The NSW Government announced its intention to integrate Roads and Maritime Services (RMS) into Transport for NSW (TfNSW) as part of the Machinery of Government changes.

This change was not included in the Administrative Orders as the Transport Administration Act 1988 No. 109 governs the composition of the Transport cluster. The Transport Administration Amendment (RMS Dissolution) Act 2019 (the Act) received assent on 22 November 2019. The Act dissolves RMS and transfers the assets, rights and liabilities of RMS to TfNSW. As at the date of this Report, the Act is not yet in force.

Transport is considering the impact of the changes on its operating model and financial reporting.

Unqualified audit opinions were issued on the 2018–19 financial statements of all agencies in the Transport cluster.

TfNSW and Sydney Metro obtained a three-week extension from NSW Treasury to submit their financial statements for audit to resolve accounting issues surrounding the valuation of property, plant and equipment.

The Department of Transport reported total consolidated property, plant and equipment of $158 billion at 30 June 2019. In 2018–19, there were issues with asset valuations at TfNSW, RMS, Sydney Metro and Rail Corporation New South Wales (RailCorp), resulting in adjustments after the submission of financial statements for audit and the correction of a prior period error.

There was also a prior period error resulting from an agreement between TfNSW and the former UrbanGrowth Development Corporation due to a lack of assessment of the financial reporting implications at the time of signing the agreement.

Recommendation: Agency finance teams need to be consulted on major business decisions and commercial transactions to assess their accounting impacts at the time of their execution, rather than at the end of a financial year. Agencies also need to resolve all key accounting issues such as valuations as part of the early close procedures.

This would improve the quality of financial reporting and avoid the need for extensions for agencies to submit their financial statements for audit.

Whilst agencies complied with the requirements of the accounting standards and NSW Treasury policies on valuations, the Audit Office identified some deficiencies in relation to asset valuations across the cluster.

TfNSW reported a retrospective correction of a prior period error at 1 July 2017 which resulted in a reduction in the valuation of its Country Rail Network earthworks by $2.1 billion. This was due to survey results which identified the earthworks were flatter and lower than estimated in the valuation at 30 June 2017.

RMS made several adjustments during the year to correct asset values due to changes to valuation assumptions or data improvements. This included:

• reduction of $318 million in the value of land under roads
• decrease of $84.9 million to the value of land and buildings
• changes to the value of traffic control and traffic signal network assets, due to data improvements.

Sydney Metro North West officially opened in May 2019 and reported total assets of $9.1 billion. Sydney Metro derecognised $322 million in assets constructed to facilitate its operation but transferred to councils and utilities.

There was an inconsistency identified in the cluster relating to the valuation of substratum land. In 2018–19, RailCorp derecognised $109 million of substratum land to ensure consistency in its approach with other Transport agencies.

As the parent entity, the Department of Transport needs to ensure accounting policies are consistently applied across all controlled entities for consolidation purposes. Inconsistencies in the application of accounting standards across agencies will impact comparability of financial reporting and decision making across the Transport cluster.

Recommendation: The Department of Transport should ensure consistent accounting policies are applied across its controlled entities.

Public transport passenger revenue increased by $89.0 million (5.9 per cent) in 2018–19, and patronage increased by 37.8 million (4.9 per cent) across all modes of transport based on data provided by TfNSW.

The increase in revenue is mainly due to an increase in patronage as well as the annual increase in fares.

Negative balance Opal cards resulted in $2.9 million in revenue not collected in 2018–19 ($10.4 million since the introduction of Opal).

In January 2019, Transport made a change to the Sydney Airport stations to prevent customers with high negative balances exiting the station. In addition, in late 2018, Transport increased the minimum top up values for new cards at the airport stations.

Recommendation (repeat): TfNSW should implement further measures to prevent the loss of revenue from passengers tapping off with negative balance Opal cards.

Twenty-six per cent of Transport employees have annual leave balances exceeding 30 days. Of the employees with excess leave balances, 732 (10.3 per cent) did not take any annual leave in 2018–19.

Recommendation (repeat): Transport entities should further review the approach to managing excess annual leave in 2019–20. They should:

• monitor current and projected leave balances to the end of the financial year each month
• agree formal leave plans with employees to reduce leave balances over an acceptable timeframe
• ensure leave plans are actioned appropriately
• encourage all staff with excess leave balances take a minimum two-week period of leave per year.

There are no centralised processes to record all significant contracts and agreements in a register across the Transport cluster.

Across the Transport cluster, contracts and agreements are maintained by the individual agencies using disparate registers. Agencies must perform detailed assessments of their existing contracts and agreements to quantify the impact of the new accounting standards (AASB 16 ‘Leases’, AASB 15 ‘Revenue from Contracts with Customers’, AASB 1058 ‘Income of Not-for-Profit Entities’ and AASB 1059 'Service Concession Arrangements: Grantors').

In 2018–19, there was also a prior period error resulting from an agreement between TfNSW and another government agency due to a lack of assessment of the financial reporting implications at the time of signing the agreement.

A lack of a complete register of all contracts and agreements increases the risk that agencies may not be able to assess the full impact of the new accounting standards, as well as perform a complete assessment of the financial reporting implications of contracts and agreements.

Recommendation: Transport agencies should implement a process to centrally capture all significant contracts and agreements entered. This will ensure:

• agencies are fully aware of contractual and other obligations
• appropriate assessment of financial reporting implications
• assessment of new accounting standards, in particular AASB 16 ‘Leases’, AASB 15 'Revenue from Contract with Customers', AASB 1058 'Income of Not-for-Profit Entities ' and AASB 1059 'Service Concession Arrangements: Grantors' are accurate and complete.