Reports
Planning, Industry and Environment 2020
This report analyses the results of our audits of financial statements of the Planning, Industry and Environment cluster agencies for the year ended 30 June 2020. The table below summarises our key observations.
1. Financial reporting
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Audit opinions |
There are 45 separate entities in the cluster. Unqualified audit opinions were issued for 38 cluster agencies' 30 June 2020 financial statements audits. Four financial statements audits are still ongoing, and three agencies were not subject to audit due to NSW Treasury reporting exemptions. |
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Timeliness of financial reporting |
The majority of cluster agencies subject to statutory reporting deadlines met the revised timeline for submitting financial statements. Twenty‑four of the 26 cluster agencies required to submit early close financial statements met the revised timeframe. Due to issues identified during the audit, 13 financial statements audits were not completed and audit opinions not issued by the statutory deadline. |
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Implementation of AASB 16 'Leases' |
Significant deficiencies were identified in Property NSW's lease data maintenance and lease calculations. Recommendation (partially repeat): Property NSW should:
Our audits of the cluster agencies identified there was a lack of thorough quality assurance over the accuracy of lease information provided by Property NSW. Recommendation: The Department and cluster agencies should:
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Unprocessed Aboriginal land claims continued to increase |
In 2019–20, the Department resolved an additional 468 Aboriginal land claims compared to the prior year. However, the total number of unprocessed Aboriginal land claims increased by 914 to 36,769 at 30 June 2020. The number of claims remaining unprocessed for more than ten years after lodgement increased by 10.9 per cent from last year. Until claims are resolved, there is an uncertainty over who is entitled to the land and the uses and activities that can be carried out on the land. Auditor-General's Reports to Parliament since 2007 have recommended action to address the increasing number of unprocessed claims. To date, the Department has not been able to resolve this issue. During 2020–21, a performance audit will assess the effectiveness and efficiency of the administration of Aboriginal land claims. |
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Financial reporting of Crown land managers |
The Department will need to provide additional support and guidance to help Crown land managers (CLMs) meet their financial reporting obligations. Recommendation: The Department should:
During 2019–20, NSW Treasury established the reporting exemption criteria for the CLMs. Based on available information, the Department determined 31 CLMs would not meet the exemption criteria and therefore are required to prepare annual financial statements. |
2. Audit observations
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Internal controls |
Six high‑risk issues were identified across the cluster in 2019–20:
One in three internal control issues identified and reported to management in 2019–20 were repeat issues. Recommendation: Management letter recommendations to address internal control weaknesses should be actioned promptly, with a focus on addressing high‑risk and repeat issues. |
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Agencies response to recent emergencies |
The unprecedented bushfires and COVID‑19 pandemic presented challenges for the cluster. Agencies established taskforces or response teams to respond to these emergencies. With more staff working from home, agencies implemented protocols and procedures to manage risks associated with the remote working arrangements, and also needed to address certain technology issues. The Department is responsible for the new Planning System Acceleration Program, which aims to fast‑track planning assessments, boost the State's economy and keep people in jobs during COVID‑19 pandemic. Between April and October 2020, the Department announced and determined 101 major projects and planning proposals. |
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Recognition of Crown land |
Crown land is an important asset of the State. Management and recognition of Crown land assets is weakened when there is confusion over who is responsible for a particular Crown land parcel. Auditor-General's Reports to Parliament since 2017 have recommended that the Department should ensure the database of Crown land is complete and accurate. Whilst the Department has commenced actions to improve the database, this remained an issue in 2019–20. Recommendation (repeat issue): The Department should prioritise action to ensure the Crown land database is complete and accurate. This allows state agencies and local councils to be better informed about the Crown land they control. |
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Implementation of Machinery of Government (MoG) changes |
Since its creation on 1 July 2019, the Department has largely established its governance arrangements, including setting up the Audit and Risk Committee and internal audit function for the Department and relevant cluster agencies. The Department still operated three main financial reporting systems in 2019–20, and has commenced the process to consolidate some of the systems. The recent Regional NSW MoG change led to the transfer of $446 million net assets and $284 million 2019–20 budget from the Department to the newly created Department of Regional NSW on 2 April 2020. |
This report provides parliament and other users of the Planning, Industry and Environment cluster agencies’ financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:
- financial reporting
- audit observations
- the impact of emergencies and the pandemic.
Financial reporting is an important element of good governance. Confidence and transparency in public sector decision making are enhanced when financial reporting is accurate and timely.
The COVID‑19 Legislation Amendment (Emergency Measures–Treasurer) Act 2020 amended legislation administered by the Treasurer to implement further emergency measures as a result of the COVID‑19 pandemic. These amendments:
- allowed the Treasurer to authorise payments from the Consolidated fund until the enactment of the 2020–21 budget – impacting the going concern assessments of cluster agencies
- revised budgetary, financial and annual reporting time frames – impacting the timeliness of financial reporting
- exempted certain statutory bodies and departments from preparing financial statements.
This chapter outlines our audit observations related to the financial reporting of agencies in the Planning, Industry and Environment cluster for 2020, including any financial implications from the recent emergency events.
Section highlights
The Department has not yet developed a statutory reporting framework for Crown land managers and will need to provide additional resources to help Crown land managers meet their financial reporting obligations. |
Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies. They are essential for quality and timely decision making.
This chapter outlines our:
- observations and insights from our financial statements audits of agencies in the Planning, Industry and Environment cluster
- assessment of how well cluster agencies adapted their systems, policies and procedures, and governance arrangements in response to recent emergencies
- review of how the cluster agencies managed the increased risks associated with new programs aimed at stemming the spread of COVID-19 and stimulating the economy.
Cluster agencies experienced a range of control and governance related issues in recent years. An increased number of high risk issues and greater proportion of repeat issues were identified as part of our audits. It is important for cluster agencies to promptly address these issues.
Section highlights
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Support for regional town water infrastructure
The Auditor-General for New South Wales, Margaret Crawford, released a report today examining whether the Department of Planning, Industry and Environment has effectively supported the planning for, and funding of, town water infrastructure in regional NSW.
The audit found that the department has not effectively supported or overseen town water infrastructure planning since at least 2014. It does not have a clear regulatory approach and lacks internal procedures and data to guide its support for local water utilities that service around 1.85 million people in regional NSW.
The audit also found that the department has not had a strategy in place to target investments in town water infrastructure to the areas of greatest priority. A state-wide plan is now in development.
The Auditor-General made seven recommendations to the department, aimed at improving the administration and transparency of its oversight, support and funding for town water infrastructure, and at strengthening its sector engagement and interagency coordination on town water planning issues and investments.
According to the Auditor-General, ‘A continued focus on coordinating town water planning, investments and sector engagement is needed for the department to more effectively support, plan for and fund town water infrastructure, and to work with local water utilities to help avoid future shortages of safe water in regional towns and cities.’
This report is part of a multi-volume series on the theme of water. Refer to ‘Water conservation in Greater Sydney’ and ‘Water management and regulation – undertaking in 2020-21’.
Safe and reliable water and sewer services are essential for community health and wellbeing, environmental protection, and economic productivity. In 2019, during intense drought, around ten regional New South Wales (NSW) cities or towns were close to ‘zero’ water and others had six to 12 months of supply. In some towns, water quality was declared unsafe.
Ensuring the right water and sewer infrastructure in regional NSW to deliver these services (known as 'town water infrastructure') involves a strategic, integrated approach to water management. The NSW Government committed to ‘secure long-term potable water supplies for towns and cities’ in 2011. In 2019, it reiterated a commitment to invest in water security by funding town water infrastructure projects.
The New South Wales’ Water Management Act 2000 (WM Act) aims to promote the sustainable, integrated and best practice management of the State’s water resources, and establishes the priority of town water for meeting critical human needs.
The Department of Planning, Industry and Environment (the department) is the lead agency for water resource policy, regulation and planning in NSW. It is also responsible for ensuring water management is consistent with the shared commitments of the Australian, State and Territory Governments under the National Water Initiative. This includes the provision of healthy, safe and reliable water supplies, and reporting on the performance of water utilities.
Ninety-two Local Water Utilities (LWUs) plan for, price and deliver town water services in regional NSW. Eighty-nine are operated by local councils under the New South Wales’ Local Government Act 1993, and other LWUs exercise their functions under the WM Act. The Minister for Water, Property and Housing is the responsible minister for water supply functions under both acts.
The department is the primary regulator of LWUs. NSW Health, the NSW Environment Protection Authority (EPA) and the Natural Access Resource Regulator (NRAR) also regulate aspects of LWUs' operations. The department’s legislative powers with respect to LWUs cover approving infrastructure developments and intervening where there are town water risks, or in emergencies. In this context, the department administers the Best Practice Management of Water Supply and Sewerage Guidelines (BPM Guidelines) to support its regulation and to assist LWUs to strategically plan and price their services, including their planning for town water infrastructure.
Under the BPM Guidelines, the department supports LWU’s town water infrastructure planning with the Integrated Water Cycle Management (IWCM) Checklist. The Checklist outlines steps for LWUs to prepare an IWCM strategy: a long-term planning document that sets out town water priorities, including infrastructure and non-infrastructure investments, water conservation and drought measures. The department's objective is to review and approve (i.e. give ‘concurrence to’) an IWCM strategy before the LWU implements it. In turn, these documents should provide the department with evidence of town water risks, issues and infrastructure priorities.
The department also assesses and co-funds LWU's town water infrastructure projects. In 2017, the department launched the $1 billion Safe and Secure Water Program to ensure town water infrastructure in regional NSW is secure and meets current health and environmental standards. The program was initially established under the Restart NSW Fund.
This audit examined whether the department has effectively supported the planning for and funding of town water infrastructure in regional NSW. It focused on the department’s activities since 2014. This audit follows a previous Audit Office of NSW report which found that the department had helped to promote better management practices in the LWU sector, up to 2012–13.
ConclusionThe Department of Planning, Industry and Environment has not effectively supported or overseen town water infrastructure planning in regional NSW since at least 2014. It has also lacked a strategic, evidence-based approach to target investments in town water infrastructure. A continued focus on coordinating town water planning, investments and sector engagement is needed for the department to more effectively support, plan for and fund town water infrastructure, and work with Local Water Utilities to help avoid future shortages of safe water in regional towns and cities. The department has had limited impact on facilitating Local Water Utilities’ (LWU) strategic town water planning. Its lack of internal procedures, records and data mean that the department cannot demonstrate it has effectively engaged, guided or supported the LWU sector in Integrated Water Cycle Management (IWCM) planning over the past six years. Today, less than ten per cent of the 92 LWUs have an IWCM strategy approved by the department. The department did not design or implement a strategic approach for targeting town water infrastructure investment through its $1 billion Safe and Secure Water Program (SSWP). Most projects in the program were reviewed by a technical panel but there was limited evidence available about regional and local priorities to inform strategic project assessments. About a third of funded SSWP projects were recommended via various alternative processes that were not transparent. The department also lacks systems for integrated project monitoring and program evaluation to determine the contribution of its investments to improved town water outcomes for communities. The department has recently developed a risk-based framework to inform future town water infrastructure funding priorities. The department does not have strategic water plans in place at state and regional levels: a key objective of these is to improve town water for regional communities. The department started a program of regional water planning in 2018, following the NSW Government’s commitment to this in 2014. It also started developing a state water strategy in 2020, as part of an integrated water planning framework to align local, regional and state priorities. One of 12 regional water strategies has been completed and the remaining strategies are being developed to an accelerated timeframe: this has limited the department’s engagement with some LWUs on town water risks and priorities. |
Regional New South Wales (NSW) is home to about a third of the state's population. Infrastructure that provides safe and reliable water and sewer services (also known simply as 'town water infrastructure') is essential for community health and wellbeing, environmental protection, and economic productivity. Planning for and meeting these infrastructure needs, as well as identifying when non-infrastructure options may be a better solution, involves a strategic and integrated approach to water resource management in regional NSW.
We examined whether the department has effectively supported planning for town water infrastructure since 2014. This assessment was made in the context of its current approach to LWU sector regulation. The findings below focus on whether the department has an effective framework including governance arrangements for town water issues to inform state-wide strategic water planning, and whether (at the local level) the department has effectively overseen and facilitated town water infrastructure planning through its Integrated Water Cycle Management (IWCM) planning guidance to LWUs.
We examined whether the department has effectively targeted town water infrastructure funding to policy objectives, with a focus on the design and implementation of the Safe and Secure Water Program (SSWP) since its commencement in 2017. The program’s aim was to fund town water infrastructure projects that would deliver health, social and environmental benefits, and support economic growth and productivity. We also assessed the department’s capacity to demonstrate the outcomes of the SSWP funding and the contributions of its town water infrastructure investments more broadly. Finally, we identified risks to the effectiveness of the department’s work underway since 2018–19, which is intended to enhance its strategic water planning and approach to prioritising investments in reducing town water risks.
Appendix one – Response from agency
Appendix three – About the audit
Appendix four – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #341 - released 24 September 2020
Governance and internal controls over local infrastructure contributions
The Auditor-General for New South Wales, Margaret Crawford, released a report today on how well four councils managed their local infrastructure contributions during the 2017-18 and 2018-19 financial years.
Local infrastructure contributions, also known as developer contributions, are collected from developers to pay for local infrastructure such as drainage, local roads, open space and community facilities. Controls over local infrastructure contributions help to ensure that all contributions owed are collected, funds are spent as intended, and any contributions paid in the form of works-in-kind or dedicated land are correctly valued.
The audit found that Blacktown City Council and City of Sydney Council provided effective governance over their local infrastructure contributions whereas Central Coast and Liverpool City Councils’ governance arrangements require improvement.
The audit found that three councils had spent local infrastructure contributions in accordance with approved contributions plans. Central Coast Council and the former Gosford City Council had spent $13.2 million on administration costs in breach of the Environmental Planning and Assessment Act 1979. These funds were repaid into the council’s local infrastructure fund during the course of the audit.
The Auditor-General made a number of recommendations for each council relating to improving controls over contributions and increasing transparency.
This audit examined the effectiveness of governance and internal controls over local infrastructure contributions, also known as developer contributions, held by four councils during the 2017–18 and 2018–19 financial years.
This performance audit was conducted with reference to the legislative and regulatory planning framework that was in place during that period.
Our work for this performance audit was completed at the end of March 2020 when we issued the final report to the four audited councils and the Department of Planning, Industry and Environment. We received their respective formal responses to the report’s recommendations during April and May 2020.
Concurrently to this audit, we sought Crown Solicitor’s advice (the ‘Advice’) regarding the use of local infrastructure contributions collected by local councils under the Environmental Planning and Assessment Act 1979 (‘the EPA Act’) for our financial audit work. The Advice clarified the applicable legislative requirements with reference to the application, investment and pooling of local infrastructure contributions. The Advice is included in Appendix 2 of this report. The Advice has not impacted on the findings and recommendations of this report.
Councils collect Local Infrastructure Contributions (LICs) from developers under the Environmental Planning and Assessment Act (1979), the Local Government Act (1993) and the City of Sydney Act (2000) (EP&A Act, LG Act and City of Sydney Act) to fund infrastructure required to service and support new development. At 30 June 2018, councils across NSW collectively held more than $3.0 billion in LICs collected from developers. Just over $1.37 billion in total was held by ten councils. Councils collecting LICs must prepare a contributions plan, which outlines how LICs will be calculated and apportioned across different types of infrastructure. Councils that deliver water and sewer services prepare a development servicing plan (DSP) which allows them to collect contributions for water and sewer infrastructure.
Development timeframes are such that there is often several years between when LICs are collected and the infrastructure is required. Good governance and internal controls are needed over these funds to ensure they are available when needed and spent appropriately.
This audit assessed the effectiveness of governance and internal controls over LICs collected by four councils during the 2017–18 and 2018–19 financial years: Blacktown City Council, Central Coast Council, City of Sydney Council and Liverpool City Council. As at June 2018 these councils held the four highest LIC balances, each in excess of $140 million.
Audit Conclusion
Three of the four councils audited were currently compliant with legislation, regulations and Ministerial Directions regarding LICs. All had gaps in governance and controls over LICs which limited effective oversight.
Three of the councils included in the audit complied with legislation, regulations and Ministerial Directions relating to LICs. Central Coast Council breached the EP&A Act between 2001 and 2019 when it used LICs for administration costs. These funds were repaid in late 2019.
While controls over the receipt and expenditure of contributions funds were largely in place at all councils, there were some exceptions relating to valuing work and land delivered in lieu of cash. Three councils do not provide probity guidance in policies relating to LICs delivered through works-in-kind. Three of the councils had contributions plans that were more than five years old.
Staff at all four councils are knowledgeable about LICs but not all councils keep procedures up to date. Three councils' governance frameworks operate effectively with senior officers from across the council involved in decisions about spending LICs, entering into voluntary planning agreements (VPAs) and reviewing contributions plans.
Transparency over key information relating to LICs is important for senior management so they can make informed decisions, and for the community who pay LICs and expect infrastructure to be provided. During the period of the audit, none of the councils included in the audit provided sufficient information to senior management or their councillors about the projected financial status of contributions plans. This information would be valuable when making broader strategic and financial decisions. Information about LIC levies and intended infrastructure is available to the community but not always easy to find.
A strong governance framework is important at each council to ensure that the funds are managed well, available when needed and spent as intended. The audit examined the following features of each council's governance framework as they apply to LICs:
- decision-making by councillors and council officers relating to LICs
- monitoring delivery of contributions plans and DSPs including:
- reviewing assumptions underlying the plans
- monitoring projected status of plans.
Internal controls over LICs are important to promote accountability, prevent fraud and deliver infrastructure to the required standard at the best possible price. If financial controls are weak or are not implemented well, there is a risk that LICs are misspent or that councils pay too much for infrastructure.
Not all councils' internal controls adequately addressed risks associated with the administration of LICs
The audit examined a number of internal controls that manage risks related to LICs. These included:
- financial controls over receipt and expenditure of LIC funds
- management of conflicts-of-interest when dealing with developers
- independent valuations of works-in-kind and dedicated land
- ensuring delivery and quality of works-in-kind, and obtaining security from developers in the event of non-delivery or poor quality work
- management of variations to VPAs and works-in-kind agreements.
We reviewed controls included in policies and procedures and then checked samples of work to ensure that controls were implemented. We found variation in the controls that councils implemented, and some weaknesses in controls. It is a matter for each council to assess their financial risk and develop internal controls that support the collection, management, and expenditure of LICs. However, councils must be able to assure their communities and developers that they are doing everything possible to collect all LICs owing and that work conducted by developers in lieu of cash payments is properly valued and carried out to the required standard.
Further information about audit findings in relation to internal controls for each council are included in chapters five to eight. The exhibit below demonstrates variation in several controls implemented in the audited councils.
In a 2018 report, the Independent Commission Against Corruption noted that 'the appetite for transparency is expanding in both the public and private sectors'.
The Practice Note and S64 Guidance refer to transparency, including the importance of transparency over:
- calculation and apportionment of LICs
- funding of infrastructure, including where and when infrastructure is delivered
- arrangements made with developers through VPAs.
The LIC system is largely transparent for community members who know where to look
Contributions plans and DSPs are public documents, exhibited to the public before being adopted by council. Councils included in the audit publish their contributions plans and DSPs on their websites and meet statutory requirements with regard to reporting and accessibility of information.
However, other public information relating to the LIC system is fragmented across different websites and reports and varies in detail across councils.
| Blacktown City Council | Central Coast Council | City of Sydney Council | Liverpool City Council | |
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| Financial details about contributions collected and spent | Financial statements | Financial statements | Financial statements | Financial statements |
| Implementation plans for spending LICs | Contribution plans | S64 implementation plans in DSPs. S7.11 & S7.12 implementation plans developed annually within capital works plan | Contribution plans | Developed annually within capital works plan |
| Capital works underway or completed, funded by LICs | Capital works plan and annual report | Not published | Not published | Capital works plan |
The Practice Note states that councils are accountable for providing the infrastructure for which contributions are collected. Demonstrating that infrastructure has been provided is difficult with fragmented information. As an example of transparent reporting, Blacktown City Council's 2018–19 annual report includes information about infrastructure that has been delivered for every contributions plan, providing transparency over how LICs have been spent.
Use of LICs collected under VPAs is not always transparent
Contributions collected under VPAs are not required to demonstrate the same relationship to a development as LICs collected under section 7.11 of the EP&A Act. VPAs are often negotiated because a developer requests a change to a planning instrument, and it is important that these arrangements, and their outcomes, are transparent to the community.
The EP&A Regulation includes mechanisms to ensure that VPAs are partially transparent. VPAs are exhibited to the public and approved by the elected council. Councils must maintain a VPA Register and make the VPA Deeds of Agreement available on request. However, there is no obligation on council to report on the outcomes or delivery of developers' obligations under VPAs. The four audited councils vary in transparency and accessibility of information available about VPAs.
| Blacktown City Council | Central Coast Council | City of Sydney Council | Liverpool City Council | |
|---|---|---|---|---|
| VPA Register | Council website and annual report | Annual report | Annual report | Council website and annual report |
| VPA Deeds of Agreement | Council website | Available on request | Available on request | Council website |
| Intended use of LICs collected under VPAs | In Deeds of Agreement | In Deeds of Agreement | In VPA Register and most Deeds of Agreement | In VPA Register and most Deeds of Agreement |
| Completion of work funded by cash collected under VPAs | Not published | Not published | Not published | Not published |
| Delivery of works-in-kind or land negotiated under VPAs | Not published | Not published | In VPA Register | Not published |
The Practice Note suggests that councils incorporate the intended use of LICs collected under VPAs in the Deed of Agreement, but there is no guidance relating to transparency over where and when funds have actually been spent. There is merit in councils providing greater transparency over public benefits delivered through VPAs to give communities confidence in VPAs as a planning tool.
Credit arrangements with developers are not always well documented or monitored
When levying LICs, section 7.11(6) of the EP&A Act requires councils to take into account land, money, or works-in-kind that the developer has contributed on other development sites over and above their LIC obligations. This section of the EP&A Act allows a developer to offset a LIC owed on one site against land or works contributed on another. This leads to some developers carrying 'credits' for work delivered to councils, to be paid back by reduced LICs on a future development. Blacktown City Council and Central Coast Council allow developers to carry credits. Liverpool City Council and City of Sydney Council do not permit credits and instead pay the developers for any additional work undertaken.
Councils should formally document credit arrangements and have a robust process to validate and keep track of credit balances and report on them. Central Coast Council does not keep good track of credit arrangements and neither Blacktown City Council or Central Coast Council aggregate or report on outstanding credit balances.
Blacktown City Council manages the largest LIC fund in NSW and negotiates more VPAs than any other council. Overall, Blacktown City Council demonstrates effective governance over the LIC funds but there is scope for improved oversight of the projected financial status of contributions plans and credit arrangements with developers. Blacktown City Council also needs to update its operating procedures relating to LICs and improve security over key information.
Blacktown City Council is managing areas with high growth. There is a risk that Blacktown City Council will be unable to collect sufficient LICs to fund the infrastructure required to support that growth. However, Blacktown City Council does not assess and report to senior management or its Audit, Risk and Improvement Committee about the projected financial status of contributions plans.
Blacktown City Council has policies in place to guide the management of LICs although management of credit arrangements with developers requires greater oversight. Policies relating to works-in-kind agreements provide no guidance about probity in negotiations with developers and valuations of works-in-kind are not independent as they are paid for by the developer. Blacktown City Council's S7.11 committee structure could act as a model for other councils. Blacktown City Council is spending LICs according to its contributions plans. Staff managing LICs demonstrate good knowledge of the regulatory environment. However, a number of administrative processes need attention such as outdated procedures, lack of security over key spreadsheets, and inappropriate retention of sensitive personal data.
Recommendations
By December 2020, Blacktown City Council should:
- regularly report to senior management on the projected financial status of contributions plans
- update council's works-in-kind policy to address probity risks during negotiations with developers
- mitigate risks associated with lack of independence in valuations of works-in-kind
- improve public reporting about expenditure of cash collected under VPAs
- improve management oversight of credit arrangements with developers
- update procedures for managing LICs
- implement security measures over critical or personal information and spreadsheets.
Central Coast Council's governance and internal controls over LICs were not fully effective. Between 2001 and 2019, more than $13.0 million in LICs was misspent on administration costs in breach of the EP&A Act. There is scope for improved oversight of the projected financial status of contributions plans and credit arrangements with developers. Policies and procedures from the two former councils are not aligned.
In May 2016, the newly amalgamated Central Coast Council inherited 53 contributions plans from the former Gosford City and Wyong Shire Councils. Managing this number of contributions plans fragments the available funds and increases complexity. Central Coast Council is currently working on consolidating these plans. Between June 2016 and June 2019, its LIC balance doubled from $90.0 million to $196 million. Central Coast Council does not assess and report to senior management or its Audit, Risk and Improvement Committee about the projected financial status of contributions plans. Central Coast Council has a LIC committee but it has no formal charter and senior officers do not regularly attend meetings. This limits the committee's effectiveness as a decision-making body. A draft policy relating to works-in-kind agreements provide no guidance about probity in negotiations with developers. Valuations of works-in-kind and land dedications are not independent as they are paid for by the developer.
Central Coast Council has adjusted its accounts in 2018–19 by $13.2 million to repay the LIC fund for administration expenses that were not provided for in 40 contributions plans.
Recommendations
By June 2020, Central Coast Council should:
1. obtain independent validation of the adjustment made to the restricted asset accounts and general fund to repay LICs spent on administration, and adjustments made to each infrastructure category within the contributions plans
2. publish current contributions plans from the former Gosford City Council on the Central Coast Council website.
By December 2020, Central Coast Council should:
3. regularly report to senior management on the projected financial status of contributions plans
4. increase transparency of information available to the public about LIC works planned and underway, including intended use of contributions collected under VPAs
5. consolidate existing plans, ensuring the new contributions plans includes a regular review cycle
6. develop a formal charter for the developer contributions committee and increase the seniority of membership
7. complete and adopt council's works-in-kind policy currently under development, ensuring it addresses probity risks during negotiations with developers
8. mitigate risks associated with lack of independence in valuations of works-in-kind and dedicated land
9. improve public reporting about expenditure of cash collected under VPAs
10. improve management oversight of credit arrangements with developers
11. implement security measures to ensure the integrity of key spreadsheets used to manage LICs
12. align policies and procedures relating to LICs across the amalgamated council including developing policies and procedures for the management of S64 LICs
13. update council's VPA policy to address increased or indexed bank guarantees to accommodate cost increases.
City of Sydney Council manages a complex development environment across the Sydney CBD and inner suburbs. Overall, governance and internal controls over LICs are effective although there is scope for improved oversight of the projected financial status of contributions plans.
City of Sydney Council maintains a large balance of LICs, although not excessive relative to the annual level of LIC expenditure. Unspent contributions are largely associated with open space infrastructure that cannot be delivered until suitable land is available. Thirty per cent of cash contributions are collected under VPAs and there is limited transparency over how these funds are spent. City of Sydney Council does not assess and report to management or its Audit, Risk and Compliance Committee about the projected financial status of contributions plans.
In 2017–18 and 2018–19, LICs were spent in accordance with the corresponding contributions plans. City of Sydney Council staff are knowledgeable about the regulatory environment and are supported by up-to-date policies and procedures.
Recommendations
By December 2020, City of Sydney Council should:
- regularly report to senior management on the projected financial status of contributions plans
- improve public reporting about expenditure of cash collected under VPAs
- periodically review the risk of unpaid LICs associated with complying development certificates and assess whether additional controls are required
- implement security measures to ensure the integrity of key spreadsheets used to manage LICs.
During the audit period 2017–18 and 2018–19, Liverpool City Council did not have effective governance and internal controls over LICs. Liverpool City Council is addressing deficiencies and risks identified through an internal audit published in December 2018 although further work is required. There is scope for improved oversight of the projected financial status of contributions plans.
In the two years to 30 June 2019, the balance of unspent LICs increased by more than 60 per cent against a relatively low pattern of expenditure. Prior to an internal audit completed in late 2018, there was no regular reporting on the status of LICs and a lack of transparency when prioritising the expenditure of LIC funds. During 2019, and following the internal audit, Liverpool City Council engaged additional skilled resources to improve focus and accountability for LICs. A LIC committee has been established to manage contributions plans and support business units to initiate relevant infrastructure projects, although it is too early to assess whether this committee is operating effectively. From February 2019, Liverpool City Council commenced monthly reporting to its Chief Executive Officer (CEO) about the point-in-time status of LIC funds, and to its Audit, Risk and Improvement Committee about risks associated with LICs and the implementation of internal audit recommendations. There is limited reporting to senior management about the projected financial status of some contributions plans. Our audit found no evidence of misuse of funds during the audited period. Methods for valuing work and land are not aligned with policies and procedures and are implemented inconsistently. In addition, valuations of works-in-kind and land dedications are not independent as they are paid for by the developer. The policy relating to works-in-kind provides no guidance about managing probity risks when negotiating with developers.
Recommendations
By December 2020, Liverpool City Council should:
- regularly report to senior management on the projected financial status of contributions plans
- update council's policies and procedures to provide consistent guidance about how works and land offered by developers should be valued
- update council's Works-in-Kind and Land Acquisition Policy to address probity risks during negotiations with developers
- improve public reporting about expenditure of cash collected under VPAs
- mitigate risks associated with lack of independence in valuations of works-in-kind and dedicated land
- implement security measures over critical or private information.
Appendix one – Responses from councils and the Department of Planning, Industry and Environment
Appendix two – Advice from the Crown Solicitor
Appendix three – About the audit
Appendix four – Performance auditing
Copyright notice
© Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material.
Parliamentary reference - Report number #339 - released 17 August 2020
Water conservation in Greater Sydney
This report examines whether the Department of Planning, Industry and Environment, and Sydney Water have effectively progressed water conservation initiatives in Greater Sydney.
The report found that the department and Sydney Water have not effectively investigated, implemented or supported water conservation initiatives in Greater Sydney. The agencies have not met key requirements of the current Metropolitan Water Plan and Sydney Water has not met all its operating licence requirements for water conservation. There has been little policy or regulatory reform, little focus on identifying new options and investments, and limited planning and implementation of water conservation initiatives.
As a result, Greater Sydney's water supply may be less resilient to population growth and climate variability, including drought.
The Metropolitan Water Plan states that water conservation, including recycling water, makes the drinking water supply go further. The plan also states that increasing water conservation efforts may be cheaper than building new large-scale supply options and can delay the timing of investment in new supply infrastructure.
The Auditor-General recommends the department develop a clear policy and regulatory position on water conservation options, improve governance and funding for water conservation, and work with Sydney Water to assess the viability of water conservation initiatives. The report also recommends improvements to Sydney Water’s planning for and reporting on water conservation, including the transparency of this information.
This report is part of a multi-volume series on the theme of water. Refer to ‘Support for regional town water infrastructure’ and ‘Water management and regulation – undertaking in 2020-21’.
The current, 2017 Metropolitan Water Plan states that water conservation, including recycling water, makes the drinking water supply go further. The plan also states that increasing water conservation efforts may be cheaper than building new large-scale supply options and can delay the timing of investment in new supply infrastructure.
Water conservation refers to water recycling, leakage management and programs to enhance water efficiency. Water recycling refers to both harvesting stormwater for beneficial use and reusing wastewater.
This audit examined whether water conservation initiatives for the Greater Sydney Metropolitan area are effectively investigated, implemented and supported. We audited the Department of Planning, Industry and Environment (the Department) and the Sydney Water Corporation (Sydney Water), with a focus on activities since 2016.
The Department is responsible for the integrated and sustainable management of the state’s water resources under the Water Management Act 2000, which includes encouraging ‘best practice in the management and use of water’ as an objective. The Department is also responsible for strategic water policy and planning for Greater Sydney, including implementing the Metropolitan Water Plan.
Sydney Water is a state-owned corporation and the supplier of water, wastewater, recycled water and some stormwater services to more than five million people in Greater Sydney. It is regulated by an operating licence that is issued by the Governor on the recommendation of the Independent Pricing and Regulatory Tribunal (IPART). The Tribunal determines Sydney Water’s maximum prices, reviews its operating licence and monitors compliance. Sydney Water's operating licence and reporting manual set out requirements for its planning, implementing and reporting of water conservation.
From 2007 to 2012, the Climate Change Fund was a source of funds for water conservation activities to be undertaken by the Department and Sydney Water. The Climate Change Fund was established under the Energy and Utilities Administration Act 1987. Four of its six objectives relate to water savings. Water distributors such as Sydney Water can be issued with orders to contribute funds for water-related programs. The Fund is administered by the Department.
In 2016, Sydney Water developed a method for determining whether and how much to invest in water conservation. Known as the ‘Economic Level of Water Conservation’ (ELWC), the method identifies whether it costs less to implement a water conservation initiative than the value of the water saved, in which case the initiative should be implemented.
Conclusion
The Department and Sydney Water have not effectively investigated, implemented or supported water conservation initiatives in Greater Sydney.
The agencies have not met key requirements of the Metropolitan Water Plan and Sydney Water has not met all its operating licence requirements for water conservation. There has been little policy or regulatory reform, little focus on identifying new options and investments, and limited planning and implementation of water conservation initiatives.
As a result, Greater Sydney's water supply may be less resilient to population growth and climate variability, including drought.
The Department has not undertaken an annual assessment of Sydney Water’s level of investment in water conservation against water security risks and the capacity to respond when drought conditions return, as required by the Metropolitan Water Plan. It did not complete identified research and planning activities to support the plan, such as developing and using a framework for assessing the potential for water conservation initiatives for Greater Sydney, and developing a long-term strategy for water conservation and water recycling. It also did not finalise a monitoring, evaluation, reporting and improvement strategy to support the plan.
Sydney Water has been ineffective in driving water conservation initiatives, delivering detailed planning and resourcing for ongoing initiatives, and in increasing its investment in water conservation during drought. These were requirements of the Metropolitan Water Plan. Sydney Water's reporting on water conservation has not met all its operating licence requirements and lacked transparency with limited information on key aspects such as planning for leakage management, how the viability of potential initiatives were assessed, and how adopted initiatives are tracking.
The Department and Sydney Water did not put in place sufficient governance arrangements, including clarifying and agreeing responsibilities for key water conservation planning, delivery and reporting activities. There has also been limited collaboration, capacity building and community engagement to support water conservation, particularly outside times of drought.
Appendix one – Responses from agencies
Appendix two – About the audit
Appendix four – Performance auditing
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Parliamentary reference - Report number #336 - released 23 June 2020
Implementing Asset Management Reforms
Hospitals, schools, public housing, roads, bridges, buses and trains are just some of the assets used by government in providing services to citizens.
The NSW Government’s asset base is impressive in size - with a value of around $167 billion and with government plans to spend around $8 billion acquiring or replacing assets in the current year. Another $2 billion is spent each year on maintenance.
Good asset management is very important to government; even a small efficiency gain in this area can provide significant returns. Good practice by those responsible for managing assets can improve reliability, extend asset life, save on maintenance costs and aid in identifying and disposing of unnecessary or non-performing assets.
Improving the NSW public sector’s approach to asset management has been on the reform agenda for at least a decade. Changes in practice have been accelerated more recently by integrating asset management policy with the budget process.
In this audit we examined NSW Treasury’s efforts to improve asset management practices in the public sector and the progress made by 3 agencies - the Department of Corrective Services, NSW Fire Brigades and the Powerhouse Museum - towards better managing their asset portfolios.
This report informs Parliament and the community on progress to date and what more needs to be done to ensure that agencies manage assets effectively and achieve best value.
Parliamentary reference - Report number #143 - released 12 October 2005
Planning for Sydney's Water Needs
Reliably supplying water to our State’s principal city, Sydney, is a major responsibility for the Government.
The community has been made keenly aware in recent years that inflows have been decreasing, and that Sydney has been using more water than is available. In April 2005 the water in Sydney’s storages dropped to 41.5 per cent of their capacity – the lowest level since the construction of Warragamba dam in 1960.
As Sydney continues to develop, it is expected that the demand for water will increase. The way that we use it will need to be sustainable, as it has a direct impact on our economy, our lifestyle and our environment.
In planning for the future the State’s water agencies face a range of uncertainties. But the task is vital.
This report informs Parliament and the community on the progress made - and what remains to be done - to ensure a reliable water supply for Sydney.
Parliamentary reference - Report number #135 - released 4 May 2005
