Our financial audits

Providing value to our financial audit clients
13 new modifications issued and 4 modifications cleared
13

New modifications in 2016

4

Modifications cleared in 2016

5

Repeat modifications in 2016

What are financial audits?

Financial audits provide independent opinions on NSW Government agencies’ financial statements. They identify whether agencies comply with accounting standards and relevant laws, regulations and government directions. Additional financial audits are undertaken each year on the General Government and Total State Sector Accounts. Financial statement audits also highlight opportunities for agencies to improve their accounting and financial systems.

Our client base

We completed 419 financial audits of NSW Government agencies in 2015–16 (see Appendix Two for the full list of our clients). They provide a diverse range of services and vary in size from large government departments, universities, State superannuation entities and utilities, to small boards and trusts. Excluding universities and controlled entities, these agencies collected income of approximately $99 billion, spent approximately $90 billion and managed more than $454 billion in assets.

NSW General Government and Total State Sector opinion

For the third consecutive year, the General Government and Total State Sector Accounts received an unqualified auditor’s opinion following more than a decade of qualifications. This outcome shows the government’s commitment to improve the quality of financial reporting across the NSW public sector. Compared to previous years, there were fewer significant errors in agencies’ 2014–15 financial statements submitted for audit and used for whole-of-government financial reporting.

Financial audit clients per sector %

 
  • 27: Education and universities

  • 15: Health

  • 11: Premier and cabinet

  • 10: Finance and services

  • 9: State and regional development

  • 9: Justice

  • 6: Transport

  • 5: Planning and environment

  • 4: Electricity and water

  • 3: Family and community services

  • 1: NSW Treasury

 

Modified opinions and conclusions

 
Number of new modifications
2012

 

2013

 

2014

 

2015

 

2016

 

Number of modifications cleared
2012

 

2013

 

2014

 

2015

 

2016

 

Number of repeat modifications
2012

 

2013

 

2014

 

2015

 

2016

 

 

New modified auditor’s opinions and conclusions

We issued 18 modified auditor’s opinions and conclusions on assurance engagements in 2015−16, including 13 new modifications.

AgencyReason for modification
Modified opinions and conclusions
Office of Sport

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The office did not have a Disaster Recovery Plan.
Local Land Services

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
Local Land Services did not have a Disaster Recovery Plan for the specified systems. The agreement with its external service provider managing the systems did not require Disaster Recovery Plans.
New South Wales Rural Assistance Authority

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The authority did not have a Disaster Recovery Plan for the specified systems. The agreement with its external service provider managing the systems did not require Disaster Recovery Plans.
Crown Solicitor’s Office

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The office did not have a Disaster Recovery Plan.
HealthShare NSW Parramatta and Newcastle
Service Centres

Report on the Service Organisation’s
Description of Controls, their Design and
Operating Effectiveness
The service centre’s system description stated that supplier Electronic Funds Transfer (EFT) payment files are appropriately encrypted. The EFT payment files for the period from 1 July 2014 to 14 May 2015 were unencrypted text files. The increased risk of unauthorised changes being made to EFT files before they are sent to the bank meant the control objective ‘disbursements are made to the appropriate suppliers’ was not achieved during that period.
HealthShare NSW Westmead service Centre

Report on the Service Organisation’s
Description of Controls, their Design and
Operating Effectiveness
The service centre’s system description stated that supplier EFT payment files are appropriately encrypted. The EFT payment files for the period from 1 July 2014 to 14 May 2015 were unencrypted text files. The increased risk of unauthorised changes being made to EFT files before they are sent to the bank meant the control objective ‘disbursements are made to the appropriate suppliers’ was not achieved during that period.
Long Service Corporation

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The corporation’s Disaster Recovery Plan was not tested in accordance with the plan.
NSW Electoral Commission

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The commission’s Disaster Recovery Plan for the specified system was not tested in accordance with the plan.
Sydney Cricket and Sports Ground Trust

Report on compliance with the NSW Government’s Disaster Recovery Planning Requirements
The trust’s Disaster Recovery Plan was not tested in accordance with the plan.
Technical and Further Education CommissionThe commission implemented a new Student Administration and Learning Management (SALM) system in October 2014. The commission used the SALM system to enrol new and existing students into relevant TAFE courses. System limitations prevented the commission from providing sufficient and appropriate audit evidence to support amounts recorded for student revenue and related transactions.
Supplementary Contracts Summary for Westlink M7 Motorway

Compliance with Section 5.3 of the ‘NSW Public Private Partnership Guidelines’
In preparing the Supplementary Contracts Summary, Roads and Maritime Services did not disclose all the elements listed in section 5.3 of the guidelines. Ten items under the ‘Background to the Project’ and 12 items under ‘Elements of the Contract’ were omitted on the basis there was no new relevant information within the listed component, or there was no material change to the revised contracts relevant to that listed component.
Supplementary Contracts Summary for the Lane Cove Tunnel

Compliance with Section 5.3 of the ‘NSW Public Private Partnership Guidelines’
In preparing the Supplementary Contracts Summary, Roads and Maritime Services did not disclose all the elements listed in section 5.3 of the guidelines. Eight items under the ‘Background to the Project’ and 13 items under ‘Elements of the Contract’ were omitted on the basis there was no new relevant information within the listed component, or there was no material change to the revised contracts relevant to that listed component.
M2 Motorway Supplementary Contracts Summary for the M2 Integration Project

Compliance with Section 5.3 of the ‘NSW Public Private Partnership Guidelines’
In preparing the Supplementary Contracts Summary, Roads and Maritime Services did not disclose all the elements listed in section 5.3 of the guidelines. Four items under the ‘Background to the Project’ and one item under ‘Elements of the Contract’ were omitted on the basis there was no new relevant information within the listed component, or there was no material change to the revised contracts relevant to that listed component.

Modified opinions cleared

We work closely with agencies to resolve qualification issues. This year we resolved four previous qualifications.

AgencyReason for modification
Delta ElectricityThe previous qualification arose as the corporation used the income approach to measure the fair value of power stations, without reference to outcomes from the sale process. The modification was removed because the approach used to value the power stations remaining after the sale was consistent with the accounting framework.
Delta Electricity AFSLThe removal of the qualified opinion issued on the corporation’s statutory financial statements (detailed above), also allowed removal of the qualification on the corporation’s AFSL Assurance Report, which includes an opinion on the corporation’s statutory financial statements.
New South Wales Self Insurance CorporationThe previous qualification arose as the corporation, in accounting for its general insurance contracts, applied the incorrect accounting standard. This resulted in material understatement of its liabilities and failure to disclose some required information about its insurance contracts. The modification was removed as the corporation applied the correct accounting standard.
Sport Knowledge Australia Pty LimitedThe previous qualification arose as sufficient and/or appropriate evidence to support material transactions pervasive to the company’s operations was not available. The company was deregistered in March 2014.

Modified opinions remaining

Six modifications remain unresolved. However, one modification, whilst not resolved, was not repeated because it relates to an audit the Audit Office only undertakes every third year. Two modifications relate to instances where agencies find it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry into their financial record systems. In these instances, a limitation of scope remains as we are unable to confirm the completeness of such revenue.

AgencyReason for modification
NSW Ministry of Health

Report on compliance with the prudential requirements of Division 57 of the Aged Care Act 1997 and Division 3 of Part 4 of the User Rights Principles 1997
The Ministry did not:

  • comply with the Records standard as required under section 45 to 48 of the Principles

  • comply with the Governance Standard as required under section 49 to 50 of the Principles

  • enter into four Bond agreements with care recipients within 21 days, as required under the Aged Care (Transitional Provisions) Act 1997

  • comply with the Rules around charging accommodation payments as required under section 14 to 22 of the Principles and Section 52F-1 of the Act

  • enter into five Refundable Deposit agreements with care recipients (who first entered care after 1 July 2014) within 28 days, as required under the Act

  • refund one bond within the statutory timeframe and did not pay the correct amount of interest
    for two care recipients’ bonds refunded during the year.

The Legislature

Review of compliance with the annual Determination of the Parliamentary Remuneration Tribunal
Five members’ claims were not submitted to The Legislature for payment within 60 days of receipt or occurrence of the expense.

Five members did not submit their mid-year ‘Sydney Allowance’ reconciliations to The Legislature by the 31 January 2015 deadline.

Five members did not submit their year-end ‘Sydney Allowance’ reconciliations to The Legislature by the 31 July 2015 deadline.

Five members did not complete an annual declaration stating the benefits accrued by way of loyalty/incentive schemes were used for parliamentary duties and not for private purposes.
The Sydney Children’s Hospitals Network (Randwick and Westmead) (incorporating the Royal Alexandra Hospital for Children)

Review of compliance with specified requirements of the Health Insurance Act 1973, and the Health Insurance (approval of Billing Agents) Guidelines (No.1) 2004
Trust monies were not paid directly into compartmentalised accounts in a timely manner.

Patients’ statement accounts did not set out the amount payable by the patient for each service.
Charles Sturt University Foundation TrustThe trust finds it impractical to maintain an effective system of internal control over fundraising revenue and voluntary donations until the initial entry of the receipt of this revenue and donations into their financial records system.
State Emergency ServiceThe State Emergency Service finds it impractical to maintain an effective system of internal control over fundraising revenue and voluntary donations until the initial entry of the receipt of this revenue and donations into their financial records system.