What the report is about

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

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

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

What we found

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

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

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

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

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

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

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

We made recommendations about

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

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

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

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

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

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

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

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

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

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

About this Audit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Paging

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

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

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

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

Decommissioning costs

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

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

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

This estimated cost is not included in the CCEP budget.

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

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

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

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

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

Both totals include:

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

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

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

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

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

Appendix one – Response from agency

Appendix two – Trunked public safety radio networks

Appendix three – About the audit

Appendix four – Performance auditing

© 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 #383 - released 23 June 2023

What the report is about

Result of Health cluster (the cluster) agencies' financial statement audits for the year ended 30 June 2022.

What we found

Unmodified audit opinions were issued for the financial statements for all Health cluster agencies.

The COVID-19 pandemic continued to increase the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2021–22 was $353.3 million, of which $186.7 million related to an increase in the impairment provision for Rapid Antigen Tests (RATs).

A qualified audit opinion was issued on the Annual Prudential Compliance Statement related to five residential aged care facilities. There were 20 instances (19 in 2020–21) of non-compliance with the prudential responsibilities within the Aged Care Act 1997.

What the key issues were

The total number of matters we reported to management across the cluster decreased from 116 in 2020–21 to 67 in 2021–22. Of the 67 issues raised, four were high risk (three in 2020-21) and 37 were moderate risk (57 in 2020–21). Nearly half of all control deficiencies reported in 2021–22 were repeat issues.

Three unresolved high-risk issues were:

• COVID-19 inventories impairment – we continued to identify issues relating to management’s impairment model which relies on anticipated future consumption patterns. RATs had not been assessed for impairment.

• Asset capitalisation threshold – management has not reviewed the appropriateness of the asset capitalisation threshold since 2006.

• Forced-finalisation of HealthRoster time records – we continued to observe unapproved rosters being finalised by system administrators so payroll can be processed on time. 2.6 million time records were processed in this way in 2021–22.

What we recommended

• COVID-19 inventories impairment – ensure consumption patterns are supported by relevant data and plans.

• Assets capitalisation threshold – undertake further review of the appropriateness of applying a $10,000 threshold before capitalising expenditure on property, plant and equipment.

• Forced-finalisation of HealthRoster time records – develop a methodology to quantify the potential monetary value of unapproved rosters being finalised.

This report provides Parliament and other users of Health cluster (the cluster) 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 cluster (the cluster) for 2022.

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 cluster.

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 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.

What the report is about

In this report, we have analysed the key findings and recommendations from our audit reports over the past four years.

This analysis includes financial audits, performance audits, and compliance audits of state and local government entities that were tabled in NSW Parliament between July 2018 and February 2022.

The report is framed by recognition that the past four years have seen significant challenges and emergency events.

The scale of government responses to these events has been wide-ranging, involving emergency response coordination, service delivery, governance and policy.

The report is a resource to support public sector agencies and local government to improve future programs and activities.

What we found

Our analysis of findings and recommendations is structured around six key themes:

• Integrity and transparency
• Performance and monitoring
• Governance and oversight
• Cyber security and data
• System planning for disruption
• Resource management.

The report draws from this analysis to present recommendations for elements of good practice that government agencies should consider in relation to these themes. It also includes relevant examples from recent audit reports.

In this report we particularly call out threats to the integrity of government systems, processes and governance arrangements.

The report highlights the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

I am pleased to present the Audit Insights 2018–2022 report. This report describes key findings, trends and lessons learned from the last four years of audit. It seeks to inform the New South Wales Parliament of key risks identified and to provide insights and suggestions to the agencies we audit to improve performance across the public sector.

The report is framed by a very clear recognition that governments have been responding to significant events, in number, character and scale, over recent years. Further, it acknowledges that public servants at both state and council levels generally bring their best selves to work and diligently strive to deliver great outcomes for citizens and communities. The role of audit in this context is to provide necessary assurance over government spending, programs and services, and make suggestions for continuous improvement.

A number of the matters highlighted in this report are similar to those described in our previous Insights Report, (Performance Audit Insights: key findings from 2014–2018) specifically in relation to cyber and information security, to performance measurement, reporting and evaluation, and system and workforce planning and capability.

However, in this report we particularly call out threats to the integrity of government systems, processes and governance arrangements. We highlight the need for balanced advice to government on options and risks, for transparent documentation and reporting of directions and decisions, and for early and open sharing of information with integrity bodies and audit. Arguably, these considerations are never more important than in an increasingly complex environment and in the face of significant emergency events and they will be key areas of focus in our future audit program.

While we have acknowledged the challenges of the last few years have required rapid responses to address the short-term impacts of emergency events, there is much to be learned to improve future programs. I trust that the insights developed in this report provide a helpful resource to public sector agencies and local government across New South Wales. I would be pleased to receive any feedback you may wish to offer.

Margaret Crawford
Auditor-General for New South Wales

This report brings together a summary of key findings arising from NSW Audit Office reports tabled in the New South Wales Parliament between July 2018 and February 2022. This includes analysis of financial audits, performance audits, and compliance audits tabled over this period.

• Financial audits provide an independent opinion on the financial statements of NSW Government entities, universities and councils and identify whether they comply with accounting standards, relevant laws, regulations, and government directions.
• Performance audits determine whether government entities carry out their activities effectively, are doing so economically and efficiently, and in accordance with relevant laws. The activities examined by a performance audit may include a selected program or service, all or part of an entity, or more than one government entity. Performance audits can consider issues which affect the whole state and/or the local government sectors.
• Compliance audits and other assurance reviews are audits that assess whether specific legislation, directions, and regulations have been adhered to.

This report follows our earlier edition titled 'Performance Audit Insights: key findings from 2014–2018'. That report sought to highlight issues and themes emerging from performance audit findings, and to share lessons common across government. In this report, we have analysed the key findings and recommendations from our reports over the past four years. The full list of reports is included in Appendix 1. The analysis included findings and recommendations from 58 performance audits, as well as selected financial and compliance reports tabled between July 2018 and February 2022. The number of recommendations and key findings made across different areas of activity and the top issues are summarised at Exhibit 1.

The past four years have seen unprecedented challenges and several emergency events, and the scale of government responses to these events has been wide-ranging involving emergency response coordination, service delivery, governance and policy. While these emergencies are having a significant impact today, they are also likely to continue to have an impact into the future. There is much to learn from the response to those events that will help the government sector to prepare for and respond to future disruption. The following chapters bring together our recommendations for core elements of good practice across a number of areas of government activity, along with relevant examples from recent audit reports.

This 'Audit Insights 2018–2022' report does not make comparative analysis of trends in public sector performance since our 2018 Insights report, but instead highlights areas where government continues to face challenges, as well as new issues that our audits have identified since our 2018 report. We will continue to use the findings of our Insights analysis to shape our future audit priorities, in line with our purpose to help Parliament hold government accountable for its use of public resources in New South Wales.

Appendix one – Included reports, 2018–2022

Appendix two – About this report

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.

This report analyses the results of our audits of the Health cluster agencies for the year ended 30 June 2021.

Our preferred approach is to table the ‘Report on State Finances’ in Parliament before any other cluster report. This is because the 'Report on State Finances' focuses on the audit results and observations relating to the Total State Sector Accounts, in effect a consolidation of all government agencies. This year the 'Report on State Finances' has been delayed due to significant accounting issues being considered in the Total State Sector Accounts and which may impact the Treasury and Transport clusters.

As there are no outstanding matters relating to audits in the Health cluster impacting the Total State Sector Accounts we have decided to break with normal practice and table this cluster report ahead of the ‘Report on State Finances’.

What the report is about

The results of Health cluster (the cluster) agencies' financial statements audits for the year ended 30 June 2021.

What we found

Unmodified audit opinions were issued for the financial statements of all Health cluster agencies.

The COVID-19 pandemic increased the complexity and number of accounting matters faced by the cluster. The total gross value of corrected misstatements in 2020–21 was $250.2 million, of which $226.0 million were pandemic related.

A qualified audit opinion was issued on the Annual Prudential Compliance Statement. The basis of the qualification related to 19 instances (18 in 2018–19) of non-compliance relating to three of the 20 prudential requirements across five aged care facilities.

What the key issues were

The total number of matters we reported to management across the cluster increased from 112 in 2019–20 to 116 in 2020–21. Of the 116 issues raised in 2020–21, three were high risk (one in 2019–20) and 57 were moderate risk (47 in 2019–20). Nearly one half of the issues were repeat issues.

The three new high-risk issues identified were:

Hotel Quarantine (HQ) fees

The absence of a tailored debt recovery strategy, data integrity issues and uncertainties around future HQ arrangements increased risks around the recoverability of HQ fees from travellers.

COVID-19 inventories

Data errors and anomalies in the impairment model and difficulties forecasting key factors impacting the management of Personal Protective Equipment (PPE) increased uncertainty associated with the valuation and impairment of COVID-19 inventories.

COVID-19 vaccines

The Commonwealth did not provide information about the cost of vaccines provided to NSW free of charge, which required the performance of internal valuations to reflect the consumption of vaccines in the financial statements.

What we recommended

Hotel Quarantine (HQ) fees

Develop a tailored assessment methodology to estimate recoverability of HQ fees and work with Revenue NSW to develop a tailored debt recovery strategy.

COVID-19 inventories

Review the current stocktaking and impairment methodology to incorporate validation of data key to the management of COVID-19 related PPE.

COVID-19 vaccines

Work with the Commonwealth to obtain primary price information on COVID-19 vaccines.

This report provides Parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, 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 cluster (the cluster) for 2021.

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 Health cluster.

Findings reported to management

The number of findings reported to management has increased, with 47.4 per cent of all issues being repeat issues

Breakdowns and weaknesses in internal controls increase the risk of fraud and error. Deficiencies in internal controls, matters of governance interest and unresolved issues were reported to management and those charged with governance of cluster agencies. The Audit Office does this through our management letters, which include observations, implications, recommendations and risk ratings.

In 2020–21, there were 116 findings raised across the cluster (112 in 2019–20). 47.4 per cent of all issues were repeat issues (38.4 per cent in 2019–20).

A delay in implementing audit recommendations increases the risk of intentional and accidental errors in processing information, producing management reports and generating financial statements. This can impair decision-making, affect service delivery and expose agencies to fraud, financial loss and reputational damage. Poor controls may also mean agency staff are less likely to follow internal policies, inadvertently causing the agency not to comply with legislation, regulation and central agency policies.

The table below describes the common issues identified across the cluster by category and risk rating.

Complexities arising from the COVID-19 response

The 2020–21 audit identified three new high-risk findings

COVID-19 has presented the cluster with several new accounting challenges. New and evolving matters arose from changes to operating conditions, which characterised the 2020–21 financial reporting period. Issues with a high degree of estimation uncertainty will require ongoing attention as the strategies employed to deal with the COVID-19 pandemic evolve.

Expected rate of recovery of outstanding Hotel Quarantine invoices

The estimation of the amount likely to be recovered is complicated not only by the uncertainties that exist regarding the assumptions those estimations rely upon, but also the debt collection processes and strategies put into place to manage the accumulated debtors' balance. Debt collection is not administered by the cluster, but rather Revenue NSW. We observed an absence of a methodology to assess the likelihood of recovery. Instead, Sydney Local Health District was relying on Revenue NSW to develop and execute on a collection strategy. Sydney Local Health District was using the same approach to hotel quarantine debts as it did to other Health receivables. As the approach to managing international borders evolves over time, so too will the cluster's need to develop robust estimation models to assess the likely collectability of debtors. 

Procurement, management and impairment of COVID-19 inventories

$656.2 million of COVID-19 inventories were procured in 2020–21, with $220.2 million consumed; $558.7 million impaired and a further $217.1 million written off. Estimates of the degree to which inventories are expired, not fit for purpose or are faulty is often based on management judgement at all stages in the procurement cycle.

With respect to the stocktaking methodology applied, the following issues were identified:

• discrepancies noted in the stock bin listing provided for audit
• discrepancies in the recount sheet generated
• inconsistent application of the stocktake methodology
• inconsistent labelling of quarantined stock
• a lack of an approach for validating stock expiry dates, which is a key input to the impairment calculations.

Although management had developed processes and a methodology to count as well as to assess the level of inventory that was not fit for purpose, ongoing attention to the operating environment that emerges post pandemic will be important in assessing the degree to which existing COVID-19 inventories can be integrated into a ‘business as usual’ model going forward. Further refinement of the key elements of the stocktaking methodology will also be required to ensure that key inputs upon which management relies to calculate the year-end inventory impairment provision can be appropriately validated.

Valuation and recognition of COVID-19 vaccines received from the Commonwealth Government

The 2020–21 financial reporting period saw the Commonwealth acquire COVID-19 vaccines and provide these to state jurisdictions to dispense to their communities. The vaccines, although provided free of charge require recognition. However, Health entities were not responsible for acquiring the vaccines and data on the vaccines' cost was not shared by the Commonwealth. Management undertook a valuation using publicly available data to estimate the value to attribute to the vaccine inventory; developed new systems and leveraged existing pharmacy systems to track physical quantities received from the Commonwealth and ultimately distributed to NSW citizens. As the response to the pandemic evolves, larger quantities, and new lines of vaccine stock will be dealt with, and policy settings will need to adapt when patterns of distribution of those vaccines (e.g., timing of third booster shots) emerge. The Ministry of Health will need to ensure that the valuations applied to the prices of inventory distributed and held in stock are as accurate as possible. This can be done through further refinement of the existing valuation methodology, obtaining price information from the Commonwealth and engaging specialist pharmaceutical valuers.

Emerging trends

Recognition of provisions without sufficient support

Several NSW Health entities raised accruals and provisions in 2020–21, which did not have an appropriate basis for recognition. Liabilities can only be recognised where there is a present obligation to make a payment arising from a past event. A number of these errors remain uncorrected in the financial statements of those entities as they are not material, individually or in aggregate to the financial statements as a whole. Increased training and guidance are required to ensure that treatment within the cluster is consistent and reflects events that have occurred and give rise to obligations.

Treatment of Commonwealth funding

In the 2020–21 and 2019–20 financial reporting periods, we observed prior period errors arising from the treatment of Commonwealth funding. These errors related to recognising revenue under funding agreements entered into with the Commonwealth in the incorrect period. The conditions of these funding arrangements, the transactional information requiring validation and the circumstances when revenue should be recognised are not always clear and can be complex. Early and continuous engagement with the Commonwealth is required to ensure that revenue recognition principles are consistently applied across the cluster.

Key repeat issues

Management of excessive annual leave

NSW Treasury guidelines stipulate annual leave balances exceeding 30 days are considered excess annual leave balances. Managing excess annual leave balances has been reported as an issue for the cluster for more than five years, with the average percentage of employees with excessive leave balances over the last five years being 36.1 per cent (35.5 per cent over five years covering 2015–16 to 2019–20).

The operational demands required to manage the COVID-19 pandemic have presented new challenges for the cluster in trying to manage its excessive leave balances. 39.2 per cent of employees now have excess leave balances at 30 June 2021 (35.4 per cent at 30 June 2020).

The state's leave policy C2020-12 Managing Accrued Recreation Leave Balances requires agencies to manage excessive leave balances to 30 days or less to maintain their workforces physical and mental health.

Accurate time recording

Forced-finalisation of time records by system administrators within HealthRoster remains an issue and we continue to observe time records forced-finalised by system administrators so pay runs can be finalised on a timely basis. During 2020–21, a total of two million (2.2 million in 2019–20) time records were force approved, which represents 5.7 per cent of total time records (6.9 per cent in 2019–20).

Existence, completeness and accuracy of key agreements

Delivery of major capital projects

Health Infrastructure (a division of the Health Administration Corporation) is responsible for the delivery of major capital projects with a budgeted spend of more than $10.0 million. Health Infrastructure oversee the planning, design, procurement, and construction phases. Capital works in progress are recognised in the financial statements of the health entity that intends to use those assets upon completion. The health entities recognise both the capital work in progress and the revenue associated with the capital funding from the Ministry for the construction of the assets. Capital funding is currently agreed with health entities as part of the annual Service Agreement. The assumption that the health entities control the assets during their construction is consistent with Health Infrastructure's role as an agent for the health entity and the Ministry's policy directive PD2020-033 'Management and control of Health Administration Corporation owned Real Property'.

We continued to observe a lack of clarity regarding agreements between Health Infrastructure, the Ministry and the cluster agency that will eventually receive the completed asset. This can lead to confusion and uncertainty around the rights and obligations of each party to the transaction.

Cross border patient funding arrangements

When patients require medical care in a jurisdiction where they are not generally domiciled, there are arrangements in place to provide funding to support cross border patient treatments. We have previously observed that agreements between NSW and other jurisdictions have not been finalised, and this continues to be the case. In the case of Victoria, no agreement has been finalised for the past seven years.

We continue to note that the cluster has long outstanding receivables and payables with other states. The absence of formal agreements between the states hampers the settlement of the debts relating to the treatment of cross border patients. The following table shows the status of Cross Border Agreements between NSW and other jurisdictions:

Albury Base Hospital

Albury Base hospital is located on the border of NSW and Victoria and services residents of both states. Documentation supporting the extension of the expired Intergovernmental Agreement 2009–2017 between NSW and Victoria in relation to the integration of health services in Wodonga and Albury could not be located.

Appendix one – Misstatements in financial statements submitted for audit

Appendix two – Early close procedures

Appendix three – Timeliness of financial reporting

Appendix four – Financial data

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This report analyses the results of our audits of financial statements of the Health cluster for the year ended 30 June 2020. The table below summarises our key observations.

1. Financial reporting

2. Audit observations

This report provides parliament and other users of the Health cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas:

• financial reporting
• audit observations.

The impacts of the COVID-19 pandemic on the cluster were significant and included changes to the operations of the health entities and increased revenue, expenditure, assets and liabilities.

As a part of this year's audits of health entities, we have considered:

• financial implications of the COVID-19 emergency at both health entity and cluster levels
• changes to agencies' operating models
• agencies' access to technology and the maturity of systems and controls to prevent unauthorised and fraudulent access to data.

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 response to the COVID-19 pandemic primarily impacted the financial reporting of NSW Health through:

• additional revenue from the State government in the form of grants and stimulus payments
• additional revenue from the Commonwealth government under the National Partnership Agreement for COVID-19 to cover part of the cost of responding to the COVID-19 pandemic
• increased expenses, largely due to increased payments to private health operators to maintain their viability during the COVID-19 pandemic and later to assist with public patient elective surgery waitlists and increased cleaning costs
• increased purchases of personal protective equipment.

Chapter one outlines the impacts of NSW Health’s response to the COVID-19 pandemic. This chapter outlines our other audit observations related to the financial reporting of agencies in the Health cluster for 2020.

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.

The primary impact of the COVID-19 pandemic on the effectiveness of the internal controls of NSW Health and health entities relates to the effectiveness of controls implemented by HealthShare relating to the stocktake of personal protective equipment inventories. Inventory managed by HealthShare increased by 2,746 per cent during 2019–20. HealthShare’s inventory controls did not maintain pace with the sudden, significant increase.

The impacts of NSW Health’s response to the COVID-19 pandemic are outlined in chapter one. This chapter outlines other observations and insights from our financial statement audits of agencies in the Health cluster.

Appendix one – List of 2020 recommendations 

Appendix two – Status of 2019 recommendations 

Appendix three – Financial data

Appendix four – Analysis of financial indicators 

Appendix five – Analysis of performance against budget

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© 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.

Auditor-General’s Report to Parliament

Health 2020

11 December 2020

This corrigendum has been prepared to amend the following text within the Auditor-General’s Report to Parliament on Health 2020, dated 10 December 2020.

NSW Health emergency department treatment times

On page five the original text was as follows:

NSW Health also measures the percentage of patients whose clinical care in emergency departments is completed within four hours. The measure is used as an indicator of accessibility to public hospital services.

NSW Health aims to complete clinical care in the emergency department for 81 per cent of patients within four hours. In 2019–20 NSW Health reports it completed clinical care within four hours for 72.1 per cent of patients (a 7.3 per cent decrease from 2018–19).

At Western Sydney Local Health District, 59 per cent of patients were treated within the targeted timeframe. NSW Health attribute this to the profile of patients presenting in emergency departments and additional time taken processing COVID-19 patients to ensure staff safety.

The original text has now been changed to:

NSW Health also measures the percentage of patients with total time in the emergency department of four hours or less for each local health district. The measure is used as an indicator of accessibility to public hospital services.

The above changes will be reflected in the version of the report published on the Audit Office website and should be considered the true and accurate version.

This report examines whether NSW Health effectively planned and delivered major capital works to meet the demand for health services in New South Wales.

The report found that NSW Health has substantially expanded health infrastructure across New South Wales since 2015. However, the program was driven by Local Health District priorities without assessment of the State’s broader and future‑focussed health requirements.

The report found that unclear decision making roles and responsibilities between Health Infrastructure and the Ministry of Health limited the ability of NSW Health to effectively test and analyse investment options.

Project delays and budget overruns on some major projects indicate that Health Infrastructure's project governance, risk assessment and management systems could be improved.

The Auditor‑General recommends that NSW Health ensure its capital projects offer the greatest value to New South Wales by establishing effective policy guidance and enhancing project governance and management systems.

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Since 2011–12, NSW Health has aimed to improve its facilities and build 'future focused' infrastructure. The NSW Government’s 2015–16 election commitments established a four-year $5.0 billion capital program for NSW Health to build and upgrade more than 60 hospitals and health services. The 2019–20 State Budget committed a further $10.1 billion over four years for another 29 projects. This is the largest investment to date on health capital works in New South Wales.

Recent reviews of infrastructure have recognised that population and demographic growth will require a change in the delivery and composition of health infrastructure, including considering greater use of non-traditional, non-capital health service options and assets.

To ensure that expenditure on capital works represents the best value for money, NSW Health's business cases need to be robust and supported by evidence that demonstrates they are worthy investments. The NSW Process of Facility Planning has been the main framework guiding the detailed planning and development of NSW Health's capital works proposals. This framework was developed by the then NSW Department of Health in 2010. Its aim is to ensure investment proposals are supported by rigorous planning processes that address health service needs and provide value for money.

Infrastructure projects of the complexity and scale being delivered by NSW Health carry inherent risks. For example, unplanned cost escalations can potentially impact on the State’s finances. Unforeseen delays can also reduce the intended benefits. The growth in the State’s health capital spend and project profile, means its exposure to such risks has increased over time.

The objective of this audit was to assess the effectiveness of planning and delivery of major capital works to meet demand for health services in New South Wales. To address this objective, the audit examined whether:

• the Ministry of Health has effective procedures for planning and prioritising investments in major health capital works
• Health Infrastructure develops robust business cases for initiated major capital works that reliably inform government decision making
• Health Infrastructure has effective project governance and management systems that support delivering projects on-time, within budget and achievement of intended benefits.

The audit focused on the Ministry of Health and Health Infrastructure – being the lead agencies within NSW Health responsible for prioritising, planning and delivering major health capital works across the State. The audit examined 13 business cases for eight discrete projects over a ten-year period.

Over the period of review, NSW Government policies for business case development and submission have emphasised that effective governance arrangements are critical to a proposal's successful implementation.

NSW Health's Process of Facility Planning similarly highlights the importance of effective governance and project management for achieving good outcomes. It prescribes a general governance structure managed by Health Infrastructure that can be tailored to the planning and delivery of health infrastructure projects greater than $10.0 million.

The three major hospital redevelopments examined in metropolitan, regional and rural areas had a combined Estimated Total Cost of more than $1.2 billion and comprised eight discrete projects and 13 separate business cases.

Almost all these projects experienced delivery challenges which impacted achievement of their original objectives and intended benefits. This is expected in complex and large-scale health infrastructure programs. However, in some projects the impacts were significant and resulted in substantial delays, unforeseen costs, and diversion of resources from other priority areas.

Our review of the selected case studies highlighted opportunities for enhancing governance and project management. Specifically, it indicates a need for improving transparency in the management of contingencies, risk management and assessments particularly relating to adverse site conditions and the selection of contractors. There is also a need to strengthen forward planning for options to address unfunded priorities within business cases that risk complicating the delivery of future project stages resulting in unforeseen costs and potentially avoidable budget overruns.

In February 2017, the Ministry's Capital Strategy Group approved the use of surplus funds of $13.76 million from Stage 1 of the Hornsby Ku-ring-gai Hospital Redevelopment for new works deemed needed to support Stage 2. Following this decision, Health Infrastructure finalised and submitted a business case addendum for Stage 1 to the Ministry in March 2017, addressing the new works comprising a two-storey building for medical imaging and paediatric floors. The business case addendum also addressed options to fit out and procure major medical imaging equipment. The Ministry approved the Stage 1 business case in July 2017, noting the Ministry's Capital Strategy Group had already approved the use of remaining Stage 1 funds to deliver the new works.

Stage 1 was completed in 2015, almost two years before the Stage 1 business case addendum was prepared in February 2017.

The Ministry's decision to approve the new works using $13.76 million of surplus Stage 1 funds did not comply with the NSW Treasury Circular TC 12/20. This policy establishes the Treasurer's approval must be sought and received before a new capital project with an Estimated Total Cost of $5.0 million or more can be approved by NSW Health. The Ministry therefore exceeded its delegated authority in making this decision, as it was not evident it had sought and received the Treasurer's approval prior to doing so.

Consequently, the surplus Stage 1 funds should not have been used by the Ministry to deliver new works in the circumstances. Instead, they should have been released from the Stage 1 project in accordance with established NSW Health procedures, and the Stage 1 Estimated Total Cost revised down accordingly. This did not occur, and NSW Health ultimately directed $11.0 million in surplus Stage 1 funds to the new works.

These circumstances indicate a need to strengthen transparency and accountability within NSW Health for the approval of new projects, and how contingency funds are used in the management of major health capital works. They also demonstrate the impact of weaknesses with options appraisal as the initial Stage 1 business case did not consider alternative options for addressing the initially unfunded works later covered by the Stage 1 business case addendum and ultimately funded from the Stage 1 contingency provision.

In addition to proposing the above-noted new works, the 2017 Stage 1 Business Case Addendum for the Hornsby-Ku-ring-gai development sought to retrospectively address the estimated funding gap of around $14.0 million for the internal fit out, supply of major medical imaging equipment, and cost to operate the medical imaging service at Hornsby Ku-ring-gai Hospital also not addressed in the originally Stage 1 business case.

The Stage 1 business case addendum considered various procurement options to purchase and run the medical imaging services ranging from State operation purchase options to private operation purchase options.

It recommended outsourcing the operation and provision of equipment to the private sector based on estimated savings to the public sector initially of around $650,000 per annum reducing over time to $270,000. The Ministry endorsed this option in June 2017, but it did not ultimately proceed.

A July 2018 report to the Executive Steering Committee on the project shows NSW Health later decided to deliver operation of the medical imaging unit 'traditionally' with an updated estimate of the cost at approximately $16.4 million. The report also shows the Ministry supported the costs now being met by the Northern Sydney Local Health District.

This means the funding gap previously identified in the Stage 1 business case addendum for fitting out the medical imaging building and supply of major medical equipment would need to be met fully by the State, representing a $16.4 million cost overrun for the project.

Examined reports to the Executive Steering Committee show this was largely funded by the Northern Sydney Local Health District via the disposal of land realising approximately $15.0 million in proceeds.

This initially unforeseen cost, along with the additional $11.0 million for the new works approved under the Stage 1 business case addendum, were ultimately merged with the Stage 2 project initially approved in 2017–18 with an Estimated Total Cost of $200 million.

The 2019–20 State Budget provided an additional $65.0 million for a further Stage 2A to deliver additional built capacity to support outpatient services, enhanced allied health services, re-housed community health services and the delivery of prioritised clinical services unfunded as part of Stage 2. The funds were approved based on an Investment Decision Template (IDT) that examined two options in addition to the base case representing scoping alternatives to the preferred master planned capital solution.

However, we found the IDT showed around 23 per cent of the $65.0 million sought (i.e. $15.0 million) was to be allocated to fund the deficit in Stage 2, which had arisen as a result of project delays due to adverse site conditions. This was not discussed in the IDT.

The February 2020 report to the Executive Steering Committee shows a combined Stage 2 and 2A final forecast cost of $292.6 million against a potential budget of $290.7 million representing an overall deficit for the project of around 0.6 per cent.

However, this favourable final budget position does not transparently show the funding challenges experienced over the project's implementation to-date. The three major budget issues include:

• inappropriate use of around $11.0 million in Stage 1 contingency for originally unfunded works contrary to Treasury policy
• the additional $16.4 million cost unforeseen in the Stage 1 business case for delivering medical imaging services mostly funded through the sale of land
• an additional $15.0 million from Stage 2A to cover the budget overrun in Stage 2 due to adverse site conditions.

The cumulative impact of these events is that Stages 1 and 2 of the Hornsby project cost approximately $42.4 million than it should have in the circumstances around 14 per cent more than what the revised combined Estimated Total Cost for both stages should have been after releasing the $11.0 million in surplus Stage 1 funds, with Stage 2 delayed by around 14 months.

Major construction projects often experience adverse site conditions which can be difficult to fully detect in advance. However, we found this was a common occurrence in the projects we examined sometimes with significant time and/or budget impacts indicating scope to enhance related risk and cost assessments. Specifically:

• Hornsby Ku-ring-gai Hospital Redevelopment Stage 2: adverse site conditions during demolition works resulted in an 11-month delay for delivering the medical imaging unit and 14-month delay completing Stage 2 main works including need for additional $15.0 million in funds to cover the resultant budget deficit for the project.
• Blacktown Mt Druitt Hospital Redevelopment Stage 2: adverse site conditions combined with project complexity delayed completion of the early works by approximately five months. This contributed to the delay in completing the main construction works which occurred around nine months later than planned in the business case.
• Dubbo Health Service Redevelopment Stages 3 and 4: Health Infrastructure advised adverse site conditions including asbestos containing materials and ground conditions delayed works for the main building with completion forecast for March 2021, around 21 months later than planned in the final business case. This resulted in the need for additional $13.5 million to cover increased construction costs and risks, increasing the Stage 3 and 4 forecast final cost from $150 million to $163.5 million as at February 2020.

These examples indicate a risk the cumulative impact of adverse site conditions may be substantial when measured across both time and Health Infrastructure's full delivery program. They also point to potential for Health Infrastructure to achieve efficiencies and improved outcomes from strengthening its approach to assessing and mitigating the risks from adverse site conditions.

Main construction works on Stage 1 of the Dubbo Health Service Redevelopment were completed in October 2015, approximately 13 months later than planned in the final business case. Delays were mainly due to insolvency of the early works contractor resulting in their departure from the project. The ensuing 11-month delay in completing the early works significantly impacted the overall schedule and delivery of main construction works.

The insolvency event was significant as it affected nine separate Health Infrastructure projects – three of which had yet to reach practical completion. It also affected state-funded projects in other sectors. It resulted in the need for additional funding of $11.5 million that was provided in the 2014–15 State Budget increasing the total Stage 1 and 2 budget from $79.8 million to $91.3 million.

Health Infrastructure’s analysis of lessons learned shows it worked actively to mitigate the impacts of the insolvency event across all affected projects. However, it also indicates a risk the lessons were mainly focused on mitigating the impacts after an insolvency event occurred rather than on prevention.

Although Health Infrastructure initially commissioned a financial assessment of the now insolvent early works contractor before engagement, it did not detect any risks of the impending insolvency and instead concluded the contractor was in a strong financial position. However, the contractor became insolvent shortly after commencement approximately seven months later. This indicates a risk of weaknesses in the assessment performed that was not explicitly addressed by the lessons learned.

Delivery of the main construction works were further impacted by disputes with the main works contractor over the scope of works for the renal unit resulting in Health Infrastructure terminating the contract in November 2016 following lengthy negotiations over several months.

The scope of works relating to the renal unit were ultimately transferred to Stages 3 and 4 and were delivered in December 2019, around five years later than originally planned in the business case.

Health Infrastructure advised the delay was ultimately beneficial to the project because the refurbishment works for the renal unit, initially scheduled for Stages 1 and 2, would have been demolished to accommodate the new Western Cancer Centre proposed after Stages 1 and 2 and currently being delivered in parallel with Stages 3 and 4.

Health Infrastructure advised the actual cost of Stages 1 and 2 was $84.7 million against the budget of $91.3 million. The residual $6.6 million relates to the renal works not delivered during Stage 1 and 2 and transferred to Stage 3 and 4.

Health Infrastructure advised the contractual provisions for mitigating insolvency events 'in-flight' are limited highlighting the importance of proactive and effective due diligence prior to engaging contractors for significant construction projects.

Health Infrastructure's 2017-20 Corporate Plan identifies the development of a quality framework to support delivery of future-focused outcomes as a key organisational priority. Related initiatives within the Corporate Plan describe a framework underpinned by a Quality Committee providing advice on:

• records management, to meet the requirements of the State Records Act 1998
• project assurance, to ensure future focused outcomes and enhance Health Infrastructure's Standards, Policies, Procedures and Guidelines, Templates and Design Guidance Notes
• knowledge management and library services, to promote and leverage from project learnings.

Although Health Infrastructure has some elements of a quality framework it is not yet fully in place. Health Infrastructure advised it had yet to establish the quality framework and related committee described in its Corporate Plan due in part to its focus on responding to the growth of its capital program.

Health Infrastructure's Development and Innovation team has been active in supporting continuous improvement in knowledge and project management including development of business cases. Although useful, these initiatives have relied heavily on leveraging and disseminating insights from Gateway reviews and have not formed part of a systematic quality and continuous improvement framework.

The limited focus on the quality of business cases is reflected in internal performance monitoring and reporting which focuses mainly on tracking the delivery of projects against internal benchmarks, often revised from the baselines in the business case, and expenditure against cashflow targets. There is no evident internal monitoring and/or reporting to the Chief Executive and Board on defined quality metrics linked to business case development and staff capability.

Performance reporting on balanced scorecard metrics has similarly focused mainly on process rather than quality and has been inconsistent in recent years.

Appendix one – Response from agency

Appendix two – About the audit

Appendix three – Performance auditing

Appendix four – Ministry of Health planning tools and guidelines

Appendix five – Streamlined investment decision process for Health Capital Projects

Appendix six – Timeline of business cases and relevant policy guidelines

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© 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 #338 - released 12 August 2020

This report focuses on key observations and findings from 2016 audits and highlights key areas of focus for financial and performance audits in 2017.

All material misstatements identified by agencies and audit teams were corrected before the financial statements and audit opinions were signed. A material misstatement relates to an incorrect amount, classification, presentation or disclosure in the financial statements that could reasonably be expected to influence the economic decisions of users.  

Significant matters reported to the portfolio Minister, Treasurer and Agency Head

In 2015–16, we reported the following significant matters to the portfolio Minister, Treasurer and agency head in our Statutory Audit Reports:

 Appropriate financial controls help ensure the efficient and effective use of resources and the implementation and administration of agency policies. They are essential for quality and timely decision making.  

In 2015–16, our audit teams made the following key observations on the financial controls of NSW public sector agencies.

The independent assurance given to the NSW Government and sponsor agencies on the viability of large capital projects throughout their lifecycle is inadequate. Government policy is regularly not followed and not properly communicated to those responsible for implementing such policy.
 
This audit sought to test the effectiveness of the NSW capital project assurance system - which includes gateway reviews and reporting - but significant levels of non-compliance identified in our case studies prevented this. The NSW Commission of Audit also identified this issue in 2012. Gateway reviews are conducted by independent reviewers at key stages of a project’s life cycle and provide an independent assessment on a project’s readiness to proceed to the next stage.

Parliamentary reference - Report number #252 - released 7 May 2015

Unqualified opinions were issued for all agencies audited in the following report.

Some of the reports findings include:

• Most cultural bodies rely heavily on government grants to fund services

• The Sydney Opera House Trust earns most of its revenue from commercial operations

• Less than half of the 2014-16 service agreements between HealthShare NSW and its customers have been signed. HealthShare NSW and health entities should finalise their 2014-2016 service agreements by no later than 31 January 2014

• Five service level agreements with NSW Health Pathology for 2012-13 were never signed. NSW Health Pathology and local health districts/speciality networks should finalise their 2013-14 service agreements by no later than 31 December 2013

• HealthShare NSW is committed to sharing internal audit findings across NSW Health

• The Ministry has started a long-term project to review its policy directives

• A recent review concluded the health sector has mature risk management practices

• When changes to the Aboriginal Land Rights Act 1983 occur, the Minister should identify and assess any risks from the changes and develop strategies to mitigate against them.

The following overview of audits from 2011 found agency restructures significantly impacted agency financial reporting processes, agencies are having difficulty establishing and enforcing compliance with their own policies and procedures, agencies experienced problems complying with regulations and providing adequate documentation to support their financial statements, the poor quality of some financial statements with 1,256 misstatements identified, 540 so significant they had to be corrected, deficiencies in information security exist across many agencies, computer system disaster recovery plans for financial systems not existing or outdated, do not align with agencies’ business recovery requirements, do not properly identify and assess critical systems and processes and testing is incomplete.