Reports
Actions for Industry 2017
Industry 2017
The following report highlights the results of the financial audits of NSW Government entities in the Industry cluster. The report focuses on key observations and findings from the most recent audits of these entities.
The report notes that TAFE NSW will continue to incur extra costs each year to produce reliable financial information due to deficiencies in its student administration system. TAFE NSW plans to replace its Student Administration and Learning Management system in 2018-19 at an estimated cost of $89 million.
1. Financial reporting and controls
Financial reporting |
Unqualified audit opinions were issued for 44 out of 48 financial statement audits with four audits incomplete. Early close procedures continue to promote earlier and better quality financial reporting. |
Financial performance | The cluster recorded a net deficit of $107 million in 2016–17 ($78.0 million in 2015–16). Contributing to the overall cluster net deficit was the Department's $226 million net deficit offset by net surpluses at Water NSW and the Forestry Corporation of New South Wales. |
TAFE NSW continues to experience system issues | TAFE NSW incurs extra costs each year to produce reliable financial information due to deficiencies in its student administration system. TAFE NSW plans to replace its Student Administration and Learning Management system in 2018–19 at an estimated cost of $89 million. |
Internal controls |
We identified 180 internal control issues, including 61 repeat issues across the cluster. We rated four of these issues as 'high' risk, 98 as ‘moderate’ risk and 78 as ‘low’ risk. Of the 180 issues raised, 37 related to financial reporting and 52 related to controls over processes such as procurement and fixed assets. Some internal control issues and recommendations identified in previous years, have been repeated and should be addressed promptly to reduce risks and improve processes. |
Deficient user administration access | Agencies need to strengthen user access administration to critical financial systems. |
2. Service delivery
Premier and State Priorities |
Australian Bureau of Statistics data shows the Premier's priority for job creation has been achieved. While performance has declined for the State priority to increase the proportion of people completing apprenticeships and traineeships, the Department advises it has initiatives in place to achieve this State priority, and the State priority for New South Wales to lead Australia in business confidence. |
Crown land | The Department is working to respond to the recommendations from a Parliamentary Inquiry into Crown Land and to implement the revised framework contained in the Crown Land Management Act 2016. |
Aboriginal land claims |
Despite a continued focus, the Department has been unsuccessful in reducing the number of unprocessed Aboriginal land claims. The Department should continue to implement measures to reduce the backlog of unprocessed Aboriginal land claims. |
This report focuses on agencies in the Industry cluster. The report focuses on audit results, observations, conclusions and recommendations for financial reporting and controls, and service delivery.
This cluster leads the State's promotion of New South Wales as the place to invest and produce goods and services. Significant cluster agencies deliver services in the following areas:
Confidence in public sector decision-making and transparency is enhanced when financial reporting is accurate and timely. Appropriate financial controls help ensure the efficient and effective use of resources and administration of agency policies.
This chapter outlines audit observations, conclusions and recommendations for the financial reporting and controls of agencies in the cluster for 2016–17.
Observation | Conclusion or recommendation |
2.1 Quality of financial reporting | |
Unqualified audit opinions were issued for 44 out of 48 financial statement audits. Four audits are continuing. | Ongoing improvements in the preparation of financial statements helped identify and resolve material issues. |
The number of misstatements within the cluster fell from 104 in 2015–16 to 70 in 2016–17. | The ‘early close procedures’ initiative introduced by the Treasury in 2011–12 has reduced the number of misstatements each year. |
2.2 Timeliness of financial reporting | |
Most agencies complied with the Treasury’s early close procedures and the timetable for the preparation and audit of financial statements. | Greater focus on financial reporting and effective early close procedures has improved the timeliness of financial reporting, but further improvements are required. |
2.3 Key financial issues from cluster agencies | |
The Department of Industry completed a revaluation of Crown land and continues work on improving the accounting for Crown land. | The value of Crown land recognised in the Department's financial statements at 30 June 2017 was $5.3 billion. The revaluation was carried out using a revised mass valuation approach which reduced complexity and subjectivity and improved transparency. |
There is no process in place to ensure agencies recognise all the Crown land they manage and control. | Recommendation: The Department should confirm the completeness and accuracy of the Crown land database with other organisations that manage and control Crown land to improve the reliability of its records. |
TAFE NSW incurred approximately $6 million of direct costs to deal with issues in its student administration system and establish the integrity of its financial data for 2016–17. | TAFE NSW will continue to incur extra costs each year to produce reliable financial information. TAFE NSW advises it intends to replace the Student Administration and Learning Management system it jointly implemented with the Department of Education three years ago at a cost $40.2 million. TAFE plans to implement the new system in 2018–19 at an estimated cost of $89 million. |
2.4 Key financial information | |
The cluster recorded a net deficit of $107 million in 2016–17 ($78.0 million in 2015–16). | The overall cluster net deficit included the Department's $226 million net deficit which was partly offset by net surpluses in a number of other agencies, including Water NSW and the Forestry Corporation of New South Wales. Most agencies in the cluster, including the Department, but excluding the State owned corporations, are dependent on the NSW Government for the majority of their revenue. |
2.5 Financial performance and sustainability | |
We assessed the performance of certain agencies against key financial sustainability indicators. This identified four agencies with adjusted net deficits and two agencies with liquidity ratios below one. | Overall, based on our analysis these agencies are not at high risk of sustainability concerns. |
2.6 Internal controls | |
A significant number of repeat internal control issues were again raised with management for certain agencies in the cluster. |
Recommendation (repeat issue): Internal control issues and recommendations from previous years should be addressed promptly to reduce risks and improve processes. |
User access administration over financial systems needs to be improved. 17 moderate risk issues related to user access administration across nine agencies were identified. |
Recommendation: Agencies should ensure administration of user access to critical systems
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Government outcomes can be achieved by delivering services through a mix of the public, private or not-for-profit sectors. Service delivery reform is most successful if there is clear accountability for service delivery outcomes, decisions are aligned to the government's strategic direction, and performance and value for money are monitored and evaluated.
This chapter outlines our audit observations, conclusions and recommendations for the service delivery of agencies in the cluster for 2016–17.
Issues | Conclusion or recommendation |
3.1 Measuring and reporting on performance |
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The Department is responsible for two State priorities (increasing apprenticeships and business confidence) and the Premier's priority of creating jobs. The Department also supports four state priorities. | Australian Bureau of Statistics data shows the Premier's priority for job creation continues to be achieved. The Department reported that the number of people completing apprenticeships and traineeships had declined to 59 per cent against a 2019 target of 65 per cent, while the State was ranked first or second on a range of business confidence indicators. |
3.2 Improvements required in the administration of Crown land |
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The Department faces many challenges in the administration of Crown land. These challenges range from inadequate systems and processes through to satisfying competing commercial, environmental, and community interests. |
The Department has implemented, or is implementing the recommendations from a performance audit on the Sale and Lease of Crown land and the Parliamentary Inquiry into Crown land. It is also implementing the revised framework for Crown land contained in the Crown Land Management Act 2016. |
3.3 Aboriginal land claims over Crown land |
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The number of unprocessed Aboriginal land claims continues to increase. Work on finalising Aboriginal Land Agreements, which may help address the claims backlog, is continuing. | Recommendation (repeat Issue): The Department should continue to implement measures to reduce the number of unprocessed Aboriginal land claims. |
3.4 Skills development |
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Eleven contracted Smart and Skilled service providers had their contracts cancelled for quality issues. There were 391 providers of Smart and Skilled qualifications as at October 2017. | The Department of Industry spent $1.4 billion on the provision of vocational education and training. The Department has controls in place to monitor the performance of contracted service providers to ensure quality delivery of training. |
Actions for Agency compliance with NSW Government travel policies
Agency compliance with NSW Government travel policies
Overall, agencies materially complied with NSW Government travel policies.
However, the Auditor-General found some agencies:
- did not always book official travel through the approved supplier
- had weaknesses in their travel approval processes
- had travel policies that were inconsistent with the NSW Government policy
- did not adequately manage their travel records.
We asked the 15 participating agencies to complete a self assessment of the processes they have implemented to comply with the new policy. The key observations are summarised below.
Actions for Office of Strategic Lands
Office of Strategic Lands
The Office of Strategic Lands effectively fulfils most aspects of its defined role, however, it could do more to support strategic land planning by identifying and acquiring land for future public use proactively rather than waiting for agencies or landholders to approach it. It may also have greater impact if it expanded its activities beyond greater Sydney.
The Office of Strategic Lands (OSL) was established under the Environmental Planning and Assessment Act 1979 (EP&A Act) to identify, acquire, manage and divest land required for long-term planning by the NSW Government, particularly for open space and public purposes.
OSL is a Corporation Sole acting on behalf of the Minister for Planning and is run within the Department of Planning and Environment (DPE). OSL is a self-funding entity, and is responsible for administering the Sydney Region Development Fund (SRDF), a statutory fund used for ongoing land acquisition and management. OSL currently only operates within greater Sydney and holds over a billion dollars in land assets in this region.
This audit assessed whether OSL effectively fulfils its role to identify, acquire, manage and dispose of land, and whether OSL ensures it is sustainable over the long-term to meet its objectives.
Conclusion:
OSL effectively fulfils most aspects of its defined role, but is not supporting strategic land planning through proactive identification and acquisition of land for future public use. OSL is diligent in its financial management over the short and medium terms. However, it has identified that relying on the sale of surplus land to continue funding its ongoing operations is not sustainable, and it is yet to finalise a strategy to address this.
OSL does not currently have a strategic or proactive focus to improve land planning outcomes. This is primarily due to the lack of a clear strategy and business plan to direct its work which defines OSL’s purpose, objectives, goals and performance targets.
OSL expects to finalise and implement a Strategic Business Plan to guide its future direction and long-term sustainability, in late 2017.
OSL has three primary sources of funding. The largest source is Treasury loans which it needs to repay. The next most significant source of funding is from sales of land no longer required for government’s long-term needs. OSL has identified that it is likely to run out of surplus land within ten years. This is a significant financial risk for OSL, which should be addressed through a long-term financial strategy.
Contributions by Sydney councils into the SRDF are OSL’s only regular and consistent income stream. The formula to calculate these contributions has not been reviewed for over 25 years, and recent council mergers and border changes have increased the need to review the formula.
OSL is not used as extensively as it could be by other NSW Government agencies. It has the potential to play a much bigger role in assisting NSW Government agencies with longer term planning by partnering with them to identify, acquire, hold and manage land for future needs. For example, it could acquire land in future residential growth areas for needed public services such as schools, hospitals and transport corridors. There is also potential for OSL to expand its operations beyond the greater Sydney region into other parts of NSW to provide a statewide benefit from its unique role in government.
OSL has a unique role amongst government agencies, and could be used across NSW
NSW Government agencies we spoke with consider OSL fulfils an important role for the state that no other government agency performs. As a self-funding long-term land holder and manager, OSL can acquire and manage land beyond the four-year budget cycle that other government agencies face. Consideration should be given to expanding to other growth areas in NSW, where its unique role could assist in longer term land planning.
OSL has established good processes and procedures for most aspects of its role. This includes governance processes that we found to have been applied effectively. There was also adequate oversight and approvals for land transactions.
OSL has yet to finalise a business strategy to ensure long-term sustainability
OSL has shown that it is financially and operationally viable in the short to medium term. However, it does not have an overarching business strategy to guide its operations and ensure it is financially sustainable for the long-term. With a unique role in government, it is important for OSL to clarify its direction and implement a strategic business plan to drive its progress.
While there is no overarching long-term strategy, OSL has documented operating plans which guide its land acquisition and land divestment activities over the short to medium term. It has not developed a plan for its ongoing land management activities.
OSL advised that its Strategic Business Plan will be finalised and implemented in late 2017. This Plan should clarify OSL’s long-term direction, and guide its business to ensure it is financially sustainable.
OSL does not have adequate performance targets and measures
OSL has four key deliverables as part of DPE’s business plan. These deliverables cover land management, working with other agencies, and ensuring the SRDF is sustainable. There was no evidence that OSL or DPE monitor whether OSL achieves all key deliverables.
Currently, OSL’s performance targets are limited to meeting dollar values. OSL does not have any measures to demonstrate the achievement of outcomes that align with its core business, such as its success in land management or in working with other agencies. OSL staff also said that dollar targets were not always adequate or appropriate to measure its business performance.
With the development of its Strategic Business Plan, OSL has the opportunity to clarify its future business direction. This includes ensuring it has a range of relevant goals and performance measures that will support it becoming a strategic land planning partner with NSW Government agencies and local councils, and a land holder for the long-term.
OSL’s current financial management approach may impact long-term sustainability
OSL has valued the land that it needs to purchase on behalf of government to meet long-term strategic land needs in the Greater Sydney region, at $1.2 billion. However, OSLs annual budget for purchasing land is only between $40 million and $50 million until 2021. Also, in each of the last four years, OSL has not spent more than $30 million on land purchases because it relies on landowners to initiate contact when they are ready to sell their land.
Without a more proactive approach, it is not possible for OSL to make needed purchases in a timely manner. OSL acknowledges the substantial gap between these values, but has not established a budget or plan for how it will purchase all the identified land.
OSL has developed a Divestment Strategy which provides a five-year schedule of planned divestments. This is land OSL owns which has been identified as no longer required for government purposes. OSL has established an approach to generate the best and highest price for these sales. While funds are generated through the sale of surplus land, it also means that OSL holds fewer land assets to sell. OSL has identified it will run out of surplus land within ten years.
OSL needs to finalise and implement a business model to ensure it is financially and operationally capable to sustain and grow its business for the long-term.
OSL is working to improve transparency and engagement with key stakeholders
To deliver on its role, OSL needs to be able to effectively engage and work with its stakeholders, including NSW Government agencies, local councils, and people selling or buying land.
NSW Government agencies we spoke with are generally satisfied with OSL’s level of engagement and consultation. However, it would be beneficial for all parties to clarify and document their expectations of each other through a formal arrangement. OSL could also be more proactive in promoting its services, and working with additional NSW Government agencies to identify strategic lands.
The local councils in the Sydney region we spoke with are not as satisfied with OSL’s engagement and communication. The councils advised that they do not consider they are well-informed of OSL’s plans for their area, or how their contributions to the SRDF are spent.
More broadly, the activities of OSL are not reported transparently to stakeholders or the general public. OSL is developing a communication package for local councils and the community. This is an opportunity for OSL to improve the transparency of its role, operations, projects, and the SRDF, as well as promote its services and achievements.
The Office of Strategic Lands (OSL) was established in 1951 to identify, acquire, manage and divest land required for the NSW Government's long term planning purposes. OSL acts on behalf of the Minister for Planning, as a Corporation Sole, under the Environmental Planning and Assessment Act 1979 (EP&A Act).
OSL acquires and manages land identified for long-term strategic needs, and then transfers or sells it to other government agencies for ultimate use. It also sells land identified as surplus to government’s long term strategic requirements. Surplus land can also be transferred to local councils. OSL operates only in the greater Sydney region (from Wyong in the north, to the base of the Blue Mountains in the west, and south to Wollondilly). OSL has 20 staff who manage over 6,000 parcels of land.
Parliamentary reference - Report number #290 - released 10 August 2017
Actions for Contingent workforce - management and procurement
Contingent workforce - management and procurement
The Department of Industry, Transport for NSW and the Department of Education were not able to demonstrate that the use of contingent labour is the best resourcing strategy to meet their business needs or deliver value for money.
None of the three agencies we reviewed were able to demonstrate that contingent labour is the best resourcing strategy to meet their agencies’ business needs or delivers value for money. There are three reasons for this. First, agencies’ use of contingent labour was not informed by workforce planning at an agency level, with limited work undertaken in this area. Second, two of the three agencies have limited oversight of their contingent workforce. Information is not reliable or accurate, reports are onerous to produce, and there is limited reporting to the agency’s executive. Finally, none of the agencies routinely monitor and centrally document the performance of contingent workers to ensure services are delivered as planned. Together, these factors make it difficult for agencies to ensure contingent labour is engaged only when needed, at reasonable rates, and delivers quality services.
Some of these issues will be addressed by Contractor Central, which had only been introduced at Education at the time of our review. The new software program enables staff to easily obtain real-time reports on its contingent workforce. The recruitment broker also has the potential to improve value through better negotiation and benchmarking of pay rates. However, Contractor Central will only address some of the issues highlighted above. Better workforce planning and performance monitoring are needed to ensure an agencies’ workforce, including contingent workers, meets its business needs and represents value for money.
Download appendices for report on Contingent workforce
Parliamentary reference - Report number #282 - released 27 April 2017
Actions for 2016 - An overview
2016 - An overview
This report focuses on key observations and findings from 2016 audits and highlights key areas of focus for financial and performance audits in 2017.
Financial reporting | |
Observation | Conclusion |
Only one qualified audit opinion was issued on the 2015–16 financial statements of NSW public sector agencies, compared to two in 2014–15. | The quality of financial reporting continued to improve across the NSW public sector. |
More 2015–16 financial statements and audit opinions were signed within three months of the year end. | Timely financial reporting was facilitated by more agencies resolving significant accounting issues early, completing asset valuations on time and compiling sufficient evidence to support financial statement balances. |
NSW Treasury’s early close procedures in 2015–16 were again successful in improving the quality and timeliness of financial reporting, largely facilitated by the early resolution of accounting issues. For 2016–17, NSW Treasury has narrowed the scope of mandatory early close procedures. |
The narrowed scope of mandatory early close procedures may diminish the good performance in ensuring the quality and timeliness of financial reporting achieved in recent years. To mitigate this risk, NSW Treasury has mandated that agencies perform non-financial asset valuations and prepare proforma financial statements in their early close procedures. It also encourages them to continue with the good practices embedded in recent years. |
Although most agencies complied with NSW Treasury’s early close asset revaluation procedures we identified areas where they can improve. | Asset revaluations need to commence early enough to ensure all assets are identified and the results are analysed, recorded and reflected accurately in the early close financial statements. |
Number of misstatements | |||||
Year ended 30 June | 2015-16 | 2014-15 | 2013-14 | 2012-13 | 2011-12 |
Total reported misstatements | 298 | 396 | 459 | 661 | 1,077 |
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.
Financial controls | |
Observation | Conclusion |
More needs to be done to implement audit recommendations on a timely basis. We found 212 internal control issues identified in previous audits had not been adequately addressed by 30 June 2016. |
Delays in implementing audit recommendations can impact the quality of financial information and the effectiveness of decision making. Agencies need to ensure they have action plans, timeframes and assigned responsibilities to address recommendations in a timely manner. |
Agencies continue to face challenges managing information security. Most information technology issues we identified related to poor IT user administration in areas like password controls and inappropriate access. | Agencies should review the design and effectiveness of information security controls to ensure data is adequately protected. |
We found shared service provider agreements did not always adequately address information security requirements. |
Where agencies use shared service providers they should consider whether the service level arrangements adequately address information security. |
Thirteen of 108 agencies required to attest to having a minimum set of information security controls did not do so in their 2015 annual reports. | The 'NSW Government Digital Information Security Policy' recognises the growing need for effective information security. With cyber security threats continuing to increase as digital services expand we plan to look at cyber security as part of our 2017–18 performance audit program. |
We identified instances where service level agreements with shared service providers were outdated, signed too late or did not exist. | Corporate and shared service arrangements are more effective when service level arrangements are negotiated and signed in time, clearly detail rights and responsibilities and include meaningful KPIs, fee arrangements and dispute resolution processes. |
Internal controls at GovConnect, the private sector provider of transactional and information technology services to many NSW public sector agencies were ineffective in 2015–16. We found mitigating actions taken to manage transition risks from ServiceFirst to GovConnect were ineffective in ensuring effective control over client transactions and data. | The Department of Finance, Services and Innovation should ensure GovConnect addresses the control deficiencies. It should also examine the breakdowns in the transition of the shared service arrangements and apply the learnings to other services being transitioned to the private sector. |
Maintenance backlogs exist in several NSW public sector agencies, including Roads and Maritime Services, Sydney Trains, NSW Health, the Department of Education and the Department of Justice. | To address backlog maintenance it is important for agencies to have asset lifecycle planning strategies that ensure newly built and existing assets are funded and maintained to a desired service level. |
Actions for Industry, Skills, Electricity and Water 2016
Industry, Skills, Electricity and Water 2016
The Auditor-General, Margaret Crawford released a report today highlighting a decline in net profits of electricity agencies and the distributions the government received from these agencies. The report also details continuing issues in the management of Crown Land and TAFE NSW's student administration system.
Actions for Fraud Survey
Fraud Survey
In a report released today, the NSW Auditor-General, Margaret Crawford provides a snapshot of reported fraud in the NSW public sector and an analysis of NSW Government agencies’ fraud controls based on a survey of 102 agencies.
Actions for Implementation of the NSW Government’s program evaluation initiative
Implementation of the NSW Government’s program evaluation initiative
The NSW Government’s ‘program evaluation initiative’, introduced to assess whether service delivery programs achieve expected outcomes and value for money, is largely ineffective according to a report released today by NSW Auditor-General, Margaret Crawford.
Government services, in areas such as public order and safety, health and education, are delivered by agencies through a variety of programs. In 2016–17, the NSW Government estimates that it will spend over $73 billion on programs to deliver services.
Parliamentary reference - Report number #277 - released 3 November 2016
Actions for Northside Storage Tunnel Project
Northside Storage Tunnel Project
The Northside Storage Tunnel was the first major public sector construction project using an alliance approach. In our opinion, the outcome of the project suggests that an alliance approach, when applied to a suitable project and managed appropriately, can support positive project outcomes. And in many respects the Alliance worked well. There are, however, a number of issues that we believe need to be addressed for future alliances.
Parliamentary reference - Report number #113 - released 24 July 2003
Actions for Implementing the Ovine Johne's Disease Program
Implementing the Ovine Johne's Disease Program
The implementation of the Ovine Johne's Disease (OJD) program in New South Wales has been prolonged and difficult. In our view, the OJD Program in New South Wales has experienced two major difficulties with its implementation: the lack of a strategic approach to program management, and an ill-defined governance structure. Both the NSW Government and industry need to be better organised and improve the planning, direction and co-ordination of the OJD Program and future programs.
Parliamentary reference - Report number #107 - released 26 February 2003