at icare increased from 1,431 in 2020–21 to 1,756 in 2022–23, an increase of 23%. icare’s budget for 2023–24 includes a further increase in staff numbers to 1,800.

There has been a corresponding increase in icare’s employee expenses, with staff costs increasing by 29%, from $214 million in 2020–21 to $276 million in 2022–23. icare did not take on any new functions during this period and the performance of the NI and TMF did not improve, as described in Chapter 1. Over the past three years icare has added the highest number of new employee positions in the ‘digital and transformation’ area. Additional staff positions have also been created in corporate areas including people and culture and risk and governance. Many of these positions relate to icare’s improvement program.

icare’s other operating expenses have also increased in recent years, rising from $699 million in 2020–21 to $814 million in 2022–23. The majority of icare’s other operating expenses are fees paid to CSPs. However, icare has also spent a significant amount on contractors, contingent workers, and consultants in recent years, despite also increasing its permanent staff numbers. Some of these contractor and consultant expenses related to icare’s improvement program discussed above. Over the last three years, icare spent an average of more than $100 million per year on hired labour, comprised of:

• $60 million per year on contractors
• $35 million per year on contingent workers
• $8 million per year on consultants.

icare completed a review of its corporate expenses in September 2023 and reported the results of this review to the icare Board. icare’s review stated that it had reduced its expenses by a total of $88 million from 2019–20 to 2021–22. This included a reported decrease of $40 million in spending on contractors and contingent workers, which is in contrast to its annual financial reporting data which shows an increase of $25 million during this period. icare’s expenses review used management reporting data which categorises expenses differently to the way expenses are categorised in annual financial statements. For example, a large proportion of expenditure on contractors and contingent workers was categorised as project expenditure in icare’s management reporting. While this may be appropriate for management reporting purposes, it resulted in icare reporting lower expenditure on contractors and contingent workers in its expenses review compared to its annual reporting.

The number of icare senior executives in the top pay band for the NSW public service increased from two in 2021–22 to eight in 2022–23. The average remuneration of icare’s senior executives in 2022–23 was $652,000. This is more than double the average remuneration for the two senior executives that were in the highest pay band at the former WorkCover Authority, icare’s predecessor agency, in its last year of operation in 2014–15. It is also approximately double the average remuneration for senior executives at icare’s equivalent entities in comparable jurisdictions. The average remuneration for the ten senior executives at WorkSafe Queensland in 2022–23 was $285,000 and the average remuneration for the 11 senior executives at WorkSafe Victoria was $276,000.

icare spent at least $470 million on projects that were intended to improve the operations of the workers compensation schemes between 2016–17 and 2019–20. This includes the implementation of a single provider claims management model and the introduction of a new IT platform but does not include the cost of contractors and consultants who worked on these projects. Previous external reviews of icare found that these projects did not achieve their objectives and contributed to a deterioration in performance against the key legislative objectives for workers compensation of return to work and financial sustainability. icare spent another $45 million on moving back to a multiple provider model for the NI from 2023.

icare’s reporting on the performance of workers compensation schemes has not provided a clear indication of performance in its core areas of responsibility

icare’s public reporting has not provided transparency in the key areas of return to work and financial sustainability of workers compensation schemes. Prior to 2019–20, icare did not report publicly on its return to work rate targets in the NI. icare did not report on a TMF return to work target until 2022–23. icare’s four most recent annual reports have included an ‘enterprise performance scorecard’. In 2021–22 this scorecard had 11 measures, with only four that related to insurance scheme performance (return to work rate in the NI, net results in NI, net results in TMF and investments). The scorecard had seven measures that related to icare’s internal processes in that year, such as staff engagement scores, risk management, and internal audit. In 2022–23, the scorecard included five measures that related to insurance scheme performance. However, the measure relating to return to work performance for the NI had changed from the previous years. As a part of its reforms to the NI, icare plans to publish more information about workers compensation scheme outcomes on its website. It commenced this reporting in December 2023.

The key document outlining icare’s strategic approach to managing its operations is the Statement of Business Intent (SBI). The measure icare has used for reporting on return to work targets for the NI in its SBI has changed in each of the last four years. Exhibit 13 shows icare’s internal reporting on NI return to work targets since 2020–21. The frequent changes to the way icare has reported on its key performance measures make it difficult to track its performance over time.

SIRA has recently updated its strategic framework to improve the effectiveness of its regulatory activities

One of SIRA's principal legislative objectives is to provide effective supervision of the workers compensation system. SIRA updated its strategic framework in 2021. The strategy outlines guiding considerations across four ‘pillars’ of SIRA’s regulatory work: scheme design, licensing, supervision, and enforcement.

SIRA has increased its focus on supporting improvements to return to work outcomes in recent years. It commissioned a research paper to inform SIRA's system-wide strategy to improve return to work rates. This paper provides a summary of the current evidence relating to factors most likely to support better return to work outcomes. This research has been used to inform SIRA's strategies and plans. For example:

• SIRA has a return to work action plan which outlines ten actions aimed at supporting improvements in return to work rates. Actions include reviewing insurers’ return to work practices in 2022, developing a return to work standard of practice, and targeting compliance work to employers identified as higher risk.
• SIRA advises it is currently developing a ‘Recover Through Work Strategy’ which expected to replace its action plan. The draft strategy covers research, promotion and education activities related to early intervention, psychological injuries, and additional data and insights relating to return to work.
• SIRA developed a mental health recovery and support action plan in 2021 based on research it had commissioned. 

SIRA has used regulatory instruments including written directions and letters of censure to icare when it has identified issues that require remediation, as noted in Chapter 2. SIRA’s ability to regulate the workers compensation scheme is limited by the fact that it cannot impose licence conditions on the NI or other entities, which limits its ability to escalate its regulatory responses if needed.

A previous review of the legislative arrangements for workers compensation recommended that SIRA should be given additional powers to ensure it can fully perform its regulatory functions for workers schemes. The review also found the roles and responsibilities between icare and SIRA were unclear in some areas. For example, workers compensation legislation allocates operational functions to SIRA which has created duplication and inefficiencies as noted in this chapter. The review recommended government consider amending legislation to state clearly the powers and functions of each entity. Both issues are yet to be addressed.

SIRA was mostly focussed on developing regulatory guidelines and frameworks in the years after it was established

SIRA was created in late 2015 and was tasked with regulating multiple insurance schemes and establishing operational frameworks to supervise each insurance scheme within its remit. In the initial years of SIRA’s establishment, SIRA developed guidelines and standards around the management of workers compensation. For example, SIRA’s first Standards of Practice was issued in 2018 and contained broad claims management principles to guide insurer conduct and support the achievement of scheme legislative objectives. SIRA also first published an Insurer Supervision Model in 2017 which outlined SIRA’s approach to monitoring and supervising the performance across workers compensation insurers. The model contained compliance and performance indicators to help SIRA identify and address risks in the areas of conduct, claims management and financial sustainability. SIRA advises this supervision model assisted it to identify a significant decline in the performance of the NI in 2018, which led SIRA to commission its first independent review of the NI in 2018–19.

SIRA has become more active in its regulation of the NI but only recently started actively supervising the TMF

SIRA increased its monitoring and supervision of the NI following the findings of the 2019 review, with SIRA commencing quarterly compliance and performance audit of claims management of the NI from July 2020. SIRA’s reviews of the NI had a strong focus on compliance with specific legislative requirements, in response to concerns about a lack of capability among claims managers at the time. Some of SIRA's more recent reviews of the NI have selected a strategic focus area, such as compliance with the ‘early intervention’ requirements of claims management. This theme was selected based on research evidence indicating that the management of a claim in the first four weeks has a significant impact on return to work outcomes. SIRA advises that future audits will use a risk-based approach and focus on areas in which low compliance has been identified and there is evidence that the compliance requirement is based on better outcomes, such as injury management planning.

SIRA has issued two penalty notices as a result of its increased oversight on the NI:

• The penalty notice issued on 6 September 2019 totalled $132,000. The penalties were imposed for icare’s failure in 24 instances to commence weekly workers compensation payments within seven days of initial notification of the injury to the insurer.
• The penalty notice issued on 22 January 2020 totalled $82,500. The penalties were issued for icare’s failure in ten instances to ensure employer’s premium rate does not increase by more than 30% from the previous policy year, as required in SIRA’s premium guidelines. icare’s failure to comply with the capping requirement led to impacted policy holders paying an additional premium totalling over $700,000.

SIRA began regularly reporting to government on NI financial sustainability in 2016–17, with its first report provided to government in August 2018. The 2016–17 report noted generally that a new claims model had been implemented from January 2018 which may impact claims experience and make future treatment and costs more complicated. However, the report did not provide further details of these risks, such as potential impacts on the key areas of return to work or related cost impacts due to the transition. SIRA’s annual reports from the years up to and including 2018–19 did not draw attention to any performance concerns for the NI or the TMF and did not provide detailed information on SIRA’s supervision activities for the schemes. The reports focused mostly on other areas of SIRA’s responsibility, particularly the implementation of reforms to the compulsory third party insurance scheme during 2017.

In January 2020, SIRA commenced investigations into the management of three Corrective Services NSW (CSNSW) claims in the TMF following reports it received around claims mismanagement. The report outlined several actions, including that SIRA undertake a broader review of the compliance and performance of the TMF and a larger audit of CSNSW workers compensation claims with a focus on psychological injuries. In August 2022, SIRA commenced a review of 100 CSNSW claims to assess the compliance of these claims against legislative and regulatory requirements. During the audit, SIRA advised these reviews led to SIRA developing the evidence base for undertaking its broader review of the TMF in 2023. The 2023 TMF review has a focus on managing psychological injury claims.

The audit did not see evidence of SIRA taking a strategic approach to the regulation of the TMF in earlier years despite the outcomes of SIRA’s initial CSNSW investigations, deteriorating return to work performance, increasing costs, and the emerging strategic risk of the rise in psychological injury claims. Given these issues, a more active regulatory presence from SIRA would have been justified.

Any decline in return to work rates, even if only temporary, can have a long-term impact on outcomes for affected workers and for scheme costs. For example, research indicates that injured workers who are not working for a longer period become progressively less likely to ever return to work and are more likely to develop a secondary psychological injury associated with their initial injury. As a result, the poor performance of workers compensation schemes in previous years is having an ongoing impact on scheme performance today.

SIRA began focussing on improving compliance of employers with workers compensation obligations from 2020, but did not have a strategy or active program prior to this

In 2020, SIRA created an Employer Supervision and Return to Work Directorate as part of a broader organisational restructure. The Directorate was created to strengthen the focus and regulatory approach for employers and support the development of an employer supervision strategy and framework. The strategy and framework for employers were finalised in 2022. These are consistent with its organisation-wide regulatory framework and outlines SIRA’s approach to planning and conducting regulatory activities in identified areas of highest risk.

In December 2021, SIRA also established an inspectorate to undertake employer education activities and conduct reviews of employer compliance with workers compensation obligations, in addition to those conducted by SafeWork NSW. Prior to this, SIRA did not have a dedicated employer supervision and compliance strategy or function, although it did provide educational resources for employers. It relied on SafeWork inspectors to conduct workplace inspections on its behalf, which were guided by SIRA’s modelling work.

SIRA has legislative powers to enter workplaces to gather evidence, conduct audits and reviews, and impose penalties for non-compliance. SIRA targets its employer inspections primarily through a predictive data analysis tool, with a smaller number of inspections in response to complaints or referrals. The predictive tool assesses new workers compensation claims made and identifies those that are at higher risk of a poor return to work outcome, based on factors including the type of claim and employer or industry.

SIRA has not allocated sufficient resources to investigate and prosecute fraud

SIRA has a legislative responsibility to assist in measures to deter and detect fraud within workers compensation schemes. In February 2023, SIRA engaged an internal review to assess its capability and structure in enforcement and prosecution in all schemes it oversees, including the Compulsory Third Party scheme and the Home Building Compensation Fund. The review found there was a backlog of high-risk fraud referrals. This could indicate that cases of fraud in the workers compensation system may have gone undetected or unaddressed in recent years. The review recommended SIRA expand its investigations team to reduce the backlog of matters and ensure all icare referrals are investigated.

During the audit, SIRA advised that while it has not fully responded to these recommendations yet, it has engaged additional resources for the employer investigations team and will consider additional resourcing in 2024–25. SIRA also advised it had taken other actions to reduce fraud risks, including initiating regular meetings with icare to discuss new fraud referrals and working with icare on a Memorandum of Understanding to strengthen fraud investigations and prosecutions. However, these actions are unlikely to address the issues relating to resourcing that were identified in the review.

Some of SIRA's research and pilot programs duplicate or overlap with those of icare

SIRA has a legislative function to 'to initiate and encourage research to identify efficient and effective strategies for the prevention and management of work injury and for the rehabilitation of injured workers'. In 2019, SIRA commissioned a review of its research strategy on workers compensation and other insurance schemes which it oversees. The review found, among other things, additional work was needed to coordinate SIRA's research program to avoid duplication. The review recommended SIRA improve collaboration with icare, SafeWork and other stakeholders and develop a model for knowledge translation to ensure evidence informs practice.

SIRA and icare's research and pilot programs still overlap in several areas, especially workplace mental health-related research. For example:

• icare has a ‘Front of Mind’ program that is focussed on developing and testing mental health platforms, like development of apps and education programs. SIRA has a 'Recovery Boost' program which provides grants to universities and private service providers to research and develop programs related to mental health.
• icare has also developed a 'Design for Care' program in partnership with Curtin University to research work design impacting mental health. Similarly, SIRA has funded various research projects on workplace mental health, including Monash University's work-connected interventions for psychological injuries, and Black Dog Institute's two-year research fellowship on recovery after psychological injury.
• icare has reported it would be developing a mental health strategy and action plan in 2022–23. SIRA has also developed action plans and strategies on mental health.

SIRA revised its research strategy in response to the review's findings and recommendations. SIRA's Research Strategy 2022–25 outlines its research objectives, actions, and measures of success. Actions include working with stakeholders to co-design research projects and working with stakeholders to prioritise research based on level of impact. Measures of success include creating opportunities for CSPs and other stakeholders to engage with SIRA's programs and increasing the number of research partnerships targeting personal injury evidence gaps.

NSW Treasury’s role in overseeing icare is not clearly defined, limiting its ability to support performance improvements in workers compensation

NSW Treasury does not have a legislated role in the management of workers compensation. icare is directly accountable to the icare Board and the icare Board is accountable to the responsible minister for icare achieving its statutory objectives. The TMF is funded by the NSW Government and has a direct impact on the NSW budget, so NSW Treasury has a role in advising the Treasurer on the performance and operations of the TMF. NSW Treasury also supports the minister responsible for icare, so has a role in advising the responsible minister in relation to icare's management of the NI. This includes reviewing and advising the minister on icare’s annual Statement of Business Intent, which icare must submit to the responsible minister and the Treasurer.

NSW Treasury has monitored icare’s financial and operational performance and has reported regularly on this to the responsible Minister and the Treasurer. However, NSW Treasury has not taken action to address issues that it is aware of. For example, when reviewing icare’s Statement of Business Intent (SBI) in 2022–23, NSW Treasury stated that it had concerns about the performance and financial sustainability of workers compensation schemes. Its response was to advise the responsible minister and the Treasurer to note its concern about these issues. In this review, NSW Treasury also advised that icare had not achieved its own forecasts from previous years for improvements to the financial position of the NI but did not propose any action in response to this. Similarly, NSW Treasury noted in another ministerial brief that icare made changes to its targets for return to work rates in 2020–21 that only required performance to be maintained or improve marginally. It expressed concern that this represented an acceptance of ongoing performance at lower than historical levels but did not propose any actions. NSW Treasury’s lack of specific responses to these issues reflects its limited powers to influence icare’s actions.

Recent changes to icare’s governing legislation allow the Treasurer or the Secretary of NSW Treasury to require icare to provide information relating to its activities. This may help NSW Treasury to be more active in its oversight of icare’s key decisions and activities. In November 2023, icare’s responsible minister announced that NSW Treasury will conduct a review of icare focusing on its operational costs.

This audit has identified several gaps in icare’s management of workers compensation schemes. For example, icare proceeded with changes to its claims management model for the NI that involve a multi-billion dollar procurement process without completing detailed options or benefit-cost analysis, as discussed in Chapter 2. icare has also focused significant resources and attention on internal corporate improvement activities that do not directly contribute to the achievement of the key legislative objectives of workers compensation schemes. Both of these issues have led to significant increases in icare’s costs without improved return to work outcomes in recent years. Stronger engagement from NSW Treasury with the icare Board could help improve icare's performance by providing advice and challenge in areas in which icare has consistently under-performed.

Appendix one – Responses from audited agencies

Appendix two – About the audit

Appendix three – Performance auditing

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Parliamentary reference - Report number #393 - released 2 April 2024

What this report is about

In this report, we present findings and recommendations relevant to regulation from selected reports between 2018 and 2024.

This analysis includes performance audits, compliance audits and the outcomes of financial audits.

Effective regulation is necessary to ensure compliance with the law as well as to promote positive social and economic outcomes and minimise risks with certain activities.

The report is a resource for public sector leaders. It provides insights into the challenges and opportunities for more effective regulation.

Audit findings

The analysis of findings and recommendations is structured around four key themes related to effective regulation:

• governance and accountability
• processes and procedures
• data and information management
• support and guidance.

The report draws from this analysis to present insights for agencies to promote effective regulation. It also includes relevant examples from recent audit reports.

In this report, we also draw out insights for agencies that provide a public sector stewardship role.

The report highlights the need for agencies to communicate a clear regulatory approach. It also emphasises the need to have a consistent regulatory approach, supported by robust information about risks and accompanied with timely and proportionate responses.

The report highlights the need to provide relevant support to regulated parties to facilitate compliance and the importance of transparency through reporting of meaningful regulatory information.

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I am pleased to present this report, Regulation insights. This report highlights themes and generates insights about effective regulation from the last six years of audit.

Effective regulation is necessary to ensure compliance with the law. Effective regulation also promotes social, economic, and environmental outcomes, and minimises risks or negative impacts associated with certain activities. But regulation can be challenging and costly for governments to implement. It can also involve costs and impact on the regulated parties, including other public sector and private entities, and individuals. As such, effective regulation needs to be administered efficiently, and with integrity.

Having a clearly articulated and communicated regulatory approach is essential to achieving this outcome, particularly when this promotes voluntary compliance and sets performance standards that are informed by community expectations. A consistent approach to exercising regulatory powers is important: it should be supported by robust information about regulatory risks and issues, and accompanied with timely, proportionate responses. Providing relevant support to the regulated parties and coordinating activities to facilitate compliance and performance can generate efficiencies.

Finally, transparency matters. It matters so that government has oversight of and can be held accountable for its leadership of public sector compliance, and in regulating the activities of third parties. Transparency also matters because it can provide insights into the effective exercise of government power. To achieve this, meaningful regulatory information needs to be reported.

While these issues are most pertinent for government agencies that exercise traditional regulatory functions, they are also relevant to lead government agencies that provide a stewardship role in promoting compliance and performance by other government agencies in relation to particular areas of risk.

Over the past six years, our audit work has found many common and repeat performance gaps, creating risks, inefficiencies, and limiting outcomes of regulatory activities. In considering these gaps, this report provides public sector leaders with insights into the challenges and opportunities they may encounter when aiming for more effective regulation, including the good governance of regulatory activities. This includes insights for lead agencies that provide a public sector stewardship role. Through applying these insights and maximising regulatory effectiveness, unintended impacts on the people and sectors government serves and protects can be avoided or at the very least minimised.

Margaret Crawford PSM
Auditor-General for NSW

This report brings together key findings and recommendations relevant to regulation from selected performance and compliance audits between 2018 and early 2024 (19 in total), and from two reports that summarise results of financial audits during the same period. It aims to provide insights into the challenges and opportunities the public sector may encounter when aiming to enhance regulatory effectiveness.

The report is structured in two sections, each setting out insights from relevant audits and providing summaries as illustrative examples.

Section 3 is focused on insights from audits of agencies that administer regulatory powers and functions over other entities or activities (typically known as 'regulators'). The powers and functions of regulators are defined in law, and often relate to issuing approvals (e.g., licensing) for certain activities, and/or monitoring allowable activities within certain limits. Regulators often have compliance and enforcement powers that can be exercised in particular circumstances, such as when a regulated entity has not complied with relevant requirements.

Agencies may be primarily established as regulators or perform regulatory activities alongside other functions. Depending on the context, the regulated activity may relate to other state agencies, local government entities, non-government entities or individuals.

Section 4 summarises insights from a selection of audits of agencies that provide a stewardship role in promoting compliance by and performance of other state agencies and local government entities in relation to specific regulations or policies. These policies may or may not be mandatory and, unlike a more traditional regulator, the coordinating agency may not have enforcement powers to ensure compliance.

These policies, and accompanying guidelines and frameworks, are typically issued by ‘central agencies’ such as the Premier's Department that have a public sector stewardship role. They can also be issued by agencies with a leadership role in particular policy areas ('lead agencies'). While individual agencies and local government entities implementing these policies are responsible for their own compliance and performance, lead and central agencies have an oversight role including by promoting accountability and coordinating activities towards achieving compliance and performance outcomes across the public sector.

Readers are encouraged to view the full reports for further information. Links to versions published on our website are provided throughout this document, and a full list is in Appendix one. An overview of the rationale for selecting these audits and the approach to developing this report is in Appendix two.

The status of agencies' responses to audit recommendations

Findings from the audits referred to in this report were current at the time each respective report was published. In many cases, agencies accepted audit recommendations, as reflected in the letters from agency heads that are included in the appendix of each audit report.

The Public Accounts Committee of the NSW Parliament has a role in reporting on and ensuring that agencies respond appropriately to audit recommendations. Readers are encouraged to review the Public Accounts Committee's inquiries on agencies' implementation of audit recommendations, which can be found on the Committee's website.

Appendix one – Included reports 2018–2024 Regulation insights

Appendix two – About this report- Regulation insights

What this report is about 

This report assesses how effectively SafeWork NSW, a part of the Department of Customer Service (DCS), has performed its regulatory compliance functions for work health and safety in New South Wales. 

The report includes a case study examining SafeWork NSW's management of a project to develop a real-time monitoring device for airborne silica in workplaces. 

Findings 

There is limited transparency about SafeWork NSW's effectiveness as a regulator. The limited performance information that is available is either subsumed within DCS reporting (or other sources) and is focused on activity, not outcomes. 

As a work health and safety (WHS) regulator, SafeWork NSW lacks an effective strategic and data-driven approach to respond to emerging WHS risks. 

It was slow to respond to the risk of respirable crystalline silica in manufactured stone. 

SafeWork NSW is constrained by an information management system that is over 20 years old and has passed its effective useful life. 

While it has invested effort into ensuring consistent regulatory decisions, SafeWork NSW needs to maintain a focus on this objective, including by ensuring that there is a comprehensive approach to quality assurance. 

SafeWork NSW's engagement of a commercial partner to develop a real-time silica monitoring device did not comply with key procurement obligations. 

There was ineffective governance and process to address important concerns about the accuracy of the real-time silica monitoring device. 

As such, SafeWork NSW did not adequately manage potential WHS risks. 

Recommendations 

The report recommended that DCS should: 

• ensure there is an independent investigation into the procurement of the research partner for the real-time silica detector 
• embed a formal process to review and set its annual regulatory priorities 
• publish a consolidated performance report 
• set long-term priorities, including for workforce planning and technology uplift 
• improve its use of data, and start work to replace its existing complaints handling system 
• review its risk culture and its risk management framework 
• review the quality assurance measures that support consistent regulatory decisions

SafeWork NSW is the work health and safety regulator in New South Wales. It was established by the State Insurance and Care Governance Act 2015.

As the regulator, SafeWork NSW is responsible for, among other things, enforcing compliance with the Work Health and Safety Act 2011 (the WHS Act) and the Work Health and Safety Regulation 2017. The regulator’s full functions are set out in section 152 of the WHS Act.

SafeWork NSW’s operations are guided by seven regulatory priorities for 2023, which contribute to three strategic outcomes:

• Workers understand their rights and responsibilities.
• Employers ensure that work is healthy and safe, with no advantage for cutting corners.
• Regulation is fair and efficient.

This audit assesses the effectiveness of SafeWork NSW in monitoring and enforcing compliance with the WHS Act, through the examination of three lines of inquiry:

1. Does SafeWork NSW have evidence-based processes to set its objectives and priorities for monitoring and enforcing compliance?
2. How effectively does SafeWork NSW measure and report its performance in monitoring and enforcing compliance against the WHS Act?
3. Are SafeWork NSW's policies and procedures for monitoring and enforcing compliance applied consistency across different sectors?

As SafeWork NSW is part of the NSW Department of Customer Service (DCS), the department is the auditee. Prior to 2019, SafeWork NSW was located in the former Department of Finance, Services and Innovation. Unless otherwise stated, any reference to SafeWork NSW should be read as including the broader department in which it sits.

This chapter considers whether SafeWork NSW has evidence-based processes to set its objectives and priorities, including how it takes into account operational feedback and expertise. It also includes how existing and emerging risks are assessed as part of the priority-setting process, and how planning and prioritisation takes into account resourcing, including workforce skills and capacity.

SafeWork NSW's operating model is now based on annual regulatory priorities, rather than longer-term priorities

From 2016 to 2022, SafeWork NSW worked under a six-year Work Health and Safety Roadmap (‘the Roadmap’). The Roadmap was revised in August 2018 and included the following statements:

In addition to the Roadmap, SafeWork NSW operated under its 2019–20 Strategic Business Plan.

After SafeWork NSW was moved into DCS, the Roadmap was subject to a mid-term evaluation by ARTD Consultants in 2020. SafeWork NSW management subsequently accepted all nine recommendations of that mid-term evaluation, which included the following:

• Strengthen business intelligence data systems to allow managers and inspectors to access to real-time data on safety incidents and workers compensation claim data (Rec 5).
• Improve evidence available to assess Roadmap outcomes in 2022 (Rec 9).

In 2023, SafeWork NSW replaced its six-year Roadmap with a model of setting annual regulatory priorities. Seven regulatory priorities were set for 2023. These priorities were:

•  gig economy – increase safety and WHS compliance in the sector, particularly food delivery riders and health care
• safety around moving plant – reduce workplace safety incidents, particularly forklifts
• seasonal workplaces – increase WHS compliance to support itinerant workers, particularly in the agricultural sector and those working with amusement devices
• psychological safety – reduce the prevalence of psychological injury at workplaces, with a focus on mental health and well being
• respect at work – reduce the incidence of bullying, sexual harassment, and customer aggression in the workplace, particularly in make dominated sectors and healthcare
• exposure to harmful substances – reduce the incidence of worker exposure to dangerous substances in the workplace, particularly silica and dangerous chemicals
• falls – reduce the incidence of falls from heights with a particular focus on construction.

These priorities are intended 'to deliver on three strategic outcomes’:

• Workers understand their rights and responsibilities.
• Employers ensure that work is healthy and safe, with no advantage for cutting corners.
• Regulation is efficient and fair.

As SafeWork NSW works to deliver on these outcomes, the focus is on priority or vulnerable groups of workers – these being younger workers, workers from culturally and linguistically diverse backgrounds (especially newly arrived workers), and Aboriginal people.

Shorter-term priorities are intended to enable SafeWork NSW to be more responsive to work health and safety risks and were developed in consultation with operational staff

The adoption of shorter-term priority-setting is intended to enable a more agile approach to regulation that, according to DCS, is better able to adapt to changes in risk profiles and industries. It was put to the audit by some interviewees that the six-year plan was less able to respond to rapid changes in the economy that may lead to quickly emerging work health safety risks. An example commonly cited was the significant increase in gig economy workers, including in areas such as food delivery workers and personal care workers. It was put to the audit that this example highlighted new WHS risks unique to those emerging workplaces.

According to DCS, in addition to being more agile and responsive to macro changes in the workforce, the annual priorities are intended to enhance accountability by creating a more timely and contemporaneous link between activities and outcomes. The more immediate nature of annual priorities is also designed to provide a more immediate and tangible link to SafeWork NSW’s activities and ensure better accountability for delivery.

The annual priorities are intended to complement SafeWork NSW’s commitments under the national Australian Work Health and Safety Strategy 2023-33. This strategy sets a high-level vision and goal for Australia’s work health and safety regulators, including to address agreed persistent challenges, such as psychosocial risks, vulnerable workers, and ensuring that small businesses are adequately supported to meet their work health and safety obligations.

The process for developing regulatory priorities for 2023 involved internal consultation with SafeWork NSW executive directors, directors, managers, inspectors, project leads, as well as consultation with external stakeholders and experts. There is evidence that SafeWork NSW considered the feedback it received, including from its inspectors.

SafeWork NSW staff identified potential risks that SafeWork NSW will need to manage as the process for developing regulatory priorities continues to develop

The audit team interviewed almost all SafeWork NSW executive directors, directors, and team managers, particularly those performing regulatory functions. These interviews revealed a strong level of commitment to the purpose and functions of SafeWork NSW, as well as a shared desire to see the organisation fulfil its potential.

In regard to the annual priorities, senior executives and the majority of team managers we interviewed supported the adoption of annual priorities and expressed confidence that establishing annual priorities would improve the effectiveness of SafeWork NSW in delivering its compliance functions. It was noted by SafeWork NSW that the shift towards regulatory priorities 'brings us to a level of maturity mirroring the approach of regulators such as ASIC and the ACCC'.

While most staff interviewed during this audit welcomed the sharper focus and greater flexibility afforded by shorter-term priorities, others identified a range of risks. Some experienced people managers in SafeWork NSW expressed significant doubts about the pursuit of annual regulatory priorities. Risks identified during audit interviews included:

• That the short-term focus had prevented SafeWork NSW from establishing a longer-term goal or vision.
• That the annual priorities were simplistic and lacked sufficient detail to engage the regulator, industry, and the community.
• That short-term priorities would make it difficult to meaningfully measure and report progress, especially for activities and initiatives that may take longer to achieve demonstratable change.
• That the process of considering the next annual priorities may need to commence well before initiatives for the current year have been completed (or even commenced), hindering how effectively lessons can be incorporated into future planning.
• That frequent changes in regulatory priorities may make it difficult to ensure that the SafeWork NSW workforce has appropriate capability and capacity, particularly for potentially complex emerging threats such as artificial intelligence in workplaces.

In response to these risks, SafeWork NSW has noted that:

• SafeWork NSW has a separate vision in addition to the regulatory priorities. This is 'healthy, safe and productive working lives'.
• A review process will occur to understand what went well and what did not from the first year of regulatory priorities before finalising priorities for 2024.
• Planning will improve over time as the process reoccurs, and lessons learned will be linked to future priorities.

The inability to achieve full ‘buy-in’ from experienced people managers in SafeWork NSW suggests that change management, including consultative and communication processes, has not been completely successful. SafeWork NSW advised that this initiative was a significant shift for all its staff and in particular middle management. Given this, the leadership of SafeWork NSW should prioritise investment in effective change management processes, especially if the annual regulatory priorities are anticipated to change in 2024.

Importantly, the SafeWork NSW leadership team should undertake strategic planning to ensure that a meaningful set of longer-term priorities underpin their investment decision-making on organisational fundamentals, such as a capable and sustainable workforce and fit-for purpose technology systems. Without this, there is a real risk that the regulator's business needs and priorities will be overtaken by the priorities of a much bigger department.

SafeWork NSW consulted with external stakeholders in determining its 2023 annual regulatory priorities

SafeWork NSW developed a discussion paper in 2022 for external stakeholders as a precursor to consultation on its 2023 annual priorities. This discussion paper outlined an intent by SafeWork NSW to develop a new strategy that would prioritise activities that were the biggest points of leverage to drive material change and were the biggest risks and most important trends affecting WHS in NSW.

SafeWork NSW considered expert feedback and expertise in the development of its regulatory priorities through this process. A summary document detailing the rationale for its regulatory priorities provides evidence that feedback from external stakeholders, such as unions and industry groups, were taken into account.

SafeWork NSW has not established a formal process for determining its regulatory priorities for 2024 and beyond

SafeWork NSW has an indicative timeline for preparing its 2024 priorities which provides that the priorities will not be settled until March 2024 and will be based on the results of the previous year’s priorities to December 2023. However, no ongoing process for determining annual priorities in each future year was settled at the time of writing this report. Some priorities might be expected to remain relatively constant, especially persistent challenges such as preventing falls from heights. However, if the annual priorities model is to meet the expectation of being agile, then new and emerging priorities will need to be identified, understood, scoped, and responded to with relatively short notice.

Elements of the 2023 regulatory priorities will overlap with any new or revised priorities, such as the monitoring and evaluation framework, and the three-year Construction Services Blueprint. SafeWork NSW explains that these longer-term initiatives are 'intended to support the delivery of priorities that are likely to run over many years, providing more granular detail on specific drivers of harm, regulatory responses and targets'.

SafeWork NSW does not effectively use data to inform its priority-setting or assessment of risk, despite adopting the recommendations from the 2020 mid-term Roadmap evaluation

SafeWork NSW states that it chose its regulatory priorities in 2023 based on the following factors - potential for serious harm or death, new or emerging risks, and increases in the frequency of an issue. An emerging issue is where:

SafeWork NSW has a substantial data repository, with over 20 years of case and activity data contained in its Workplace Services Management System (WSMS). However, SafeWork NSW does not effectively interrogate this data to provide an evidence base for its regulatory functions.

SafeWork NSW has only recently established a data governance committee. SafeWork NSW also advised that a data science function was created within the Centre for Work Health and Safety during 2023, repurposing existing resources and supported by a business intelligence working group comprising of inspector representatives from operational directorates.

While this data science function is newly created, SafeWork NSW does not have a strategic business intelligence function that is both recognised and understood across each directorate and team, and the ability of its technology infrastructure to deliver sophisticated strategic and operational data intelligence has been limited.

As a result of this lack of central coordination and capability, directorates have sought to develop their own data analysis capability, with inconsistent, fragmented and potentially duplicative results. The audit did find specific (albeit isolated) examples of data being used to inform decision-making, though these efforts were disparate and uncoordinated at the directorate level.

SafeWork NSW said that data is used to inform leadership discussions at the quarterly SafeWork NSW Leadership Meetings, and monthly operational executive meetings. The audit did not review the agenda papers for these meetings.

At the 2020–21 NSW Parliament Budget Estimates Committee hearing, SafeWork NSW stated that it:

SafeWork NSW has started to use artificial intelligence to interrogate historical compliance data to rate the risk of different employers. However, this is used inconsistently across SafeWork NSW and there is limited evidence about its effectiveness. A similar tool does not exist for industry or product-related trends or relationships that may assist SafeWork to proactively identify high-risk workplaces and issues.

Outdated technology and uncertainty in planning its replacement is limiting SafeWork NSW's ability to effectively use its data for analytics and insights

SafeWork NSW uses WSMS to manage work health and safety data. This system has been in place for over 20 years. It was noted in interviews conducted during this audit that this data system is at the end of its effective life.

Issues noted by users of WSMS include:

The lack of governance associated with data management of WSMS. There is no data custodian, and a formalised data quality assurance process does not exist. This means that data can be extracted from the system with no controls on the accuracy of the analysis.

Access to WSMS cannot be tracked (and is therefore not auditable).

• Data quality is variable, depending on the quality of notes provided by inspectors (with individuals noting that these notes could be full of speculation), and inconsistent approaches to entering information into the system. At the same time, inspectors noted that entering information into the system can be an administrative burden due to duplication and time requirements.
• Analysis cannot readily be undertaken on a geographic basis (for example, all high-risk employers within a particular region).
• As WSMS does not track information about the directors of companies, it is unable to identify risks associated with 'phoenixing', where directors of wound-up businesses establish new entities, or other forms of related-entity risk. The audit team linked WSMS data with ASIC data to match company directors with company and notice data. This was done in order to understand the additional intelligence that could be used to inform risk-based decision-making. As an example, the audit found that there is a large number of companies that have not received notices from SafeWork NSW but may be at higher risk due to the conduct of their directors:
  • There were approximately 151,000 companies with directors that were also linked to at least one other company that had received at least one type of notice from SafeWork NSW.
  • There were approximately 24,500 companies with directors that were also linked to one or more companies that had cumulatively received over 100 notices from SafeWork NSW.
  • There were approximately 8,600 companies with directors that were also linked to one or more other companies that had cumulatively received over 400 notices from SafeWork NSW.

In addition to the feedback provided by WSMS users within SafeWork NSW, the audit team also found related data quality issues during the course of our own analysis, including:

•  Industry analysis is more challenging to perform because specific industry data points and grouping details are not captured in WSMS.
• There was no systematic method to identify all silica-related incidents. The search terms were not standardised and relied on judgement, for example: ‘silic’ (potentially capturing both ‘silica’ and ‘silicosis’) and ‘benchtop’, though SafeWork NSW advised that consultation with subject matter experts informed these searches. There is a high-risk of false positives and incomplete analysis without time intensive manual review of each identified case. WSMS was not readily able to provide data on silica-related complaints without workarounds and manual file review (which proved unreliable) and requiring significant effort from data staff in both the Audit Office and SafeWork NSW.
• Test data is captured in production systems, rather than in test systems. These records do not have a unique identifier and are difficult to identify and isolate for business intelligence analysis.
• Data validations are not enforced (for example, on Australian Business Number, Australian Company Number columns). Instead, the data entry fields allow for incorrect details to be captured or left blank without explanation from the staff entering the data.

SafeWork NSW provided advice to the audit team that an upgrade of WSMS was planned as part of the broader e-regulation program across DCS (that is, the single digital platform for all 28 business regulators). However, this upgrade is now uncertain as there is no funding for SafeWork NSW to be onboarded to the new platform. This means that for the foreseeable future SafeWork NSW will be constrained by the limitations inherent to WSMS.

SafeWork NSW took around eight years to actively and sufficiently respond to the emerging risk of respirable crystalline silica in manufactured stone

Silicosis is a progressive, occupational lung disease resulting from inhalation of respirable crystalline silica (RCS). Silicosis is one of the oldest known occupational diseases, particularly affecting industries like mining. In Australia, silicosis has been a known cause of death and disability for over 100 years. This disease is preventable through appropriate workplace practices in a hierarchy of controls, which includes the use of correct personal protective equipment.

The use of manufactured stone for applications such as kitchen benchtops became popular in Australia in the early 2000s. Other substances that contain silica, such as rock, stone, clay, gravel, concrete and brick, may contain between 2% and 40% silica. In contrast, manufactured stone contains up to 95% silica. Workers exposed to respirable crystalline silica from manufactured stone are more likely to develop severe silicosis (and other serious lung diseases), and more quickly, than workers exposed to silica from other sources.

In 2010, international research was published that pointed to the specific heightened risk posed by the high silica content of manufactured stone used primarily for kitchen countertops and bathroom fixtures. This was confirmed by subsequent research published in 2012, which concluded that, in regard to a documented outbreak of silicosis among manufactured stone workers in Israel:

This research was relevant to Australia as the sample of workers was derived from the same Israeli-based manufacturer and exporter of manufactured stone that supplies the majority of the product used in Australia.

The first identified group of related workers who contracted silicosis in NSW was reported in literature in 2015. Further cases have been reported in the media since 2015. These included examples of relatively young workers developing silicosis, presumptively from inhaling silica dust derived from manufactured stone.

In 2017, SafeWork NSW listed RCS as one of the top ten priority chemicals in its 2017–2022 Hazardous Chemicals and Materials Exposures Baseline and Reduction Strategy (dated October 2017).

A legislatively-mandated case finding study conducted by SafeWork NSW in 2021³ reported that screening conducted by icare between 2017–18 and 2019–20 found an average of 29 cases per year of silicosis among workers in the manufactured stone industry.⁴ Despite the relatively small size of this workforce, this was three times the number of cases of all workers engaged in all other at-risk industries.

While the heightened risk posed by respirable crystalline silica in manufactured stone was first published in research in 2010 and detected in cases from 2015, SafeWork NSW’s first substantial practical response commenced in 2018–19.

From July 2018, SafeWork NSW convened a Manufactured Stone Industry Taskforce, including representatives from industry, unions, health, education and other government agencies. During the term of this taskforce (which ended at 30 June 2019), SafeWork NSW conducted 523 visits to 246 manufactured stone sites. These inspections resulted in 656 improvement notices being issued, along with 43 prohibition notices (this included matters not related to silica). Prior to this, the extent of SafeWork NSW’s active response to the emerging risk was to conduct a limited inspection program of six work sites in May 2017 (one site) and August 2017 (five sites). The results of these six workplace visits were incorporated into a research project report that was finalised in August 2018.

In the period from 2012 to 2018, SafeWork NSW also received complaints about silica-related matters, including matters not related to manufactured stone. These are detailed in Exhibit 1 below. The number of complaints was a relatively small proportion of all complaints received, though the number increased after 2018. This increase may be a result of increased community and industry awareness through media reporting and SafeWork NSW’s proactive audit work.⁵ The majority of these complaints did not result in further regulatory action by SafeWork NSW beyond preliminary inquiries and, in some cases, site visits. The right-hand column of the below table shows key events leading up to and shortly after SafeWork NSW’s first regulatory interventions.

*         2023 data are to 30 November 2023.
Note: Complaints received by SafeWork NSW where the issue description includes ‘silic*’ or ‘benchtop’. This will include silica derived from sources other than manufactured stone, including relating to those products listed in the Safe Work Australia 2020 national guide.
Source: Audit Office analysis of WSMS data.

High-profile media reporting in 2018, 2021, and early 2023 appeared to provide impetus to SafeWork NSW’s regulatory actions. SafeWork NSW subsequently conducted further rounds of proactive compliance, education and awareness activities among identified workplaces. This work increasingly targeted high-risk workplaces. Since 2018–19, SafeWork NSW has conducted three rounds of workplace inspections that have progressively focused on the highest risk workplaces. This program has adopted a strategic and evidence-based approach.

Since October 2019, 17 matters were progressed to further investigation with a view to prosecution. Five silica-related matters have been filed in court for prosecution. Three of these matters were still in court at the time of this audit, and two matters have been finalised.

In 2020, NSW introduced a range of legislative reforms including:

• Banning the practice of dry cutting engineered stone containing crystalline silica. Maximum penalty of $30,000 for a body corporate and $6,000 for an individual, with on-the-spot fines for uncontrolled dry processing of engineered stone.
• Halving the Workplace Exposure Standard from 0.1mg/m3 to 0.05 mg/m3 (ahead of the national deadline to implement it).
• Silicosis becoming a notifiable disease requiring clinicians to report each case of silicosis diagnosed in NSW. Those notifications are shared with SafeWork NSW to manage a NSW Dust Disease Register. An annual report is tabled in Parliament and published on the NSW Government website www.nsw.gov.au (NSW Silica Dashboard) alongside some information on compliance activities.
• On 27 October 2020, silicosis became a notifiable disease requiring clinicians to report each case of silicosis diagnosed in NSW. Those notifications are shared with SafeWork NSW to manage a NSW Dust Disease Register. In August 2021, SafeWork NSW published the first NSW Dust Disease Register Annual Report, detailing diagnosed cases of silicosis, asbestosis, and mesothelioma in NSW during 2020–21 and the Case Finding Study Report on silica exposure in the Manufactured Stone Industry. The Annual Report is tabled in Parliament and published on the NSW Government website www.nsw.gov.au (NSW Silica Dashboard) alongside some information on compliance activities.

Also in 2020, SafeWork NSW released the NSW Dust Strategy 2020-2022, which identified silica as one of three focus areas for the regulator.

In February 2022, New South Wales introduced the NSW Code of Practice – Managing the risks of respirable crystalline silica from engineered stone in the workplace, based on the National Model Code that was finalised in late 2021. The Code provides practical information on how to manage health and safety risks associated with respirable crystalline silica from engineered stone in the workplace.

Silica continues to be a priority for SafeWork NSW in 2023 under the SafeWork NSW regulatory priority: Exposure to harmful substances - Reduce the incidence of worker exposure to dangerous substances in the workplace, particularly silica and dangerous chemicals.

The online NSW Silica Dashboard provides members of the public with information on SafeWork NSW’s silica workplace visit program that commenced in 2018 through to 30 September 2023.

Organisational silos within SafeWork NSW contribute to inconsistent regulatory decision-making, duplication of effort, and inefficient practices

There is evidence indicating that SafeWork NSW works in silos, with limited communication, collaboration, and awareness of activities across functions.

We note the finding made by the South Australian Independent Commission Against Corruption in reviewing SafeWork SA:

The existence of silos was evidenced by the audit team through:

• The inconsistent application of policies and procedures. For example, performance management practices differ between directorates and individual teams. This is further discussed in Chapter 4.
• How data is used across SafeWork NSW. While there are pockets of effective data analysis, they often seem to operate in isolation from each other, resulting in duplication and a failure to achieve economies of scale and the benefits of synergies.
• Limited feedback loops across SafeWork NSW. SafeWork NSW does not have an overarching continuous improvement framework, and communication surrounding decision-making is limited. For example, where the Investigations and Emergency Response team decide to discontinue an investigation, there is no requirement to inform the referring inspector that this has occurred, or the rationale behind the decision.

Similar findings on the existence of silos, and the need to improve teamwork and collaboration, have been made by SafeWork NSW in internal reviews undertaken as part of restructuring activities.

This audit also found broader issues of concern regarding organisational structure. SafeWork NSW staff frequently expressed reservations about the effectiveness of the current structure and compared it unfavourably to the regulator’s previous form. In particular, some SafeWork NSW staff said that the existing structure:

• reduced SafeWork NSW’s profile as the regulator for work health and safety in NSW
• confused lines of accountability for senior strategic leadership
• diluted the regulator’s focus and the cohesion of the staff.

The Independent Review of SafeWork NSW being conducted by Mr Robert McDougall KC is examining organisational structural issues. In the interim, the decision has been made by DCS that SafeWork NSW will transition out of the Better Regulation Division of DCS from 1 December 2023, to become a standalone division within DCS.

Organisational restructuring and any uncertainty that it involves in the short- to medium-term could impact on the SafeWork NSW's progress in achieving desired policy outcomes, especially if the change management process is not effective.

The lack of a strategic approach to data and intelligence by SafeWork NSW hampers effective targeting and prioritisation of proactive compliance activity

Effective proactive compliance work is an important part of an effective regulatory approach. For SafeWork NSW, these activities range from dedicated state-wide programs over extended periods through to specific, localised ‘blitzes’ of targeted workplaces. These activities are performed alongside 'reactive compliance activities' such as responding to incidents, complaints, or requests by ‘persons conducting a business or undertaking’ (PCBUs) for education and awareness-building activities.

In accordance with Safe Work Australia’s National Compliance and Enforcement Policy, proactive compliance activities are intended to be:

SafeWork NSW’s proactive compliance activity is intended to be based on:

• SafeWork NSW’s annual regulatory priorities
• data and insights on high-risk harms, industries or businesses
• the identification of new or emerging risks
• targeted programs focused on reducing the greatest harms.

As discussed earlier in this section, SafeWork NSW does not effectively use data to inform priorities or to assess risk.

While managers at SafeWork NSW referred to an overall target for proactive work (it was commonly suggested that between 60% and 70% of regulatory activities should be proactive), we were informed by the Head of SafeWork NSW (and Deputy Secretary of the Better Regulation Division) that there was no specific target.

In practice, there is significant variation in the mix of proactive and reactive compliance activities between directorates and teams, with some teams doing either largely proactive or largely reactive activities. This can depend on the nature of the industry sectors and geographic areas in which they function, and the extent of teams’ non-discretionary reactive workload.

Planning, implementing and evaluating proactive compliance work is inconsistently done across SafeWork NSW, making it hard to assess whether resources are being used effectively

The audit team found widely differing approaches to how directorates and even individual teams within the same directorate used evidence to identify and target risk areas for proactive work programs, such as blitzes. While there was evidence that data was used to inform how activities would be targeted, this was not consistent. For example, some teams draw on intelligence generated by dedicated interventions staff in their directorates, while others rely entirely on opportunistically identifying potential worksites for proactive work by driving or walking past sites. The audit found examples of effective use of data and intelligence to plan proactive activities.

There is also no consistent approach to planning, implementing, or evaluating proactive compliance work across SafeWork NSW. Even within the same directorate, there can be significant differences in approach. Some of these differences can be explained by the different types of matters and circumstances that apply to PCBUs across different industries. However, inconsistencies extended to fundamental aspects of proactive compliance work such as:

• the rigour of evidence and intelligence by which priorities are determined and targeted, which was partly reflected by directorates having different levels of internal data capability
• the degree of project management capability and resourcing, including where some directorates have dedicated specialist project management skills, while others rely on inspectors to perform project management
• the extent to which different directorates and teams had a clear approach to how programs would be evaluated, beyond simply measuring activity, something which appears undermined by the absence of an evaluation framework
• whether the strategic intent of programs and blitz activities are to drive meaningful behavioural change or just, as some interviewees expressed it, to ‘make sure they tick some boxes.’

These material differences and lack of consistency in approaches to proactive compliance makes it difficult to assess whether these activities are effective and efficient regulatory interventions. While there was strong support for proactive compliance activity among both managers and inspectors (indeed, most thought that there should be more proactive activity), there were relatively few who could provide an evidence base to justify the significant staff resources that they consume.

The Centre for Work Health and Safety has a function to improve data, research, and evidence to support risk identification

The Centre for Work Health and Safety (CWHS), a functional unit within SafeWork NSW, was established in December 2017 under the WHS Roadmap 2016-2022. Among other things, it has an insights and analytics function. Its establishment was driven by the recognition that SafeWork NSW was not effectively using data and evidence to support its decision-making and activities.

Two pieces of work undertaken by the CWHS are intended to provide SafeWork NSW with greater capability in identifying and addressing risk in both strategic and operational contexts.

First, the WHS Radar project is intended to deliver ‘…regular and actionable insights about WHS in an Australian context.’ Conducted twice a year, the WHS Radar synthesises information about work health and safety by drawing on five sources of evidence:

• existing data, including incidents, worker’s compensation, ABS, and prosecutions
• analysis of grey literature (non-peer reviewed sources, such as government reports, some conference papers, and reports from academic, business and industry bodies)
• social media listening
• nationwide survey of WHS inspectors and experts
• nationwide survey of Australian workers across all industries.

The WHS Radar is intended to reduce the extent to which SafeWork NSW is dependent on lag data, by actively collecting more contemporaneous data from multiple sources. The first WHS Radar report was released publicly in April 2023.

A second piece of work delivered by the CWHS is the WHS Risk Rating tool for a PCBU.⁶ This tool attributes a rating to many businesses in NSW based on assessment of their future risk of non-compliance with WHS legislation. The WHS Risk Rating is intended to:

• support existing SafeWork NSW Triage decision-making
• support IDMP decision-making
• select high-risk profiles during blitz operations
• proactively screen and target high-risk profiles.

While some managers in SafeWork NSW did use the WHS Risk Rating tool, others were less confident in its value, expressing doubts about the accuracy and completeness of the data, or were not aware of it at all. These inconsistent views between different managers and directors, between those who use the WHS Risk Rating tool and those who do not use it or do not even have awareness about it, suggests that its purpose and functionalities have not been fully communicated to the wider inspectorate.

The governance of the CWHS, and particularly its relationship to SafeWork NSW, is somewhat unclear. While the Centre sits under the Executive Director, Regulatory Engagement, it identifies on its website as ‘A division of the Department of Customer Service’. Structurally, it is equivalent to a directorate under the Regulatory Engagement business area of SafeWork NSW, rather than a division of the department.

SafeWork NSW's inspectors are its core asset, and its ability to recruit, train and retain inspectors is key to fully performing its functions and meeting the internationally recognised benchmark

SafeWork NSW is funded to fully operate with up to 370 inspectors, though with 352 inspectors at August 2023 it has not recruited to full capacity.

Staff retention within the inspectorate has been a historic strength of the regulator. However, there has been a recent increase in inspector turnover. SafeWork NSW notes that from 2020 to 2022 attrition rates doubled from 5.3% to 10.6% within the inspectorate, which – due to the average age of its workers – was anticipated. Nearly one-third of inspectors were 56 years or older in the 2021–22 financial year. SafeWork NSW also experienced a general increase in resignations since the COVID-19 pandemic.

Increased recruitment activity is intended to mitigate the impact of ongoing attrition due to retirement. However, given the training requirements for new inspectors, there is a significant lag time between recruitment and the utility of inspectors in the field to progress regulatory priorities. SafeWork NSW notes however that inspectors receive authorisations to use their powers throughout the 12-month training period, with individuals assessed at a number of stages based on individual competence.

Where there have been capacity limitations, there have been localised responses such as the sharing of inspectors between teams, or the change in resourcing profile of investigations where instead of one inspector working on a case, a case is assigned to a team.

The International Labour Organization sets a benchmark of one labour inspector per 10,000 workers in industrial market economies. This benchmark is considered the number of inspectors deemed sufficient to ensure the effective discharge of the duties of the inspectorate. In October 2022, SafeWork NSW reported at the Parliamentary Budget Estimates Committee hearings that recruiting the full contingent of 370 inspectors would have meant that there was one SafeWork NSW inspector for every 10,000 workers, allowing it to meet this benchmark.

SafeWork NSW provided advice to the audit team that forecast increases in the number of workers and workplaces in New South Wales will result in 471 inspectors being required to meet the International Labour Organization benchmark by 2027.

SafeWork NSW inspectors can take up to two years to be considered ready to be fully utilised, due to training requirements and variations in their experience

Once recruitment is completed and new inspectors commence employment, they will start the New Inspector Training Program (NITP). The NITP is a 12-month comprehensive training program which prepares new Inspectors to perform the duties required of an Inspector within SafeWork NSW as well as providing training and assessment required for the PSP50116 Diploma of Government (Workplace Inspection) qualification. Inspectors will be fully trained after 12 months.

They will be issued with their instrument of appointment (authorities) to use their powers throughout the 12 month course. However it was noted throughout interviews with the inspectorate that it can take up to two years for new inspectors to be deployed in the field on their own and confidently making decisions. SafeWork NSW notes that the level of mentoring and support provided to individual inspectors, and access to a variety of experiences to build a range of skills contributes to variations in new inspectors building their confidence.

SafeWork NSW also provides:

• a structured framework for new inspector onboarding and capacity-building, including in May 2023 formalising requirements for accompanied field visits, and delivering the NITP, delivered by the SafeWork NSW Registered Training Organisation (RTO) and utilising experienced inspectors from across the directorate to deliver training across the 12-month period
• a SafeWork NSW Inspectorate and Manager Continuing Professional Development Program Policy
• formal processes for Inspectorate Continuing Professional Development and Manager Continuing Professional Development, including recognition of prior learning through credit transfer from other registered training organisations
• a formalised procedure for inspectors to progress to senior inspector and principal inspector.

While it was beyond the scope of this audit to assess the effectiveness of this training and capability development framework, it was recognised by interviewees that the commitment of time and resources provided by SafeWork NSW to training inspectors was significant. This underscores the importance of ensuring the effective use of inspectors.

There are inconsistent expectations around the responsibilities of SafeWork NSW inspectors and managers for identifying new and emerging issues

Inspectors may apply to the Inspector Progression Panel of SafeWork NSW to progress from Inspector to the level of Senior Inspector, or Senior Inspector to the level of Principal Inspector. In addition to the overarching requirements of the (Department of Customer Service – SafeWork NSW Inspectors 2007) Reviewed Award, this process is governed by a formal written procedure.

This procedure sets out that in considering applications for progression, the panel should take into account whether the applicant has fulfilled the responsibilities of their current role. The procedure specifies that inspectors and principal inspectors are accountable to:

It is unclear why inspectors and principal inspectors have this responsibility, but not the intermediate level of senior inspectors. It is also unclear whether people managers, such as team managers, directors, and executive directors, also have similar formal obligations to proactively identify emerging issues.

Moreover, as senior inspectors are not accountable for identifying trends and emerging issues, inspectors are not assessed against this accountability when seeking progression to the senior inspector level. In contrast, when seeking progression from senior inspector to principal inspector, the applicant is required to provide evidence of how they meet this accountability, even though it is not an accountability specified for senior inspectors.

The accuracy of SafeWork NSW’s workforce planning is uncertain

Workload capacity is managed at the directorate level, with a forecasting report on the capacity across all teams discussed quarterly at the SafeWork NSW Leadership Group. Inspectors do not fill out timesheets, instead, this is based on time estimates for specific activities undertaken by inspectors. Directorates are also responsible for leading or supporting work against specific regulatory priorities, requiring directorates to discuss workforce capacity as part of planning proactive work.

SafeWork NSW has a 'workload management treatment model' that provides operation guidance once certain thresholds are reached within this forecasting report. These mechanisms include the reallocation of resources within the directorate at 125% of capacity reached, sharing and reallocation of work between equivalent portfolios at 150% of capacity reached, and cross directorate sharing of work and resources as well as the cessation or deference of work at 175% of capacity reached.

The actual allocation of inspectors to individual directorates is determined at the executive level when vacancies arise, with SafeWork NSW noting that 'consideration is given to the demand for regulatory services (current and expected future) across all teams to determine which directorate and office location a replacement position should be allocated'.

Audit interviews identified some concern that the calculations the forecasting reports are based on were not accurate, overestimated time, and that the data was used inconsistently and as a method to 'grab for resources'. While this audit did not examine SafeWork NSW's forecasting methodology in detail, a sample of the workforce forecasting report for April to June 2023 showed average capacity ranging from 9% to 390%, which may indicate under-utilised or over-utilised teams, or under or overweighted activities.

While there are mechanisms in place to review operational capacity, longer-term strategic workforce planning does not seem to form part of these review processes.

As part of developing its regulatory priorities, SafeWork NSW released a discussion paper that noted broader trends affecting workplaces and communities that it regulates, for example the rise in mental health issues in the workplace, automation, and the return of regional on-shore manufacturing. SafeWork NSW has a SafeWork Inspectorate and Manager Continuing Professional Development Program Policy, however this policy was only finalised in July 2023.

³ This study, conducted by a third-party, stemmed from a recommendation made by the NSW Parliament’s 2019 Dust Disease Review to amend the WHS Act to require SafeWork NSW to ensure that a case finding study was carried out:

• to investigate respirable crystalline silica exposure in the manufactured stone industry, and

• to gather information to improve the identification and assessment of workers at risk of exposure.

The purpose of this recommendation was to ‘to improve the identification and assessment of workers at risk of exposure.

⁴ The authors of this case finding study identified significant data limitations, which meant that it was not possible to estimate with confidence the complete number of workers potentially affected by silicosis.

⁵ Because of the lag period between when a worker is exposed to risky work practices and when they may develop silicosis, complaint data is not necessarily a useful tool to identify the emerging risk, especially where awareness of the risk is low. Unlike with risks that pose a more immediate and direct harm – such as falling off an insecure elevated platform - individuals may be less conscious to complain about a risk where the potential injury is not immediately visible.

⁶ A person conducting a business or undertaking has the primary duty of care for work health and safety.

This chapter considers how effectively SafeWork NSW measures and reports its performance in monitoring and enforcing compliance with the WHS Act. This includes whether it has meaningful performance measures, whether its performance is transparent to all stakeholders, and whether it uses performance information to support continuous improvement and quality assurance.

Performance measurement and reporting are essential to demonstrating a regulator's effectiveness

The Audit Office’s 2022 Audit Insights 2018–22 report noted that:

The same report also observed that government activity should:

Relatedly, the Organisation for Economic Co-Operation and Development has said that it is important for regulators to be aware of the impacts of their regulatory actions and decisions, and that this:

SafeWork NSW reports its activities and performance against certain KPIs, along with equivalent regulators in other Australian jurisdictions

Safe Work Australia, the national policy body for work health and safety, collects, analyses and publishes data across jurisdictions. SafeWork NSW provides data on regulatory activities such as the volume of proactive and reactive regulatory work, and performance measures such as injuries and fatalities. This is contained in the Safe Work Australia Comparative Performance Monitoring – Work Health and Safety Performance, and Work Health and Safety Compliance and Enforcement Activities reports.

The data published by Safe Work Australia provides comparative and longitudinal performance data relating to workplace injuries, fatalities, and compliance activities. This is ‘lag’ data, often 12 months or more in arrears. SafeWork NSW notes that due to the currency of data, it is not useful for planning purposes.

The ability to directly compare jurisdictional activities to form a view on the effectiveness of each regulator is limited, due to differences in how each work health and safety regulator works and the scope of their powers and responsibilities. For example, unlike in other states and territories, SafeWork NSW is not responsible for claims management or return to work matters.

Data reported by SafeWork NSW to Safe Work Australia indicates that, while fatalities have decreased, SafeWork NSW may not have had meaningful impact on the rates of serious injuries and disease claims since 2016–17

The data provided to Safe Work Australia shows that SafeWork NSW has presided over a period where there has been an increase in the incident rate of serious injury and disease claims in New South Wales. While SafeWork NSW is not responsible for workers compensation, the payment of workers compensation necessitates that a workplace injury has occurred.

The audit team has not seen evidence that SafeWork NSW has interrogated the root cause data trends since 2016–17 (discussed below). While the causes of workplace injury are often complex and multifaceted, the data suggests that SafeWork NSW may not be having a meaningful impact on reducing rates of serious injuries, but the poor data quality means that we cannot be sure. It was beyond the scope of this audit to specifically examine serious injuries and disease claims, or the root cause(s) for the upward trend.

An extract of one performance indicator is shown in Exhibit 2 below. It shows serious injury and disease claim data from 2012–13 through to 2020–21 (where 2020–21p stands for preliminary data). The 2015–16 financial year is highlighted to indicate the establishment phase of SafeWork NSW.

This chapter considers selected policies and procedures that SafeWork NSW has implemented to ensure that it performs its compliance functions in a manner that is consistent with regulatory good practice. This includes that regulatory decisions are fair, consistent, predictable, transparent and in accordance with any laws or government policy. This extends to how complaints and incidents are initially triaged, the decisions inspectors make in response to complaints or incidents, and decisions made about whether a matter is referred to investigation for possible prosecution.

SafeWork NSW has made significant efforts to promote consistency in regulatory decision-making

A core element of an effective compliance regime is that the regulator’s behaviour and decision-making should be consistent and predictable. This encourages trust and confidence in the regulator, while promoting clarity and certainty among regulated entities.

SafeWork NSW faces particular challenges to achieving consistency in regulatory outcomes without fettering the legislative decision-making authority of individual inspectors. The audit was made aware of cases where stakeholders could not understand the rationale by which decisions were made, including in matters raised in Parliamentary Budget Estimates Committee hearings.

The reasons for the lack of consistency, whether perceived or actual, includes such matters as:

• the unique circumstances that may apply to individual risks, hazards, or incidents
• the wide variation in characteristics of PCBUs, including in regard to matters that might affect their culpability for non-compliance, such as their size or compliance history
• varying levels of experience across inspectors
• potential differences between individual inspectors in risk appetite, regulatory posture and attitudes to varying regulatory interventions.

These complexities have received heightened attention by SafeWork NSW since the 2020 findings of the NSW Ombudsman’s inquiry into SafeWork NSW and the Blue Mountains City Council. Among other things, in this inquiry the Ombudsman found that:

• only inspectors had the authority to form a ‘reasonable belief’ that non-compliance with the WHS Act or regulation had occurred
• where an inspector forms a ‘reasonable belief’ of non-compliance, then they must issue a regulatory notice
• instances had occurred where inspectors had issued notices without forming the necessary ‘reasonable belief’ that valid grounds existed for those notices
• inspectors had issued notices without forming their own requisite ‘reasonable belief’ because they had been directed to issue notices by management.

Notwithstanding these challenges, SafeWork NSW was able to demonstrate that it has implemented measures aimed at promoting consistency in regulatory decision-making. These measures include:

• extensive guidance in exercising discretionary decision-making
• inspector practice notes
• directorate and team level discussions intended to promote consistency in decision-making.

These measures are primarily focused at encouraging consistency in the application of the law prospectively. There was less evidence that decisions were consistently, formally, and robustly reviewed retrospectively, such as by:

• peer review
• internal audit or quality assurance of decisions
• managerial coaching and mentoring.

The audit found varying practices and processes across SafeWork NSW teams and directorates for these sorts of retrospective and reflexive learning processes. Some managers and directors were able to describe regular review activities, either through one-on-one case reviews with individual inspectors, or through team meetings, though the evidence was that these activities were not consistent across regulatory decision-making areas of SafeWork NSW.

Such retrospective mechanisms would not be aimed at varying decisions already made, but at contributing to standardising how inspectors make future decisions by promoting consistency through setting precedents for responding to substantively similar matters.

Staff performance management is inconsistent across SafeWork NSW, which may hinder consistent practices, behaviours and outcomes

The use of organisational performance management and planning systems can be an important tool for promoting consistent behaviours, understandings and outcomes.
This audit included a survey of all members of the inspectorate, excluding team managers. Approximately 60% the inspectorate responded to the survey. The survey of found that:

• 36% said that they did not have an annual performance agreement – almost one in every two inspectors (46%) in the two metropolitan focused directorates said they did not have performance agreements that set out what was required of them
• the Investigation and Emergency Response directorate had a comparatively higher rate of reported performance agreements in place (80%) than all the other directorates that comprised SafeWork NSW (57%) – the reasons for this were not examined by the survey.

Findings from a survey of the inspectorate highlight the role of discretion in decision-making, and how these factors can be inconsistently applied

The survey conducted by the audit also asked inspectors about how different factors might affect their decision to issue a penalty notice for a breach of the WHS Act (excluding the most serious categories of matters that would ordinarily be immediately referred to full investigation and possible prosecution).

The discretionary factors that were included in the survey included:

• a sample taken from SafeWork NSW's written procedure for issuing penalty notices (shown in Exhibit 5 below)
• a small number that had been raised with the audit team by SafeWork NSW staff during interviews, namely: current regulatory priorities, media or political interest, and the size of the PCBU (specifically, whether or not a hypothetical PCBU was a small, family-owned business).

Source: SafeWork NSW, Penalty Notice Procedure.

Inspectors were asked whether a range of selected factors were in general more, less, or not at all likely to influence their decision to issue a penalty notice.

As shown in Exhibit 6 below, the survey found that the most common response to most of the factors was that they made it neither more nor less likely that an inspector would issue a penalty notice in response to non-compliance. In some cases, this is probably to be expected.

For example, whether or not a non-compliant PCBU is a NSW government agency should probably not affect whether it is issued with a penalty notice. This was the case for 80% of respondents (though notably, 20% of inspectors responded that it would affect their decision, including 3% who responded that they would be much more likely to issue a penalty notice).

Other variations seem less intuitive to explain. This is particularly the case when a factor is written in policy or procedures. For example, 44% of inspectors responded that their decision would not be affected by whether or not the PCBU had prior notice of the risk, even though prior notice is prescribed in the SafeWork NSW procedure as a factor that should be taken into account (see item 7 of Exhibit 5).

The role played by SafeWork NSW regulatory priorities is also uncertain. On the one hand, 62% of inspectors said that they would be more (39%) or much more (23%) likely to issue a penalty if the non-compliance related to a regulatory priority, while 38% said it would have no impact.

The survey also found noticeable variations in responses between directorates regarding when penalty notices would be more or less likely to be issued. This included in regard to:

• whether a non-compliant PCBU was a small business or not
• the role of PCBU culpability
• whether non-compliance related to a matter of media or political interest.

This chapter presents a case study that arose during the course of this audit. The case study demonstrates issues discussed in earlier chapters of this report, particularly in relation to the management of risk and the proper application of policies and procedures to ensure SafeWork NSW’s effectiveness as a regulator.

About the case study

The case study concerns the activities of the Department of Customer Service and SafeWork NSW, the latter of which is located within the department. Neither the case study nor this performance audit generally examined the activities of the commercial partner (including any related companies) referenced in the case study, including Trolex Ltd (UK), Trolex Nome Australia Pty Ltd., or Trolex Sensors Pty Ltd. No findings have been made, either express or implied, in relation to the commercial partner.

The case study was based on a review of evidentiary documents, primarily in the form of emails sourced from SafeWork NSW. To avoid compromising other processes, interviews were not held.

SafeWork NSW’s respirable crystalline silica real-time detection project

As discussed earlier, silicosis is a progressive, occupational lung disease resulting from inhalation of respirable crystalline silica. In recent years, there has been high profile attention to respirable crystalline silica exposure from manufactured stone products (such as kitchen benchtops), though these risks had been published in international research since at least 2010. Unlike asbestos, respirable crystalline silica from manufactured stone can lead to the development of silicosis and other lung diseases after relatively short exposure and latency periods, resulting in relatively young workers developing serious diseases.

From 2016 to 2022, SafeWork NSW’s Work Health and Safety Roadmap included a target to reduce workplace exposure to priority hazardous chemicals and materials by 30%. This focus was retained in SafeWork NSW's regulatory priorities for 2023, which included the aim of reducing the incidence of worker exposure to harmful substances such as silica.

In 2018, SafeWork NSW commenced a project to fund a ‘research partner’ to develop a device that would detect in real-time the presence of respirable crystalline silica in workplaces. This project was led by the Centre for Work Health and Safety within SafeWork NSW.

Following a selection process, Trolex, a private company from the United Kingdom, was selected as the research partner. Trolex developed a device intended to meet the objective of the project. This device is called the Air XS and sells for approximately $18,500 AUD. The Air XS device was launched on 7 April 2022. The first-generation of the Air XS devices are no longer on the market, however up to 60 second-generation devices are currently in use across Australia.

In December 2022, this research project won the DCS Secretary’s Award for Excellence in Digital Innovation and was also one of the department’s nominees for a Premier’s Award in 2022.

As part of understanding SafeWork NSW’s response to the work health and safety risks of respirable crystalline silica from manufactured stone products, the audit examined this research project to procure a 'research partner' to develop a respirable crystalline silica real-time detection device. The findings of this examination are set out below.

SafeWork NSW’s processes were ineffective in responding to and mitigating risk and in ensuring compliance

As detailed below, our examination of this project found significant governance failings in SafeWork NSW, including the absence of key documentation, which created risks relating to whether the project would deliver its objective and whether it complied with procurement requirements. Concerns about whether the Air XS device would satisfy project objectives were not properly addressed.

We also found non-compliance with mandatory procurement policies. The failure to ensure compliance with procurement requirements leaves open the risk that value for money was not achieved, or that the procurement was not fair, transparent, consistent with promoting competition, or free from corruption or maladministration.

As a result of the Audit Office raising these issues with the Head of SafeWork NSW, the regulator undertook to enter into discussions with the CSIRO to conduct further testing of the real-time RCS detection device.

Concerns were raised by staff about the accuracy of the Air XS devices, though these concerns were not escalated beyond Director-level staff

Both before and after the launch of the Air XS device, concerns were raised by technical staff within SafeWork NSW about the accuracy of the devices and the rigour with which they had been tested during development.

It should be noted that the manufacturer, in correspondence with SafeWork NSW, defended the accuracy of the Air XS devices. It was beyond the scope of the audit to reconcile apparently conflicting technical assessments. Rather, the audit examined how SafeWork NSW managed the potential project delivery risk when these material concerns were raised.

Toward the end of 2021, concerns first emerged about the accuracy of the Air XS devices in emails between staff in the Regulatory Engagement business area of SafeWork NSW. These emails outlined concerns that the Air XS devices were not sufficiently accurate in detecting respirable crystalline silica. These views were derived from testing performed outside of any technical assurance process. At the time, these concerns were not shared with executive-level staff, including with any relevant Directors.

By the end of March 2022, the Centre for Work Health and Safety had requested and received from Trolex testing reports on the Air XS device. Two technical staff in the Testing Services directorate of SafeWork NSW were asked to review the testing reports. They were given five days to conduct these reviews.

On 5 April 2022, two days before the product was launched, one of the technical staff emailed the Director, Testing Services, advising that each of the two technical staff had independently prepared assessments and that their conclusions were ‘…not what DCS will want to hear’.

The internal assessment reports were subsequently provided to the Director, Testing Services, and to the Centre for Work Health and Safety. One of the reports stated that the product was not ‘market ready’ and that further testing was required. The audit did not find evidence that these conclusions were escalated to the Executive Director, Regulatory Engagement.

On 6 April 2022, the research project manager was advised by a staff member in the Centre for Work Health and Safety that an independent expert’s report (commissioned by the Centre for Work Health and Safety) concluded that ‘…there isn’t enough data to assess the validity of the device’.

Despite these concerns, the product launch occurred on 7 April 2022.

The audit found that concerns were again documented on at least two occasions after the product was launched. First, in September 2022, a senior technical staff member in the Centre for Work Health and Safety expressed concerns to colleagues, including the Director, Testing Services, that the staff member was uncomfortable promoting the Air XS without further testing being conducted.

Secondly, in May 2023, an internal test report prepared within the Testing Services business unit highlighted specific concerns about the accuracy of a first-generation Air XS device. This internal test report was provided to the Director, Testing Services, and was conducted with at least the knowledge of the Director, Research and Evaluation.

In both cases (September 2022 and May 2023), there are gaps in the evidence concerning how widely these internal concerns were shared. The audit found no evidence of:

• any material response by SafeWork NSW management to address the concerns that had been raised
• any assessment of risks posed to SafeWork NSW and other stakeholders
• any escalation of the concerns to the relevant Executive Director or to the Head of SafeWork NSW.

This apparent lack of management action was despite the potential risks to the work health and safety of workers who may have relied on the Air XS, and to the reputation of the regulator.

Some SafeWork NSW staff were hesitant to raise concerns about the Air XS device

Some staff reported to us that they did not raise these risks with their managers due to concerns that to do so might affect their employment. In the Auditor-General’s 2018 audit report Managing risks in the NSW public sector: risk culture and capability, it was noted that:

The report also observed that it is now widely accepted that organisational culture is a key element of risk management because it influences how people recognise and engage with risk. This includes ensuring that agencies have a culture of open communication so that all employees feel comfortable speaking openly about risks.

In this case, SafeWork NSW lacked the risk processes and culture to encourage all staff to identify, raise, escalate, and respond to risk appropriately. While the department does have a mechanism (via dedicated phone and email contacts) for staff to report integrity concerns, this mechanism was not used.

Concerns about the Air XS device were also raised by an external user of the device, though there is no evidence that these concerns were substantively addressed

On 21 August 2023, a senior manager from an external user emailed staff in SafeWork NSW’s Testing Services Directorate to advise that they had told the local distributor that they no longer wished to conduct further testing, nor purchase any Air XS devices. The senior manager stated that:

The senior manager further stated that they were:

The audit found no evidence that these concerns were meaningfully addressed by SafeWork NSW.

The process of procuring a ‘research partner’ to develop the Air XS device was flawed, in that there was non-compliance with procurement obligations and inadequate record keeping

The cost of procuring the Air XS research partner increased from an initial estimated cost of $200,000 when the request for tender was issued in May 2019 to $1.34 million when the final contract was executed in August 2019.

The audit found non-compliance in the process undertaken by the CWHS to procure the research partner. This non-compliance related to the requirements of the applicable departmental procurement manual, as well as with DCS financial delegations, and with the tender evaluation plan prepared for the process.

Examples of non-compliance and other poor practices are outlined below.

• The Director, Research and Evaluation, was a voting member of the evaluation committee and also signed the acceptance letter for the successful proposal. This contravened the department’s procurement requirement that an approving delegate may not also evaluate tender responses. At the time, the estimated cost of the engagement was $200,000 and was therefore within the Director’s financial delegation.
• The evaluation of the submitted tenders included an assessment provided by a designated non-voting member of the tender evaluation committee who had a declared conflict of interest.
• One member of the tender evaluation committee lodged a strong objection to the preferred provider. SafeWork NSW could not provide documentation about how this objection was addressed.
• When the final cost of the engagement increased to $1.34 million by August 2019, the Director, Research and Evaluation, no longer had the necessary delegation to approve the engagement of Trolex. Under the delegations issued by the DCS Secretary on 29 August 2019, the approval of an Executive Director was required for contracts valued between $500,000 and $2 million.
• The scoring in the tender evaluation committee’s (unsigned) evaluation report did not comply with the approach set out in the tender evaluation plan. This was material as, had the tender evaluation plan been followed, two tenders would have been assessed as having the same successful score.
• SafeWork NSW was unable to provide:
  • a signed and dated copy of an approval to issue the initial request for tender
  • a signed and dated copy of an approval for SafeWork NSW to enter into a formal agreement with Trolex
  • a final tender evaluation report signed by all members of the tender evaluation panel
  • evidence of any approval to increase the value of the contract from the $200,000 anticipated in the initial request for tender up to the $1.34 million final value of the contract.

Such non-compliance can contribute to the risk of maladministration in procurement activities, including by undermining probity and challenging whether value for money is achieved.

Appendix one – Response from agency

Appendix two – About the audit

Appendix Three – Performance auditing

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Parliamentary reference - Report number #390 - released 27 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

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What this report is about

This report analyses the internal controls and governance of the 25 largest agencies in the NSW public sector, excluding state owned corporations and public financial corporations, for the year ended 30 June 2023.

Findings

Internal control trends

The proportion of control deficiencies identified as high-risk this year decreased to 4.5% (8.2% in 2022).

Repeat findings of control deficiencies represent 38% of all findings (48% in 2022). 

Information technology

Over half of the agencies reviewed have deficiencies in managing user access to their information systems. Over a third of agencies had deficiencies in their controls over privileged user accounts within their information technology environments. 

Cyber security

Over 80% of assessments for maturity levels against the NSW Cyber Security Policy have reported one or more self-assessed Mandatory Requirements are not practiced on a consistent and regular basis.

Essential Eight cyber controls have not improved, and they need to. 

Governance framework

Deficiencies were noted in agencies' governance and risk management frameworks, namely: outdated risk management policies, lack of risk appetite statements, and internal audit functions not being externally evaluated.  

Payroll and work health and safety (WHS)

Overtime expenses increased by 40% between 2020 and 2023, compared to salaries and wages which increased by 16% over the same period.

Five agencies have WHS policies that do not reflect current WHS regulations.

Recommendations

Several important recommendations were made for agencies to prioritise efforts to improve cyber security controls and cyber resilience measures.

It was also recommended that agencies periodically review their risk management maturity and implement action plans, and ensure their WHS policies and procedures reflect current legislation requirements including the need to manage psychosocial risks.

Internal controls are processes, policies and procedures that help agencies to:

• operate effectively and efficiently
• produce reliable financial reports
• comply with laws and regulations
• support ethical government.

This chapter outlines the overall trends for agency controls and governance issues, including the number of audit findings, the degree of risk those deficiencies pose to the agency, and a summary of the most common deficiencies found across agencies.

For consistency and comparability, we have adjusted the 2022 results to incorporate additional audit findings that were reported after the date of the Internal controls and governance 2022 report. Therefore, the 2022 figures will not necessarily align with those reported in our 2022 report.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agency controls to manage key financial systems.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' cyber security.

Governance in the context of the NSW public service refers to the structures, processes, and mechanisms by which government departments and agencies are held to account when they make decisions and implement policies and programs in the service of the public interest. It also includes the principles and practices that guide how these agencies work together.

This chapter outlines our audit observations, conclusions and recommendations from our review of agencies' governance frameworks and practices, with consideration of NSW Treasury issued policies and best practices. It focuses on two key areas: governance arrangements and risk management.

This chapter outlines our audit observations, conclusions and recommendations arising from our review of agencies' payroll controls and management of work health and safety (WHS).

What this report is about

Result of the Treasury portfolio of agencies’ financial statement audits for the year ended 30 June 2023.

The results of the audit of the NSW Government’s consolidated Total State Sector Accounts (TSSA), which are prepared by NSW Treasury, will be reported separately in our report on ‘State Finances 2023’.

The audit found

Unqualified audit opinions were issued on all general purpose financial statement audits.

Qualified audit opinions were issued on two of the 24 other engagements prepared by portfolio agencies. These related to payments made from Special Deposit Accounts that did not comply with the relevant legislation.

The number of monetary misstatements identified in our audits increased from 29 in 2021–22 to 39 in 2022–23.

The new parental leave policy impacted agencies across all portfolios. NSW Treasury should perform annual assessments to identify changes in legislation and regulation and provide timely guidance to the sector.

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 agencies’ financial statements is required.

The key audit issues were

Five high-risk issues were reported in 2022–23. Three were new findings on contract management, accounting treatments for workers compensation renewal premium adjustments and the management and oversight of a Special Deposit Account. Two repeat issues referred to the need to improve quality review processes over financial reporting and the timely approval of administration costs.

Portfolio agencies should prioritise and action recommendations to address internal control deficiencies.

This report provides Parliament and other users of the Treasury 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 Treasury 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 Treasury 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

Appendix five – Acquittals and other opinions

© 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 Health portfolio of agencies' financial statement audits for the year ended 30 June 2023.

The audit found

Unmodified audit opinions were issued for all Health portfolio agencies' financial statements. 

The number of monetary misstatements increased in 2022–23, driven by key accounting issues, including the first-time recognition of paid parental leave and plant and equipment fair value adjustments. 

The key audit issues were 

NSW Health identified errors regarding the recognition and calculation of long service leave entitlements for employees with ten or more years of service that had periods of part time service in the first ten years, resulting in prior period restatements. 

Comprehensive revaluation of buildings at the Graythwaite Charitable Trust found errors in the previous year's valuation, resulting in prior period restatements. 

New parental leave legislation increased employee liabilities for portfolio agencies. The Ministry of Health corrected the consolidated financial statements to record parental leave liabilities for all agencies within the Health portfolio.   

A repeat high-risk issue relates to processing time records by administrators that have not been reviewed prior to running the pay cycle.   

Thirty per cent of reported issues were repeat issues. 

The audit recommended 

Portfolio agencies should ensure any changes to employee entitlements are assessed for their potential financial statements impact under the relevant Australian Accounting Standards. 

Portfolio agencies should address deficiencies that resulted in qualified reports on:   

• the design and operation of shared service controls
• prudential non-compliance at residential aged care facilities.

This report provides Parliament and other users of the Health 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 Health 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 observations and insights from our financial statement audits of agencies in the Health 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.