annual report - Audit Office of New South Wales - NSW Government

annual report - Audit Office of New South Wales - NSW Government

annual report 2011/12 The history of the Auditor-General 1824 William Lithgow appointed Colonial Auditor-General, to compile and examine the colony...

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annual report

2011/12

The history of the Auditor-General 1824 William Lithgow appointed Colonial Auditor-General, to compile and examine the colony’s accounts and report on government departments to the Governor.

1855 The UK Constitution Act 1855 formalised government in New South Wales, and Auditor-General made a member of the government.

1870 Powers and duties of Auditor-General first set in legislation, in the Audit Act 1870.

1902 Audit Act 1902 prohibited the Auditor-General from being a member of the Executive Council or of the parliament.

1929 Audit (Amendment) Act 1929 changed the tenure of office of the Auditor-General from life to ceasing at 65. Position of Assistant Auditor-General created.

1984 Public Finance and Audit Act 1983 established Auditor-General’s Office (6 January 1984).

1989 Auditor-General’s Office declared a statutory body, allowing it to be both more independent and more commercial.

1991 The Public Finance and Audit Act 1983 expanded the Auditor-General’s role to include performance audits, limited tenure to seven years and prevented acceptance of any other post in the NSW public service.

2001 Auditor-General’s role expanded to reporting on issues of waste, probity and financial judgement.

2004 Auditor-General given power to employ staff directly, and set wages and conditions.

Contents £ Highlights £ Our

inside cover

organisation 1

£ Parliament 7 £ Agencies 15 £ People 29 £ Profession 37 £ Governance 41 £ Finances 51 £ Financial

report

55

£ Appendices 77 £ Index 98

GPO Box 12 Sydney NSW 2001

Members of Legislative Assembly Parliament House Sydney NSW 2000

Under section 12A of the Annual Reports (Statutory Bodies) Act 1984, I have pleasure in submitting for information of members, the reports of the activities of the Audit Office of New South Wales for the year ended 30 June 2012.

This annual report summarises the activities and performance of the Audit Office of New South Wales for 2011/12 against the main objectives, strategies and targets in its strategic plan. As well as reporting on the financial results for the past year, the report looks to the year ahead. This and earlier annual reports are available on our website and printed copies are available on request. audit.nsw.gov.au

Peter Achterstraat Auditor-General 27 September 2012

Cover: (L–R) Chris Clayton – Audit Leader, Bibiana Yeung – Senior Auditor, Aaron Green – Director, Financial Audit Services Client location: State Transit Authority, Leichhardt Bus Depot

Turn the page for highlights

2011–12 highlights Parliament

Agencies

People

97% of parliamentarians satisfied with the Audit Office’s reports and services

95% of financial audit and 98% of performance audit recommendations accepted

90% of employees describe the Audit Office as ‘a great place to work’

100 per cent believe in the Audit Office’s ability to provide advice and information which addresses their needs.

Increased scope of client surveys, including CFOs, CEOs and Audit and Risk Committee Chairs.

77 per cent employee satisfaction, increased from last year.

98 per cent agree we provide valuable information on public sector performance.

93 per cent of agencies believe we conduct our audits professionally.

97 per cent satisfied with the Audit Office’s reports and services.

95 per cent of financial audit recommendations accepted.

95 per cent agree the Audit Office provides high quality services.

98 per cent of performance audit recommendations accepted.

64 per cent employee productivity.

92 per cent believe our financial audit reports assist in monitoring the financial performance of the NSW public sector.

7 new modifications issues and 9 modifications cleared.

51 per cent of middle management are women, consistent with last year.

452 financial audits completed.

9 per cent staff turnover, down from 11 per cent last year.

82 per cent of employees moderately to highly engaged. 87 per cent high employee morale.

91 per cent believe our performance audit reports are easy to understand.

9 performance audits completed.

96 per cent of 30 June financial audits reported on time.

We received and examined 16 allegations of serious and substantial waste of public money.

100 per cent of 31 December financial audits reported on time.

£ Refer

16 performance audits followed up by the Parliament of New South Wales’ Public Accounts Committee. £ Refer

to page 7

Overall satisfaction

to page 15

2006

93

Overall satisfaction % Aggregate performance indices (for comparison purposes, 2010–11 figures have been adjusted so that the same questions are included for 2010–11 and 2011–12).

2008

91

2009

94

2010

90

2012

97

2013 TARGET

90

2008

71 77

2009

70 67

2010

70 73

2011

74 67

2012

74 66

2013 TARGET

4-star greenhouse building rating maintained. £ Refer

to page 29

Employee satisfaction %

Financial audit clients (CFO only) Performance audit clients

% satisfied or very satisfied. Survey not conducted in 2007 or 2011.

90 per cent of employees describe the Audit Office as ‘a great place to work’.

75 75

2008

78

2009

76

2010

79

2011

76

2012

77

2013 TARGET

80

2011–12 highlights (continued) Profession

Governance

Benchmarks

45 presentations made, 5 more than last year

Our governance framework reflects the eight core principles of the ASX Corporate Governance Principles and Recommendations

Our costs are significantly less than other Australian audit offices

45 presentations delivered to the public and the profession. 14 submissions made on proposed changes to accounting and auditing standards. to page 37

The Audit Office did not receive any formal GIPA access applications.

2010

38

2011

40

2012

45

2013 TARGET

35

Total audit costs (excluding payroll tax) per $’000 of public sector transactions $ 2012 results not yet available.

Audit Office of NSW Average of Australian audit offices 2007

2008

$0.4 million profit (excluding superannuation adjustments), outside our medium-term break-even target

96 per cent of our creditors paid on time. to page 51

.24 .37

2009

.25 .36

2010

.25 .34

2011

Current ratio (solvency) is healthy.

£ Refer

.23 .36

Finances

.26 .35

Total audit costs (excluding payroll tax) per $’000 of public sector assets $ 2012 results not yet available.

Operating results/$m

Audit Office of NSW Average of Australian audit offices

Excluding superannuation

2007 3.7

.12 .20

2008

.13 .20

2009

2.1

.13 .18

0.4

-0.3 -0.8

2013 TARGET

35

to page 41

2012

2009

£ Refer

2011

36

2010

2008

2009

Presentations given

2008

£ Refer

No internal suspected or actual frauds were reported.

We benchmark ourselves against the national average for audit offices.

-0.4

2010

.13 .17

2011

.13 .17

2010 data has been revised from last year’s annual report. Data is now based on Australian Bureau of Statistics public sector transaction data for 2010, which was not available at time of report being finalised in 2010.

Our organisation Who we are

Built on strategic foundations Our vision To make the people of New South Wales proud of the work we do.

The Audit Office of New South Wales is a statutory authority, established under the Public Finance and Audit Act 1983, that conducts audits for the Auditor-General.

To perform high quality independent audits of government in New South Wales.

The Auditor-General helps parliament hold government accountable for its use of public resources.

Our objectives

What we do

Our advice – parliament and agencies regularly seek our advice and act on our recommendations.

The Auditor-General is responsible for audits and related services.

Our people – are highly skilled and dedicated to improving the public sector.

The Audit Office conducts financial and performance audits, principally under the Public Finance and Audit Act 1983 and the Corporations Act 2001.

Our mission

Our profession – we are known for influencing auditing in Australia.

Our values Purpose – we have an impact, are accountable, and work as a team. People – we trust and respect others and have a balanced approach to work. Professionalism – we are recognised for our independence and integrity and the value we deliver.

Audit Office of New South Wales*

Financial audits provide an independent opinion on NSW Government agencies’ financial statements. They identify whether agencies comply with accounting standards and relevant laws, regulations and government directions. Performance audits build on our financial audits by reviewing whether taxpayers' money is spent efficiently, effectively, economically and in accordance with the law.

Report

Parliament

Accountability

Audit and Review

Special reports seek to confirm that specific legislation, directions and regulations have been adhered to by government agencies. The Auditor-General also provides certain assurance services for Commonwealth grants and payments to the State under Commonwealth legislation.

Our main clients

Agencies Treasury Transport Attorney General and Justice Premier and Cabinet Health Trade and Investment, Regional Infrastructure and Services Finance and Services Education and Communities Family and Community Services Government Universities in New South Wales

£ Parliament £ NSW £ The

of New South Wales.

Government agencies.

people of New South Wales.

Our resources 271 full-time equivalent staff at the Audit Office at 30 June 2012. $34.2 million revenue from government agencies for audits of their financial statements. $6.6 million from the government for our performance audits and reports to parliament. 10 external contract audit agents assist with our financial statement audits, representing about 7 per cent of our financial audit work.

* The Audit Office of New South Wales sits independently from government, alongside other watchdog agencies.

Our history For more than 185 years, the Audit Office of New South Wales has been assisting the Parliament of New South Wales hold government accountable for its use of public resources.

1 Audit Office of New South Wales | Annual Report 2011/12

Auditor-General’s message I am pleased to present my 2011–12 annual report of the Audit Office of New South Wales. The staff at the Audit Office continue to impress me with their ideas and commitment to delivering high quality service to our clients and stakeholders.

Succeeding through challenges This past year we have responded to the challenge of bringing forward financial reporting as recommend by the Public Accounts Committee. We have worked well with Treasury and those government agencies that have implemented the financial ‘early close procedures’ this year, and will continue to do so with the remaining agencies next year.

Innovation, the key to organisational success Innovation is fundamental to successful service delivery and I am proud that it is alive and well at the Audit Office of New South Wales. Our people have many good ideas on how to improve what we do. After all, they are out there providing audit services to NSW Government agencies, NSW Parliament and the greater public. As a result, they have a unique perspective on how we can improve, while the Office Executive and I look to provide an environment in which people feel encouraged to suggest ways to improve and support them to implement their suggestions. We held our first Innovation Week in 2011 to encourage staff to develop creative ideas that would solve some key challenges and issues within the Audit Office. Providing these kinds of opportunities contributes to the positive engagement of our staff, a key factor in good service delivery.

Good client relationships I am very pleased with the ongoing positive impact of the government’s initiative to improve governance in the NSW public sector through better internal audit, risk management and Audit and Risk Committees. This started in 2009 with the release of Treasury’s guidance on audit and risk management, and we have built on this foundation by forging stronger links with Audit and Risk Committees across the public sector.

Our parliamentarian and client surveys show that, overall, satisfaction and value for money for our services remains at high levels, supporting the outstanding results we achieved last year. That said, I am conscious that there are always areas we can improve on and we will continue to work closely with the Public Accounts Committee, parliamentarians and agencies to effect positive change. A highlight this year was the April 2012 forum we convened on ‘Financial Issues Emerging in Government Agencies’. Attended by the Chairs of the Audit and Risk Committees from 17 of the largest departments/State owned corporations and universities in the sector, the Treasurer and Office Executive from the Audit Office, the forum provided a fantastic opportunity for all involved to discuss ‘big picture’ issues while momentarily away from their day-to-day concerns.

Challenges for the NSW public sector Many NSW public sector agencies have been restructured in recent years and continue to operate under tight budgetary constraints. Handled well, restructures can provide significant public benefit, but there are inherent dangers too. An area that is sometimes overlooked when restructuring is the ‘back office’. Without good systems and information, government, agency management and frontline staff are not able to make informed decisions and provide the services desired of them by the public of New South Wales.

Governance is paramount. Agencies that are governed well outperform others. I am particularly pleased that a number of agencies have adopted my ‘governance lighthouse’ published in my AuditorGeneral’s Report to Parliament 2011, Volume Two, which is based on the Australian Securities Exchange Corporate Governance Principles. The lighthouse is a great instrument to help organisations identify and address risk, particularly in periods of change. My office and I look forward to working with government and agencies to minimise the risks associated with amalgamation.

The year ahead The coming year promises to be exciting for the Audit Office. Our three-year strategic plan will reach the halfway point, delivering improvements through its five focus areas. As part of the plan, we will implement a number of major strategic initiatives that will increase the effectiveness and efficiency of our service delivery. These include a new audit methodology and the replacement of our practice management system, both of which will deliver greater value for money for our audit services and, ultimately, the people of New South Wales.

Peter Achterstraat Auditor-General

In 2011, I reported that restructures impacted agencies’ financial reporting process for the year ended 30 June 2011. This financial year has presented similar challenges for agencies and my office in the audit of NSW Government agencies’ financial reports.

2 Audit Office of New South Wales | Annual Report 2011/12

3 Audit Office of New South Wales | Annual Report 2011/12

Office Executive Experience and performance

The Office Executive provides the leadership necessary for the Audit Office to achieve its strategic direction and goals. The Office Executive is led by the Deputy Auditor-General and draws on the expertise of other staff when required.

Peter Achterstraat

Louise Mooney

John Viljoen

Auditor-General B.Ec (Hons) LLB, B.Comm, FCA, FCPA, FCIS, FSCA, GAICD

Assistant Auditor-General, Corporate Services LLB (Hons), FCA

Assistant Auditor-General, Financial Audit B.Acc, CPA

Peter Achterstraat was appointed the Auditor-General of New South Wales on 25 September 2006. Before joining the Audit Office, he was the Chief Commissioner State Revenue for New South Wales from July 1999. Peter spent 20 years in the Australian Tax Office where he had a variety of roles, and was appointed Deputy Commissioner of Taxation with the Australian Taxation Office in 1987.

Louise Mooney commenced her accounting career with a 'Big Four' accounting firm where she gained a solid foundation of experience in audit and investigatory roles in a wide range of industries. Louise has since held a number of senior finance positions in both public and private sector service industries in Australia and overseas. Prior to joining the Audit Office in 2008, Louise was Finance Director at The Children’s Hospital at Westmead and two major Australian commercial law firms.

John Viljoen joined the Audit Office in 1996, after 18 years in the private sector. He spent nine years with a ‘Big Four’ accounting firm, where he was responsible for delivering audit services to clients in Australia and Africa.

Tony Whitfield Deputy Auditor-General B.Comm, FCA

Greg Gibson

Before joining the Audit Office in 1994, Tony Whitfield spent 29 years in the private sector, including 17 years as an audit partner in a ‘Big Four’ accounting firm. During that time, he was responsible for delivering audit and other services to a portfolio of clients, and for audit technology within the firm. Tony has also worked in the USA, and is a past NSW State Chairman of the Institute of Chartered Accountants in Australia.

Assistant Auditor-General, Financial Audit B.Ec, Grad Dip App Finance, FCPA, FCA, F Fin

Greg Gibson joined the Audit Office in 1973 and was appointed Assistant Auditor-General on 1 July 2006. Greg has extensive experience in the accounting and auditing profession, specialising in the public sector. He has been at the forefront of all major public sector accounting and financial reporting milestones.

Organisational structure at 30 June 2012

Audit Office of New South Wales Auditor-General Peter Achterstraat

Executive Officer Barry Underwood

Deputy Auditor-General Tony Whitfield

Performance Audit

Financial Audit

Corporate Services

Assistant Auditor-General

Assistant Auditors-General

Assistant Auditor-General

Rob Mathie

Greg Gibson John Viljoen Scott Stanton

Louise Mooney

Scott Stanton Assistant Auditor-General, Financial Audit B.Comm, FCPA Scott Stanton has significant experience in leading the delivery of audit services to a diverse range of public sector clients including those in the transport, electricity and university sectors. He is the immediate past Chair of CPA Australia’s NSW Public Sector Committee and is currently serving on CPA Australia's NSW Divisional Council. Scott joined the Audit Office in 1987 and was appointed Assistant Auditor-General on 30 August 2010.

Rob Mathie Assistant Auditor-General, Performance Audit MA (Hons), Master of City Planning Rob Mathie rejoined the Audit Office in 2010 after ten years with a ‘Big Four’ accounting firm, where he worked on internal audits and performance reviews of government agencies across Australia. Rob joined the Audit Office originally in 1993 from the Audit Commission in England after an early career in consulting and public sector management.

4 Audit Office of New South Wales | Annual Report 2011/12

Back: Greg Gibson, Peter Achterstraat, John Viljoen. Front: Tony Whitfield, Louise Mooney, Scott Stanton, Rob Mathie. Client location – Art Gallery of New South Wales 5 Audit Office of New South Wales | Annual Report 2011/12

The year ahead Our activity in 2012–13 will be driven by our strategic planning process and our five strategic focus areas. Strategic planning process The Senior Leadership Team, made up of financial and performance audit Directors of Audit and Executive Corporate Services Managers, meets with the Office Executive every 30 days to set and report on strategic tasks and milestones, and monitor and review the outcomes we expect to achieve at the end of the reporting cycle.

Adopting a three year cycle The success of our annual strategic planning process over the last two years has led us to expand to a three-year planning cycle driven by our key strategic initiatives. We have determined the five focus areas critical to our business planning and have set out goals and benchmarks for 2015.

Strategic focus areas Outlined below are the outcomes we are expecting to achieve within each of our strategic focus areas by the end of 2015. Some of the activities we plan to undertake to achieve these outcomes are detailed throughout this report and referenced below. Our Sustainability Outcomes for 2015: £ We

meet stakeholder expectations

£ We

have the financial resources to achieve strategic outcomes

£ Our

clients would choose us

£ Our

independence is our brand

£ Our

people demonstrate business acumen.

Planned activities for 2012–13 include: £ Identifying

factors which would influence our pricing strategy

£ Establishing

a position on expanding our services.

See pages 8, 9, 11, 14, 17, 19, 50 and 53 for further details.

Planned activities for 2012–13 include: £ Assessing

the talent and capability of our Leadership Team and its impact on our culture

£ Developing

a strategy for diversity and inclusion

£ Developing

a leadership development

framework.

£ We

have talented people with diverse skills

£ Our

people are satisfied with their work/life balance

£ Our

people are proud to be part of the Audit Office

£ We

retain corporate knowledge

£ Our

people feel valued.

£ Developing

a strategy for use of alumni and secondments as a workforce resource

£ Documenting

skills available in the Audit Office and identify critical gaps

£ Undertaking

activity to improve staff ability to work sustainably.

See pages 30 and 33 for further details.

The Way We Work Outcomes for 2015: £ We

deliver efficient and effective services using our new audit methodology and technology

£ We

have the information and systems to manage our business

£ Our practice and knowledge

management systems enhance service delivery £ Our

physical and technological environments support our service delivery model innovative culture is maintained.

a new practice management system

£ Implementing

£ Our

£ Continuing

are an employer of choice.

influence expectations and we deliver. a social media strategy

£ Developing

an engagement strategy for our clients’ Audit and Risk Committees

£ Further

media analysis of AuditorGeneral’s Reports to Parliament to assess public engagement.

Our strategic initiatives are embedded within the five focus areas of our strategic plan and will drive the direction of our work over the next three years to 2015. Planning: ensure our workforce meets our current and future needs and challenges (see pages 34 and 94).

£ Workforce

£ Practice

Management Information System (PMIS): replace the current system with a new PMIS to more efficiently capture time worked and drive improvement to business processes and information (see pages 34 and 47).

£ Audit

Methodology Replacement: deliver a new audit approach and related software aimed at significantly improving value to clients (see pages 11, 31, 34, 38, 43, 47 and 49). Management: redevelop the current system to streamline recordkeeping and support establishment of a paperless office (see page 35). Enhancement: enhance the way staff access and share information.

£ Intranet

a paperless office strategy

£ We

£ We

£ We

£ Records

£ Implementing

leadership team better reflects our workforce

work is topical, relevant and has high impact

Strategic initiatives

Planned activities for 2012–13 include:

£ Developing

work reaches the public

£ Our

See pages 8 to 14, 17, 19, 39, 48 and 50 for further details.

Planned activities for 2012–13 include:

have collaborative, constructive and inspirational leaders

the Public Accounts Committee and clients value our work

£ Implementing

Outcomes for 2015:

Outcomes for 2015:

have a seamless office working together

£ Parliament,

Planned activities for 2012–13 include:

Who We Are

Our Leadership and Culture £ We

Outcomes for 2015:

£ Our

See pages 34 and 40 for further details.

£ Our

How We Influence For Impact

a new financial audit methodology and supporting software to implement new initiatives from our innovation program.

See pages 11, 17, 19, 31 and 35 for further details.

6 Audit Office of New South Wales | Annual Report 2011/12

Parliament Regularly seeks and uses our advice. The Auditor-General and the Audit Office of New South Wales assess the performance and accountability of NSW government agencies by: £ reporting

to the Parliament of New South Wales on our audits

£ working

closely with parliamentary committees

Peter Achterstraat Auditor-General / Carolina Espinosa Rodriguez Auditor Location – Parliament House

Satisfaction Parliamentarians satisfied with reports and services

97% satisfied with the Audit Office’s reports and services 92% believe our financial audit reports help monitor NSW financial performance 91% believe our performance audit reports are easy to understand Financial audit reports rate highly

these two questions stating good or very good for both these areas, up from 91 per cent and 86 per cent respectively in 2010

Parliamentarians rated the AuditorGeneral’s reports on financial audits very well. The majority of parliamentarians who had referred to the reports in the previous 12 months felt the reports:

£ our

reports and services providing valuable information on public sector performance, with 98 per cent of respondents in agreement, an increase from 91 per cent in 2010

£ clearly

identified the significant issues and their implications, with 93 per cent of respondents in agreement, a significant increase from 88 per cent in 2010

£ our

reports communicating issues clearly, with 93 per cent of respondents in agreement, an increase from 87 per cent in 2010.

Our most recent survey was conducted through April, May and June this year after a deferred survey last year due to parliament’s caretaker period and settling in after the 2011 State election.

£ assisted

them to monitor the financial performance of the NSW public sector, with 92 per cent in agreement, up from 85 per cent in 2010

As always, survey results are a useful tool for highlighting areas for improvement. We must continue to make parliamentarians aware that we perform audits with integrity. While still a positive result, total respondents who agreed with this statement dropped slightly to 92 per cent, from 93 per cent in 2010. On the whole, the statements about general impressions of the Audit Office were very positive, with areas for improvement noted under the specific areas of financial and performance audit in the following paragraphs.

We are extremely proud of parliamentarians’ satisfaction with the Audit Office this year, as overall satisfaction with the Audit Office’s reports and services rose to 97 per cent, up from 90 per cent in 2010, a target we had successfully reached for the four years previous. Parliamentarians were particularly positive about: £ our

reports and services, 95 per cent agreeing we provide high quality, an increase from 84 per cent in 2010

£ our

responsiveness and our ability to provide advice and information which addresses their needs, with 100 per cent of parliamentarians who answered

£ were

easy to understand, 91 per cent in agreement, consistent with 2010.

Parliamentarians continue to refer to our financial audit reports often, the result consistent with 2010 at 25 per cent, however those referring to the reports very often dropped from 20 per cent in 2010, to eight per cent this year. Parliamentarians felt we could improve the layout and design of our financial audit reports, with 88 per cent in agreement that the reports were effectively presented, down slightly from 90 per cent in 2010.

Identify issues and implications

Easy to understand

87

90

Identify issues and implications

93

91

97

97

2010

93

2009

94

2008

89

2006

87

2013 TARGET

90

2012

91

2010

91

2009

91

2008

93

2006

93

2008

90

2006

93

2013 TARGET

88

2012

2009

83

2010

92

2008

2006

87

2013 TARGET

Surveys not conducted in 2007 or 2011

2012

Surveys not conducted in 2007 or 2011

2010

Satisfaction with performance audit reports %

2009

Satisfaction with financial audit reports %

91

93

2013 TARGET

Parliament is our primary client, so it is vital we understand parliamentarians’ views of our performance. We continually strive to ensure parliamentarians value our work and we meet their expectations, as driven by our strategic focus areas of ‘Our Sustainability’ and ‘How We Influence for Impact’.

2012

Satisfaction remains high

Easy to understand

Audit Office of New South Wales | Annual Report 2011/12

Performance audit reports rate well

Our reports and services rate above other State audit offices

Parliamentarians continue to rate the Auditor-General’s performance audit reports highly, however we are taking the slight drop in positive responses into consideration as we plan for 2012−13. Parliamentarians who had referred to performance audit reports in the previous 12 months felt the reports:

The Auditor-General has regularly suggested government agencies assess their performance by comparing results with similar organisations in other States. In 2005, we began comparing how satisfied parliamentarians were with services against results from other State audit offices through a separate benchmarking survey run by the Australasian Council of AuditorsGeneral (ACAG). In 2012, the Victorian and Western Australian audit offices conducted similar benchmarking surveys, along with the Australian National Audit Office.

£ were

easy to understand, with 91 per cent in agreement, down from 97 per cent in 2010

£ clearly

identified the significant issues and their implications, with 87 per cent of respondents in agreement, however this also decreased from 93 per cent in 2010.

Some parliamentarians were less enthused about the layout and design of the reports in 2012 than they were in 2010. We shall consult further with them in 2012–13 to address these concerns. Although parliamentarians rate our performance audits highly, we would still like to see more of them accessing the reports regularly.

On an overall measure of satisfaction with reports and services, 97 per cent of our parliamentarians were satisfied, a great jump from 90 per cent in 2011. This is well above the 92 per cent average for the Australian National Audit Office, together with the audit offices of Victoria, Western Australia and New South Wales. We rated above the average of the four audit offices for the four key areas measured (see graph below). Ninety-one per cent of parliamentarians believed our reports and services help improve public sector administration, compared to the 88 per cent average of the four offices. Ninety-five per cent of our parliamentarians believed the Audit Office of New South Wales provides high quality reports and services, above the combined average of 92 per cent.

The year ahead The detailed results from our surveys, and from our discussions with parliamentarians, point to some areas to improve existing services and develop new ones. In the coming year we will explore with parliamentarians how we might improve these services and our performance generally. In this regard, the Public Accounts Committee (PAC), which examines and follows up on all our reports, provides a critical sounding board. Our strategic planning recognises the importance of the PAC and parliamentarians in our future work. Two of our strategic focus areas for 2012–13, ‘Our Sustainability’ and ‘How We Influence For Impact’, focus on working more closely with the PAC and parliamentarians to deliver stronger services for parliament, and through them for the people of New South Wales (see page 6 for more details on our strategic focus areas).

Satisfaction compared with other participating State audit offices Audit Office of NSW Other State audit offices Provide high quality reports and services

Provide valuable information on public sector performance

Help improve public sector administration

Reports communicate issues clearly

95% 92% 98% 97% 91% 88% 93% 91%

9 Audit Office of New South Wales | Annual Report 2011/12

Assurance Our financial audits provide assurance to parliament

452 financial audits completed 23 audit opinions required modification Providing an independent opinion

this year compared to 472 last year.

Parliament requires reliable financial information on the operation of NSW public sector agencies. We take pride in providing parliament with independent audit opinions on agencies’ financial statements.

In addition to audits of individual agencies, we also audit the financial performance and position at the whole of government level, the Total State Sector Accounts. These accounts provide financial information to parliament on a statewide basis, for example total State borrowings.

This year our opinions included 23 adverse and qualified opinions.

2012

5

5

5

2012

2010

2009

2008

452

2011

Modifications of an audit opinion can be adverse, qualified or disclaimed. Adverse opinions are issued when misstatements in the financial statements are material and pervasive. Qualified opinions are issued when there are material misstatements in the financial statements or we cannot get all the evidence we require. We will disclaim our opinion only where we cannot get the evidence we need and the effects could be material and pervasive.

Many of the qualified opinions related to agencies with fundraising activities who found it impracticable to ensure all income from these activities is recorded.

472

2011

During the year we issued modified audit opinions on the financial statements of 23 of the 452 (five per cent) government agencies, consistent with last year.

495

2010

Modified audit opinions

We also provide other assurance audits and reviews to assist agencies in delivering their services. Included are audits and reviews related to income grants from the Federal Government and Public Private Partnerships.

496

Modified audit opinions %

Repeat modifications

4

During 2011–12, we issued 16 repeat modifications, two less than last year, including a qualification of the NSW General Government and Total State Sector's financial statements. We continue to notify parliament of these modifications and encourage the agencies concerned to act on our recommendations.

3

2009

We completed 452 financial audits

495

2008

Our audits comply with professional quality and independence requirements. Parliament needs to be assured our audits are independent. A strong demonstration of our independence is that we do not provide non-audit services unlike other audit service providers.

Number of audited entities

New modifications We issued seven new modified opinions in 2011−12. For details of these modifications see pages 20 to 22.

Comparing costs with other States

Cost per financial audit opinion ($’000)

We compare our financial audit costs with other Australian audit offices.

Audit Office of NSW All Australian audit offices

At $71,076, our average cost of a financial audit exceeds the average of $67,000 for all Australian audit offices, for the first time. For 2010–11, our increased costs reflected an eight per cent decrease in the number of opinions issued and a 12 per cent increase in contractor costs. The amalgamation of a number of agencies contributed to the reduced number of opinions, and at the same time to the increased costs incurred auditing the different systems. Additional audit work on the eight area health services for the split into 18 networks incurred the additional contractor costs, but there were no opinions issued. If opinions had been issued our average cost of an audit would have decreased to $69,800 per opinion.

61

67 60

69 61

65

67

71

67

51

2007

2008

2009

2010

2011

Data for 2012 not yet available

10 Audit Office of New South Wales | Annual Report 2011/12

Timeliness of reporting to parliament The results of our audits were reported to parliament in ten volumes of the Auditor-General’s Report to Parliament in 2011–12. We have a strategic focus to ensure our reports are informative, persuasive and fair. Each of our volumes has a focus on a particular industry and in most we include overviews summarising significant issues and activities across major industries. This year, as a result of the work done under our ‘Stakeholder Value’ strategic focus area, we increased our industry overviews which now cover: £ Electricity £ Superannuation £ Environment £ Water £ Emergency £ Law

We recognise that parliament and other stakeholders need reports that are timely to assist prompt scrutiny of agencies’ financial performance. For agencies with a 30 June balance date (most of our clients) our internal benchmark is to report to parliament before the end of the calendar year. Our other financial audits (mainly universities) have a 31 December year-end and our reporting to parliament benchmark is by the end of May each year. Previously our internal benchmark was to report on agencies within 19 weeks of receiving their financial reports. With the move to reporting based on an industry focus this benchmark was no longer appropriate due to the need to group agencies in particular industries for reporting. We have included the former measure here for comparison.

Services

and Order

In 2012–13 we will continue to provide assurance to parliament by focusing on the following initiatives in our strategic focus areas. Our Sustainability £ Ensuring

we respond to stakeholders’ changing expectations. We will assess the impacts on our services of the ‘NSW Commission of Audit on Public Sector Management’ report and the ‘Financial Audit (The Lambert Review)’ report.

£ Promoting

to stakeholders the value of our brand of independence.

The Way We Work £ Implementing

major initiatives to improve the efficiency and effectiveness of our services including:

- a new financial audit methodology and technology

£ Ports £ Transport £ Cultural

The year ahead

- new business management systems.

Institutions

£ Health.

£ Taking

advantage of technology to benefit our mobile workforce which in turn will benefit our stakeholders.

£ Continuing

Reports to parliament (new benchmarks) 96

100

Reports to parliament within 19 weeks % (previous benchmark) 100

100

89

87

86

85

85

85

to build our innovative culture following a successful innovation program commenced in 2011−12.

How We Influence For Impact £ Enhancing

our value to parliament and other stakeholders through impactful reporting on significant topics.

30 June audits reported by end of December %

31 December audits reported by end of May %

2013 TARGET

2012

2011

2010

2009

2008

2013 TARGET

2012

2013 TARGET

2012

£ Increasing

the community’s awareness of the relevance to them of the work we do. We will use technology and other means to enable our reports to be more widely distributed.

£ Continuing

liaison with stakeholders to understand expectations and delivering to those expectations.

11 Audit Office of New South Wales | Annual Report 2011/12

Effectiveness, efficiency and economy Our performance and financial audits help parliament assess agency performance

9 performance audits completed 16 performance audits followed up by Public Accounts Committee Helping to improve public administration One of our key strategic objectives under our 2012–13 strategic focus area ‘How We Influence For Impact’ is to improve the value of services we provide to our stakeholders. Performance audits are an important component of this strategy, delivering almost half the reports the Audit Office publishes each year. Performance audits review the effectiveness, efficiency, economy and compliance of government agencies. They aim to inform NSW Parliament and the public about how well government programs are delivered. Where we find performance gaps, we make practical recommendations to help agencies fill them. We also work closely with other watchdog agencies in New South Wales and with audit offices in other jurisdictions to improve our services and increase the impact of our work. In our 2011–12 performance audit program we commenced work on 19 topics and completed nine by yearend, plus one special review undertaken in conjunction with our Financial Audit team. They covered a wide range of issues from speed cameras to domestic violence, from IT contracts to humanitarian entrants (for more details see pages 23 to 28). Seven topics planned were deferred to allow time for recently-announced government initiatives to be implemented.

Adding value to parliament Parliament is our primary stakeholder for performance audit, providing the funding and reviewing our work. Parliament is also an important source of ideas for performance audit topics. Members of parliament in 2011−12 provided some 30 suggestions to the Audit Office, a number of which have gone forward into our audit planning process. Ministers themselves make suggestions for audits, as they did in 2011 with speed cameras and in 2012 in relation to fraud prevention. Some audits are required by legislation, such as the special review on the Solar Bonus Scheme released in November 2011. In 2012−13, legislation will require us to undertake reviews of changes to government advertising and to the Police Death and Disability Insurance Scheme. Parliament’s Public Accounts Committee (PAC) plays a key coordinating role with the Audit Office and we liaise closely with its staff. The PAC makes suggestions for the performance audit program and comments on our proposals, as well as undertaking inquiries of its own.

Importantly for us, the PAC also follows up recommendations made in performance audit reports to make sure actions agreed by agencies are implemented. In 2011–12, the PAC followed up 16 performance audits (as well as repeat recommendations in financial audits) and held hearings on three audits where it sought more information. With few exceptions, and some delays, the follow ups found that agencies were taking the actions agreed in the reports. For more information on our work with the PAC see page 14. The value we add to the parliamentary process is illustrated by the comments made by parliamentarians in our recent survey (see page 8):

'I think the Audit Office does a good and difficult job. It plays a critical role in terms of governance of programs and is very useful in program design and implementation.' 'The Auditor-General and his team perform an important function and fulfil their role professionally and competently.'

Number of performance audits completed 14 13 12 11 9

2013 TARGET

2012

2011

2010

2009

2008

7

12 Audit Office of New South Wales | Annual Report 2011/12

Cost of performance audits The average cost of performance audits published in 2011−12 was $219,000. The increase of ten per cent from last year reflects the changing scope and complexity of the subject matter. More complex audits involve multiple agencies and more staff. In 2011−12, we typically used teams of two performance auditors to complete each audit, with support from our financial audit and corporate services colleagues for industry knowledge, agency liaison, data analysis and report production. In addition, we used specialist advisers on one-third of our performance audits.

Reporting on agency performance information During 2011−12, our financial audit reports to parliament included comments on agencies’ performance indicators and focused on: £ Universities £ Total

State Sector

£ Electricity £ Superannuation,

Compensation

and Housing £ Environment,

Water and Regional

Infrastructure £ Law,

Order and Emergency Services

£ Transport £ Education

and Ports and Communities

£ Health.

The reports included recommendations for financial and operational improvements on agencies across these sectors.

The year ahead In 2012–13 we will continue to be driven by our strategic focus area ‘How We Influence for Impact’. We will continue to work closely with parliament, particularly the Public Accounts Committee, and agencies, to ensure our work is topical, relevant and impactful. We plan to explore different ways of interacting with different groups and increasing engagement by: £ connecting

with the public through social media channels

£ engaging

further with Audit and Risk Committees

£ conducting

more extensive media analysis to assess our engagement with the public.

Most agencies exist to provide services to the people of New South Wales, and while much information relating to financial performance is reflected in the financial statements of the agencies, we believe that publishing additional key performance information offers parliament a balanced ‘report card’ on agencies’ performance. We believe this information helps the people of New South Wales assess whether their tax dollars have been spent efficiently and effectively.

Average cost of performance audits $’000 390

265

250

2013 TARGET

2012

175

2011

2010

2009

2008

198

219

13 Audit Office of New South Wales | Annual Report 2011/12

Parliamentary response to our work Promoting improvements Parliament regularly questions agencies on progress made from our recommendations Parliament is our most important client. We provide copies of every AuditorGeneral’s Report to Parliament to every member of parliament when the report is tabled. We brief them on its contents and respond to their enquiries to improve accountability in the NSW public sector. Our primary relationship is with parliament’s Public Accounts Committee (PAC). We inform the PAC of our future audit program and seek their advice. The PAC in turn consults with the Auditor-General on a wide range of issues, including the committee’s own inquiries. Since 2007–08, the PAC has followed up on all recommendations made in performance audit reports 12 months after publication, seeking advice from the agencies concerned and from the Audit Office on agency progress on those recommendations. In 2011–12, a new Public Accounts Committee was elected, and followed up recommendations in 16 audits, noting: ‘The committee examination has proven to be a very effective means of comprehensively testing action taken on all performance audits and maintaining a high level of scrutiny of the agencies under review. It adds weight to the audit process and gives further impetus to the overall scrutiny of public expenditure. The tangible outcomes of this process have demonstrated the value of

following up the Auditor-General's report recommendations.’ ‘With some noted exceptions, the committee is generally satisfied that the responsible agencies are now meeting their obligations and implementing the auditor's recommendations.’ In 2011–12, the new PAC for the first time followed up on financial audit reports, examining recommendations that appeared repeatedly in these reports, as they reported: ‘The committee shared the AuditorGeneral's concern that some of the recommendations contained in his financial audit reports had not been addressed. These recommendations concerned issues that the Auditor-General had highlighted repeatedly, in some cases over several years.’ The PAC followed up 19 high priority repeat recommendations, and wrote to the relevant agencies (12 in all) seeking a submission detailing action taken to address the Auditor-General's recommendations. The PAC then conducted a public hearing and heard evidence from three of these agencies. The Chair of the PAC said: ‘This is the first time that the Public Accounts Committee has conducted a public hearing as part of its follow-up of financial audits. It proved a valuable opportunity for the committee to meet with agencies to discuss the work that they are doing to address the Auditor-General's concerns and improve their efficiency.’

Case study Public Accounts Committee reviews of Audit Office work One of the key statutory functions of the Public Accounts Committee is to commission an independent review every three years of the auditing practices and standards of the AuditorGeneral under s. 48A of the Public Finance and Audit Act 1983. In 2010–11, the committee examined the conduct of such reviews over the previous 20 years and concluded favourably on developments achieved over that time: ‘Since 1990, there have been significant developments in national and international accounting and auditing standards. In particular, earlier reviews were highly critical of the processes for conducting performance audits. Since then the processes have been developed and the reasons for selecting particular audits have

The Audit Office welcomes the close interest of the PAC in our work and the reinforcement it provides to government accountability and improvements in agency operations.

The year ahead Driven by our strategic focus areas ‘How We Influence For Impact’ and ‘Our Sustainability’ initiatives, we plan to strengthen our support to parliament and the PAC by: £ planning

effectively and responding constructively to reviews of the Audit Office’s performance by the PAC and other stakeholders £ supporting changes to the Public Finance and Audit Act 1983 that strengthen our audit processes, our efficiency and independence, thus strengthening parliamentary accountability £ supporting the committee in hosting the Australian Council of Public Accounts Committees’ conference in Sydney in 2013 £ continuing to respond promptly and thoroughly to all requests from parliament for Audit Office support, including all audit suggestions £ adjusting the design of our reports to meet the collective needs of parliamentarians.

been communicated better. The two most recent reviews in 2006 and 2009 were very positive about the level of compliance with auditing standards by the staff of the Audit Office … their recommendations were broadly agreed by the Auditor-General and were either adopted or are in the process of being adopted. This would suggest that there is little need to conduct rigorous reviews of the Audit Office's standards and their level of compliance with them every three years.’ This new committee’s report recommended that the frequency of reviews be reduced to once every four years, rather than three, and this has now been implemented. This is a strong endorsement by the PAC and parliament of the quality of our work and we look forward to the upcoming four-year review with confidence.

14 Audit Office of New South Wales | Annual Report 2011/12

Agencies Act on our recommendations and regularly seek our advice £ We

work collaboratively with our financial and performance audit clients

£ Together

with our financial audit clients we identify opportunities to improve financial reporting and management

£ Our

performance audits examine agency programs critically in order to identify potential improvements

William Haigh Service Desk Leader / Laura Roemekso Auditor Client location – NSW Institute of Sport

Agency response to our work Our audits are well regarded

93% of agencies believe we conduct our audits professionally Significant improvements in management letters General satisfaction with our services Surveying our clients Each year, we survey our audit clients' satisfaction with our services. This gives us valuable information on our performance and forms part of our stakeholder engagement strategy. We use an independent research company to conduct the survey for us and clients have the option of responding anonymously. Specific questionnaires are developed for our financial audits and our performance audits. For our financial audits, we typically survey the agency’s Chief Financial Officer (CFO) and for our performance audits, we seek feedback from the primary agency liaison officer for the audit. The survey questions are benchmarked so we can measure ourselves against the performance of other audit offices in Australia.

Audit value

Satisfaction with audit reporting

Financial audit value satisfaction continues to increase

Financial audit reporting satisfaction still high

There was a significant increase in our clients’ perception of the value of our financial audit services. The percentage of CFOs and ARC Chairs who believed our financial audit services provide value for money increased to 63 per cent, from 58 in 2011, and 80 per cent from 69 in 2011 respectively.

Eighty-eight per cent of ARC Chairs believed our reports to parliament presented the audit findings in a balanced, fair and accurate manner, up from 76 per cent in 2011.

ARC Chairs who believed our observations and recommendations have the potential to improve the financial management of their organisation rose to 82 per cent, up from 73 per cent in 2011. CFOs who believed the Audit Office’s financial audit fees are reasonable relative to the level of audit activity undertaken rose to 65 per cent, from 57 per cent in 2011.

CFOs still rated high satisfaction with audit reporting, although this dropped slightly from 2011. Eighty-eight per cent believed our reports to parliament relating to their organisations presented the audit findings in an accurate manner, down slightly from 89 per cent in 2011. Eighty-four per cent believed our reports to parliament relating to their organisations presented the audit findings and issues in a balanced and fair manner, again down slightly from 88 per cent in 2011.

Performance audit value

Declining trend in satisfaction with performance audit reporting

The survey results showed a slight drop in agency satisfaction with the value of performance audits, at 61 per cent, down from 64 per cent in 2011.

Agency satisfaction with performance audit reporting continues to drop, from 68 per cent in 2011 to 65 per cent in 2012.

For the first time last year, and again this year, we expanded the scope of the financial audit client survey by inviting the Chief Executive Officers (CEOs) of our top tier agencies and their Audit and Risk Committee Chairs (ARC Chairs) to participate. This has enabled us to form a broader view of our clients' perception of our performance as we can compare responses within individual organisations, as well as across organisations.

There were specific concerns raised on the appropriateness of audit timing and on whether the report delivered a balanced assessment of the agency's management of the audited activity (55 per cent and 45 per cent respectively).

Agency comments focused on the lack of 'balance' in reports and media coverage: 'The findings were not presented in the positive light that was warranted by the analysis.'

The Auditor-General, Deputy AuditorGeneral and the financial audit Assistant Auditors-General held a series of meetings with CEOs of top tier agencies before launching the survey to discuss key issues relating to our audit services and to strengthen our relationships with them.

Satisfaction with audit value

Balancing the expectations of our different stakeholders – parliament and agencies – for our performance audit reports continues to be a challenge. We will reinforce dialogue with both groups to improve their satisfaction in 2012–13.

Aggregate performance indices (for comparison purposes, 2010–11 scores have been adjusted so the same questions are included for 2010–11 and 2011–12)

69

69

70

71

69

2010

2009

2008

2013 TARGET

2012

2011

2010

60

Financial audit clients (CFO only)

70 64

60

2013 TARGET

66

2012

69

2011

68

2009

We have presented the results of the 2010–11 and 2011–12 surveys here (2010–11 results were not available at time of printing last year). For the financial audit survey we have provided results for each respondent group: CFOs from across all agencies; and CEO and ARC Chair results from top tier agencies.

We are committed to improving these scores and now meet with senior management at every agency after each audit to discuss potential improvements.

2008

Increased scope for financial audit client survey

Performance audit clients

Audit Office of New South Wales | Annual Report 2011/12

Satisfaction with audit process

Process satisfaction stays high

Aggregate performance indices (for comparison purposes, 2010–11 figures have been adjusted so the same questions are included for 2010–11 and 2011–12)

Performance audit processes

75

2013 TARGET

76

2012

2011

72

2010

71

2009

2008

72

76

Financial audit clients (CFO only) 73

75

2013 TARGET

2010

2009

2008

72

2012

76 68

2011

79

Performance audit clients

Satisfaction with audit reporting Aggregate performance indices (for comparison purposes, 2010–11 figures have been adjusted so the same questions are included for 2010–11 and 2011–12)

76

2012

2011

2010

71

75

2013 TARGET

76 71

2009

2008

73

Financial audit clients (CFO only) 82 73

75

74 68

66

Eighty-six per cent of agencies believed our auditors used their organisation’s staff members’ time efficiently, up significantly from 67 per cent in 2011. Fifty-seven per cent, up from 47 per cent in 2011, believed our auditors demonstrated an adequate understanding of their organisation and operating environment, and in 2012, 100 per cent believed their organisation was provided with an adequate opportunity to comment on the audit findings and issues before the finalisation of the report, up from 87 per cent in 2011. Financial audit process must remain robust Financial audit process satisfaction remains high, although CFO perceptions fell slightly in 2012. Eighty-nine per cent of CFOs were satisfied senior staff were appropriately involved in the audit, compared to 93 per cent in 2011, while 81 per cent believed auditors demonstrated an adequate understanding of their organisation, down from 86 per cent in 2011. CEO satisfaction with communication between the Audit Office and themselves remained high, at 72 per cent, but down from 100 per cent in 2011. Less CFOs this year, 71 per cent, were satisfied that their organisation was promptly informed of significant issues identified during the audit, compared to 80 per cent in 2011. Management letters improving Work was done in 2011–12 to improve the quality of management letters to clients, as well as the process surrounding their delivery. Success was evident in this area, as 93 per cent of ARC Chairs believed management letters were issued in a timely manner, up from 77 per cent in 2011. CFO satisfaction also rose in this area, with 88 per cent satisfied that our management letters presented audit findings and issues in a balanced and fair manner, up from 83 per cent last year. Eighty-nine per cent also agreed the letters were issued in a timely manner, up from 80 per cent in 2011.

2013 TARGET

2012

2011

2010

2009

2008

Comparing with other audit offices We began comparing our client satisfaction with other State audit offices in 2005. Queensland, Victoria, Western Australia and the Australian National Audit Office conducted similar surveys in 2012, using the same method.

When compared with these other audit offices, our financial audit clients were more satisfied with how senior staff were involved in the audit, that our audit fees were reasonable, and with our management letters clearly communicating audit findings. We rated below other audit offices in some areas, such as clients believing our financial audit services provide their organisation with a sense of assurance, and believing our recommendations have the potential to improve their management of the organisation. The survey rated our performance audit clients more satisfied than those in other audit offices with our senior staff participation in the audit and our auditors' professionalism. We rated below the other audit offices in some process areas, particularly communicating with our performance audit clients effectively, and demonstrating an adequate understanding of their organisation.

The year ahead Within our ‘How We Influence For Impact’ and ‘Our Sustainability’ strategic focus areas we have a number of initiatives aimed at meeting stakeholder expectations, ensuring clients value our work and would choose us, and that we influence expectations and deliver (see page 6 for more details of our strategic focus areas). These initiatives include: £ implementing

a social media strategy, thus finding new and innovative ways to reach our clients and gain feedback

£ developing

an engagement strategy for our clients’ Audit and Risk Committees.

We continually aim to improve the value of our audits and ensure they run smoothly. In 2012–13 this will be driven by our ‘The Way We Work’ strategic focus area, and one significant focal point for the coming year will be delivering a new financial audit methodology and supporting software, specifically aimed at improving value to clients.

Performance audit clients

17 Audit Office of New South Wales | Annual Report 2011/12

Influencing for impact Our work is topical, relevant and has high impact

95% of our financial audit and 98% of our performance audit recommendations accepted

Our audits add value

Adding value to agencies

Our audits result in recommendations for improving public sector accountability and performance, and are developed in consultation with agencies in response to our audit findings. Our recommendations are included in reports to the agencies involved and, on the more significant matters, in our reports to parliament. Most agencies agree with our recommendations.

Agencies are the stakeholders with whom we have the most dealings on audits throughout the year. In 2011–12, we worked with ten agencies to plan and deliver our performance audit program. Our reports made 84 recommendations for improvements to these agencies, with 82 of these accepted.

Of the 1,033 recommendations we made to our top 50 financial audit agencies in 2011−12, 983 (95 per cent) were accepted, consistent with our target. Ninety-eight per cent of performance audit recommendations were accepted, consistent with last year.

Recommendations accepted % 97

94

97

97

95

95

The more strategic recommendations take time to implement, however it was pleasing to see continuing progress in 2011−12 on recommendations made in earlier years, as the following case studies highlight.

Case study one

Case study three

Working With Children Check

Managing Injured Police Officers

This report was tabled in February 2010. All recommendations were accepted, and amendments to the current legislation were put in place.

This 2008 report found the NSW Police Force will struggle to reduce its total cost of injury. This was mainly due to the cost of the 2005 Death and Disability Insurance Scheme which covered nearly 80 per cent of police.

In March 2012, the Commission for Children and Young People announced that a new Working With Children Check will be introduced later in 2012, which will last for five years and be valid for paid or volunteer child-related work. Workers will need a valid clearance in order to start in a child-related role. Case study two

Managing Forensic Analysis: Fingerprints and DNA

2011

2012

2013 TARGET

2010

2009

2008

This report was tabled in February 2010.

98

98

95

2011

2009

2008

2010

92

2013 TARGET

99 90

2012

Financial audits

The complexity of DNA analysis and its growing use had led to delays in analysis and a backlog of 6,400 DNA evidence cases waiting to be analysed in New South Wales at 30 November 2009. The NSW Police Force accepted and began to implement all of our recommendations to address backlogs and delays in returning the results of forensic analysis.

The estimated future liabilities had grown from $29 million to over $115 million from June 2006 to June 2008. We recommended an urgent review of the benefits and officers’ contribution under the scheme with a view to either reducing benefits, increasing officers’ contribution or ceasing the scheme. Four years after the report, the government rescinded the 2005 Death and Disability Award. In March 2012, the Police Amendment (Death and Disability) Act 2011 commenced, leading to fundamental reforms of the scheme and all relevant law and industrial instruments. The new legislation provides for a follow-up performance audit after one year’s operation to assess its impact. This is now scheduled in our forward program. We are also monitoring similar schemes operating in other emergency services, such as fire and ambulance.

In 2012, the NSW Police Force reported that the backlog of DNA evidence had been cleared. DNA analysis for less serious property crimes are now processed within 48 hours rather than waiting in a queue for six to 12 months.

Performance audits

18 Audit Office of New South Wales | Annual Report 2011/12

Timeliness Timeframes for reporting to agencies

Legislation reduces financial reporting timeframes

Financial audit timeliness challenged by restructures

Timeframes for performance audits reduced

The earlier we give agencies our audit opinions and management letters, the sooner they can implement our recommendations.

The average time for Australian audit offices to complete a performance audit decreased slightly from 9.3 months in 2009–10 to 8.4 months in 2010–11 (the most recent result available).

In 2012−13 we will continue to focus on improved timeframes within the following strategic focus areas. Our Sustainability and How We Influence For Impact

We have been steadily decreasing the time it takes to complete our performance audits, to sit closer to this average: from 10.1 months in 2009–10 to 8.8 months in 2010–11. We plan to meet the Australian average in 2012–13.

£ we

will work with clients and central agencies to achieve improved quality and timeliness of financial and performance reports as recommended by the Public Accounts Committee

We have a target of issuing financial audit opinions within ten weeks of receiving agencies’ financial statements. Seventyfour per cent of our opinions were issued within ten weeks in 2011−12, similar to last year’s 75 per cent. This is still some way off our 100 per cent target. Our goal may seem ambitious, but in the interests of public sector accountability this target is necessary. We continue to work with agencies to improve performance in this area.

£ we

will use stakeholder feedback to improve our audits.

The Way We Work £ we

will implement innovation in our audits to improve efficiency and timeliness.

Our target for issuing management letters is to issue 85 per cent of them within six weeks of issuing our audit opinion. In 2011−12, we achieved 61 per cent, a decrease from last year’s 64 per cent. We are continuing to develop strategies to reach our target. Last year’s initiative to include a risk rating for each matter reported in our management letters has been well received by clients. Audit opinions within 10 weeks %

Management letters to clients within 6 weeks %

Calculated for the first time in 2009

Calculated for the first time in 2009

100

64

74 48

2013 TARGET

2013 TARGET

2012

2011

2010

2009

52

61

61

2012

75

85

2011

71

2009

NSW Treasury has commenced an improvement program in response to our recommendations to improve the quality and timeliness of financial reporting. This program includes new timelines for financial reporting. This means our opinions for 30 June 2012 audits have to be issued within nine weeks of receiving the financial statements, and within eight weeks for 30 June 2013. We are working with agencies to achieve these earlier deadlines.

2010

Major government restructures of agencies challenged timeliness in 2011−12. Uncertainties and related issues resulted in delays beyond our control which we minimised by working closely with agencies. The results are a good achievement in what was a difficult year.

The year ahead

19 Audit Office of New South Wales | Annual Report 2011/12

Our financial audits Providing value to our financial audit clients

7 new modifications issued and 9 modifications cleared

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 (see below). Financial statement audits also highlight opportunities for agencies to improve their accounting and financial systems.

Our client base We completed 452 financial audits of NSW Government agencies in 2011−12 (see Appendix Two for the full list of our clients). These agencies collected income of approximately $92 billion, spent about $101 billion and managed more than $362 billion in assets. 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.

Number of new modifications 7

7

Financial audit clients per sector % 1.5

4.5

5

1.5

30

9

11.5

14.5

11 11.5

30 • Education and universities 14.5 • Health 11.5 • Trade and investment, regional infrastructure and services 11 • Finance and services 11.5 • Premiers and cabinet 9 • Electricity and water 4.5 • Transport and ports 5 • Attorney General and justice 1.5 • Treasury 1.5 • Family and community services

NSW General Government and Total State Sector opinion The Auditor-General’s opinion on the Total State Sector Accounts in 2011−12 was modified (see page 10 for an explanation of modified audit opinions). The reason for the modification was that certain parcels of land in New South Wales and the related infrastructure may be controlled by the State, but have not been recognised in the financial statements. The State is currently identifying and valuing which parcels it controls. Until this is complete, we are unable to obtain all the information we need to form an opinion on the value of land assets and any related infrastructure that should be recognised in the financial statements. The Auditor-General’s opinion for the 0 was similarly year ended 30 June 2011 qualified. This report on the Total State Sector Accounts also focused on an issue regarding uncertainty arising from a matter that was under appeal to the Supreme Court. The matter related to an objection by a taxpayer to an assessment under the Duties Act 1997 and has since been settled.

Number of modifications cleared

Number of repeat modifications

10

18

18

9

6

16

15

5 11

4

4

2010

2011

4

2012

2011

2010

2009

2008

2012

2009

2008

2012

2011

2010

2009

2008

3

20 Audit Office of New South Wales | Annual Report 2011/12

New modified audit opinions We issued 23 modified audit opinions on agency financial statements in 2011−12. These included seven new modifications, one more than in 2010−11, one of which was on adverse opinion. Agency

Reason for modification

Adverse opinion Department of Trade and Investment, Regional Infrastructure and Services

The department incorrectly included in its financial statements transactions and balances of the Department of Primary Industries for the period 4 April 2011 to 30 June 2011. We expressed an adverse opinion on the financial statements.

Qualified opinion Australian Technology Park Sydney Limited

The company incorrectly accounted for the right to use car spaces under a series of operating leases, resulting in materially overstating its assets and liabilities.

Bandwidth Foundry International Pty Ltd (year ended 31 December 2009)

Inability to obtain sufficient appropriate audit evidence to form an opinion on the opening balances and the results and cash flows for the year ended 31 December 2009.

Bandwidth Foundry International Pty Ltd (year ended 31 December 2010)

The financial statements for the year ended 31 December 2010 are qualified because of the possible effects relating to the source of the qualification issued on the 31 December 2009 financial statements (see above).

Crown Entity

Inability to obtain sufficient appropriate audit evidence to form an opinion on the value of the Crown Entity's investment in Snowy Hydro Limited.

Redfern-Waterloo Authority and controlled entities (year ended 30 June 2011)

Controlled entity, Australian Technology Park Sydney Limited, incorrectly accounted for the right to use car spaces under a series of operating leases. The effect materially overstated assets and liabilities.

Sport Knowledge Australia Pty Ltd

Inability to obtain sufficient appropriate audit evidence to form an opinion on the opening balances and therefore the results of operations and cash flows for the eighteen months ended 31 December 2009.

21 Audit Office of New South Wales | Annual Report 2011/12

Our financial audits (continued)

Remaining modified audit opinions Sixteen modifications remain unresolved. However, eleven of these relate to fundraising activities where agencies find it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records. In these instances we are unable to express an opinion on whether the agency had recorded all revenue received from these sources in its financial records. Audit client

Reason for modification

Inability to obtain sufficient appropriate audit evidence to form an opinion of the value Corporation Sole ‘Minister Administering the Environmental of land assets. Planning and Assessment Act 1979’ Gosford Water Supply Authority

Many of the authority’s investments are not widely traded and do not have market values that are independently quoted. Inability to obtain sufficient appropriate evidence to support the fair value and recoverability of the authority’s investment portfolio.

NSW Self Insurance Corporation

In accounting for its general insurance contracts, the corporation applied the incorrect accounting standard, resulting in materially understating liabilities and failing to disclose some required information about these insurance contracts.

Sydney Water Corporation

The corporation incorrectly accounted for contractual arrangements concerning four water filtration plants, resulting in materially understating its liabilities.

Total State Sector

Inability to substantiate the value of Crown reserves and the value of infrastructure on Crown Reserves.

Modifications – fundraising and voluntary donations revenue ANZAC Health and Medical Research Foundation – Trust Fund

The trust fund finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

Centennial Parklands Foundation

The foundation finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

Charles Sturt University Foundation Trust

The trust finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

The Sydney Children’s Hospitals Network (Randwick and Westmead) (incorporating The Royal Alexandra Hospital for Children)

The network finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

UNE Foundation

The foundation finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

University of New South Wales Foundation Trust

The foundation finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

University of Western Sydney Foundation Trust

The trust finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

UNSW Study Abroad – Friends U.S. Alumni Incorporated

The company finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

UNSW Hong Kong Foundation Limited

The foundation finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

UON Foundation Trust

The trust finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

Whitlam Institute within the University of Western Sydney Trust

The trust finds it impractical to maintain an effective system of internal controls over fundraising revenue and voluntary donations until their initial entry in the financial records.

22 Audit Office of New South Wales | Annual Report 2011/12

Our performance audits Addressing issues of public concern

What is a performance audit?

Choosing a topic

Performance audits are in-depth assessments of whether government agencies are achieving value for money.

Our goal is to choose topics that reflect the interests of both parliament and the community. When selecting topics, we combine our own research with suggestions from parliamentarians, agency CEOs and members of the public. We then evaluate the benefits of each topic, including the potential for cost savings, the likely impact and possible improvements in public administration.

A performance audit may cover: £ the £ one £ an

whole of an agency’s operations particular agency’s activity

activity across a number of agencies.

We report the results of these audits to the CEO of each agency, the responsible minister, the Treasurer and parliament.

Are recommendations followed up? Twelve months after a performance audit is tabled, parliament’s Public Accounts Committee (PAC) will examine whether agencies have implemented recommendations from performance audits and whether any changes in practice or performance have occurred in response to these audits. In some cases, the PAC will hold a hearing and invite the agency and the AuditorGeneral to attend and answer questions. More information on our work with the Public Accounts Committee is on pages 12, 14, 40 and 45.

Audit client

Performance audit report

and Traffic Authority of New South Wales Improving Road Safety: Speed Cameras (now Roads and Maritime Services)

£ Roads

£ Department £ Department

of Premier and Cabinet of Finance and Services

Prequalification Scheme: Performance and Management Services

and Traffic Authority of New South Wales Improving Road Safety: Young Drivers (now Roads and Maritime Services)

£ Roads

Tabled in parliament 27 July 2011 28 September 2011 19 October 2011

£ NSW

Department of Trade and Investment, Regional Infrastructure and Services £ Office of Environment and Heritage £ Department of Premier and Cabinet £ Treasury

Solar Bonus Scheme (special review)

7 November 2011

£ Department

of Family and Community Services of Attorney General and Justice £ Department of Health £ NSW Police Force

Responding to Domestic and Family Violence

8 November 2011

£ Department

Visiting Medical Officers and Staff Specialists

14 December 2011

of Finance and Services of Health £ NSW Police Force

Managing IT Services Contracts

1 February 2012

£ Community

Relations Commission For a multicultural NSW £ Department of Premier and Cabinet

Settling Humanitarian Entrants in New South Wales

23 May 2012

£ Department

Physical Activity in Government Primary Schools

13 June 2012

£ Department

of Health

£ Department £ Department

of Education and Communities

Managing Overtime Corporation New South Wales and Traffic Authority of New South Wales (now Roads and Maritime Services)

£ Rail

20 June 2012

£ Roads

23 Audit Office of New South Wales | Annual Report 2011/12

This year’s performance audits Addressing issues of public concern

Improving Road Safety: Speed Cameras This audit assessed whether fixed, mobile and safety cameras were located in black spots and reduced speeding and crashes. We found that, in general, speed cameras changed driver behaviour and improved road safety. Total crashes and injuries each fell 26 per cent and fatalities fell by more than two-thirds in the three years after the installation of fixed speed cameras. However, we also found 40 per cent of fixed speed cameras had yet to achieve a significant impact on serious accident rates. We made recommendations to review these more closely, along with other measures, as part of a clearer strategy for all types of cameras. Contrary to much public and press comment, we found no evidence that revenue was a factor in the Roads and Traffic Authority (RTA) determining where to locate cameras. Revenue at each speed camera site declined over time. However, we did recommend more explicit location criteria for all types of camera, and other road safety measures. The RTA accepted all our recommendations. The Minister for Roads went further and immediately turned off a number of cameras. A year later, in its first annual review of speed camera locations (one of the specific recommendations of the audit), the minister announced: 'The results from the review are very encouraging with 88 of the 97 fixed speed camera locations recording a reduction in crashes and/or casualties.'

Prequalification Scheme: Performance and Management Services

The remaining nine locations are now subject to further review by the NSW Centre for Road Safety: 'We’re determined to ensure speed cameras are only in locations where they have a proven road safety benefit, and that they are not simply there as revenue raisers.' This audit broke new ground for us in engaging with the public on topical issues, as we asked them to indicate, in an internet-based survey, which fixed speed cameras they thought improved road safety and which they thought were merely revenue raisers. This gave us a selection of specific fixed speed cameras to analyse in detail, in addition to the extensive data analysis that we conducted for all fixed, mobile and safety cameras. The public survey attracted over 1,700 online responses. We also received more than 100 written submissions concerning speed cameras. This sort of public involvement in the audit can involve significant effort and is not always feasible. However, we will seek to reach the public and specific stakeholders wherever we think it will be cost-effective, using appropriate communication channels, both for providing information to them and seeking their views. Response The RTA accepted all recommendations.

Report release date:  27 July 2011

The government introduced the Prequalification Scheme in February 2008 to improve agencies’ procurement of consultants. In this audit we assessed how well the scheme was being managed. Some aspects of the scheme were not operated and used as intended. Agencies were not complying with some of the rules, and some of the rules themselves did not fully support the scheme’s objectives of delivering appropriate levels of competition and quality assurance. While the scheme had improved procurement practices it had not yet delivered the planned quality assurance processes to demonstrate effective management or value for money, from the more than $300 million worth of consultancy work provided through the scheme. We recommended the Department of Premier and Cabinet and the Department of Finance and Services clarify and strengthen the scheme rules, provide agencies with better information about consultants’ performance, monitor compliance and report on the scheme’s performance to ensure that agencies and taxpayers are getting value for money. Response Most of the 27 recommendations were supported in principle.

Report release date:  28 September 2011

24 Audit Office of New South Wales | Annual Report 2011/12

Improving Road Safety: Young Drivers

Responding to Domestic and Family Violence

Visiting Medical Officers and Staff Specialists

Since 2000 there has been a significant decline in fatalities and injuries involving young drivers, more so than for other drivers. The rate of fatal crashes involving drivers under 26 fell by 51 per cent between 1999–2000 and 2009–10, compared with a 35 per cent fall for drivers aged 26 or more.

Domestic and family violence is a significant challenge for the community. It accounts for nearly 40 per cent of assaults reported to police, over 20 per cent of homelessness and is present in 50 per cent of households where children are abused. It is estimated to have a social cost in Australia of over $13 billion each year.

The public hospital system in New South Wales would not function without Visiting Medical Officers (VMOs) and staff specialists. They make up more than half of the 13,000 doctors working in public hospitals.

However, young drivers are still overrepresented in crash statistics. They are involved in 25 per cent of fatal crashes but make up only 16 per cent of licensed drivers. The reduction in fatal crashes has been much more modest in country than in metropolitan areas. Young rural drivers are three times more likely to be involved in a fatal crash than young city drivers.

This audit assessed how well NSW Government agencies work together, and with non-government services, to respond to this violence.

Our audit examined the effectiveness of the Road and Traffic Authority’s driver license testing and regulation in ensuring the safety of young drivers. We concluded that they had been effective in general, as the declining crash trends suggested. We also concluded that more could be done, especially for those at greatest risk: provisional licence holders; repeat offenders; and drivers in country New South Wales. Provisional licence holders are at greatest risk just after they pass their test. We made recommendations to ease the transition at this time – allow learner drivers to drive at higher speeds before their test – and then, once they have passed, introduce restrictions at times of highest risk (late night) and limit the number of passengers they may carry. We also recommended increasing sanctions for young repeat offenders; and increased enforcement in country areas. Response The RTA accepted, or accepted in principle, ten recommendations, and rejected two on social equity and cost grounds.

Agencies generally work well together when there is an overt and serious crisis reported, particularly when children are involved. Two in three victims of domestic violence do not report it to the authorities, suggesting many victims do not have confidence that agencies will help them deal with the often complex factors that have caused the violence to occur. There are complex issues involved here and we recognised that no one agency can do it all. We recommended that the chief executives of the police, justice, health and community agencies work together to improve the safety of victims and accountability of perpetrators by: £ spelling

out the respective responsibilities and the referral pathways between their agencies

£ improving

the sharing of information between their agencies and with non-government organisations

£ ensuring

local staff meet regularly to identify victims most at risk and perpetrators of violence and to coordinate a whole of community response

VMOs are doctors who often have their own private practices and work as contractors in public hospitals. Hospitals are generally able to deploy their VMOs and staff specialists to be at the place and time required, but a hospital’s ability to manage supply and demand at a local level is limited. The Department of Health cannot be sure that all payments made to VMOs are for agreed and delivered services. Across the hospitals visited we found: £ limited

checking of VMO claims for payment

£ limited

quality information on staff specialist activities

£ limited

hospital-level analysis of trends or inconsistencies in activities and treatments.

VMOs cost hospitals over half a billion dollars per annum. A sample of hospitals estimated that ten to 18 per cent of VMO claims for payment contained errors leading to over- or under-payment, so the inability to adequately verify their claims represents a major risk. Response The Department of Health substantially accepted our recommendations.

£ establishing

minimum standards for identifying domestic and family violence, prioritising risk, making referrals and working with victims and perpetrators

£ publishing

a plan, with targets, to address domestic and family violence over the next five years.

Response All recommendations accepted in principle. Report release date:  19 October 2011

Report release date:  8 November 2011

Report release date:  14 December 2011

25 Audit Office of New South Wales | Annual Report 2011/12

This year’s performance audits (continued) Addressing issues of public concern

Managing IT Services Contracts NSW Government agencies spend around $13 billion buying goods and services each year. In 2009−10 nearly $1 billion was spent on Information Communication and Technology goods and services. This audit focused on Information Technology (IT) services contracts as these can be complex. We assessed whether agencies effectively manage long-term IT services contracts post award, and whether there is adequate guidance to assist agencies in doing so. We used three case studies – two at the Department of Health and one at the NSW Police Force – to test whether agencies’ contract management framework, including policies and procedures, helped staff to effectively manage contracts. We developed a better practice framework for contract management based on our research, including work by the Australian National Audit Office, to form the basis for our assessment. In a separate study, we also investigated a complaint we received about issues related to the management of IT contracts at the Roads and Traffic Authority. In all these studies we found some elements of effective contract management in place, but also some weaknesses too that meant value for money could not be assured. We recommended further guidance, based on nine elements of better practice, to help agencies manage these contracts better. We were particularly concerned that all such major contracts would have a risk-based contract management plan. Response All recommendations accepted in principle.

Settling Humanitarian Entrants in New South Wales

Physical Activity in Government Primary Schools

Australia accepts Humanitarian Program entrants as a part of its responsibility to help people who have been persecuted and are in need of resettlement. Of the 132,000 people who came to Australia through the Humanitarian Program in the last ten years, over 31,000 came to New South Wales. This audit focused on how well New South Wales responded to their settlement needs.

Physical inactivity contributes to the deaths of over 13,000 Australians and results in more than $1.5 billion in direct healthcare costs each year. One in four young people are overweight or obese. For the first time in living memory, life expectancy in Australia may start to fall due to childhood obesity.

New South Wales does not have an overall plan to respond to the settlement needs of current or future humanitarian entrants, and does not currently recommend settlement locations, or undertake research into favourable settlement locations, as other States do. We recommended that New South Wales should adopt a more proactive approach. New South Wales does not have a coordinated approach to assist agencies to support humanitarian entrants and we made recommendations for better coordination. There are gaps and duplication in the services provided by NSW Government agencies and humanitarian entrants are doing less well in New South Wales than in other States on key indicators of health, housing and employment. Response In response, the NSW agencies involved committed to a broad review of the operation of the NSW Immigration and Settlement Committee and to improving information flows between Commonwealth and State agencies to improve service delivery. However, they made the point that the Commonwealth Government has primary responsibility for planning humanitarian settlement, not the State, and the findings needed to be considered in that context.

The Department of Education and Communities (DEC) requires its primary schools to provide two hours per week of class time physical activity including sport. This audit examined whether that target was achieved and whether the DEC is effective in managing its commitment to physical activity. We found that, while the DEC has established a framework to support physical activity in schools, and has some strong initiatives, it does not ensure all schools deliver the required two hours per week. The trends over the last seven years suggest that the amount of physical activity is reducing. Many schools do not implement practices that make best use of the time that is dedicated to such activity. Much of it may be taken up with travelling to venues or setting up equipment, rather than real physical activity. DEC provides guidance for teachers on how to improve fundamental movement skills and encourage participation in physical activities. It also funds and promotes valuable programs like the Premier’s Sporting Challenge and assists with the provision of facilities and sporting equipment. However, take up is variable and may not be reaching schools and children in greatest need. We recommended better reporting and monitoring of school achievement in physical activity programs and greater recognition for staff and programs that demonstrate better practice. Response All recommendations were accepted.

Report release date:  1 February 2012

Report release date:  23 May 2012

Report release date:  13 June 2012

26 Audit Office of New South Wales | Annual Report 2011/12

Managing Overtime Rail Corporation New South Wales and Roads and Maritime Services are both required to provide essential services across extensive networks in a way that minimises disruption to customers, especially during peak hours. Overtime allows these agencies to deliver essential services at all times, including outside ‘normal’ hours. However, it has become a significant cost for the agencies, adding approximately ten per cent to the cost of regular salaries. This audit examined whether overtime was justified and well-managed in these agencies. We found that there had been some successes in limiting overtime to essential service provision, but more could be done. We identified that the best opportunity for overtime savings is with planned activities such as track or road maintenance and train crewing, rather than with responding to emergency or unplanned activities. We suggested that reforms are likely to be more successful in reducing overtime if they are part of wider initiatives to revise working practices and underlying business models, such as staffing levels and shift patterns, in line with industry benchmarks.

Engaging with the public on complaints about government and public interest disclosures The Audit Office receives complaints from members of the public about public administration and service provision in New South Wales. We investigate those complaints that involve serious and substantial waste. We refer complaints involving allegations of corruption, maladministration or privacy to the Independent Commission Against Corruption, the NSW Ombudsman or to other watchdog agencies responsible. The Audit Office has a specific responsibility to examine allegations of serious and substantial waste of public money under the Public Finance and Audit Act 1983. This Act protects public officials who make such public interest disclosures in good faith. We received and assessed 108 complaints or comments in 2011−12 and received and examined 16 public interest disclosures. We concluded the majority did not demonstrate serious or substantial waste. One warranted a separate review which was reported to parliament in February 2012. Internally, new policies outlining staff responsibilities have been posted on the Audit Office intranet. Staff awareness will be reinforced at our next quarterly Office Forum in 2012, in conjunction with a review of all complaints and complaint handling policies. Number of allegations of serious and substantial waste 21

21

19

19 16

Beyond such wider reforms, we recommended that agencies determine acceptable levels of overtime, and set targets to ensure budgets are met and performance is competitive. 2012

2011

2010

2009

Both agencies accepted our recommendations.

2008

Response

Report release date:  20 June 2012

27 Audit Office of New South Wales | Annual Report 2011/12

The year ahead for performance audit A strong performance audit program planned

Focusing on how well agencies manage the risk of fraud

'In tough economic times, the risk of fraud grows. The recent major fraud in Queensland Health is a good example. Over the last year, I have spoken regularly about fraud control with senior public servants, at conferences and with audit committees. In the coming year, fraud control will be a key theme of my performance audits.'

Impact of the raised school leaving age

Homelessness programs

From 1 January 2010, students must complete Year Ten or equivalent and then engage in further education or employment until they turn 17 years of age. This audit will examine how well the Department of Education and Communities monitors and supports young people participating at school or in approved pathways until they reach age 17.

Peter Achterstraat Auditor-General

Police handling of high risk goods

New South Wales has a wide range of support services for people who are homeless. In recent years it has also partnered with the Commonwealth Government to implement additional programs under the National Partnership Agreement for Homelessness. We will be examining the effectiveness of specific programs funded under this agreement. Similar audits are being undertaken concurrently by our colleagues in audit offices across Australia.

Fraud − receipt of gifts

Police must ensure proper storage and disposal of goods received, as well as ensuring that high risk exhibits, such as drugs and weapons, do not pose a risk to police personnel or to the public.

The offer of gifts and benefits can lead to potential, perceived or actual fraud, yet it is not always possible or appropriate to reject the offer. This audit will look at gift and benefit policies and practices in a selection of agencies. Fraud – specific risk areas We plan to examine specific procurement areas that have a history of fraud using sophisticated data analytics. Aboriginal literacy There are about 40,000 Aboriginal students across 2,200 public schools in New South Wales. This audit will examine whether the department's processes to improve the literacy of Aboriginal students in New South Wales are likely to be successful. Monitoring local government New South Wales has 152 local councils (including shires) that together employ over 50,000 staff and spend over $6 billion annually. This audit will assess how well the Division of Local Government monitors the performance of councils, and how well it intervenes to address the performance issues it identifies.

This performance audit will assess how well police handle high risk goods. Providing housing to those in need Public housing is a scarce resource in high demand, so Housing NSW (an agency of the Department of Family and Community Services) must ensure that it is made available to those most in need. This audit will examine how well Housing NSW acts to modify residential tenancies where an individual’s needs or circumstances change. Overtime in health This audit will examine how effectively selected health agencies manage overtime and the drivers of overtime. This is part of a continuing focus on overtime, after our 2010–11 report on transport agencies. Government advertising We will undertake one audit of a government advertising program to fulfil our statutory obligations. Revisions to the Police Death and Disability Scheme We will undertake a post-implementation review of the impact of the revisions enacted in 2011−12 to fulfil our statutory obligations.

The ClubGRANTS Scheme Clubs in New South Wales receive a tax rebate on their gaming machines revenue if they invest funds in services that help the disadvantaged in their local communities. This audit will examine the management and oversight of this scheme to see whether they meet the scheme’s objectives. Energy use in Department of Health buildings Hospitals and other State-funded health facilities are major users of energy, making up around 50 per cent of the government’s total usage. This audit will examine the achievements of the Department of Health (now known as NSW Ministry of Health) in this area, and what can be done further to manage energy costs. Hospital operating theatre usage Operating theatres are at the centre of at least half of patient visits to hospital. Managing the theatres is complex and those involved – doctors, nurses and hospital management – need to understand what is required, and when, for them to operate efficiently. The Department of Health (now NSW Ministry of Health) has benchmarks to assess the efficiency of operating theatres. This audit examines how far these have been reached and what can be done further to improve efficiency.

28 Audit Office of New South Wales | Annual Report 2011/12

People Our people are highly skilled and dedicated to improving the public sector At the Audit Office of New South Wales, we have built a working environment that: £ is

founded on respect for staff, clients and stakeholders

£ strives

to maintain a balance between work life and personal life

£ fosters

and values trust and allows staff to be the best they can be

£ attracts

and retains highly skilled staff who share our commitment to lifelong learning

Angelique Kumar Marketing and Communications Assistant / Adam Zhuang Auditor Client location – Luna Park Sydney

Employee satisfaction Our employees highly regard and value our professionalism

90% of employees describe the Audit Office as 'a great place to work' 94% of employees expressed pride in working at the Audit Office Employee satisfaction improved

Morale remains high

Putting in the extra effort

The purpose of our staff survey is to keep track of employee satisfaction. The survey calculates a weighted satisfaction index about working at the Audit Office, and an overall ‘gut feel’ measure of employee satisfaction.

Morale has shown significant improvement with more than 87 per cent of respondents reporting ‘reasonable’ to ‘very high’ morale. More than 94 per cent of respondents expressed pride in working at the Audit Office.

Ninety-five per cent of those surveyed are willing to put in extra effort to achieve a professional result. Analysis of the survey highlights the high regard employees have for the Audit Office and how they value the Audit Office’s professionalism.

We achieved a small increase of one per cent in the employee satisfaction index of 77 per cent for respondents, a result at the high end benchmark against other organisations.

Employee engagement correlates measures of staff satisfaction, morale, loyalty and commitment to the Audit Office’s success and whether they feel trusted or valued. Over 82 per cent of our employees are moderately to highly engaged and over 90 per cent said they would recommend the Audit Office as a ‘great place to work’.

Performance gaps

The ‘gut feel’ response has further improved from 2010–11, showing an increase from 88 per cent to 93 per cent of respondents being ‘satisfied’ to ‘extremely satisfied’ working at the Audit Office.

77

2012

2013 TARGET

2009

76

77

2011

76

79

2010

78

2008

Employee satisfaction %

83

86

Our survey results continue to show our Audit Office values of Purpose, People and Professionalism are practised. A high degree of consistency occurs in each year’s results, with our Employee Satisfaction Index indicating that 79 per cent agree the value of Purpose is practised (77 per cent in 2011), 76 per cent agree the People value is practised (75 per cent in 2011) and 78 per cent agree Professionalism is practised (79 per cent in 2011).

87

87

28

80

25

28 28

27

25

21

21

22

£ the

provision and development of a supportive work environment

£ communication £ professionalism £ training

and development.

We have an opportunity to reduce the Sustainability Index, a measure which shows that almost 29 per cent of our staff sometimes feel overwhelmed by volumes of work, deadline pressures and lack of work/life balance, particularly during the busiest seasons of the year.

The year ahead

Significant performance gaps Balancing work with personal life My contribution to the office is recognised

Employee morale %

81

Values and vision

We can be very proud of our results, however we must not ‘take our foot off the pedal’. The opinion survey tells us what our staff consider to be most important, and shows the gap between their expectation of the ‘ideal’ and how well we are currently performing. Gaps of more than 20 points between importance and delivery are signals that we need to focus on these areas. From last year’s survey we are reducing the gaps in:

22

In 2012–13, the ‘Who We Are’ focus area will deliver improvements for our employees: £ that

will reduce the number of staff who work at a less than sustainable level

£ ensuring

we look at improved ways on how we work at the Audit Office looking for further opportunities for all staff to be involved in activities across the office.

2013 TARGET

2012

2011

2010

2009

2008

£ by

2008

2009

2010

2011

2012

Audit Office of New South Wales | Annual Report 2011/12

Performance A focus on effective, quality results

64% productivity achieved, slightly below last year

Productivity The vision of the Audit Office is to make the people of New South Wales proud of the work we do, so the result of our work needs to make a difference to the State’s performance. Professional standards and expectations grow continually, and we are satisfied that our employee productivity (the percentage of total staffing hours that we charge to our audit work) remains close to target. Total hours include those of Corporate Services staff who do not charge time directly to audits. The 64 per cent result for 2011–12 is only slightly below our high point of last year.

Leveraging our performance management framework This year we continued to leverage our performance management framework and build closer links to our remuneration process. This enabled the Remuneration Committee to better differentiate performance and reward the right people accordingly. Managers are now committed to at least four formal performance conversations a year with their staff, resulting in more timely and targeted performance coaching. These conversations are underpinned by clearly set Development Action Plans designed to focus on key improvement areas resulting in a more direct and positive impact on our business and clients. Our successes have strengthened our resolve in building a high performance culture.

Enhancing technology infrastructure

Remuneration process robust

Reliable and up-to-date information and technology are critical to the delivery of services and products to our clients. Our mobile workforce, based largely at client premises, relies heavily on technology to perform audit work. In 2011−12, we worked on a number of critical projects including: £ a

service delivery system to manage service requests for the Technology Support area, providing an improved customer experience

£ upgrades

to our remote communications facility to provide more effective access to corporate systems for our mobile workforce

£ enhanced

mobile devices to improve communications between our staff and clients

£ a

content management based corporate website with our new corporate branding

£ an

Employee Self Service facility for accessing and updating personal and leave information, with the provision of electronic forms to replace paperbased

£ implementing

virtual server and virtual storage infrastructure to replace ageing server equipment, and provide benefits in areas of systems management, disaster recovery and environmental impact.

Remaining competitive and rewarding good performance goes hand in hand at the Audit Office. To that end, the Remuneration Committee have ensured that the remuneration review process remains transparent and equitable, and that managers were highly engaged in the process. We have continued this year with online access and automated workflow for our annual remuneration process. The process is comprehensive and includes our Remuneration Committee meeting with all reviewing managers individually to ensure that the quality and consistency of employee assessments remains high. The intended improvement of the goalsetting and assessment process during 2011–12 was unfortunately delayed. The Audit Office has made this a high priority for the coming year.

The year ahead The strategic planning process employed by the Audit Office provides a framework for the continuing development of our product and the alignment of our staff’s skills and delivery.

During 2012−13, our major technology and infrastructure initiatives will be driven by our ‘The Way We Work’ strategic focus area, and include: £ evaluating

Productivity %

59

63

65

65

64

65

and procuring a product to replace the systems we currently use for time entry, planning our work, gathering financial and management information and billing our clients

£ implementing

a new risk-based audit methodology and supporting technology to manage financial audits

2013 TARGET

2012

2011

2010

2009

2008

£ expanding

the implementation of the service delivery system to a number of support areas across the business.

(See page 6 for further details of our strategic focus areas.)

31 Audit Office of New South Wales | Annual Report 2011/12

Staffing and recruitment Continuing to retain and attract high quality employees

271 full-time equivalent staff 51% of middle management are women Strong brand is an attractor

Employee retention on the rise

Our employee value proposition, strong brand, excellent reputation and opportunities for personal and career development have enabled the Audit Office to continuously attract and retain high quality staff. This has positively impacted our ability to sustain a regular supply of specialist talent and our capacity to meet client demands.

Employee turnover was down to nine per cent, from 11 per cent in 2010–11, and is reflective of our ongoing commitment to developing and challenging our staff. We have looked to maximise opportunities for growth and advancement for our existing employees, and have focused on staff performance to ensure our people achieve to expectations and reach their potential.

Total staff*

Audit Office Award We continue to undertake a long-term strategic approach to effectively navigate the constantly changing industrial relations landscape. This is underpinned by our Award framework which provides a clear view of career options, entitlements, and conditions for staff. Our consultation process is cooperative, and representatives from both the management of the Audit Office and the Public Service Association of New South Wales meet regularly to discuss suggestions for improvements or innovations that have been ratified by union members, and to discuss and resolve human resource issues of common interest across the organisation. We plan to use this consultative approach in the coming year to help shape a new Award that meets the needs of our organisation, its employees and the obligations of the NSW Government Wages Policy.

Staff turnover %

*FTE: Full-time equivalent. 249

254

259

271

18

214

9

2012

2011

7

2010

2009

2008

2012

2011

8

10

2013 TARGET

11

2010

We also continued to strengthen our relationship with key universities across Australia through internet advertising and campus publications, and with professional accounting bodies at their careers events. Assessment centres continue to play an important role in our selection process and underpin recruitment practices for all levels of the organisation. This has become a valuable tool both in ensuring the right people are selected and in highlighting development opportunities for all applicants.

Our planning has taken into account the imminent retirement of a number of senior staff, and will facilitate a smooth transition of both people and knowledge to ensure effective business continuity. Our strategic plan specifically focuses on developing a formal process and managing knowledge transfer by retiring staff.

2009

During the year we continued our successful graduate and school leaver recruitment strategy. This year’s intake consisted of 12 graduates and five HSC school leavers. The programs allow us access to staff for entry-level positions, and clearly the quantity and quality of applicants for the respective programs emphasises our strong brand and attractiveness in this area.

Throughout 2011–12, we continued to offer our staff a variety of work and development opportunities. Employees engaged in secondment opportunities to the Hong Kong Audit Commission and the Queensland Audit Office, as well as other State government organisations such as NSW Treasury and the Independent Commission Against Corruption (ICAC). We also continued secondment opportunities between the various business units within the organisation. The Audit Office has a strong commitment to development through secondments, and has a policy and framework in place to facilitate this.

2008

The number of full-time equivalent staff has risen over the year from 259 to 271. This growth reflects an increased volume of work driven by more legislative and professional requirements for the delivery of our audits, changes to government structure, and increasing leave obligations to our long serving staff members who have to be replaced in order to meet legislated deadlines. A lower than expected turnover has reinforced our strategy to be ‘a great place to work’ and our high performance culture.

We are actively working to safeguard this knowledge and offer development opportunities by implementing a strategic talent management framework including succession planning.

Leadership Audit Corporate

32 Audit Office of New South Wales | Annual Report 2011/12

Equity and diversity The Audit Office is culturally rich in talent and diversity and this is strongly reflective of our approach to recruitment, selection and promotion, and our efforts to ensure that we mirror the constantly changing external workforce and client base. We have taken action to ensure that our workplace is free from harassment and discrimination, and is an environment where people feel safe and comfortable to work. Our training calendar includes quality programs from experts in the field of workplace law, and our employees are well aware of their rights and obligations. All appointments and promotions are made on merit and on demonstration of faith with our values. The number of women as a percentage of the total workforce is 51 per cent, as is the representation within middle management. Forty-six per cent of our total management group is now represented by women. The percentage of women in executive and leadership positions has increased from 22 per cent in 2010–11 to 30 per cent. It is anticipated that this figure should continue to rise over the next few years with our strong commitment to supporting the growth and development of talented women in the organisation.

Women in middle management % 51

51

44 39 31

One area to be addressed is the lack of representation by Aboriginal people and Torres Strait Islanders. We will not only review our marketing in 2012–13, but also seek out any appropriate programs to encourage interest from these groups. For more information on equal employment opportunity groups and their distribution, see our ‘EEO, multicultural policies and disability action plan’ on page 93.

Supporting our staff We are committed to health and wellbeing practices. We have maintained our provision of assorted fruit every day to promote healthier eating and also make available a variety of non-caffeinated drink options in our break area. We again provided support to those competing in the Corporate Games and the Corporate Cup competitions. The Pilates and Zumba classes unfortunately ceased during the year due to lack of staff interest. However, the Audit Office became a corporate partner with a local gym. This provides low cost membership to our employees and has been taken up by many who previously took the Pilates and Zumba classes. Our staff compete regularly as teams in major sporting events such as the City to Surf and Relay for Life. Free flu vaccinations are also made available to all. Our employee assistance program provides an independent, confidential counselling service for staff and their immediate families. The counselling is provided by experienced, highly qualified professionals who have extensive training in workplace consulting. Twenty-seven people sought assistance through 92 counselling sessions during 2011, with 13 per cent seeking assistance for problems that were predominantly of a personal nature.

2012

2011

2010

2009

2008

Recreation Club The recreation club, known as the ReClub, is a social organisation that is run by staff, for employees. About 80 per cent of staff are members of the ReClub, although all events are open to both members and non-members. It is fully funded by employees and run by a representative committee.

Some of the events held in the past year include the Annual Harbour Picnic, the Annual Dinner, the Christmas Party, Australia’s Biggest Morning Tea Annual Bake-Off, and numerous Happy Hours. The club encourages and supports participation in sporting events, such as the City to Surf, JP Morgan Chase & Co Corporate Challenge Run and the MS Walk+Fun Run. A recent ReClub initiative has been to offer our staff Audit Office sports t-shirts and jerseys at a discounted price to encourage participation in such events. The club is an integral part of our culture providing our staff with fun activities and a chance to network with their colleagues.

The year ahead Our employment brand is very strong, and feedback from applicants (especially graduates and school leavers) is that a role with the Audit Office is highly regarded. We are continuing to consolidate and improve our employee value proposition for staff and prospective staff, and emphasise the unique public accountability position we hold in working for the people of New South Wales. Ours is a safe, flexible and pleasant workplace with work-life balance employment conditions. This and the merit-pay approach of our award continues to make us an attractive employer. Under our 'Who We Are' strategic focus area we will continue to develop our strategic workforce plan, ensuring we control our workplace destiny by creating our own future and addressing any risks to our capabilities and reputation. (See page 6 for further details of our strategic focus areas.)

33 Audit Office of New South Wales | Annual Report 2011/12

Professional development Continuing to invest in our talent

10.5 training days per employee

Learning and development will also have major focus over the next 12 months as we embark on implementing a new financial audit methodology. The delivery of the Workforce Planning Strategy in 2012–13 will identify what skills and knowledge will be required for the ‘auditor of the future’ and the related learning programs. Project management training and accreditation will also have greater emphasis in 2012−13 as the Audit Office embarks on numerous major projects such as the audit methodology and technology replacement and practice management system replacement projects.

Training days per employee

1,508

11.5

12.0 10.5

10.0 1,110

11

1,020 800

800

2013 TARGET

2012

2011

2010

2009

5.0

595

2008

Plain English is an integral part of our training offering. This year the Plain English Foundation evaluated our Auditor-General’s Reports to Parliament and provided constructive feedback. Each Financial Audit Business Team has been trained using the feedback from the reports to develop a better understanding of their role and their impact on the final report. Our Financial Audit directors and managers have

Training spending $’000

2013 TARGET

This year we continued to focus on developing learning pathways for our staff and managers from induction through to each stage of their career. This ensures that everyone receives the required training for their level. The graduate and school leaver induction process was again reviewed and the Office Executive continued to play an active role in training new starters. This creates a strong bond between new starters and the Office Executive.

2012

Technical and leadership development

We are now looking at how we can continue to embed the learning from the Business and Client Simulations into the Audit Office. Through our strategic focus area ‘Our Leadership and Culture’, we are putting effort and focus into the outcome of having collaborative, constructive and inspirational leaders.

We have continued to focus on coaching for our Office Executive, Business Team Leaders and Corporate Services managers, a group we refer to as the Leadership Team. That team also works to develop and implement the Audit Office’s strategic plan.

2011

In our Performance Audit and Corporate Services teams staff are encouraged and assisted to undertake continuing education. The Audit Office assists with professional accounting and professional memberships by paying 100 per cent of tertiary and professional education fees for our graduates and school leavers, and by granting study leave. We also provide assistance to all those participating in courses relevant to their development needs. A number of staff are currently undertaking postgraduate studies.

The year ahead

Our Business and Client Simulations are now held for all newly promoted and recruited Senior Auditors, Corporate Services managers and above. The teams formed in these simulations include participants not only from across all business units of the organisation but also across many levels from Senior Auditor up to executive level. This has added to the richness of the experience and greatly helped the learning. The simulations continue to have a high level of commitment from the AuditorGeneral and the Office Executive, who provide coaching and leadership roles to attendees.

2010

All of our staff complete study appropriate for their level, and aligned to defined competencies for each role. Within our Financial Audit teams it is a requirement for those promoted to Senior Auditor level to have completed an appropriate Australian professional qualification or recognised equivalent.

2009

Our ability to perform to our mandate and to add genuine value to our clients’ business depends on the skills and proficiency of our staff throughout the Audit Office.

also been given media writing training to help them identify significant issues through the reporting process that may be of interest to the general public. Our Performance Audit team is currently analysing results from their reports and developing a training plan moving forward.

2008

Well-developed skills

34 Audit Office of New South Wales | Annual Report 2011/12

Workplace and environment Finding innovative ways to reduce our environmental footprint

19 reported safety incidents Four new workers’ compensation claims Workplace health and safety The Audit Office is committed to providing the best possible standard of work health and safety for employees on site and at client premises, and visitors to head office. We strive for early intervention and support when employees are injured to ensure every opportunity for a quick recovery and return to the workplace. During the year, there were 19 reported safety incidents. All but four were related to travel, mostly to and from work. There were four new workers’ compensation claims. Only one of these caused an absence of any tangible length. Training was provided for all managers on the provisions and meaning for them of the new Work Health and Safety Act 2011 and Work Health and Safety Regulation 2011. Employees were updated on the legislation through a variety of information channels. Further training will be conducted through 2012–13. A staff survey on workplace health and safety issues in late 2012 will highlight areas of concern and ascertain whether progress has been made in the areas noted in the similar 2010 survey. The Audit Office has a Workplace Health and Safety Committee comprising elected staff representatives and management representatives. The committee met four times in 2011–12 to review our safety management systems, monitor changes in law and recommend improvements. We continued providing ergonomic desk assessments in 2011–12 with an emphasis on prevention of injury. We have also continued to respond to the NSW Premier’s ‘Healthy Workforce Policy’ by implementing a number of initiatives aimed at improving staff health. These initiatives are discussed in ‘Supporting our staff’ on page 33.

Reducing our environmental impact

Greenhouse performance maintained

The Audit Office continued to implement its Waste Reduction and Purchasing Plan which guides us towards meeting environmental targets. We have reduced the number of reports we print and now distribute more than 60 per cent electronically – via email or on the Audit Office website.

The Audit Office again maintained its greenhouse building rating of four stars in line with government targets.

We release some of our publications in electronic format only, and those we do print are printed on 100 per cent recyclable paper. We currently use 50 per cent recycled content paper in all of our photocopiers and printers and recycle 100 per cent of waste paper using secure disposal processes. We also recycle 100 per cent of our ink and toner cartridges and ensure all laptop batteries are disposed of in an environmentally-friendly way. In 2011, we invested in iPads for our Leadership Team, with one of the aims to reduce the need for paper in meetings. That team attends many meetings that have traditionally had meeting papers of up to 200 pages per attendee. These meeting papers are now accessed electronically with no printed copies distributed. In December 2011, we ran our first ‘Innovation Week’, which saw staff from across the office participating in a week of events aimed at creating innovative ideas to improve the Audit Office. Many ideas generated related to how we can reduce paper usage including: £ replacing

all paper forms with electronic forms and signatures

£ delivering

training online without paper-based manuals

£ introducing

user codes for all printing and photocopying and award staff who achieve low usage

We achieved this by: £ buying £ using

40 per cent green electricity

timers on lights and equipment

£ buying

energy efficient equipment

£ running

small, fuel efficient vehicles in our fleet.

The year ahead In our ‘The Way We Work’ strategic focus area we have several initiatives aimed at reducing our environmental footprint including: £ becoming

a paperless office over the next three years

£ developing

a scanning framework and investing in scanning technologies to reduce the need for paper records and documentation

£ the

implementation of major new business systems with better inherent workflow and document management capability, and better integrated to our other systems, to make it easier for staff to do their work completely electronically

£ overhauling

our existing Electronic Document and Records Management System (EDRMS) to make it easier for staff to create and keep records electronically rather than in paper format.

We will also be implementing as many ‘Innovation Week’ ideas as is practicably possible.

£ introducing

more scanning technologies and equipment

£ introducing

a limit on the size of paper files and reduce duplication.

All of these ideas now form part of our plans for the future.

35 Audit Office of New South Wales | Annual Report 2011/12

Case studies Developing the leadership capability and creativity of our staff

Case study one

Case study two

The leadership journey continues

Innovation Week

This year we continued to roll out our very successful Business Simulation to our operational managers in all parts of the business. The simulation is run over three days offsite, and participants develop a strategy and make business decisions to run their simulated 'audit office'.

Innovation Week was held for the first time in 2010–11 to encourage staff to develop creative ideas to help solve some key challenges and issues within the Audit Office. Some of the topics tackled included: £ How

can we become more efficient?

We have now reached all levels of management with leadership programs designed to focus them on the successful running of all aspects of the Audit Office, and to create real value for clients.

£ How

can we deliver audits in a timelier manner?

£ How

can we better support our part-time staff?

Some comments from this year’s Business Simulation were: The know-how sessions were excellent with relevant information and content. The business simulation was excellent as it provided us with an insight of how the organisation is run and impacts of certain decisions. The know-how sessions fit really well into the Business Simulation which was an excellent and realistic model which reflects the Audit Office. Thought-provoking and challenging. Fantastic program. Very fortunate to have been given the opportunity to attend. Good use of humour and methods to keep the audience engaged. Really enjoyed the video presentation. Great training opportunity! One of the best training sessions I have attended. Very well run and enjoyable. Taught me a lot about myself. Very realistic. Finally brought out ‘team’ in terms of camaraderie and working together to achieve a common goal. The Business Simulation was an excellent representation of the Audit Office. Loved the whole session. Was very interesting and useful. Mix of theory and practical was very good and not something that is often available at a training session.

We had six major idea-generating events, including picnics, ferry rides and ‘party parlours’. They were held over one week at various venues such as Taronga Zoo, Cockatoo Island and the Royal Botanic Gardens, and over 300 great ideas were generated. The best ideas as voted by staff and the Office Executive have been implemented or now form part of our strategic initiatives and projects for implementation in the future. Our staff thoroughly enjoyed this experience. Some comments from Innovation Week were: I really enjoyed being able to have an opportunity to talk about ways of making the office better with my colleagues. Everyone has different views because they work in different branches and it helps you think about the office as a whole. What really came through to me was that everybody there appreciated the fact that the Audit Office was interested in their ideas for improving the business. Many wanted to take part in more of these types of sessions – they felt valued and wanted to play their part. It was a rewarding experience and it was wonderful to be around so many people who had so many good ideas! Brilliant. Who said auditors are boring and lack creativity? Some great, practical ideas were generated. I believe Innovation Week has set the foundation for a more innovative culture in the Audit Office.

Brilliant. Fantastic combination of business learning, learning about self, learning about others and team work. Highly recommend it.

36 Audit Office of New South Wales | Annual Report 2011/12

Profession We are known for influencing auditing in Australia We work closely with the auditing profession, commenting on draft accounting and auditing standards, and also present to various forums on auditing and governance This helps us maintain our professional presence and influence the direction of auditing in Australia

Chris Bowdler Performance Audit Leader Client location – Brett Whiteley Studio

Professional influence Making positive and varied contributions

45 presentations delivered to the public and the profession Professional services

Services to the public sector

Mentoring

The Audit Office has an Audit Support team recognised for its specialist expertise in public sector accounting. Audit Support staff are seconded from financial audit for a limited time. These limited secondments help balance practical experience with technical knowledge and increase overall expertise in the organisation. The team helps our Financial Audit Branch maintain its professional knowledge and keep up-to-date with latest developments.

The Audit Office aims to be recognised as a leader and expert in the auditing and accounting profession, with this activity driven in 2011–12 by our ‘Stakeholder Value’ strategic focus area (see page 43). We do this by presentations, submissions, contributions to external committees and appearances before parliamentary committees.

The Audit Office provides formal mentoring to all our candidates for memberships of professional accounting bodies. This program has achieved consistently outstanding results, and produces well trained, high calibre professionals for our audit teams.

We delivered 45 presentations to a variety of audiences in 2011–12, 31 to the public sector. Topics included audit and risk considerations, fraud and corruption, better practice for quality and timeliness, and building robust governance frameworks.

The Audit Office interacts with Australian accounting bodies, participating in their committees, research groups and working parties. We aim to help them gain an understanding of the issues facing the public sector. Our representatives attend roundtables hosted by the standard setters and we develop comments in conjunction with other Australian audit offices to help the boards develop standards that can be applied with equal ease in the public as well as private sectors.

Presentations

Submissions made 45

36

38

43

40

35

35

32

17

2012

2011

2010

2009

14

2008

2013 TARGET

2012

23

2011

The Audit Support team is responsible for technical advice on the application of professional standards, legislation and regulation. It promotes high quality public sector financial reporting, seeking to ensure auditing and accounting standards are understood, effectively implemented and consistently and fairly applied. It reviews any modification to a client’s audit opinion before it is issued, to ensure it is fair and in accordance with applicable standards.

Audit Office staff have, for many years, been involved in determining the content of training modules, leading training and focus sessions, and marking exam papers for the Institute of Chartered Accountants in Australia and CPA Australia. Graduates aspiring to membership of a professional accounting body must gain their professional qualifications by completing the training and passing exams for a recognised Australian professional accounting qualification. Such a qualification is a prerequisite to progression in a career within the Audit Office Financial Audit team.

2010

As part of their responsibility to maintain our audit methodology, the team initiated a project in 2011–12 to implement a new methodology. This will help us prepare for the challenges of the future by increasing our knowledge base to our auditors. It will provide a contemporary, efficient and effective tool to help us deliver high quality audits to the NSW public sector.

Educating

2009

We produce a monthly publication, Professional Update, which was recently redesigned to reach a wider audience. Available on the Audit Office website, it provides commentary on emerging issues, the activities of standard setters, NSW Treasury, regulators, professional bodies and the courts.

Influencing by educating, mentoring and advising

2008

The team is seen as a leader in the profession, particularly in public sector accounting issues. They coordinate the effort of the Australasian Council of Auditors-General (ACAG) when commenting on new pronouncements. It also leads the ACAG quality assurance program across all Australian audit offices. Their input is regularly sought by professional bodies and NSW Treasury on a wide variety of financial reporting matters.

Advising

Audit Office of New South Wales | Annual Report 2011/12

Engaging with auditors in other jurisdictions Performance auditing is a constantly changing discipline and we continually strive to improve practices. Part of this endeavour is to work with others in the profession to develop better business processes. In 2011−12, we commenced the first concurrent performance audit in Australia, working in collaboration with performance auditors from the Victorian, Western Australian, Tasmanian and Queensland audit offices. This audit will assess how well specific programs in New South Wales are meeting their obligations under the National Partnership Agreement on Homelessness, and whether they are making a difference for homeless people in New South Wales. The report is due for release in the fourth quarter of 2012–13. Regional Working Group on Environmental Auditing The purpose of the Regional Working Group on Environmental Auditing is to encourage and build capacity for environmental audits within participating Pacific Association of Supreme Audit Institutions members. We hosted the third biannual meeting of the group in April 2012. The group heard presentations from audit offices from Australia, New Zealand, Cook Islands, Fiji, Kiribati and the Solomon Islands as well as from an Asian Development Bank consultant and a senior advisor to the International Organisation of Supreme Audit Institutions Working Group on Environmental Audit. Feedback on the workshop was very positive.

Influencing through the Australasian Council of Auditors-General The Audit Office is an active participant in the Australasian Council of AuditorsGeneral (ACAG), established in 1993 to encourage sharing and cooperation between audit offices in Australasia. The Audit Office provides administrative support for the ACAG Executive Director and the ACAG Financial Reporting and Auditing Committee (FRAC) which deals with accounting and auditing issues. Audit Office staff also chair, sponsor and support council subgroups, participating in working parties and committees. The Auditor-General is a member of the ACAG Executive. We contribute to the development of the council’s position on various issues including submissions to public inquiries on matters of public sector accountability, and to its position on accounting and audit standard setting in both international and Australian jurisdictions. ACAG Performance Audit Managers Workshop This workshop held in November 2011 brought together managers from most Australian and New Zealand audit offices. Participants discussed current practice issues and emerging challenges. Feedback about the workshop was very positive and all benefited from the exchange of ideas and approaches to professional practice.

Interstate and international knowledge sharing Interstate and international placements bring new ideas to the Audit Office and extend our influence in other organisations as well as developing the staff involved. This is directly aligned with our 2012–13 ‘How We Influence For Impact’ strategic focus area (see page 6). This year staff participated in various secondments (see page 32) and hosted a staff member from the Office of the Auditor-General, Western Australia, who assisted us with our ‘Visiting Medical Officers and Staff Specialists’ performance audit.

The Audit Office has continued its support for the training and development of financial audit staff from Papua New Guinea and we expect to extend that support to their new performance audit team in 2012−13. We also hosted a Filipino intern studying at the Australian and New Zealand School of Government who undertook a thesis on performance auditing in New South Wales. We expect to see more secondments and staff exchanges in 2012−13 both with other audit offices and with NSW agencies.

Peer reviews In 2011–12, we undertook a review of audit practice and quality assurance procedures in the Tasmanian Audit Office and the Victorian Auditor-General’s Office. During the year, staff from the Victorian Auditor-General’s Office conducted a peer review of our practices and of our audits. These peer reviews found a high level of compliance with auditing standards, but also some opportunities for improvement, which we will include in our plans for 2012−13.

The year ahead In 2012–13 we will continue to be driven by our ‘How We Influence for Impact’ focus area and maintain our professional presence by: £ informing

members of parliament, the profession and the broader community about our role and activities, and the value of our audits

£ continuing

to make submissions on proposed changes to accounting and auditing standards

£ continuing

to be involved in accounting and governance professional bodies’ education programs

£ increasing

our representation on key professional accounting bodies.

39 Audit Office of New South Wales | Annual Report 2011/12

Case studies Collaboration adds value

Case study one

Case study two

Collaborating across business units

Collaborating with other watchdog agencies

The NSW Government’s Solar Bonus Scheme was introduced through legislation in 2009 and commenced on 1 January 2010.

We were delighted that staff from the Independent Commission Against Corruption (ICAC), the NSW Ombudsman, the Information and Privacy Commission NSW and the Public Accounts Committee, participated in the national performance audit training course that we hosted in Sydney in 2012. Our staff continue to benefit from training that the ICAC and the NSW Ombudsman provide in corruption prevention and fraud and complaint handling, so it is gratifying that we can reciprocate.

Our special report on the scheme found that the NSW Government and its agencies grossly underestimated its cost and the number of people that would install systems. Financial and performance audit staff worked closely together to conduct this review. Our financial auditors focused on the costs, including seeking expert confirmation and advice on the whole-of-life projected costs for the scheme. Our performance auditors focused on the history of the scheme, and why the government appeared to have lost control of it. We found that the NSW scheme was far more generous than other States' schemes. People could effectively sell electricity to the government one day and buy the same amount back the next day at half the price. This contributed to many more people joining the scheme than were expected. By October 2010, the estimated lifetime cost of the scheme, if it continued the way it was going, would have reached nearly $4 billion − more than ten times the original estimate. In response, the government reduced the gross tariff for new applicants from 60 to 20 cents and thus the estimated cost reduced to under $2 billion. We expect to see more of this collaborative work in 2012–13 as we move towards a more integrated office under the ‘Our Leadership and Culture’ strategic focus area (see page 6).

We have a continuing close liaison with other watchdog agencies, and are in regular contact to make sure the work we do is mutually supportive and does not overlap. Under our 2011–12 ‘Public Engagement’ strategic focus area we sought views of professionals on the work of the Audit Office and how we can improve. We have benefited from advice from the ICAC in relation to our performance audits on procurement and contracting issues and on local government review. That liaison is continuing with discussions on fraud prevention and our support for ICAC’s forensic accounting work. We have continuing dialogue with the NSW Ombudsman around government services for Aboriginal people, for children at risk and policing issues, to inform our performance audit program in these areas. We also support the NSW Ombudsman’s implementation of new public interest disclosure legislation.

40 Audit Office of New South Wales | Annual Report 2011/12

Governance We have sound corporate governance which guides us to achieve our purpose At the Audit Office we: £ have

a governance framework that reflects the eight core principles of good corporate governance

£ are

committed to legislative compliance and ethical behaviour

£ meet

public expectations of probity, accountability and transparency

£ have

a dedicated governance unit to administer, support and guide our governance processes

Emily Watson Governance Manager Client location – Sydney Water Police

Strong governance foundations Driven by the eight core Australian Securities Exchange principles

Corporate governance leading the way Our corporate governance processes and behaviours guide us to achieve our purpose, conform to all relevant laws, standards and directions and meet public expectations of probity, accountability and transparency. They provide our employees with a clear sense of purpose and focus, guiding their behaviour when dealing with each other, our audit clients and other stakeholders.

ASX Corporate Governance Principles and Recommendations Our governance framework, the Governance Lighthouse (see image below), reflects the eight core Australian Securities Exchange (ASX) Corporate Governance Principles. Under these eight core principles, the Audit Office has developed 17 major points of good governance. While there is no single model of good corporate governance, we structured our governance framework around these eight principles, using it as a way to develop, implement, review and report on our corporate governance.

Continuous enhancement In 2011–12 we enhanced our governance framework through:

The year ahead In 2012–13 the Audit Office will:

£ updating

the Compliance Register and expanding it to include key controls and links to our strategic focus areas

£ conduct

its fraud risk assessment and roll out updated internal fraud training

£ conducting

an annual compliance risk assessment

£ reassess

the risk appetite for the Audit Office

£ strengthening

our policies for reporting wrongdoing through the revised External and Internal Public Interest Disclosure Policies and Fraud Control Policy and Procedures

£ formalise

a process for tracking

risks £ link

the strategic risks with the 2012–15 Strategic Plan outcomes.

£ developing

and publishing our Continuous Disclosure Policy on our website to outline how we provide regular information to the public

£ regularly

reviewing the Audit Office’s strategic risks and their critical link to our Strategic Plan

£ the

Audit and Risk Committee self-assessing its performance and reviewing its charter.

Best practice governance We chose a lighthouse to symbolise good corporate governance. It shines a light on the right way forward and warns of danger before it hits. This is the essence of good public sector governance.

Governance Lighthouse Audit Office of New South Wales 17 Key stakeholder communication plan

16 CEO and management sign-off on internal controls 15 Risk management program 14 Executive performance evaluation 13 A continuous disclosure policy 12 Annual report published 11 CEO and CFO sign-off 10 Internal and external audits 9 Audit committee 8 7 6 5

Diversity policy Compliance management Fraud and corruption control Code of conduct

4 Well defined set of key committees 3 Clear accountability and delegations 2 Regular reporting against plans 1 Strategic and business plans

Audit Office of New South Wales | Annual Report 2011/12

Setting direction We have a strong commitment to strategic planning

LIGHTHOUSE PRINCIPLE: MANAGEMENT AND OVERSIGHT (based on ASX Principle 1)

Lay solid foundations The Audit Office of New South Wales is a statutory authority established under the Public Finance and Audit Act 1983 to conduct audits for the Auditor-General, who is accountable to the Parliament of New South Wales. The Auditor-General is responsible for the Audit Office and its activities.

Our strategic plan Our Leadership Team maintained their strong commitment to strategic planning, meeting every 30 days to review and develop the 12 month strategic plan in line with the core business priorities of the Audit Office. The Office Executive and focus area project managers meet every quarter to review milestones and key performance indicators (KPIs) and reflect on progress towards achieving overall outcomes. We set milestones, KPIs and outcomes for each of our five focus areas for 2011–12 and developed key areas of work to achieve success across these benchmarks. Public Engagement Outcomes in 2011–12: £ The

people of New South Wales recognise and appreciate what we do

work addresses issues that concern the public.

Systems and Processes

Stakeholder Value

Outcomes in 2011–12:

Outcomes in 2011–12:

£ Our

£ Our

audit methodologies are contemporary, easy to use and add value

£ We

have a culture of innovation

£ We

manage our knowledge

£ We

have the systems and processes that best match our business needs.

Key achievements include: £ A

new financial audit methodology selected and trialled

£ Moved

from manual to electronic human resources forms

£ Enhanced

our performance management system

£ Introduced

KPIs for audit team management

£ Held

a successful 'Innovation Week' for all staff (see pages 35 and 36)

£ Knowledge-sharing

satisfaction improved by three per cent for staff information needs and use of key business systems.

People Power Outcomes in 2011–12: £ Our

people are able and willing to embrace the challenges of change

£ We

have a workforce strategy that addresses the future

£ Our

people feel trusted and valued.

Key achievements include:

Key achievements include:

£ Action

£ Website

hits on new website increased by 15 per cent from previous year

£ Developed

media coverage analysis process to further our public engagement strategies.

£ Parliament

respects, supports and trusts us

£ Clients

value and trust us

£ We

are recognised as leaders and experts in our profession.

Key achievements include: £ Auditor-General’s

reports refined

and improved £ More

extensive engagement with Public Accounts Committee

£ A

collaborative approach for preparing media releases between business units was developed to increase media engagement.

framework

£ Employee

£ Established

brand and website launched

have the mandate we need to achieve our vision

developed

£ Our

£ New

reports are persuasive and fair

£ We

a project to plan for our future workforce needs was taken to improve employee trust and value, by celebrating success and giving positive feedback.

Financial Performance Outcomes in 2011–12: £ Our

financial strategy enables the Audit Office to achieve all its business objectives

The year ahead The success of our annual strategic planning process over the last two years has led us to expand to a three-year planning cycle driven by our key strategic initiatives. We have determined the five focus areas critical to our business planning and have set goals and benchmarks for 2015. They are: Our Sustainability Our Leadership and Culture Who We Are The Way We Work How We Influence For Impact See page 6 for full details on these new strategic focus areas.

£ We

are all accountable for the sustainable financial future of the Audit Office

£ Management

information informs day-to-day business decisions.

Key achievements include: £ Improved £ A

management reporting

draft financial strategy

£ Improved billing and collection processes. 43 Audit Office of New South Wales | Annual Report 2011/12

Structured to add value Key committees provide leadership and guidance

Audit and Risk Committee

LIGHTHOUSE PRINCIPLE: STRUCTURE (based on ASX Principle 2)

Office Executive The Auditor-General has established and delegated operational responsibility to the Office Executive. The Office Executive is led by the Deputy AuditorGeneral and includes the Assistant Auditors-General within Financial Audit, Performance Audit and Corporate Services. The Office Executive, as the Board of the Audit Office, provides leadership and guidance to the Audit Office to achieve its strategic priorities, meet operational and strategic targets and comply with relevant codes, practices, laws and directions. The Office Executive meets monthly and assesses its performance and reviews its charter annually. For further details on the experience and performance of the Office Executive and the Audit Office’s organisational structure, see page 4.

The Audit and Risk Committee provides the Auditor-General with independent assurance on the organisation’s financial reporting, risk management and organisational processes. The Audit and Risk Committee consists of two independent members, Brian Suttor (Chair) and Greg Fletcher, and includes Tony Whitfield (Deputy AuditorGeneral). Internal and external auditors and management representatives also attend committee meetings. Brian Suttor was appointed as Chairman on 28 November 2008 for a four year term. He has been a partner in a major accounting firm and brings an independent perspective to the committee. He has extensive experience in auditing and in chairing audit committees. Greg Fletcher was appointed on 4 December 2009 for a four year term and also brings considerable experience as a former partner in a major accounting firm. He is an audit and risk committee chair for several NSW public sector agencies and a director of a number of publicly listed companies.

LIGHTHOUSE PRINCIPLE: EXECUTIVE REMUNERATION (based on ASX Principle 8)

Remuneration Committee The Audit Office has had a Remuneration Committee in place since 2005. This committee includes the Deputy AuditorGeneral and Assistant Auditor-General, Corporate Services. The Executive Manager, Human Resources and the Remuneration and Conditions Manager provide guidance and advice to the committee. The committee is guided by the following principles: £ pay

employees fairly, taking into account market relativities, job scope and other conditions and benefits

£ be

transparent

£ consistently

apply reward and recognition policies and procedures across the organisation

£ have

a strong performance focus

£ link

reward and recognition to progression against the core competencies.

Tony Whitfield is a permanent member of the committee bringing significant experience in senior management, public and private sector finance, and auditing. The independence, integrity and experience of the Audit and Risk Committee are key strengths to providing insight and enhancing the operations of the Audit Office. In 2011−12, as in previous years, the committee assessed its performance through a self-assessment and reviewed its charter.

Audit and Risk Committee meetings attended* *All committee members attended 100 per cent of meetings

Brian Suttor

4

Chair Greg Fletcher

4

Independent Member Tony Whitfield

Deputy Auditor-General

4

Committee members provide annual written declarations to the Auditor-General stating they do not have any conflicts of interest that would preclude them from being members of the committee. Committee members must also declare any conflicts of interest at the start of each meeting which are documented in the Register of Members' Interests.

44 Audit Office of New South Wales | Annual Report 2011/12

Governance framework Our corporate governance framework and organisational structure

Public Accounts Committee into and reports on activities of government that are reported in the Total State Sector Accounts and the accounts of the State's authorities

NSW PARLIAMENT

£ Inquires

£ Examines

Auditor-General's Reports to Parliament

Auditor-General

Appointed by the Governor of New South Wales for a fixed non-renewable seven year term.

£ Appoints

a reviewer every four years to examine the auditing practices and standards of the Auditor-General.

AUDIT AND RISK COMMITTEE

REMUNERATION COMMITTEE

Deputy Auditor-General

Governance Unit

OFFICE EXECUTIVE

Financial Audit Management

Performance Audit Management

Corporate Services Management

45 Audit Office of New South Wales | Annual Report 2011/12

Ethical and responsible decision-making We are driven by strong values and ethical behaviour

LIGHTHOUSE PRINCIPLE: ETHICS (based on ASX Principle 3)

High standards of conduct are instilled Our role is to provide independent assurance and advice to parliament. We foster a culture that strongly values ethical behaviour, integrity, respect and professionalism throughout the organisation. Our Code of Conduct governs our people in their day-to-day activities and decisions, and dealings with clients, colleagues and stakeholders. The Audit Office also has a Professional Independence Policy providing guidance for managing actual and perceived conflicts of interest. On induction, all employees are given training and required to sign the Code of Conduct and the Professional Independence Policy. They are then signed annually. ‘Ethics and Values’ is one of six core competencies for all Audit Office staff. All staff are assessed annually against these competencies and given development where necessary.

Protecting privacy The Audit Office is committed to protecting an individual’s privacy when we collect, use or disclose personal information. When dealing with private information, we apply the principles in the Privacy and Personal Information Act 1998 to ensure it is lawful, direct, open and relevant; the information is stored securely; access is transparent; its use is accurate and limited; and disclosure is safeguarded.

Zero tolerance on fraud

Compliance management

The Audit Office is committed to minimising fraud by implementing and regularly reviewing a range of strategies that prevent, detect and investigate fraud. We have a zero tolerance to fraud.

The Audit Office has a significant number of compliance obligations including laws and regulations, central agency directions, standards, codes, values and applicable Auditor-General’s report recommendations. To ensure we meet our obligations, our compliance program promotes the importance of compliance to all staff, identifies compliance obligations and responds to noncompliance.

The Audit Office adheres to the Australian Standard AS 8001-2008 Fraud and Corruption Controls, and the AuditorGeneral has a direct responsibility under the Independent Commission Against Corruption Act 1988 to report any suspected fraud, either internally or at other organisations. Staff receive regular fraud updates and must adhere to the Fraud Control Policy and Procedures. We conducted our biannual fraud control health check in 2011−12. The health check is an effective way for the Office Executive and Audit and Risk Committee to review and monitor our fraud control strategies. The health check found staff were confident that: £ the

Audit Office’s fraud policies and procedures dealt effectively with fraud risk

The Audit Office’s compliance program is based on Australian Standard AS 3806-2006 Compliance Programs, and includes: £ a

Compliance Policy

£ Register

of Compliance Obligations

£ annual

verification of compliance through the management internal control sign-off (see page 49)

£ management £ audit

reviews

methodologies

£ regular

reporting to the Office Executive and Audit and Risk Committee.

Key developments during the year included linking our compliance obligations to our strategic focus areas and annually assessing compliance risk.

£ clients

and suppliers were clear on the Audit Office’s zero tolerance policy

£ the

Audit Office would report fraud or corruption to external organisations where it was required to do so.

In 2011−12 we updated and aligned our policies for reporting fraud with the Audit Office Internal Public Interest Disclosure Policy and reinforced our support to staff who have genuine concerns about wrongdoing in the office to report those concerns. For more information on public interest disclosure see page 27.

The year ahead In 2012–13 the Audit Office will: £ conduct

the biannual fraud risk assessment

£ roll

out updated internal fraud training.

No internal suspected or actual frauds were reported during 2011−12.

46 Audit Office of New South Wales | Annual Report 2011/12

Safeguarding the integrity of financial reporting Sound financial reporting structure

LIGHTHOUSE PRINCIPLE: FINANCIAL REPORTING (based on ASX Principle 4) The integrity of our financial information is safeguarded by a number of key mechanisms.

Audit and Risk Committee The Audit and Risk Committee independently reviews the objectivity and reliability of the Audit Office’s financial information, ensuring that the financial statements are supported by appropriate management sign-off on the adequacy of internal controls. At each quarterly meeting, monthly financial reports and budgets are presented to the committee for review. A special meeting is also held to review the Audit Office’s annual financial statements (see page 44 for more information on the Audit and Risk Committee).

Quality assurance Quality assurance in the Audit Office is monitored through the Audit and Risk Committee, the Office Executive and through various reviews including: £ parliamentarian

and client surveys (see pages 8, 9,16 and 17)

£ an

annual program of internal audits (see page 47)

£ regular

peer reviews of financial and performance audit processes (see page 39)

£ internal

quality reviews of our audits for compliance with applicable professional standards and audit methodologies

£ four-yearly

Public Accounts Committee reviews of the Audit Office (see page 14)

Internal audit Our internal auditors add value and improve our operation by providing independent and objective assurance. The audit function brings a systematic, disciplined approach to evaluate and improve office systems, processes and reporting. The internal auditors attend each quarterly Audit and Risk Committee meeting to report on the status of the Internal Audit Plan and present the findings of their reviews. In 2011−12 the internal auditors reviewed: £ records

management

£ the

information security management system

£ revenue £ the

help desk implementation project

£ the

Audit Office’s implementation of the four-yearly Public Accounts Committee recommendations

£ procurement

Auditor-General and Management Internal Control Sign-Off The Auditor-General certifies that the financial statements give a true and fair view and are prepared in accordance with applicable Australian Accounting Standards, the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010 and the Treasurer's Directions. This sign-off is supported by the Management Internal Control Sign-Off (further explained on page 49) and written assurance from the Assistant AuditorGeneral, Corporate Services that the financial statements are founded on a sound system of risk management and internal control. A checklist of minimum required procedures for this process is also completed.

and expenditure

£ payroll

The year ahead

£ the

In 2012−13 our internal auditors will review:

Audit Office’s implementation of previous internal audit recommendations.

Our internal audit function is provided by a private firm.

External audit A private firm appointed by the Governor of New South Wales annually audits the Audit Office’s financial statements. They provide an independent opinion on whether the Audit Office’s financial statements are true and fair and comply with applicable Australian Accounting Standards. The external auditors attend each Audit and Risk Committee meeting.

£ benchmarking

against other State audit offices (see page 10).

£ the

information security management system

£ pre-implementation

quality assurance – Practice Management Information System project

£ pre-implementation

quality assurance – Audit Methodology project

£ strategic

planning

£ Audit

Office adherence to work, health and safety laws

£ previous

internal audit findings

£ procurement

and expenditure

£ payroll.

47 Audit Office of New South Wales | Annual Report 2011/12

Disclosure – timely and balanced We account to parliament and the public for our performance LIGHTHOUSE PRINCIPLE: DISCLOSURE (based on ASX Principle 5)

Accountability and transparency We regularly inform the public on our performance, expenditure of public funds and of any significant issues that occur. We do this through our annual report, Auditor-General’s Reports to Parliament and website updates. Our Continuous Disclosure Policy is on our website and outlines how we provide regular information to the public. Our ongoing disclosures ensure we are accountable and transparent to the public for our use of public funds, directly aligning with our ‘Public Engagement’ strategic focus area for 2011–12 (see page 43) and continuing into our 2012–13 focus areas of 'Our Sustainability' and 'How We Influence For Impact' (see page 6).

Open access information

Award-winning annual report

We are committed to complying with the Government Information (Public Access) Act 2009 (the GIPA Act). Under the GIPA Act there are four ways that information can be made available to the public. These are mandatory disclosure of ‘open access information’, proactive release of information, informal release of information and through a formal access application.

In recognition of our high standard in annual reporting, we received a gold award for the 2010−11 report in the Australasian Reporting Awards, following gold awards the previous three years. We were also finalists in the Premier’s Awards Recognising Excellence for our 2009−10 annual report.

We are committed to ensuring our administrative information is available, or made available on request, to the public. During 2011–12, we reviewed our program for the proactive release of information and developed a Continuous Disclosure Policy. This formalised our commitment to proactively disclose to the public and our key stakeholders, information on current and planned audit work, performance outcomes and expenditure. This was done through audits in progress, the AuditorGeneral’s reports, professional updates, better practice guides and our annual report, all published on our website. Information not already available on the Audit Office website can be obtained by submitting an informal or formal request under the GIPA Act. Unless there is an overriding public interest against disclosure or it relates to the Audit Office’s auditing, investigative and reporting functions, which is excluded information under the GIPA Act, such requests will be accepted.

During 2011–12 the Audit Office did not receive and therefore did not refuse any formal GIPA access applications. The office did receive two informal applications, which were not allowed as the information requested related to our auditing function which is excluded under the GIPA Act.

We voluntarily adopt full and open reporting on our performance in our annual report. We also demonstrate how our business strategy drives us forward. We comment extensively on what parliament and our audit clients think of our services, and on whether agencies have accepted and acted on our audit recommendations. This is the best way we can measure our success because we can only inform and influence – we do not have the power to direct the government and its agencies on how to operate or report.

Complaints handling Complaints about our services are taken seriously and are reviewed by senior management. We regard complaints as opportunities for us to improve our services. We also collect information on any compliments and suggestions. Our audit teams deal with informal complaints and comments arising in the normal course of their audits and from the client survey feedback through assessing the issues raised and looking at ways of improving services.

48 Audit Office of New South Wales | Annual Report 2011/12

Risks – recognised and managed Our risk management framework is embedded in our strategy LIGHTHOUSE PRINCIPLE: RISK MANAGEMENT (based on ASX Principle 7)

Recognising and managing risk Our structured risk management process is embedded in our strategic and operational policies and practices. The Deputy Auditor-General, as Chief Executive Officer and head of the Office Executive, assumes ultimate responsibility for our risk management framework. We are committed to regularly reviewing our framework and our strategic risks are linked to our strategic plan outcomes. We maintain and regularly review our risk registers for our key strategic risks, key operational risks and significant project risks. The Audit Office’s risk management framework is developed in line with NSW Treasury’s Internal Audit and Risk Management Policy, the Australian/New Zealand Risk Management Standard, AS/NZS ISO 31000:2009, and the Accounting Professional & Ethical Standards Board’s professional risk management standard, APES 325 Risk Management for Firms.

Strategic risks Our strategic risk register reflects the goals and objectives, strategies, scope and parameters of the Audit Office. Our key strategic risks are: £ failure

to anticipate and manage stakeholder expectations £ insufficient funding to meet office needs £ issuing recommendations that don't add value £ outdated financial audit methodology − dependence on third party audit methodology £ issuing an incorrect financial audit opinion £ inability to effectively manage our workforce £ inadequate technology £ inability to adapt to changing public sector £ inability to adapt to changes in audit requirements £ internal governance failure £ inability to compete with private sector if necessary.

Internal control The Auditor-General is ultimately responsible for ensuring an effective system of internal control over the financial and related operations of the Audit Office, in line with the requirements of the Public Finance and Audit Act 1983. The Deputy Auditor-General, as Chief Executive Officer, is responsible for the Audit Office’s Internal Control Framework and Risk Management Policy and Procedures. The Audit and Risk Committee regularly reviews the Audit Office risk management and what the office is doing to address key strategic risks. The Audit Office’s Internal Control Policy and Framework is based on the internal control guidelines recommended by the Committee of Sponsoring Organisations (COSO) of the Treadway Commission. The Management Internal Control Sign-Off is completed annually in line with the Audit Office’s financial statements and covers the financial year. Managers sign off on the quality of the internal controls they are responsible for and compliance with Audit Office policies. This sign-off supports

the Auditor-General’s responsibility for ensuring an effective system of internal control over the financial and related operations of the Audit Office. The Auditor-General annually attests to the quality of Audit Office internal audit and risk management processes. This is based on an annual review of the Audit Office’s compliance with the core requirements of Treasury Circular NSW TC 09/08 Internal Audit and Risk Management Policy. Our internal audit and risk management statement is below.

The year ahead In 2012–13 the Audit Office will: £ reassess

the risk appetite for the Audit Office

£ formalise

a process for tracking

risks £ link

the strategic risks with our 2012−15 strategic plan outcomes.

Internal Audit and Risk Management Statement for the 2011–12 Financial Year for the Audit Office of New South Wales I, Peter Achterstraat, am of the opinion that The Audit Office of New South Wales has internal audit and risk management processes in operation that are, in all material respects, compliant with the core requirements set out in Treasury Circular NSW TC 09/08 Internal Audit and Risk Management Policy. These processes provide a level of assurance that enables the senior management of The Audit Office of New South Wales to understand, manage and satisfactorily control risk exposures. I, Peter Achterstraat, am of the opinion that the Audit and Risk Committee for The Audit Office of New South Wales is constituted and operates in accordance with the independence and governance requirements of Treasury Circular NSW TC 09/08. The Chair and Members of the Audit and Risk Committee are: Brian Suttor Independent Chair, appointed on 28 November 2008 for a four-year term Greg Fletcher Independent Member, appointed on 4 December 2009 for a four-year term Tony Whitfield Non-Independent Member, permanent.

Peter Achterstraat Auditor-General

22 August 2012

49 Audit Office of New South Wales | Annual Report 2011/12

Stakeholder engagement We regularly connect with our stakeholders

LIGHTHOUSE PRINCIPLE: KEY STAKEHOLDER MANAGEMENT (based on ASX Principle 6)

Continually improving relationships In 2011–12 the Audit Office continued to focus on engaging with our major stakeholders: £ Parliament £ NSW £ The

of New South Wales

Government agencies

people of New South Wales.

We were driven by our strategic focus area 'Stakeholder Value' (see page 43). Good stakeholder relations are key to achieving positive outcomes, and the Audit Office developed these relationships in 2011–12 by: £ more

extensively engaging with the Public Accounts Committee (PAC) at parliament

£ improving

the quality of media releases to increase media coverage

£ refining

the Auditor-General's Reports to Parliament, based on feedback from our audit clients and parliamentarians.

Throughout the year the Auditor-General and other senior management personally meet with:

The year ahead

£ parliament,

In 2012–13 we will continue to maintain and improve key stakeholder relationships, as driven by our ‘Our Sustainability’ and ‘How We Influence For Impact’ focus areas, through:

£ audit

£ strengthening

largely through the PAC, who we regularly meet with when tabling our reports and when the committee is questioning agencies on what they have done in response to our audit recommendations

our relationship with parliament and the PAC

clients – CEOs and CFOs of agencies, and Audit and Risk Committee Chairs

£ continuing

to gather feedback from agencies’ CEOs, CFOs and Audit and Risk Committee Chairs to ensure we are meeting expectations

£ the

media who often cover the outcomes of audits.

We also survey parliamentarians, agency CEOs, CFOs and Audit and Risk Committee Chairs, to gain their feedback on our performance to ensure we are delivering to them what they want, and to ensure that we are still doing everything we can to retain their respect, support and trust (see pages 16 and 17 for more details).

£ reaching

out through new channels of social media to wider audiences, as well as providing new ways for stakeholders to give feedback

£ greater

media analysis of our Auditor-General’s Report to Parliament.

For more details on our strategic focus areas, see page 6.

Our ultimate aim is to make our largest stakeholder, the people of New South Wales, proud of the work we do.

Case study Contributing to public sector governance The Audit Office contributes to governance in the public sector in a number of ways. In April 2012, we convened a forum ‘Financial Issues Emerging in Government Agencies’ for the Chairs of the Audit and Risk Committees for 17 of the largest departments/State owned corporations and universities in the sector. The Treasurer and the Office Executive from the Audit Office attended the forum. The Auditor-General gave an outline of the major issues found in our 2011 audits. This outline and the discussion that followed enabled the Treasurer to get an overview of past and emerging issues. It also provided the Chairs of the Audit and Risk Committees an opportunity to share their thoughts and experiences on a number of matters. The Audit Office received positive feedback from the Treasurer and many of the Chairs who attended, with comments such as:

‘Thank you for today’s meeting. It was a really good initiative and will help us all to improve our audit committees. Sometimes it is hard to see the big picture when we are immersed in year-end financials and the regular grind of compliance issues and today we were able to step back and consider the whole landscape.’ Some of the major issues we found in our 2011 audits of government agencies included: £ deficiencies

in financial reporting processes and poor quality of financial statements

£ noncompliance £ deficiencies £ outdated

with policies and procedures

in information security

disaster recovery plans

£ a

large number of Audit Office recommendations for improving information systems not resolved

£ poor

risk management culture in some agencies.

50 Audit Office of New South Wales | Annual Report 2011/12

Finances We have a financial framework that supports our business objectives We aim to: £ collect £ pay

our debts within a reasonable time

our creditors promptly

£ break

even over the medium term

Gearoid Fitzgerald Senior Auditor Client location – Sydney Royal Botanic Gardens

Financial performance Our goal is to break even over the medium-term

$0.4 million profit (excluding superannuation adjustments), a five-year cumulative result still outside our medium-term break-even target

Our 2011–12 operating result was favourable to budget by $0.4 million. This was primarily because audit fees were $0.6 million more than budgeted, largely due to additional work required with the amalgamated agencies.

Revenue increased as a result of a five per cent charge-out rate increase during 2011–12, together with additional work. Expenditure increased due to award increases and increased staff numbers necessary to undertake that additional work. Interest income decreased although the cash balances were similar because of lowered interest rates.

Operating results ($m) Excluding superannuation 3.7

-0.3

0.4

2013 TARGET

2012

2.1

2011

These superannuation adjustments are fully reflected in our audited financial statements, but are excluded from the information presented here so we can focus on our own performance.

We are budgeting for a $0.4 million deficit in 2012–13. Revenue is expected to be $41.8 million, slightly higher than the actual $41.5 million of 2011–12. This reflects a slight increase in our fees and a shift in the timing of more work in 2011–12 to pre-30 June. We expect our expenditure to be slightly higher in 2012– 13, mainly in remuneration due to award increases and the increased headcount in 2011–12 having an effect for a full year.

2010

In monitoring our financial performance, we exclude the impact of the annual superannuation adjustments that affect our operating results. Like all government agencies with staff in the State’s defined benefit superannuation schemes, the schemes’ assessment of our liability to them varies substantially from year to year. These annual variations are outside our control and reflect the investment performance of the schemes and changes in actuarial assumptions.

Our 2011–12 revenue of $41.5 million was greater than the previous year’s $39.1 million. Government agencies paid $34.2 million for the audit of their financial reports. Parliament contributed $6.6 million towards our performance audits and reports to parliament. Our total expenditure of $41.1 million in 2011–12 was $1.7 million more than the previous year’s $39.4 million.

Budgeting

2009

The work of the Audit Office is largely selffunded with most of our income coming from audit fees paid by our clients. We set these fees carefully to cover our expenses while maximising value for the NSW public sector. Unlike private sector auditors, we aim to break even overall rather than make a profit.

Our 2011–12 result was a profit of $0.4 million, excluding superannuation. Over the five years to 2011–12, the cumulative result was a surplus of $5.7 million, representing four per cent of turnover. This remains outside our break-even target but improving on our seven per cent result in 2009–10 and five per cent in 2010–11.

2008

Just outside our break-even target

-0.4

-0.8

Audit Office of New South Wales | Annual Report 2011/12

Financial position Our financial management is sound

Our financial position is sound Most of our assets and liabilities are of a financial rather than physical nature, as we do not own major buildings or machinery. We report a net liability position as a result of the actuarial losses on the defined benefit superannuation schemes. We considered the impact of the actuarial valuation and our operations. The liability is a long-term non-current liability and our operating indicators remain positive. Our largest asset is cash with a balance of $11.2 million at 30 June 2012. This is similar to last year. Our assets include $7.8 million for the Crown’s assumption of the liability for our staff’s long service leave entitlements. This offsets the liability in our accounts. We also have $6.2 million in receivables, mostly from government agencies for our auditing services.

Effective solvency, debtor management needs to improve Our current ratio at 30 June 2012 shows we had $1.90 in current assets to meet every $1.00 of our current liabilities. This is a small decrease on the previous year’s ratio and at the upper level of our target range of between $1.50 and $2.00. Our debtors continue to pay us at a slow rate. Again in 2011–12, it took us an average of 46 days from invoice to collection. Our target is 30 days.

Timely creditor payments

The year ahead In 2012–13 we will be driven by our strategic focus area 'Our Sustainability', and ensure we have the financial resources to achieve strategic outcomes by: £ ensuring

our forward estimates fully fund our planned operational and capital expenditure

£ in

an effort to balance our budget and meet increased costs, including remuneration and information technology, our charge-out rates will be increased by five per cent for 2013 audits

During the year we paid 96 per cent of our creditors on time. We are expected to pay all creditors within 30 days, unless contracts state otherwise.

£ continue

For more detail on our performance with creditor payments, see page 95.

£ building

to pay close attention to the collection of our fees in 2012–13 on the business acumen of our staff.

Our liabilities at 30 June 2012 were $53.6 million, increased from $24.9 million in the previous year. This is the impact of our increased unfunded superannuation liability. Our largest liability was $39.4 million for superannuation and we also have a leave liability of $10.3 million.

Debtor management – average days to collect

Solvency – current ratio

2.4

46 43

2.2

44

44

46

1.5 to 2

2013 TARGET

2012

2011

2010

2009

35

2008

1.9

2013 TARGET

2011

2010

2009

2008

2.0

2012

2.2

53 Audit Office of New South Wales | Annual Report 2011/12

Key financial statistics

2007–08 $'000

2008–09 $'000

2009–10 $'000

2010–11 $'000

2011–12 $'000

Total revenue

34,080

36,386

35,316

39,102

41,475

Total expenses

30,344

34,372

36,117

39,392

41,071



39

(40)

(2)

3,736

2,053

(841)

(292)

404

Total assets

26,155

24,936

25,146

26,206

28,237

Accumulated funds

16,194

3,656

619

1,270

(25,344)

Current ratio

2.2

2.4

2.2

2.0

1.9

Average days to collect debts

46

43

44

44

46

Five year trend Financial performance1

Profit/(loss) on disposal Operating profit/(loss)



Financial position2

Solvency and debtor management

2011–12 Budget $'000

2011–12 Actual $'000

2012–13 Budget $'000

33,599

34,153

34,531

6,590

6,590

6,810

480

464

400

Other revenue

62

268

69

Total revenue

40,731

41,475

41,810

32,261

32,173

33,296

Maintenance and other operating expenses

6,036

5,935

6,087

Contract audit agent costs

2,374

2,266

1,834

554

697

997

41,225

41,071

42,214

(494)

404

(404)

Performance against budget1 Revenue Audit fees Contribution by government Interest

Expenditure Salaries and related expenses

Depreciation and amortisation Total expenditure Operating profit/(loss) 1 2

Excludes superannuation adjustments of $608,000 in 2011–12 ($542,000 in 2010–11, $275,000 in 2009–10, $978,000 in 2008–09, $310,000 in 2007–08) Includes superannuation adjustments

54 Audit Office of New South Wales | Annual Report 2011/12

Financial Report Contents Independent Auditor's Report

56

Statement by Auditor-General of New South Wales 57 Statement of comprehensive income

58

Statement of financial position

59

Statement of changes in equity

60

Statement of cash flows

61

Notes to and forming part of the financial statements

1 Summary of significant accounting policies

62

2 Expenses excluding losses

64

3 Revenue 65 4 Loss on disposal

65

5 Superannuation 66 6 Current assets – cash and cash equivalents

69

7 Current assets – receivables

69

8 Current assets – inventories

69

9 Non-current assets – property, plant and equipment

70

10 Intangible assets

71

11 Current/non-current assets – other

72

12 Current liabilities – payables

72

13 Current/non-current liabilities – provisions

72

14 Current/non-current assets – other

73

15 Commitments for expenditure

74

16 Auditor's remuneration

74

17 Audit and Risk Committee

74

18 Budget review

74

19 Reconciliation of cash flows from operating activities to net results

74

20 Financial instruments

74

21 Events after the reporting period

76

Liz Ames Senior Auditor Client location – Fire and Rescue NSW

Independent Auditor's Report to the Members of the New South Wales Parliament

To the Members of the New South Wales Parliament I have audited the accompanying financial report of The Audit Office of New South Wales (the 'Audit Office'), which comprises the Statement of Financial Position as at 30 June 2012, the Statement of Comprehensive Income, the Statement of Changes in Equity, and the Statement of Cash Flows for the year then ended, a summary of significant accounting policies, and other explanatory notes numbered 2 to 21.

Auditor-General's Responsibility for the Financial Report The Auditor-General of New South Wales is responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards, the Public Finance and Audit Act 1983 (the 'PF&A Act') and for such internal control as the Auditor-General determines is necessary to enable the preparation of the financial report that is free from material misstatement, whether due to fraud or error.

Auditor's Responsibility My responsibility is to express an opinion on the financial report based on my audit. I conducted my audit in accordance with Australian Auditing Standards. Those Auditing Standards require that I comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance as to whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Audit Office's preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Audit Office’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Auditor-General of New South Wales, as well as evaluating the overall presentation of the financial report. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. My opinion does not provide assurance: £ about £ that

the future viability of the Audit Office;

it has carried out its activities effectively, efficiently and economically;

£ about

the effectiveness of its internal control;

£ about

the security and controls over the electronic publication of the audited financial report on any website where they may be presented;

£ about

other information which may have been hyperlinked to or from the financial report; and

£ about

the assumptions used in formulating the budget figures disclosed in the financial statements.

Independence In conducting my audit, I have complied with the independence requirements of the Australian Auditing Standards and other relevant ethical pronouncements.

Auditor's Opinion In my opinion, the financial report: £ gives

a true and fair view of the financial position of the Audit Office as at 30 June 2012, and of its financial performance and its cash flows for the year then ended in accordance with Australian Accounting Standards; and

£ is

in accordance with section 41B of the Public Finance and Audit Act 1983 (the 'PF&A Act') and the Public Finance and Audit Regulation 2010.

Andrew Hoffmann Chartered Accountant Sydney, 13 August 2012

56 Audit Office of New South Wales | Annual Report 2011/12

Statement by Auditor-General of New South Wales for the year ended 30 June 2012

Under section 41C of the Public Finance and Audit Act 1983, I state that, in my opinion, the accompanying financial statements and notes thereto exhibit a true and fair view of the financial position of the Audit Office of New South Wales at 30 June 2012 and its performance for the year then ended. I further state: (a) that the financial statements and notes thereto comply with applicable Australian Accounting Standards, the Public Finance and Audit Act 1983, the Public Finance and Audit Regulation 2010, the Financial Reporting Code for NSW General Government Sector Entities and the Treasurer's Directions. (b) that I am not aware of any circumstances which would make any details in the financial statements misleading or inaccurate.

Peter Achterstraat Sydney, 13 August 2012

57 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Statement of comprehensive income for the year ended 30 June 2012

Notes

Actual 2012 $'000

Budget 2012 $'000

Actual 2011 $'000

– employee related

2(a)

32,299

34,635

30,443

– other operating expenses

2(b)

8,102

5,941

8,314

Depreciation and amortisation

2(c)

697

554

674

Finance costs

2(d)

16



16

Other expenses

2(e)

83

95

41

41,197

41,225

39,488

Expenses excluding losses Operating expenses

TOTAL EXPENSES EXCLUDING LOSSES

Revenue Sale of goods and services

3(a)

40,743

40,189

38,178

Investment revenue

3(b)

464

480

527

Other revenue

3(c)

1,002

62

1,034

42,209

40,731

39,739





2

1,012

(494)

249

Total revenue Loss on disposal

4

Net result Other comprehensive income Superannuation actuarial (loss)/gain

(27,626)



402

Total other comprehensive income

5

(27,626)



402

TOTAL COMPREHENSIVE INCOME

(26,614)

(494)

651

The accompanying notes form part of these financial statements.

58 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Statement of financial position as at 30 June 2012

Notes

Actual 2012 $'000

Budget 2012 $'000

Actual 2011 $'000

Cash and cash equivalents

6

11,226

6,193

11,248

Receivables

7

6,202

5,135

5,135

Inventories

8

797

986

986

11

7,514

6,491

6,491

25,739

18,805

23,860

– plant and equipment

321

712

480

– leasehold Improvements

968

2,097

1,121

1,289

2,809

1,601

Assets Current assets

Other Total current assets

Non-current assets Property, plant and equipment

9

Total property, plant and equipment Intangible assets

10

889

3,840

487

Other

11

320

258

258

2,498

6,907

2,346

28,237

25,712

26,206

Total non-current assets Total assets

Liabilities Current liabilities Payables

12

2,150

1,767

1,767

Provisions

13

11,119

9,916

9,916

Other

14

101

111

111

13,370

11,794

11,794

Total current liabilities

Non-current liabilities Provisions

13

40,096

12,636

12,990

Other

14

115

506

152

Total non-current liabilities

40,211

13,142

13,142

Total liabilities

53,581

24,936

24,936

(25,344)

776

1,270

Accumulated funds

(25,344)

776

1,270

Total equity

(25,344)

776

1,270

Net assets

Equity

The accompanying notes form part of these financial statements.

59 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Statement of changes in equity for the year ended 30 June 2012

Note

2012 Accumulated Funds $'000

Balance at 1 July 2011

1,270

Net result for the year

1,012

Other comprehensive income: Superannuation actuarial loss

5

(27,626)

Total other comprehensive income

(27,626)

Total comprehensive income for the year

(26,614)

Balance at 30 June 2012

(25,344)

Balance at 1 July 2010

619

Net result for the year

249

Other comprehensive income: Superannuation actuarial gain

5

402

Total other comprehensive income

402

Total comprehensive income for the year

651

Balance at 30 June 2011

1,270

The accompanying notes form part of these financial statements.

60 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Statement of cash flows for the year ended 30 June 2012

Actual 2012 $'000

Budget 2012 $'000

Actual 2011 $'000

Employee related

(31,824)

(34,635)

(32,870)

Other

(11,951)

(8,136)

(8,863)

(43,775)

(42,771)

(41,733)

39,812

40,189

36,675

511

480

510

4,280

2,162

4,494

44,603

42,831

41,679

828

60

(54)

Purchases of property, plant and equipment

(184)

(1,665)

(333)

Other

(666)

(3,450)

(210)

Net cash flows from investing activities

(850)

(5,115)

(543)

(22)

(5,055)

(597)

11,248

11,248

11,845

11,226

6,193

11,248

Notes

Cash flows from operating activities Payments

Total payments Receipts Sale of goods and services Interest received Other Total receipts Net cash flows from operating activities

19

Cash flows from investing activities

Net decrease in cash Opening cash and cash equivalents Closing cash and cash equivalents

6

The accompanying notes form part of these financial statements.

61 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012 1. Summary of significant accounting policies

(e) Accounting for the Goods and Services Tax (GST)

(a) Reporting entity

We recognise income, expenses and assets net of the amount of GST except for:

The Audit Office of New South Wales (the 'Audit Office') is a NSW government entity. The Audit Office is a not-for-profit entity (as profit is not its principal objective). Our financial report is consolidated as part of the NSW Total State Sector Accounts. These financial statements for the year ended 30 June 2012 have been authorised for issue by the Auditor-General on 13 August 2012. (b) Basis of preparation Our financial statements are general purpose financial statements which have been prepared in accordance with: £ applicable Australian Accounting Standards

(which include Australian Accounting Interpretations) £ the requirements of the Public Finance and Audit Act 1983 and Regulation and £ the Financial Reporting Directions published in the Financial Reporting Code for NSW General Government Sector Entities or issued by the Treasurer. We report a net liability position as a result of the actuarial losses on the defined benefit superannuation schemes. We considered the impact of the actuarial valuation and our operations. The liability is a long term noncurrent liability. A triennial review is imminent and the economic assumptions will be reviewed. The discount rate has decreased considerably in the past twelve months and the increased liability is a direct reflection of this. Our solvency ratio remains constant at 2.0. Our budgeted cash flows from operating activities remain positive. We reached the conclusion that the assumption that the Audit Office is a going concern is justified. Property, plant and equipment are measured at fair value. Other financial statement items are prepared in accordance with the historical cost convention. Judgements, key assumptions and estimations management has made are disclosed in the relevant notes to the financial statements. We rounded all amounts to the nearest one thousand dollars and expressed them in Australian currency. (c) Statement of compliance The financial statements and notes comply with Australian Accounting Standards, which include Australian Accounting Interpretations. (d) Insurance Our insurance activities are conducted through the NSW Treasury Managed Fund Scheme of self insurance for Government entities. The expense (premium) is determined by the Fund Manager based on our past claim experience.

£ the amount of GST we incur as a purchaser

that is not recoverable from the Australian Taxation Office (ATO), which is recognised as part of the cost of acquisition of an asset or as part of an item of expense £ receivables and payables are stated with the amount of GST included. Cash flows are included in the statement of cash flows on a gross basis. However, the GST components of cash flows arising from investing activities which are recoverable from, or payable to, the ATO are classified as operating cash flows. (f) Income recognition Income is measured at the fair value of the consideration or contribution received or receivable. Additional comments regarding the accounting policies for the recognition of income are discussed below. (i) Rendering of services – audit fees Audit fees are recognised when an invoice is raised, except to the extent the invoiced amount is in excess of the services provided. Any excess amounts are treated as fees in advance. Payments received from Treasury for the Auditor-General's reports and performance audits are recognised as income as related services are performed. (ii) Investment revenue Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement. (g) Assets (i) Acquisition of assets The cost method of accounting is used for the initial recording of all acquisitions of assets controlled by the Audit Office. Cost is the amount of cash or cash equivalents paid or the fair value of the other consideration given to acquire the asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the requirements of other Australian Accounting Standards. Assets acquired at no cost, or for nominal consideration, are initially recognised at their fair value at the date of acquisition. Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction. Where payment for an asset is deferred beyond normal credit terms, its cost is the cash price equivalent, i.e. deferred payment amount is effectively discounted at an asset-specific rate. (ii) Capitalisation thresholds We capitalise our property, plant and equipment

and intangible assets individually costing $1,000 and above or forming part of a network costing more than $1,000. (iii) Revaluation of property, plant and equipment Physical non-current assets are valued in accordance with the 'Valuation of Physical Non-Current Assets at Fair Value' Policy and Guidelines Paper (TPP 07-1). This policy adopts fair value in accordance with AASB 116 Property, Plant and Equipment. Non-specialised assets with short useful lives are measured at depreciated historical cost, as a surrogate for fair value. (iv) Impairment of property, plant and equipment As a not-for-profit entity with no cash generating units, AASB 136 Impairment of Assets is effectively not applicable. AASB 136 modifies the recoverable amount test to the higher of fair value less costs to sell and depreciated replacement cost. This means, that where an asset is already measured at fair value, impairment can only arise if selling costs are material. Selling costs for the Audit Office are regarded as immaterial. (v) Depreciation of property, plant and equipment We depreciate our assets on a straight line basis over their estimated useful lives, as follows: £ computer equipment – 3 years £ office equipment – 5 years £ furniture and fittings – 10 years £ leasehold improvements – over the term

of the lease. (vi) Restoration costs The estimated cost of restoration for our leasehold improvements is included in this asset to the extent it is recognised as a liability. (vii) Maintenance Day-to-day servicing costs or maintenance of assets are charged as expenses as incurred. Where they relate to the replacement of a part or component of an asset, the costs are capitalised and depreciated. (viii) Leased assets We use operating leases for our leased assets. The lease payments are recognised in the statement of comprehensive income in the periods they are incurred, using a straight line basis over the period of the lease. Our operating leases are for office accommodation and motor vehicles. (ix) Intangible assets We recognise intangible assets only if it is probable that future economic benefits will flow to the Audit Office and the cost of the asset can be measured reliably. Intangible assets are measured initially at cost. Where an asset is acquired at no or nominal cost, the cost

62 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012 is its fair value at the date of acquisition. All research costs are expensed. Development costs are only capitalised when certain criteria are met. The useful lives of intangible assets are assessed to be finite. Intangible assets are subsequently measured at fair value only if there is an active market. As there is no active market for our intangible assets, the assets are carried at cost less any accumulated amortisation. Our intangible assets are amortised using the straight line method over a period of three to five years, as follows: £ audit methodology software – 3 years £ management information systems (MIS)

software – 5 years £ other software licences – 3 to 5 years.

Intangible assets are tested for impairment where an indicator of impairment exists. If the recoverable amount is less than its carrying amount, the carrying amount is reduced to recoverable amount and the reduction is recognised as an impairment loss. (x) Loans and receivables We recognise receivables initially at fair value, based on the invoice amount. Our receivables are due for settlement within thirty days from the date of issue of the invoice, hence we do not amortise or discount their value, as the effect of discounting is immaterial. (xi) Inventories (Work in Progress) We state Work in Progress as the cost of staff directly engaged in financial audit services plus direct expenses not yet invoiced. Work in Progress is not a financial asset within the scope of AASB 7 Financial Instruments: Disclosures. (xii) Impairment of financial assets Our financial assets, most notably, receivables, are reviewed on an ongoing basis. When there is objective evidence that we will not be able to collect all amounts due, an allowance for any impairment is established. The amount of the allowance is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective rate. The amount of the impairment loss is recognised in the net result for the year. Any reversals of impairment losses are reversed through the net result for the year, where there is objective evidence. xiii) Derecognition of financial assets and financial liabilities We derecognise a financial asset when the contractual rights to the cash flows from the financial assets expire or if we have substantially transferred all the risks and rewards. We derecognise a financial liability when the obligation specified in the contract is discharged, cancelled or expires.

(xiv) Other assets We recognise our other assets on a cost basis. We recognise the "Crown Acceptance of Long Service Leave Liability" as an asset, which is offset by the liability. (h) Liabilities (i) Payables The Audit Office carries liabilities for trade creditors and other payables, which are initially recognised at fair value, usually based on the transaction cost or face value. These payables are subsequently measured at an amortised cost using the effective interest rate method. Trade payables with no stated interest rate are measured at the original invoice amount where the effect of the discounting is immaterial. (ii) Employee benefits (a) Salaries and wages, annual leave, sick leave and on-costs Liabilities for salaries and wages, including nonmonetary benefits, annual leave and sick leave are measured on an undiscounted basis. Where annual leave is not expected to be settled within 12 months, we account for it as a long-term benefit and use the present value method. We do not recognise a liability for unused non-vested sick leave entitlement because we consider that the sick leave taken in the future will not be greater than the benefits accrued in the future. (b) Long service leave The Crown Finance Entity takes on the Audit Office’s liability for long service leave. We account for the liability and then offset it by showing a corresponding asset, 'Crown Acceptance of Long Service Leave Liability'. It is a statutory asset/liability and not considered as a financial asset/liability within the scope of AASB 7 Financial Instruments: Disclosures. We recognise our long service leave liability as long-term employee benefit and measure it for all employees with five or more years of service. We use the present value method based on remuneration rates approved to be payable post 30 June. When calculating the liability we apply the on-cost factors specified in Treasury Circular NSWTC12/06. (c) Superannuation The superannuation schemes for the Audit Office are: £ the State Superannuation Scheme (SSS) £ the State Authorities Superannuation Scheme (SASS) £ the State Authorities Non Contributory Superannuation Scheme (SANCS – Basic Benefits Scheme) £ the First State Super Scheme (FSS) and other schemes to receive Superannuation Guarantee Contributions (SGC).

The first three are defined benefit schemes – at least a component of the final benefit is derived from a multiple of member salary and years of membership. The Pooled Fund holds in trust the investments of these closed NSW public sector superannuation schemes. These schemes are closed to new members. Note 5 details the reserves, overfundings, provisions and other disclosures provided by the Scheme actuary. Actuarial gains and losses are recognised immediately in other comprehensive income in the year in which they occur. The Audit Office has no ongoing liability for First State Superannuation (FSS) and the other SGC schemes because they are accumulation schemes. (iii) Other provisions The Audit Office recognises provisions when there are legal or constructive obligations as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. We recognise provisions for employee benefits and the restoration costs of our leasehold improvements asset. (i) Equity and reserves Accumulated funds: The accumulated funds include all current and prior period retained funds. (j) Budgeted amounts This is the first time we have included the budgeted amounts in our financial statements as prescribed by the Financial Reporting Code. The budgeted amounts are drawn from the original budgeted financial statements presented to parliament. (k) Comparative information Where necessary, we have re-classified and re-positioned comparatives to be consistent with current year disclosures except when an Australian Accounting Standard permits or requires otherwise. (l) New Australian Accounting Standards issued but not effective At the reporting date, a number of accounting standards and interpretations adopted by the AASB had been issued but not yet operative and have not been early adopted by the Audit Office. The initial application of these standards will have no material impact on our financial results. The standards are operative for annual reporting periods beginning after 30 June 2012.

63 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

2012 $'000

2011 $'000

Salaries and wages (including recreation leave)

26,671

25,591

Superannuation – defined benefits plans

126

96

Superannuation – defined contribution plans

1,618

1,582

2. Expenses excluding losses (a) Employee related expenses

Long service leave

680

627

Workers' compensation insurance*



53

27

Payroll tax and fringe benefit tax



1,521

1,431

1,400

996

230

93

32,299

30,443

Temporary assistance Other employee related expenses

* Workers compensation includes hindsight adjustments on prior years. The premium paid during the year was $65,000 (2011: $60,000).

(b) Other operating expenses include the following: Auditor's remuneration – audit of the financial statements

35

34

1,482

1,468

Maintenance*

343

380

Insurance

18

44

Consultants

53

141

2,570

2,689

753

1,020

2,848

2,538

8,102

8,314

Maintenance expense – contracted labour and other (non-employee related), as above

343

380

Employee related maintenance expense included in Note 2(a)





343

380

Leasehold improvements

230

213

Plant and equipment

230

264

460

477

237

197

16

16

83

41

Operating lease rental expense – minimum lease payments

Contractors Staff development and training (excluding salaries) Other operating expenses * Reconciliation – Total maintenance

Total maintenance expenses included in Note 2(a) + 2(b) (c) Depreciation and amortisation expense Depreciation

Amortisation Intangible assets (d) Finance costs Unwinding of the discount rate for the make-good of premises (e) Other expenses Legal

64 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

2012 $'000

2011 $'000

40,743

38,178

464

527

Income from defined benefit scheme

734

637

Recoupment of salaries

263

393

5

4

1,002

1,034



2

3. Revenue (a) Sale of goods and services Rendering of services – audit fees (b) Investment revenue (c) Other revenue

Other

4. Loss on disposal Plant and equipment

65 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

5. Superannuation All funds from 30 June 2011 have remained at an unfunded liability position, with a net movement of $27,018,000. Employer contributions to all funds have been suspended since 1 December 2005. The following information has been prepared by the Scheme actuary.

Reconciliation of the present value of the defined benefit obligation:

2012 $'000

2011 $'000

Present value of partly funded defined benefit obligation at beginning of the year

70,394

68,940

Current service cost

620

633

Interest cost

3,643

3,495

Contributions by Fund participants

427

396

Actuarial (gains)/losses

22,889

(744)

Benefits paid

(3,611)

(2,326)

Present value of partly funded defined benefit obligation at end of the year

94,362

70,394

58,040

55,642

Expected return on Fund assets

4,871

4,670

Actuarial gains/(losses)

(4,737)

(342)

Reconciliation of the fair value of Fund assets: Fair value of Fund assets beginning of the year

Contributions by Fund participants

427

396

Benefits paid

(3,611)

(2,326)

Fair value of Fund assets at end of the year

54,990

58,040

94,362

70,394

(54,990)

(58,040)

39,372

12,354

620

633

3,643

3,495

(4,871)

(4,670)

(608)

(542)

27,626

(402)





27,626

(402)

Reconciliation of the assets and liabilities recognised in statement of financial position: Present value of partly funded defined benefit obligation at end of year Fair value of Fund assets at end of year Net liability/(asset) recognised in statement of financial position at end of year

Expense/income recognised in income statement: Components recognised in income statement Current service cost Interest cost Expected return on Fund assets (net of expenses) Expense/(income) recognised

Amounts recognised in other comprehensive income: Actuarial (gains)/losses Adjustment for limit on net asset

66 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

Cumulative amount recognised in other comprehensive income:

2012 $'000

2011 $'000

2010 $'000

2009 $'000

2008 $'000

Actuarial (gains)/losses

27,626

(402)

2,470

20,823

9,283







(5,254)

(7,433)

27,626

(402)

2,470

15,569

1,850

44,366

16,740

17,142

14,672

(897)

Movement in adjustment for limitation on net asset Cumulative (gains)/losses recognised

Fund assets: The percentage invested in each asset class at the balance sheet date:

2012

Australian equities

28.0%

Overseas equities

23.7%

Australian fixed interest securities

4.9%

Overseas fixed interest securities

2.4%

Property

8.6%

Cash

19.5%

Other

12.9%

Fair value of Fund assets: All Fund assets are invested by SAS Trustee Corporation (STC) at arm's length through independent fund managers.

Expected rate of return on assets: The expected return on assets assumption is determined by weighting the expected long-term return for each asset class by the target allocation of assets to each class. The returns used for each class are net of investment tax and investment fees.

Actual return on Fund assets: Actual return on Fund assets

2012 $'000

2011 $'000

(12,477)

4,630

Valuation method and principal actuarial assumption at the balance sheet date: (a) Valuation method The Projected Unit Credit (PUC) valuation method was used to determine the present value of the defined benefit obligations and the related current service costs. This method sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation. (b) Economic assumptions

2012

Salary increase rate (excluding promotional increases)

2.5% pa

Rate of CPI increase

2.5% pa

Expected rate of return on assets Discount rate

8.60% 3.06% pa

(c) Demographic assumptions The demographic assumptions at 30 June 2012 are those that were used in the 2009 triennial actuarial valuation plus an additional allowance for staff reductions consistent with the Labour Expense Cap advised in the 2012–13 Budget. The triennial review report is available from the NSW Treasury website.

67 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

2012 $'000

2011 $'000

2010 $'000

2009 $'000

2008 $'000

94,362

70,394

68,940

65,128

53,515

Fair value of Fund assets

(54,990)

(58,040)

(55,642)

(54,025)

(62,258)

(Surplus)/deficit in Fund

39,372

12,354

13,298

11,103

(8,743)

Experience adjustments – Fund liabilities

22,889

(744)

2,005

9,884

(854)

4,737

342

465

10,939

10,136

Historical information: Present value of defined benefit obligation

Experience adjustments – Fund assets

Expected contributions: Expected employer contributions to be paid in the next reporting period

2012 $'000

2011 $'000





Funding arrangements for employer contributions: (a) (Surplus)/deficit The following is a summary of the 30 June 2012 financial position of the Fund calculated in accordance with AAS 25 – Financial Reporting by Superannuation Plans. Accrued benefits

53,346

51,365

(54,990)

(58,040)

(1,644)

(6,675)

SASS

SANCS

SSS

Multiple of member contributions







% of member salary







Net market value of Fund assets Net surplus (b) Contribution recommendations Recommended contribution rates for the Audit Office are:

(c) Funding method Contribution rates are set after discussions between the Audit Office, STC and NSW Treasury. (d) Economic assumptions The economic assumptions adopted for the 2009 actuarial review of the Fund were: Weighted-average assumptions Expected rate of return on Fund assets backing current pension liabilities

8.3% pa

Expected rate of return on Fund assets backing other liabilities

7.3% pa

Expected salary increase rate

4.0% pa

Expected rate of CPI increase

2.5% pa

Nature of assets/liabilities: If a surplus exists in the Audit Office's interest in the Fund, the Audit Office may be able to take advantage of it in the form of a reduction in the required contribution rate, depending on the advice of the Fund's actuary. Where a deficiency exists, we are responsible for any difference between our share of Fund assets and the defined benefit obligation.

68 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

6. Current assets – cash and cash equivalents Cash at bank and on hand

2012 $'000

2011 $'000

11,226

11,248

For the purposes of the statement of cash flows, cash and cash equivalents include cash at bank and cash on hand. Cash and cash equivalent assets recognised in the statement of financial position are reconciled at the end of the financial year to the statement of cash flows as follows: Cash and cash equivalents (per statement of financial position)

11,226

11,248

Closing cash and cash equivalents (per statement of cash flows)

11,226

11,248

5,116

4,194





Prepayments

285

276

Interest receivable

213

260

GST receivable from ATO

215

156

Other

373

249

6,202

5,135

Refer Note 20 for details regarding credit risk, liquidity risk and market risk arising from financial instruments.

7. Current assets – receivables Sale of goods and services Less: Allowance for impairment

Movement in the allowance for impairment Balance at 1 July





Amounts written off during the year



24

Amounts recovered during the year





Increase/(decrease) in allowance recognised in profit or loss



(24)

Balance at 30 June





Details regarding credit risk, liquidity risk and market risk, including financial assets that are either past due or impaired, are disclosed in Note 20.

8. Current assets – inventories Work in Progress

797

986

69 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

9. Non-current assets – property, plant and equipment

Plant and Equipment

Leased Assets (Leasehold Improvements)

TOTAL

$'000

$'000

$'000

1,933

2,383

4,316

(1,453)

(1,262)

(2,715)

480

1,121

1,601

1,916

2,459

4,375

(1,595)

(1,491)

(3,086)

321

968

1,289

At 1 July 2011 – fair value Gross carrying amount Accumulated depreciation and impairment Net carrying amount At 30 June 2012 – fair value Gross carrying amount Accumulated depreciation and impairment Net carrying amount

Reconciliation A reconciliation of the carrying amount of each class of property, plant and equipment at the beginning and end of the current reporting period is set out below: Year ended 30 June 2012 480

1,121

1,601

Additions

71

77

148

Disposals

(11)



(11)

(230)

(230)

(460)

11



11

321

968

1,289

Gross carrying amount

1,660

2,278

3,938

Accumulated depreciation and impairment

(1,187)

(1,049)

(2,236)

473

1,229

1,702

1,933

2,383

4,316

(1,453)

(1,262)

(2,715)

480

1,121

1,601

Net carrying amount at start of year

Depreciation expense Write-back of depreciation on disposal Net carrying amount at end of year At 1 July 2010 – fair value

Net carrying amount At 30 June 2011 – fair value Gross carrying amount Accumulated depreciation and impairment Net carrying amount

Reconciliation A reconciliation of the carrying amount of each class of property, plant and equipment at the beginning and end of the prior reporting period is set out below: Year ended 30 June 2011 Net carrying amount at start of year

473

1,229

1,702

Additions

273

105

378

Disposals

(78)



(78)

(264)

(213)

(477)

76



76

480

1,121

1,601

Depreciation expense Write-back of depreciation on disposal Net carrying amount at end of year

70 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

Management Information Systems Software

Audit Methodology Software

TOTAL

$'000

$'000

$'000

Cost (gross carrying amount)

1,461

504

1,965

Accumulated amortisation and impairment

(974)

(504)

(1,478)

487



487

2,100

504

2,604

(1,211)

(504)

(1,715)

889



889

10. Intangible assets At 1 July 2011

Net carrying amount At 30 June 2012 Cost (gross carrying amount) Accumulated amortisation and impairment Net carrying amount

Reconciliation A reconciliation of the carrying amount of each class of intangible assets at the beginning and end of the current reporting period is set out below: Year ended 30 June 2012 Net carrying amount at start of year

487



487

Additions

639



639

(237)



(237)

Amortisation (recognised in 'depreciation and amortisation') Write-back of amortisation on disposal







889



889

Cost (gross carrying amount)

1,251

504

1,755

Accumulated amortisation and impairment

(800)

(481)

(1,281)

451

23

474

Cost (gross carrying amount)

1,461

504

1,965

Accumulated amortisation and impairment

(974)

(504)

(1,478)

487



487

Net carrying amount at end of year At 1 July 2010

Net carrying amount At 30 June 2011

Net carrying amount

Reconciliation A reconciliation of the carrying amount of each class of intangible assets at the beginning and end of the prior reporting period is set out below: Year ended 30 June 2011 Net carrying amount at start of year Additions

451

23

474

210



210

Amortisation (recognised in 'depreciation and amortisation')

(174)

(23)

(197)

Net carrying amount at end of year

487



487

71 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

2012 $'000

2011 $'000

7,514

6,491

320

258

7,834

6,749

Accrued salaries, wages and on-costs

711

570

Creditors and accruals

864

672

Payroll tax

124

110

GST payable to ATO

429

402

22

13

2,150

1,767

11. Current/non-current assets – other Crown acceptance of long service leave liability – current Crown acceptance of long service leave liability – non-current

12. Current liabilities – payables

Other

Details regarding credit risk, liquidity risk and market risk, including a maturity analysis of the above payables, are disclosed in Note 20.

13. Current/non-current liabilities – provisions Employee benefits and related on-costs Recreation leave Long service leave Superannuation (Note 5) Related on-costs

2,447

2,487

7,834

6,749

39,372

12,354

1,192

962

50,845

22,552

370

354

51,215

22,906

11,119

9,916

39,726

12,636

711

570

51,556

23,122

Other provisions Leasehold improvements – restoration costs Total provisions Aggregate employee benefits and related on-costs Provisions – current Provisions – non-current Accrued salaries, wages and on-costs (Note 12)

72 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012

a) Recreation leave The liability at 30 June 2012 was $2,447,000 (2011: $2,487,000). This is based on leave entitlements at 30 June using remuneration rates approved to be payable post 30 June. Of this liability, the value expected to be paid within twelve months is $1,415,000 (2011: $2,487,000) and $1,032,000 (nil) after twelve months. We varied our policy on current recreation leave balances to be taken in the next twelve months to be consistent with the revised government policy. This calculation of leave for the next twelve months is the minimum required to be taken to achieve the target of a maximum of 40 days at 30 June 2013. Leave paid and entitlement for the year are as follows:

2012 $'000

2011 $'000

Balance at beginning of the financial year

2,487

2,377

Less: Value of leave paid during the year

2,052

2,371

435

6

Add: Value of increased entitlement during the year

2,012

2,481

Balance at the end of the financial year

2,447

2,487

The amount of annual leave as disclosed above is increased by on-costs in the determination of the total provision. (b) Long service leave The total liability at 30 June 2012 was $7,834,000 (2011: $6,749,000) which we show as current $7,514,000 ($6,491,000) and non-current $320,000 ($258,000). This liability comprises: Short term – expected to be settled within 12 months

1,146

539

Long term – not expected to be settled within 12 months

6,688

6,210

7,834

6,749

We contributed $680,000 (2011: $627,000) to the Crown Finance Entity pool account during this financial year. Reimbursements from the Crown Finance Entity because of payments to staff, or transfers of entitlements to other agencies, were $737,000 ($337,000). The amount of long service leave as disclosed above is increased by on-costs in the determination of the total provision. (c) Restoration costs The costs of restoration for the leasehold improvements at 1 Margaret Street are recognised as a provision in accordance with AASB 137 – Provisions, Contingent Liabilities and Contingent Assets. Movements in provision during the financial year are set out below: Carrying amount at the beginning of financial year

354

338

Additional provisions recognised





Amounts used





Unused amounts reversed





16

16

370

354

Fees in advance – audit fees – current

63

73

Rental incentive – current

38

38

Unwinding/change in the discount rate Carrying amount at end of financial year

14. Current/non-current liabilities – other

Rental incentive – non-current

115

152

216

263

73 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012 15. Commitments for expenditure Operating lease commitments Future non-cancellable operating lease rentals not provided for and payable:

2012 $'000

2011 $'000

Not later than one year

1,224

1,174

Later than one year and not later than five years

3,927

5,121

113

113

5,264

6,408

Later than five years Total (including GST)

Our commitments are for leased office accommodation and motor vehicles under operating leases. These commitments include GST of $479,000 (2011: $583,000). A contingent asset exists for the calculated GST, being an input tax credit recoverable from the Australian Taxation Office after this payment. We occupied new premises during 2004 in 1 Margaret Street, Sydney, under a lease agreement for floor space to expire in July 2016.

16. Auditor's remuneration In February 2011, the Governor re-appointed Mr Andrew Hoffmann, a partner of Nexia Court & Co, to audit our accounts for a period of three years, commencing in the 2010–11 financial year. Nexia Court & Co does not provide any other services to the Audit Office.

17. Audit and Risk Committee The Audit Office has appointed two independent members to its Audit and Risk Committee. Mr Brian Suttor was appointed as chair on 28 November 2008 and is paid $13,200 per year. Mr Greg Fletcher was appointed as a member on 4 December 2009 and is paid $5,280 per year.

18. Budget review Net result The net cost of services was $1,012,000. This was better than budget result by $1,506,000, primarily due to the net impact of the defined benefit superannuation income of $608,000 being recognised. Also revenue from audit fee income was $554,000 better than budget. Assets and liabilities Net assets: the variation of $26,120,000 is primarily due to the defined benefit superannuation scheme actuary revising our unfunded liability to $39,372,000, an increase of $27,018,000. The variation was also influenced with our proposed outlay of $2,200,000 on management systems being deferred into 2012–13. An increased actuarial assessment of the present value of the long service leave added $1,085,000 to both the assets and liabilities. Cash flows Actual cash was $11,226,000 and better than budget by $5,033,000. The deferment of the capital outlays on the management systems and the inter-related projects of $2,800,000 was the primary contributor. A review on planned leasehold improvements resulted in $1,100,000 not being spent. Additional revenues from audit fees and the secondments of staff also influenced the better than budgeted cash result.

19. Reconciliation of cash flows from operating activities to net results Reconciliation of cash flows from operating activities to the net result as reported in the statement of comprehensive income Net cash used on operating activities Depreciation and amortisation Finance costs

828

(54)

(697)

(674)

(16)

(16)

(Increase)/decrease in provisions

(683)

340

Increase in prepayments and other assets

1,963

1,198

Increase in creditors

(383)

(543)



(2)

1,012

249

Net loss on disposal of plant and equipment Net result

20. Financial instruments The Audit Office's principal financial instruments and the main risks associated are outlined below. These financial instruments arise directly from our operation. We do not enter into or trade financial instruments for speculative purposes. Quantitative and qualitative disclosures together with our objectives, policies and processes for measuring and managing risk are included throughout this financial report. The Office Executive has overall responsibility for the establishment and oversight of risk management and reviews and agreed policies for managing each of these risks. We establish risk management policies to identify and analyse the risks faced by the Audit Office, to set risk controls and to monitor risks. Compliance with policies is reviewed by the Audit and Risk Committee on a continuous basis. 74 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012 (a) Financial instrument categories Note

Category

Carrying Amount 2012/$'000

Carrying Amount 2011/$'000

Cash and cash equivalents

6

N/A

11,226

11,248

Receivables*



Loans and receivables (at amortised cost)

5,702

4,703



Financial liabilities measured at amortised cost

1,597

1,255

Financial asset class:

Financial liabilities class: Payables**

* Excludes statutory receivables and prepayments (i.e. not within scope of AASB 7). ** Excludes statutory payables and unearned revenue (i.e. not within scope of AASB 7).

(b) Credit risk Credit risk is the risk of financial loss arising from another party to a contract or financial obligation. The Audit Office’s maximum exposure to credit risk is represented by the carrying amounts of the financial assets (net of any allowance for impairment). Credit risk arises from the financial assets of the Audit Office, which are cash and receivables. We do not hold collateral and have not granted any financial guarantees. Cash Cash comprises cash on hand and bank balances within the NSW Treasury Banking System. Interest rate as determined by NSW Treasury is earned on daily bank balances and paid twice yearly. Receivables All trade debtors are recognised as amounts receivable at balance date. We review our debtors on an ongoing basis and report debtors' status to the Office Executive on a regular basis. Procedures as established in the Treasurer's Directions are followed to recover outstanding amounts, including letters of demand. Debts which are known to be uncollectible are written off. An allowance for impairment is raised when there is objective evidence that we are not able to collect all amounts due. No interest is earned on our receivables. Invoices are made on 30 day terms. The Audit Office is not materially exposed to concentrations of credit risk to a single debtor or group of debtors. Most of our debtors are government agencies whose credit ratings are considered less risky. There are no debtors whose terms have been renegotiated. The following table outlines our financial assets that are past due or impaired, which are the receivables category in the statement of financial position. Total $'000

Past due but not impaired* $'000

Considered impaired* $'000

5,652

5,652



50

50









5,702

5,702



4,543

4,543



160



160







4,703

4,543

160

2012 < 3 months overdue 3 months – 6 months overdue > 6 months overdue

2011 < 3 months overdue 3 months – 6 months overdue > 6 months overdue

* The ageing analysis excludes statutory receivables, as these are not within the scope of AASB 7 and excludes receivables that are not past due and not impaired. Therefore, the 'total' will not reconcile to the receivables total recognised in the statement of financial position.

75 Audit Office of New South Wales | Annual Report 2011/12

Audit Office of New South Wales Notes to and forming part of the financial statements for the year ended 30 June 2012 (c) Liquidity risk Liquidity risk is the risk that the Audit Office will be unable to meet its payment obligations when they fall due. We continuously manage our risk through monitoring future cash flows to ensure adequate holding of liquid assets. During the current and prior year, there were no defaults of loans payable. No assets have been pledged as collateral. Our exposure to liquidity risk is deemed insignificant based on prior period's data and current assessment of risk. The liabilities are recognised for amounts due to be paid in the future for goods or services received, whether or not invoiced. Amounts showing to suppliers (which are unsecured) are settled in accordance with the policy set out in Treasurer's Directions 219.01. If trade terms are not specified, payment is made no later than the end of the month following the month in which an invoice or statement is received. Treasurer's Direction 219.01 allows the Minister to award interest for late payment. The rate of interest applied during the year was 12.37% (2011: 0%). The table below summarises the maturity profile of the Audit Office's financial liabilities, together with the interest rate exposure. Interest Rate Exposure Nominal Amount

Fixed Interest Rate

$'000

Variable Interest Rate

Maturity Dates

Non-Interest Bearing

< 1 year

$'000

1–5 yrs

> 5 yrs

$'000

2012 Payables

1,597





1,597

1,597





1,597





1,597

1,597





1,255





1,255

1,255





1,255





1,255

1,255





2011 Payables

The amounts disclosed are the contractual undiscounted cash flows, therefore, the amounts disclosed above will not reconcile to the statement of financial position.

(d) Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The Audit Office has no exposure to foreign currency risk and does not enter into commodity contracts. Interest rate risk – sensitivity analysis The sensitivity analysis is performed based on risk exposures in existence at the balance sheet date to show how profit or loss and equity would have been affected by changes in the relevant risk variable that were reasonably possible at that date. This is determined after taking into account the economic environment in which the Audit Office operates and the time frame for the assessment (i.e. until the end of the next annual reporting period). At reporting date, if interest rates had been 100 basis points higher or lower and all other variables were held constant, our profit and equity would have increased or decreased by $112,000 (2011: $112,000). (e) Credit facility The Audit Office had a standing credit facility of $2 million with NSW TCorp, which was closed in November 2009, as our cash position has been consistently adequate in meeting our liquidity requirements. (f) Fair value compared to carrying amount Our financial instruments as shown in Note 20(a) are recognised in the statement of financial position at amortised cost, which approximates the fair value because of the short-term nature of these financial instruments.

21. Events after the reporting period There were no events subsequent to reporting date that require disclosure.

End of audited financial statements

76 Audit Office of New South Wales | Annual Report 2011/12

Appendices Contents Appendix one Executive and leadership positions Appendix two Financial audit clients, reviews and other related services



78



80

Appendix three Services to the public sector Appendix four Services to the profession Appendix five Publications

86

88

Appendix six EEO, ethnic affairs priorities and disability action plan

91



93

Appendix seven Accounts payable performance and consultants

95

Appendix eight GIPA application information

96

Raymond Bailey Senior Auditor / Penelope Josey Performance Audit Leader Client location – NSW State Library

Executive and leadership positions Appendix one

Number of executive and leadership positions in 2011–12 Total 30 June 2011

Total 30 June 2012

150,000−174,999

2

2

175,000−199,999

8

1

200,000−224,999

8

14

225,000−249,999

1

1

250,000−274,999

2

3

275,000−299,999



2

300,000−324,999





325,000−349,999

1



350,000−374,999



1

375,000−399,999





400,000−424,999





425,000−449,999

1



450,000–464,999



1

23*

25**

Provision for employee benefits:

Total *One on pre-retirement leave and one on maternity leave **One on pre-retirement leave

Performance statements for positions equivalent to SES level 5 and above Peter Achterstraat

Tony Whitfield

Position

Auditor-General of the Audit Office

Position

Deputy Auditor-General

Remuneration package

$455,091

Remuneration package

$360,225

Comment The Auditor-General is responsible to parliament. There is no performance agreement with, or annual review by, a minister.

Comment As Deputy Auditor-General, the main functions of Tony’s position are to: £ lead the Audit Office of New South Wales as CEO,

taking charge of the day to day operations of the business and providing strategic leadership and oversight £ assume the role and responsibilities of the Auditor-General in his absence £ oversee and coordinate the Audit Office’s financial and performance audit operations, including policy, research and other professional support activities.

Deliverables in 2011–12 included: £ together with the Auditor-General and the Leadership Team,

developing and progressing the Audit Office’s strategic plan, and implementing programs to improve client engagement £ maintaining sound professional relations with audit clients £ chairing the Office Executive Committee £ representing the Audit Office in briefing a number of overseas parliamentary, audit and public sector delegations £ continuing to make a strong external contribution to the accounting and auditing profession.

Tony successfully met the required performance criteria at an expert level.

Audit Office of New South Wales | Annual Report 2011/12

Greg Gibson

Louise Mooney

Position

Assistant Auditor-General

Position

Assistant Auditor-General

Remuneration package

$282,941

Remuneration package

$269,968

Comment As an Assistant Auditor-General, Financial Audit, the main function of Greg’s position is to assist in overseeing and coordinating the Audit Office’s financial audit operations, in particular the financial and resourcing aspects. Deliverables in 2011–12 included: £ developing the budget for fees and production costs

in Financial Audit, monitoring branch results and business management improvements £ in conjunction with the Assistant Auditor-General, Corporate Services, contributing to the enhancement of the practice management system for the Audit Office £ monitoring the eight special interest groups in the Audit Office £ maintaining sound professional relations with audit clients £ actively participating in creating development opportunities for staff within the Audit Office.

Greg successfully met the required performance criteria at a superior level.

Rob Mathie

Comment As Assistant Auditor-General, Corporate Services, the main function of Louise’s position is to oversee the Audit Office’s Corporate Services operations, in particular the finance, human resources, technology, communications, marketing and Audit Office strategic planning. Deliverables in 2011–12 included: £ maintaining and promoting sound professional relationships

with government agencies and professional service providers £ successful negotiation of a revised Audit Office Award with the

Public Service Association of New South Wales £ overseeing the delivery of all corporate services functions

to the Audit Office £ providing leadership and guidance on the content and

administration of the Audit Office strategic planning process £ managing a number of office-wide improvement projects including

a new Practice Management Information System, new internet, new brand and new technology service desk software.

Louise successfully met the required performance criteria at a superior level.

Position

Assistant Auditor-General

Scott Stanton

Remuneration package

$250,508

Position

Assistant Auditor-General

Remuneration package

$250,508

Comment As Assistant Auditor-General, Performance Audit, the main function of Rob's position is to oversee the delivery of performance audits to the Auditor-General. Deliverables in 2011–12 included: £ managing the financials and human resources of the performance

audit team £ delivery of a program of performance audits agreed with the

Auditor-General, following consultation with a wide range of stakeholders £ liaison and engagement with the Public Accounts Committee £ receiving protected disclosures and complaints and managing their resolution.

Rob successfully met the required performance criteria at a fully competent level.

Comment As an Assistant Auditor-General, Financial Audit, the main function of Scott’s position is to assist in overseeing and coordinating the Audit Office’s financial audit operations, in particular the information systems auditing and technical training of audit staff. Deliverables in 2011–12 included: £ overseeing the information systems audit team’s strategic direction £ overseeing the progression of innovation initiatives within

the Audit Office £ continuing to make a strong contribution to the accounting

and auditing professions £ maintaining sound professional relations with audit clients £ actively participating in creating development opportunities

for staff within the Audit Office.

Scott successfully met the required performance criteria at a fully competent level.

John Viljoen Position

Assistant Auditor-General

Remuneration package

$279,698

Comment As an Assistant Auditor-General, Financial Audit, the main function of John’s position is to assist in overseeing and coordinating the Audit Office’s financial audit operations, in particular the financial audit methodology, quality and reporting aspects.

Number of executive and leadership positions filled by women

Deliverables in 2011–12 included:

2007–08

4

£ overseeing the upgrading of the financial audit methodology £ further refining the format and content of the Auditor-General’s

2008–09

5

2009–10

5

2010–11

5

2011–12

6

financial audit reports to parliament £ overseeing the quality assurance program £ maintaining sound professional relations with audit clients £ actively participating in creating development opportunities

for staff within the Audit Office.

John successfully met the required performance criteria at a superior level.

79 Audit Office of New South Wales | Annual Report 2011/12

Financial audit clients, reviews and other related services Appendix two

Financial audit clients

Coffs Harbour Technology Park Limited

Aboriginal Housing Office

Combat Sports Authority of NSW

Agricultural Scientific Collections Trust

Community Relations Commission For a multicultural NSW

Art Gallery of New South Wales Foundation, The

Compensation Authorities Staff Division

Art Gallery of New South Wales Trust Australian Institute of Asian Culture and Visual Arts Limited, The

Corporation Sole ‘Minister Administering the Environmental Planning and Assessment Act 1979’

Arts Education Foundation Trust

Corporation Sole ‘Minister Administering the Heritage Act 1977’

Ausgrid Downtown Utilities Pty Limited Ausgrid Pty Limited Australian Museum Trust Barangaroo Delivery Authority Office of the Barangaroo Authority Belgenny Farm Agricultural Heritage Centre Trust Board of Surveying and Spatial Information Brett Whiteley Foundation, The Building Insurers’ Guarantee Corporation Building Professionals Board Bush Fire Coordinating Committee Cancer Institute NSW Cancer Institute Division

Country Rail Infrastructure Authority

Health Reform Transitional Organisation Western – Sydney South West Area Health Service Special Service Entity – Sydney West Area Health Services Special Purpose Service Entity – Greater Western Area Health Services Special Purpose Service Entity Justice Health – Justice Health Special Purpose Service Entity Local Health Networks – Central Coast - Central Coast Local Health Network Special Purpose Services Entity

Cowra Japanese Garden Maintenance Foundation Ltd Cowra Japanese Garden Trust Crown Employees (NSW Fire Brigades Firefighting Staff Death and Disability) Superannuation Fund

– Far West

Crown Entity, The

– Hunter New England

- Far West Local Health Network Special Purpose Service Entity

Dams Safety Committee Delta Electricity Department of Education and Communities NSW Adult Migrant English Service Department of Health Agency for Clinical Innovation Albury Base Hospital

- Hunter New England Local Health Network Special Purpose Service Entity – Illawarra Shoalhaven - Illawarra Shoalhaven Local Health Network Special Purpose Service Entity

Casino, Liquor and Gaming Control Authority

Albury Wodonga Health Special Purpose Service Entity

– Mid North Coast - Mid North Coast Local Health Network Special Purpose Service Entity

Catchment Management Authorities (13)

Bureau of Health Information – Bureau of Health Information Special Purpose Service Entity

– Murrumbidgee - Murrumbidgee Local Health Network Special Purpose Service Entity

Clinical Education and Training Institute

– Nepean Blue Mountains - Nepean Blue Mountains Local Health Network Special Service Entity

C.B. Alexander Foundation Centennial Park and Moore Park Trust Centennial Parklands Foundation Central Coast Regional Development Corporation Charles Sturt University Charles Sturt Foundation Limited Charles Sturt Services Limited Charles Sturt University Foundation Trust Charles Sturt Campus Services Limited Chief Investigator of the Office of Transport Safety Investigations Chipping Norton Lake Authority City West Housing Pty Limited Cobar Water Board Cobbora Holding Company Pty Limited CCP Holding Pty Limited Cobbora Coal Mine Pty Limited Cobbora Coal Unit Trust Cobbora Management Company Pty Ltd Cobbora Rail Company Pty Limited Cobbora Unicorporated Joint Venture Mid West Development Corporation Pty Ltd Mid West Primary Pty Ltd Rocky Point Holdings Pty Ltd

Clinical Excellence Commission – Clinical Excellence Commission Special Purpose Service Entity Graythwaite Charitable Trust Health Administration Corporation – Public Health System Support Division Special Purpose Service Entity Health Reform Transitional Organisation North – Northern Sydney and Central Coast Area Health Service Special Service Entity – Hunter New England Area Health Services Special Purpose Service Entity – North Coast Area Health Services Special Purpose Service Entity Health Reform Transitional Organisation Southern – South Eastern Sydney and Illawarra Area Health Service Special Service Entity – Greater Sydney Area Health Services Special Purpose Service Entity

– Northern NSW - Northern NSW Local Health Network Special Purpose Service Entity – Northern Sydney - Northern Sydney Health Network Service Special Purpose Service Entity – South Eastern Sydney - South Eastern Sydney Local Health Network Special Purpose Service Entity – Southern NSW - Southern NSW Local Health Network Special Purpose Service Entity – South Western Sydney - South Western Sydney Local Health Network Special Purpose Service Entity

80 Audit Office of New South Wales | Annual Report 2011/12

– Sydney - ANZAC Health and Medical Research Foundation - ANZAC Health and Medical Research Foundation Trust Fund - Ingham Health Research Institute - Sydney Local Health Network Special Purpose Service Entity – Sydney Children’s Hospitals Network - The Sydney Children’s Hospital Network Special Purpose Service Entity – Western NSW - Western NSW Local Health Network Special Purpose Service Entity – Western Sydney - Western Sydney Local Health Network Special Purpose Service Entity

Fair Trading Administration Corporation Financial Counselling Trust Fund Fire and Rescue New South Wales Forestry Commission of New South Wales (trading as Forests NSW) Forestry Commission Division Timber and Carbon Plantation Pty Ltd Game Council of New South Wales Game Council Division Gosford Water Supply Authority Health Care Complaints Commission Office of the Health Care Complaints Commission Health Professional Councils (10) Historic Houses Trust of New South Wales Foundation for the Historic Houses Trust of NSW

Legislature (Audit of Members’ Additional Entitlements), The Liability Management Ministerial Corporation Library Council of New South Wales State Library of New South Wales Foundation Lifetime Care and Support Authority of New South Wales Long Service Corporation Lord Howe Island Board Flesh Footed Shearwater Coastal Habitat Recovery Luna Park Reserve Trust Macquarie Generation Macquarie University Access Macquarie Limited Australian Proteome Analysis Facility Ltd

Department of Family and Community Services John Williams Memorial Charitable Trust

Foundation for the Historic Houses Trust of NSW Limited Hamilton Rouse Hill Trust, The

Centre for Money, Banking and Finance Limited

Department of Attorney General and Justice

Rouse Hill Hamilton Collection Pty Limited

COH Property Trust

Department of Trade and Investment, Regional Infrastructure and Services Department of Planning and Infrastructure Department of Premier and Cabinet Department of Finance and Services Australian Centre for Advanced Computing and Communications Pty Limited New South Wales Government Telecommunications Authority, The Department of Transport Dumaresq-Barwon Border Rivers Commission Election Funding Authority of New South Wales Electricity Tariff Equalisation Ministerial Corporation Endeavour Energy Energy Industries Superannuation Scheme Energy Industries Superannuation Scheme (EISS) – Pool A and Pool B Energy Industries Superannuation Scheme Pty Limited Energy Investment Fund

Home Care Service of New South Wales Home Care Service Division Home Purchase Assistance Fund Hunter Development Corporation Hunter Region Sporting Venues Authority Hunter International Sports Centre Club Hunter Water Corporation Hunter Water Australia Pty Limited Illawarra Health and Medical Research Institute Limited Illawarra Venues Authority Independent Commission Against Corruption Independent Pricing and Regulatory Tribunal Independent Pricing and Regulatory Tribunal Division

Learning Activity Management Systems (LAMS) Foundation Limited Learning Activity Management Systems (LAMS) International Pty Limited Macquarie University Professorial Superannuation Scheme Macquarie University Property Investment Company Pty Limited Macquarie University Property Investment Company No. 2 Pty Limited Macquarie University Property Investment Company No. 3 Pty Limited Macquarie University Property Investment Trust MGSM Ltd MU Hospital Pty Limited MUH Operations Pty Limited MUH Operations No. 2 Limited

Independent Transport Safety Regulator Independent Transport Safety Regulator Division

MUPH Clinic Pty Limited

Infrastructure Implementation Corporation

Risk Frontiers Group Pty Limited

Internal Audit Bureau of New South Wales

[email protected] Limited

Jenolan Caves Reserve Trust Jenolan Caves Reserve Trust Division

MUPH Hospital Pty Limited Risk Frontiers Flood (Australia) Pty Limited

Marine Parks Authority

Essential Energy NorthPower Energy Services Pty Limited

Judicial Commission of New South Wales

Maritime Authority of NSW Maritime Authority of NSW Division

Lake Illawarra Authority

Mine Subsidence Board

Environment Protection Authority

Landcom

Ministerial Corporation for Industry

Environmental Trust

Legal Aid Commission of New South Wales Office of the Legal Aid Commission

Motor Accidents Authority of New South Wales

Legal Profession Admission Board

Motor Vehicle Repair Industry Authority

Legislature, The

National Art School

FuturePlus Financial Services Pty Ltd

Eraring Energy Events New South Wales Pty Limited

81 Audit Office of New South Wales | Annual Report 2011/12

Financial audit clients, reviews and other related services Appendix two (continued)

Natural Resources Commission Natural Resources Commission Division

NSW Vocational Education and Training Accreditation Board

State Superannuation Scheme

New South Wales Aboriginal Land Council

Office of the Board of Studies Board of Studies Casual Staff Division

State Super Financial Services Australia Limited

Office of the Director of Public Prosecutions

State Super Retirement Fund

Office of Hawkesbury-Nepean

State Super Fixed Term Allocated Pension Fund

New South Wales Crime Commission New South Wales Crime Commission Division Office of the New South Wales Crime Commission New South Wales Electoral Commission Office of the New South Wales Electoral Commission New South Wales Food Authority Milk Marketing (NSW) Pty Limited Office of the NSW Food Authority Pacific Industry Service Corporation Pty Limited

State Super Term Allocated Pension Fund

Office of the Information Commissioner Office of the Protective Commissioner and Public Guardian – Administration Fund

Ombudsman’ Office

Small Business Development Corporation of New South Wales

Parliamentary Contributory Superannuation Fund Parramatta Park Trust Parramatta Stadium Trust Police Integrity Commission Policy Integrity Commission Division

Biobank Pty Limited National Marine Science Centre Pty Ltd

Port Kembla Port Corporation Public Transport Ticketing Corporation

New South Wales Rural Assistance Authority Office of the New South Wales Rural Assistance Authority

Rail Corporation New South Wales Trainworks Limited

Newcastle Port Corporation NSW Architects Registration Board NSW Board of Vocational Education and Training NSW Businesslink Pty Ltd NSW Commission for Children and Young People NSW Film and Television Office NSW Fire Brigades Superannuation Pty Ltd NSW Land and Housing Corporation Rental Housing Assistance Fund

Southern Cross University Asia Pacific Football Institute Operations Pty Ltd Australian Plant DNA Bank Limited

New South Wales Institute of Teachers Office of the Institute of Teachers

Treasury Corporation Division of the Government Service

State Super Personal Retirement Plan Sesquicentenary of Responsible Government Trust Fund

New South Wales Institute of Psychiatry

New South Wales Treasury Corporation TCorp Nominees Pty Limited

State Super Investment Fund

Office of the Protective Commissioner – Common Fund

New South Wales Health Foundation New South Wales Institute of Sport Institute of Sport Division

Valley Commerce Pty Limited

Public Trustee NSW Common Fund

Norsearch Limited SCU College Pty Ltd Sporting Injuries Committee State Emergency Service State Property Authority

Redfern Waterloo Authority Australian Technology Park Sydney Limited

State Rail Authority Residual Holding Corporation

Office of the Redfern Waterloo Authority

State Records Authority of New South Wales State Rescue Board

Rental Bond Board Residual Business Management Corporation Pacific Solar Pty Limited and Pacific Power (Subsidiary No. 1) Pty Limited

State Transit Authority of New South Wales State Transit Authority Division Western Sydney Buses Division State Water Corporation Superannuation Administration Corporation (trading as Pillar Administration)

Responsible Gambling Fund Rice Marketing Board for the State of New South Wales Riverina Citrus

Sydney Catchment Authority Sydney Catchment Authority Division

Roads and Traffic Authority of New South Wales Roads and Traffic Authority Division

Sydney Cricket and Sports Ground Trust Sydney Cricket and Sports Ground Trust Division

Royal Botanic Gardens and Domain Trust

Sydney Ferries

Maritime Authority of NSW Maritime Authority of NSW Division

SAS Trustee Corporation SAS Trustee Corporation Division

Sydney Harbour Foreshore Authority Cooks Cove Development Corporation

NSW Ovine Johne’s Disease TransactionBased Contribution Scheme

SAS Trustee Corporation – Pooled Fund Buroba Pty Limited

Sydney Harbour Authority Casual Staff Division

NSW Police Force

Police Superannuation Scheme

Sydney Metro

NSW Rural Fire Service NSW Self Insurance Corporation

State Authorities Non-Contributory Superannuation Scheme

NSW Trustee and Guardian

State Authorities Superannuation Scheme

NSW Trustee and Guardian Common Fund – Trustee

State Infrastructure Holdings (SEA Gas) Pty Ltd

Sydney Metropolitan Development Authority Office of Sydney Metropolitan Development Authority

State Infrastructure Trust

Sydney Olympic Park Authority Parklands Foundation Limited

82 Audit Office of New South Wales | Annual Report 2011/12

Sydney Opera House Trust Sydney Ports Corporation Sydney Pilot Service Pty Ltd Sydney Water Corporation Australian Water Technologies Pty Ltd Sydney Desalination Plant Pty Limited Taronga Conservation Society Australia Taronga Conservation Society Australia Division Teacher Housing Authority of New South Wales Technical and Further Education Commission, New South Wales New South Wales Technical and Further Education Division Technical Education Trust Funds

University of New South Wales A.C.N. 125 694 546 Pty Limited AGSM Limited NewSouth Global Pty Limited

Television Sydney (TVS) Limited

– Australian Education Consultancy Limited – UNSW Global India Pvt Limited – NewSouth Global (Thailand) Limited – UNSW (Hong Kong) Limited – UNSW Global (Singapore) Pte Limited – UNSW (Thailand) Limited

Television Sydney Foundation Limited

NewSouth Innovations Pty Limited – Cystemix Pty Limited Qucor Pty Limited John Lewis and Pamela Lightfoot Trust, The

TransGrid

The New South Wales Minerals Industry/ University of New South Wales

Transport Construction Authority

Education Trust

Treasury

University of New South Wales Foundation Limited

Trustees of the ANZAC Memorial Building Trustees of the Farrer Memorial Research Scholarship Fund Trustees of the Museum of Applied Arts and Sciences Uniprojects Pty Limited Universities Admission Centre (NSW & ACT) Pty Limited University of Newcastle, The GraduateSchool.com Pty Limited Newcastle Innovation Limited UON Foundation Limited – UON Foundation Trust UON Services Limited UON Singapore Pte Ltd University of New England Agricultural Business Research Institute Limited Services UNE Limited Sport UNE Limited UNE Foundation UNE Foundation Limited UNE Partnerships Pty Limited

University of Western Sydney, The CADRE Design Pty Limited and Cadre Design Unit Trust

University of New South Wales Foundation University of New South Wales International House Limited University of New South Wales Press Limited

Television Sydney Foundation Trust University of Western Sydney Foundation Limited University of Western Sydney Foundation Trust UWS College Pty Limited UWS Early Learning Limited uwsconnect Limited Whitlam Institute within the University of Western Sydney Limited and Whitlam Institute within the University of Western Sydney Trust University of Wollongong ITC Limited – International School of European Aviation Pty Limited – ITC Aviation Pty Ltd – ITC Education Ltd – ITC (New Zealand) Limited – International Film School Sydney Pty Limited

UNSW Hong Kong Foundation Limited

Sydney Business School Pty Limited

UNSW Study Abroad – Friends and US Alumni Inc

University of Wollongong Recreation and Aquatic Centre Limited

University of Technology, Sydney accessUTS Pty Limited AustLii Foundation Ltd Insearch Limited – Insearch Education – Insearch Education International Pty Limited – Insearch (Shanghai) Limited Sydney Educational Broadcasting Limited University of Sydney, The Bandwidth Foundry International Pty Ltd Sports Knowledge Australia Pty Limited SydneyLearning Pty Limited Sydney Talent Pty Limited The Warren Centre for Advanced Engineering Limited United States Studies Centre Limited University of Sydney Professorial Superannuation System Wayahead Pty Limited Wentworth Annexe Limited

Wollongong UniCentre Limited – UniCentre Conferences and Functions Pty Limited Upper Parramatta River Catchment Trust Upper Parramatta River Catchment Trust Division Veterinary Practitioners Board Waste Assets Management Corporation Wentworth Park Sporting Complex Trust Western Sydney Parklands Trust Wild Dog Destruction Board Wild Dog Destruction Board Division Wine Grapes Marketing Board for the City of Griffith and the Shires of Leeton, Carrathool and Murrumbidgee WorkCover Authority of New South Wales Workers Compensation Commission Workers’ Compensation (Dust Diseases) Board Workers Compensation Nominal Insurer (trading as The NSW WorkCover Scheme) Wyong Water Supply Authority

83 Audit Office of New South Wales | Annual Report 2011/12

Financial audit clients, reviews and other related services Appendix two (continued)

Audit-related services requested by the Treasurer under s. 27B(3)(c) of the Public Finance and Audit Act 1983 Any audit or audit related services for which: £ a

Commonwealth or State Government Body requires, for regulatory purposes, a NSW public sector agency to have information, reports or returns audited, reviewed, examined or certified by an auditor, and

£ a

NSW public sector agency asks the Audit Office to undertake the audit, review, examination or certification.

Audit of concise financial reports of NSW public sector agencies Audit or audit related services to enable NSW public sector agencies to meet requirements under the Corporations Act 2001 or the Superannuation Industry (Supervision) Act 1993 Audit reports required by s. 24 of the Charitable Fundraising Act 1991 for NSW Government agencies that conduct fundraising appeals Audit of a contract summary’s compliance with the requirements specified in s. 5.2 of the Working with Government Guidelines (December 2006) Audit of data returns or reports required under the Federal Government/State Agreements Audit of data returns or reports to acquit Disaster Relief Payments from the Commonwealth Audit of data returns or reports to acquit grants provided by the Commonwealth and other donors to NSW Government agencies Audit of financial data returns or reports by universities to the Department of Industry, Innovation Science, Research and Tertiary Education as required by the Commonwealth funding arrangements and/or agreements Audit of general purpose financial statements for the NSW Trustee and Guardian – Common Fund and the NSW Office of the Protective Commissioner – Common Fund Audit of special purpose and trust funds for controlled entities of the Department of Health Audit of the financial report of the Nippon Foundation Fund for Japanese Language Education in accordance with an agreement between Macquarie University and the Nippon Foundation Certify financial management, control systems and other matters for the Audit Office’s clients required by AusAID as a condition of AusAID funding Issue letters of comfort to interested parties of NSW Treasury Corporation regarding its domestic and offshore funding activities Issue letters of comfort to interested parties of NSW Treasury Corporation regarding the Euro Medium Term Note Program Review of agency compliance with Treasury Policy Paper TPP 09-5 ‘Internal Audit and Risk Management Policy for the NSW Public Sector’

84 Audit Office of New South Wales | Annual Report 2011/12

Overseas visits Staff member

Date of travel

Return date

Destination

Reason

Peter Achterstraat

9 July 2011

15 July 2011

Kuala Lumpur

To attend and present at the Institute of Internal Auditors International Conference

Peter Achterstraat

1 August 2011

4 August 2011

Tonga

To attend the 14th Congress of the Pacific Association of Supreme Audit Institutions

Brett Chaiyawat

2 October 2011

5 October 2011

Singapore

To present at an ACL user group conference

Raymond Bailey

28 October 2011

15 December 2011

Hong Kong

To undertake a training attachment to the Hong Kong Audit Commission

Sally Bond

3 March 2012

10 March 2012

Vietnam

To assess the professional competency of local auditors in Vietnam used by Insearch Ltd, a controlled entity of the University of Technology, Sydney

Weini Liao

10 March 2012

18 March 2012

Hong Kong

To undertake an audit of UNSW Hong Kong Ltd, Australian Education Consultancy Ltd, and UNSW Hong Kong Foundation

Susanti Tedja

10 March 2012

18 March 2012

Hong Kong

To undertake an audit of UNSW Hong Kong Ltd, Australian Education Consultancy Ltd, and UNSW Hong Kong Foundation

Jack Kheir

22 March 2012

28 March 2012

Singapore

To undertake an audit of UON Singapore Pte Ltd, a controlled entity of the University of Newcastle

James Sugumar

6 April 2012

17 April 2012

Canada

To undertake an audit of Charles Sturt University's Ontario Campus

85 Audit Office of New South Wales | Annual Report 2011/12

Services to the public sector Appendix three

Appearances before parliamentary committees We appeared before the following parliamentary committees. Date

Committee

Event

Who

19 August 2011

Joint Committee of Public Accounts and Audit (Federal)

Performance Reporting for National Funding Agreements

Peter Achterstraat Tony Whitfield

14 October 2011

Public Accounts Committee

Performance of Metropolitan Buses

Peter Achterstraat Rob Mathie Chris Yates

21 November 2011

Staysafe (Road Safety) Committee

School Zone Safety

Peter Achterstraat Geoff Moran

22 November 2011

Committee on Social Issues

Inquiry into Domestic Violence

Peter Achterstraat Michael Johnston

1 December 2011

Public Accounts Committee

Inquiry into follow-up of Auditor-General's 2010 Financial Audit Report; and inquiry into follow-up of Auditor-General's Performance Audit Report 2009−10 (Access to Overnight Centre-Based Disability Respite)

Peter Achterstraat John Viljoen Scott Stanton Michael Johnston

21 May 2012

Joint Select Committee on NSW Workers Compensation Scheme

Inquiry into the performance and financial sustainability of the NSW Workers Compensation Scheme

Peter Achterstraat Bola Oyetunji

18 June 2012

Public Accounts Committee

Inquiry into follow-up of Auditor-General's Performance Audit Reports 2009–10 (Electronic Information Systems, Coal Mining Royalties, Mental Health Workforce, Helicopter Emergency Service Contract)

Peter Achterstraat Rob Mathie

Memberships Audit Office staff were members of the following public sector organisations and committees. Peter Achterstraat

Australasian Council of Auditors-General Institute of Public Administration NSW Federal Electoral Division Redistribution Committee

Peter Auld

NSW Procurement’s Software Asset Management Forum

Peter Barnes

Taxation Hardship Relief Board Australasian Council of Auditors-General – GAAP/GFS AASB 1049

Louise Mooney

Australasian Council of Auditors-General – Practice Management Group Chair

Angelina Pillay

Corruption Prevention Network – Vice-Chair

Maria Spriggins

NSW Public Sector Community of Finance Professionals

Henry Szus

Australasian Council of Auditors-General Intra-Jurisdictional IS Audit Group

Barry Underwood

Corruption Prevention Network – Vice-Chair

John Viljoen

Australasian Council of Auditors-General – Quality Control Committee Chair

Tony Whitfield

Australasian Council of Auditors-General – Financial Reporting and Auditing Committee

86 Audit Office of New South Wales | Annual Report 2011/12

Presentations Audit Office staff gave the following presentations to various public sector audiences. Title

Presenter(s)

Date

Who

Internal audit and risk management readiness

Peter Achterstraat

11 July 2011

Institute of Internal Auditors International Conference − Auditing in the Public Sector, Kuala Lumpur

Performance auditing

Angelina Pillay

30 August 2011

Guizhou Provincial Government Auditors – Chinese delegates, Sydney

Holding modern government to account: a discussion with the NSW Auditor-General

Peter Achterstraat

5 September 2011

Australia and New Zealand School of Government – The University of Sydney

Knowledge keepers and knowledge seekers − a cross sector collaboration to prepare the public sector for the future (keynote address)

Peter Achterstraat

20 September 2011

The Treasury Managed Fund Risk Management Conference

Role of the Audit Office

Peter Achterstraat

20 September 2011

New parliamentarian staff, NSW Parliament

Holding modern government to account: a discussion with the NSW Auditor-General

Peter Achterstraat

22 September 2011

Australia and New Zealand School of Government – The University of Sydney

Corruption prevention network

Angelina Pillay

23 September 2011

Delegation from the Indonesian Government

Fraud and corruption

Barry Underwood

23 September 2011

Delegation from the Indonesian Government

Audit exchange at the Audit Office

Brett Chaiyawat

3 October 2011

Asia Regional ACL User Conference in Singapore

Role of the Audit Office

Peter Achterstraat

14 October 2011

New parliamentarian staff, NSW Parliament

Better practice to achieve quality and timeliness of financial statements

Peter Barnes

15 November 2011

Chief Financial Officers and finance team members of Australian universities

Update on key issues impacting universities

Scott Stanton

16 November 2011

Financial staff from NSW universities

Outsourcing work, insourcing corruption – an Auditors-General perspective

Peter Achterstraat

17 November 2011

Australian Public Sector Anti-Corruption Conference, Perth

Introduction to the Audit Office of New South Wales and our methodology

Raymond Bailey

18 November 2011

Hong Kong Audit Commission

Decades of experience

Tony Whitfield

22 November 2011

NSW Public Sector Community of Finance Professionals

Sharing ideas on contemporary issues

Peter Achterstraat

24 November 2011

Chief Financial Officer Forum – NSW Public Sector Community of Financial Professionals

Maintaining governance and control in times of transition

Peter Achterstraat

7 February 2012

Corruption Prevention Network Breakfast Briefing – Museum of Sydney

Role of the Audit Office

Peter Achterstraat

28 February 2012

Senior officers of Transport for NSW

Briefing new members of parliament

Peter Achterstraat

21 March 2012

Parliamentarians’ electorate staff, NSW Parliament

Role of the Audit Office

Peter Achterstraat

5 April 2012

Senior officers of Transport for NSW

Public engagement

Peter Achterstraat

17 April 2012

Regional Working Group on Environmental Auditing

Leadership

Peter Achterstraat

27 April 2012

Addressing the Public Sector Leadership class at the Graduate School of Government, the University of Sydney

Compliance considerations for international programs

James Sugumar Peter Barnes

3 May 2012

Risk Managers/Internal Audit/CFOs and finance team members of Australian universities

Leadership

Peter Achterstraat

4 May 2012

Australian Taxation Office

How we operate in New South Wales – financial audits, performance audits and strategic planning

Rob Mathie Rod Longford

21 and 22 May 2012

New Zealand Audit Office delegates, Sydney

Accounting careers – life outside of consultancy

Weini Liao

23 May 2012

Macquarie University students and graduates

Role of the Audit Office

Peter Achterstraat

25 May 2012

Audit Board of Indonesia

Governance and fraud

Greg Gibson

25 May 2012

Malaysian Anti-Corruption Commission delegates, Sydney

ICT portfolio implementation and governance (closing keynote address)

Peter Achterstraat

21 June 2012

FutureGov Forum

Role of the Audit Office

Peter Achterstraat

26 June 2012

Parliamentarians’ electorate staff, NSW Parliament

Auditing government institutions

Steven Martin Angelina Pillay Chris Phillips

27 June 2012

Iraqi Ministry of Finance delegates, Sydney

87 Audit Office of New South Wales | Annual Report 2011/12

Services to the profession Appendix four Memberships Audit Office staff were members of the following committees, professional associations, panels or working parties. Chris Bowdler

CPA Australia – Sydney Accountants in Government Discussion Group CPA Australia – NSW Congress 2012 – Task Force Committee

Alison Gatt

The Institute of Chartered Accountants in Australia – Australia Research Group

Chris Giumelli

CPA Australia – NSW Public Sector Committee

Vijyata Kirpalani

The Institute of Chartered Accountants in Australia – Young Professionals Panel Public Sector Representative

Maria Spriggins

NSW Public Sector Community of Finance Professionals Australian Auditing and Assurance Standards Board – Project Advisory Group

Scott Stanton

CPA Australia – NSW Divisional Councillor CPA Australia – NSW Divisional Council representative to Public Sector Committee CPA Australia – NSW Divisional Councillor representative to Young Professional Accountants Committee CPA Australia – NSW CPA Week 2012 – Task Force Committee CPA Australia – CPA International Conference 2013 – Task Force Committee

Heather Watson

The Institute of Chartered Accountants in Australia – Australia Research Group

Education Members of staff contributed to professional qualification programs (CA, CPA and CSA designations). Brett Chaiyawat

The Institute of Chartered Accountants in Australia – CA Program – author of materials for Audit and Assurance module

Chris Clayton

The Institute of Chartered Accountants in Australia – CA Program – author of materials for Audit and Assurance module

88 Audit Office of New South Wales | Annual Report 2011/12

Submissions to professional bodies The Audit Office coordinates the efforts of all Australian audit offices developing responses to professional bodies on pronouncements they have exposed for comment. We determine which will impact audit offices, our clients or the public sector in general. We have prepared or contributed to the following responses by the Australasian Council of Auditors-General. Title

Date

AASB – Australian Accounting Standards Board Exposure Draft 212 ‘Not-for-Profit Entities within the General Government Sector’

11 November 2011

Exposure Draft 220 ‘Investment Entities’

30 November 2011

Exposure Draft 214 ‘Extending Related Party Disclosures to the Not-for-Profit Public Sector’ Exposure Draft 222 ‘Revenue from Contracts with Customers’

31 January 2012 24 February 2012

IASB – International Accounting Standards Board Exposure Draft 2011/6 ‘A Revision of Exposure Draft 2010/6 Revenue from Contracts with Customers’

24 February 2012

AUASB – Auditing and Assurance Standards Board Exposure Draft ‘Proposed International Standard on Assurance Engagements ISAE 3000 (Revised), Assurance Engagements other than Audits or Reviews of Historical Financial Information’ Consultation Paper ‘Assurance Engagements on General Purpose Water Accounting Reports’

11 August 2011 31 October 2011

IAASB – International Auditing and Assurance Standards Board Exposure Draft ‘Proposed International Standard on Assurance Engagements ISAE 3000 (Revised), Assurance Engagements other than Audits or Reviews of Historical Financial Information’ Consultation Paper ‘Enhancing the Value of Auditor Reporting - Exploring Options for Change’

11 August 2011 15 September 2011

APESB – Accounting Profession and Ethical Standards Board Limited Consultation Paper 01/11 ‘Proposed Definition of Public Interest Entity for the Code’ Exposure Draft 03/11 ‘Proposed Amendments to the Definition of Public Interest Entity in APES 110 Code of Ethics for Professional Accountants’

4 August 2011 28 September 2011

IPSASB – International Public Sector Accounting Standards Board Exposure Draft ‘Key Characteristics of the Public Sector with Potential Implications for Financial Reporting’ Exposure Draft 46 ‘Proposed Recommended Practice Guide: Reporting on the Long-Term Sustainability of a Public Sector Entity's Finances’ Consultation Paper ‘Reporting Service Performance Information’

29 August 2011 28 February 2012 12 April 2012

89 Audit Office of New South Wales | Annual Report 2011/12

Services to the profession Appendix four (continued)

Presentations Audit Office staff gave the following presentations to various professional auditing and accounting audiences. Title

Presenter(s)

Date

Who

Role of the Audit Office

Peter Achterstraat

16 August 2011

Sydney Church of England Grammar School

Performance auditing for better outcomes

Peter Achterstraat

6 September 2011

Chartered Securities Australia Annual Public Sector Update

Panel discussion

Tony Whitfield

7 October 2011

International Public Sector Accounting Standards

Performance auditing – health check for your business

Chris Bowdler

20 October 2011

CPA Australia NSW Congress

Financial reporting in higher education 2011 (keynote address)

Peter Achterstraat

14 November 2011

Informa Australia

Governance as an early warning signal

Peter Achterstraat

22 February 2012

Criterion Conferences – Integrating Governance Frameworks – Corporate Governance Lighthouse

Building robust governance frameworks and controls for the public sector

Peter Achterstraat

6 March 2012

South Pacific and Asia Conference – Institute of Internal Auditors Australia

Public sector property asset management

Peter Achterstraat

9 March 2012

Opening the Property Council Academy

Audit and Risk Committee Network

Peter Achterstraat

29 March 2012

Audit Committees

Establishing an integrated governance framework

Peter Achterstraat

26 April 2012

CPA Australia/Chartered Securities Australia Risk Discussion Forum

Key issues regarding year end accounting and audit processes

Peter Achterstraat

22 May 2012

KPMG – Public Sector Accounting and Reporting Seminar

Fraud detection and prevention

Barry Underwood

23 May 2012

Tonkin Corporation

Gartner Academy

Tony Whitfield

24 May 2012

Leadership Development

Holding government departments to account

Peter Achterstraat

29 May 2012

Turramurra Rotary Club

90 Audit Office of New South Wales | Annual Report 2011/12

Publications Appendix five

Financial audit reports Volume

Focus

Date released

Volume Three 2011

Total State Sector Accounts

31 October 2011

Volume Four 2011

Electricity

2 November 2011

Volume Five 2011

Superannuation, Compensation and Housing

9 November 2011

Volume Six 2011

Environment, Water and Regional Infrastructure

18 November 2011

Volume Seven 2011

Law, Order and Emergency Services

23 November 2011

Volume Eight 2011

Transport and Ports

30 November 2011

Volume Nine 2011

Education and Communities

7 December 2011

Volume Ten 2011

Health

14 December 2011

Volume One 2012

Themes from 2011

29 February 2012

Volume Two 2012

Universities

20 May 2012

Performance audit reports Volume

Agency examined

Date released

Improving Road Safety: Speed Cameras

£

Roads and Traffic Authority of New South Wales (now Roads and Maritime Services)

27 July 2011

Prequalification Scheme: Performance and Management Services

£

Department of Premier and Cabinet

£

Department of Finance and Services

Improving Road Safety: Young Drivers

£

Responding to Domestic and Family Violence

28 September 2011

Roads and Traffic Authority of New South Wales (now Roads and Maritime Services)

19 October 2011

£

Department of Family and Community Services

8 November 2011

£

Department of Attorney General and Justice

£

Department of Health

£

NSW Police Force

Visiting Medical Officers and Staff Specialists

£

Department of Health

14 December 2011

Managing IT Services Contracts

£

Department of Finance and Services

1 February 2012

£

Department of Health

£

NSW Police Force

£

Community Relations Commission For a multicultural NSW

£

Department of Premier and Cabinet

Settling Humanitarian Entrants in New South Wales

Physical Activity in Government Primary Schools £ Department of Education and Communities Managing Overtime

£

Rail Corporation New South Wales

23 May 2012 13 June 2012 20 June 2012

Roads and Traffic Authority of New South Wales (now Roads and Maritime Services) £

Special review Volume

Agency examined

Date released

Solar Bonus Scheme

£

NSW Department of Trade and Investment, Regional Infrastructure and Services

7 November 2011

£

Office of Environment and Heritage

£

Department of Premier and Cabinet

£

Treasury

91 Audit Office of New South Wales | Annual Report 2011/12

Publications Appendix five (continued)

Annual Report Annual Report 2010/11

Professional Update (redesigned and amalgamated with Awareness in September 2011) November 2011 January 2012 February 2012 March 2012 April 2012 May 2012 June 2012 July 2012

Awareness Issue 5

June/July 2011

Issue 6

August 2011

Issue 7

September 2011

Issue 8

October 2011

92 Audit Office of New South Wales | Annual Report 2011/12

EEO, ethnic affairs priorities and disability action plan Appendix six

Trends in the Representation of EEO Groups1 Benchmark /Target

2010

2011

2012

EEO Group

%

% of total staff

Women

50

50.4

51.8

50.9

Aboriginal people and Torres Strait Islanders

2.6

0.4

0

0

People whose first language was not English

19

45.3

43.3

44.7

People with a disability

n/a

4.3

3.5

3.8

People with a disability requiring work-related adjustment

1.5

1.8

1.8

1.7

Benchmark

2010

2011

2012

Trends in the Distribution of EEO Groups 2 EEO Group

%

% of total staff

Women

100

87

89

90

Aboriginal people and Torres Strait Islanders

100

n/a

0

0

People whose first language was not English

100

87

88

84

People with a disability

100

n/a

n/a

n/a

People with a disability requiring work-related adjustment

100

n/a

n/a

n/a

1 Distribution

Index of 100 indicates that the centre of the distribution of the EEO group across salary levels is equivalent to that of other staff. Values less than 100 mean that the EEO group tends to be more concentrated at lower salary levels than is the case for other staff. The more pronounced this tendency is, the lower the index will be. In some cases the index may be more than 100, indicating that the EEO group is less concentrated at lower salary levels.

2 The

Distribution Index is not calculated where EEO group or non-EEO group numbers are less than 20.

93 Audit Office of New South Wales | Annual Report 2011/12

EEO, ethnic affairs priorities and disability action plan Appendix six (continued)

EEO outcomes In 2011–12 the Audit Office prioritised the following policies and programs: £ ongoing

focus on equal opportunity and discrimination training for all inductees

£ training

for all senior managers about these responsibilities concerning bullying and harassment prevention in the workplace – a key component of manager training in the new Work Health and Safety Act 2011

£ continuation

of the leadership program for all levels of employees from Executive to Senior Auditor (and equivalent) with tailored coaching programs to help develop individuals and support our ongoing commitment to equal employment opportunity principles and behaviours.

Multicultural policies and services program

Disability action plan

The Audit Office’s activities are centred on providing services to parliament and government agencies, not directly to members of the public. Therefore we have limited capacity to address multicultural services issues. We respect the rights of Australian citizens and residents who wish to become citizens to seek employment from advertised vacancies in the Audit Office. Our employment record is evidence of our support for cultural diversity. Our commitment is reflected in the number of racial, ethnic and ethno religious groups that comprise our staff.

Our Disability Action Plan continues to meet the needs of people with a disability both as employees and clients by: £ ensuring

their access to Audit Office premises and the premises they need to visit in the course of their duties

£ ensuring

their access to information about services of the Audit Office

£ improving

their employment opportunities at the Audit Office.

Our Multicultural Policies and Services Program Statement is our planning document showing we will address the needs of a culturally diverse society.

In 2012–13 we will focus on the following policies and programs: £ continue

to take the Workplace Health and Safety training to all staff levels and cover individual responsibilities in regards to bullying, harassment and anti-discrimination behaviour

£ continue

to explore opportunities for overseas secondments

£ implement

a more strategic workforce planning program that will leverage the talent in both our rich culturally diverse workforce and our female workforce

£ a

Leadership and Culture Program that will have diversity as a key focus area

£ continue

to champion work/life balance and the use of flexible work practices

£ further

improvement of our recruitment practices to ensure they remain current

£ review

our remuneration process to ensure ongoing pay equity.

94 Audit Office of New South Wales | Annual Report 2011/12

Accounts payable performance and consultants Appendix seven Aged analysis at the end of each quarter

Quarter

Current (ie within due date) $

Less than 30 days overdue $

Between 30 & 60 days overdue $

Between 60 & 90 days overdue $

More than 90 days overdue $

– – – –

– – – 168,868

– – – –

– – – –

– – – –

– – – –

– – – 27,231

– – – –

– – – –

– – – –

All suppliers September December March June Small business suppliers September December March June

Accounts paid on time each quarter Measure

September

December

March

June

All suppliers Number of accounts due for payment

761

595

479

600

Number of accounts paid on time

692

538

400

524

91%

90%

84%

87%

Dollar amount of accounts due for payment

Actual percentage of accounts paid on time (based on number of accounts)

4,515,833

4,045,561

2,252,858

4,181,244

Dollar amount of accounts paid on time

4,393,238

3,941,508

2,100,149

4,038,298

97%

97%

93%

97%

Number of payments for interest on overdue accounts



2

2

1

Interest paid on overdue accounts



25

4

201

Number of accounts due for payment to small businesses

42

76

52

58

Number of accounts due to small businesses paid on time

37

66

41

50

88%

87%

79%

86%

Actual percentage of accounts paid on time (based on $)

Small business suppliers

Actual percentage of small business accounts paid on time (based on number of accounts) Dollar amount of accounts due for payment to small businesses

96,370

268,880

114,170

161,053

Dollar amount of accounts due to small businesses paid on time

95,754

242,182

104,839

137,742

Actual percentage of small business accounts paid on time (based on $)

99%

90%

92%

86%

Number of payments to small business for interest on overdue accounts









Interest paid to small businesses on overdue accounts









Commentary During the year, we paid most of our accounts on time. Our target of 95 per cent for each quarter was achieved in three of the four quarters. We encouraged staff to take leave across the Christmas and early New Year holiday period and the break contributed to delays in processing of payments. This occurred in the third quarter and we failed to meet the target. We did achieve an average of 96 per cent across the year. We are finding many more businesses have seven day terms and this requires more rapid turnover. Our review identified that a number of the invoices paid late were only so by one or two days. We have addressed the issue internally to have quicker turnaround of invoices. The amount of interest that would be calculated as payable on the late paid invoices is generally negligible. Interest on late payments We did not incur any interest penalties for late payments to small suppliers. We did incur late interest penalties to other suppliers. A failure to process invoices for payment in a timely manner resulted in the interest of $29 being paid to one supplier. The penalty of $201 resulted from a sequence of human error and process breakdown and represents the late fees imposed. Processes have been put in place to ensure this does not recur. Credit card certification The Corporate Credit Card Policy was last amended in April 2012. It is reviewed annually and is considered current. It outlines requirements for the issue, use and administration of cards. Its rules are consistent with government policy as outlined in Treasurer's Directions and Treasury Circulars. In accordance with Treasurer's Directions 205.01, it is certified that the credit card usage by officers of the Audit Office has been in line with government requirements.

Consultants Our consultancy expense for 2011–12 was $53,000, which was provided by four consultants. All consultants provided their services for less than $50,000. The consultancies provided were for information technology, management and audit services. 95 Audit Office of New South Wales | Annual Report 2011/12

GIPA application information Appendix eight

Commentary on applications for information under the Government Information (Public Access) Act 2009 (the GIPA Act) can be found on page 48. Information relating to the Audit Office's auditing, investigative and reporting functions is excluded under the GIPA Act.

Table A: Number of applications by type of applicant and outcome*

Access granted in full

Access granted in part

Access refused in full

Information not held

Information already available

Refuse to deal with application

Refuse to confirm/ deny whether information is held

Application withdrawn

Media

0

0

0

0

0

0

0

0

Members of Parliament

0

0

0

0

0

0

0

0

Private sector business

0

0

0

0

0

0

0

0

Not for profit organisations or community groups

0

0

0

0

0

0

0

0

Members of the public (application by legal representative)

0

0

0

0

0

0

0

0

Members of the public (other)

0

0

0

0

0

0

0

0

* More than one decision can be made in respect of a particular access application. If so, a recording must be made in relation to each such decision. This also applies to table B.

Table B: Number of applications by type of application and outcome

Access granted in full

Access granted in part

Access refused in full

Information not held

Information already available

Refuse to deal with application

Refuse to confirm/ deny whether information is held

Personal information applications*

0

0

0

0

0

0

0

0

Access applications (other than personal information applications)

0

0

0

0

0

0

0

0

Access applications that are partly personal information applications and partly other

0

0

0

0

0

0

0

0

Application withdrawn

* A personal information application is an access application for personal information (as defined in clause 4 of Schedule 4 to the Act) about the applicant (the applicant being an individual). The total number of decisions in table B should be the same as table A.

Table C: Invalid applications Reason for invalidity

Number of applications

Application does not comply with formal requirements (section 41 of the Act)

0

Application is for excluded information of the agency (section 43 of the Act)

0

Application contravenes restraint order (section 110 of the Act)

0

Total number of invalid applications received

0

Invalid applications that subsequently became valid applications

0

96 Audit Office of New South Wales | Annual Report 2011/12

Table D: Conclusive presumption of overriding public interest against disclosure: matters listed in Schedule 1 of the Act Number of times consideration used* Overriding secrecy laws

0

Cabinet information

0

Executive Council information

0

Contempt

0

Legal professional privilege

0

Excluded information

0

Documents affecting law enforcement and public safety

0

Transport safety

0

Adoption

0

Care and protection of children

0

Ministerial code of conduct

0

Aboriginal and environmental heritage

0

* More than one public interest consideration may apply in relation to a particular access application and, if so, each such consideration is to be recorded (but only once per application). This also applies in relation to Table E.

Table E: Other public interest considerations against disclosure: matters listed in table to section 14 of the Act Number of occasions when application not successful Responsible and effective government

0

Law enforcement and security

0

Individual rights, judicial processes and natural justice

0

Business interests of agencies and other persons

0

Environment, culture, economy and general matters

0

Secrecy provisions

0

Exempt documents under interstate Freedom of Information legislation

0

Table F: Timeliness Number of applications Decided within the statutory timeframe (20 days plus any extensions)

0

Decided after 35 days (by agreement with applicant)

0 0

Not decided within time (deemed refusal)

Total 0

Table G: Number of applications reviewed under Part 5 of the Act (by type of review and outcome) Decision varied

Decision upheld

Total

Internal review

0

0

0

Review by Information Commissioner*

0

0

0

Internal review following recommendation under section 93 of Act

0

0

0

Review by Administrative Decisions Tribunal

0

0

0

Total 0

Total 0

Total 0

* The Information Commissioner does not have the authourity to vary decisions, but can make recommendation to the original decision-maker. The data in this case indicates that a recommendation to vary or uphold the original decision has been made.

Table H: Applications for review under Part 5 of the Act (by type of applicant) Number of applications for review Applications by access applicants

0

Applications by persons to whom information the subject of access application relates (see section 54 of the Act)

0

97 Audit Office of New South Wales | Annual Report 2011/12

Index and glossary a

l

allegations of waste 27 annual report – costs inside back cover – contact details back cover Audit and Risk Committee 16, 42, 44, 45, 47, 49, 50, 74 Auditor-General – message 2 – history inside front cover Australasian Council of Auditors-General 9, 38, 39 b

legislation letter of transmission m

benchmarking inside front cover, 9, 11, 30, 43 budget 52 business risks 42–48, 49 c client satisfaction code of conduct committees consultants corporate governance credit card certification creditor payments d

16 46 33, 35, 44, 47 64, 95 41–50 95 45 94

disability action plan e employee satisfaction energy management environmental action equal employment opportunity equity executive positions external audit f financial audits – clients – qualified opinion – recommendations, – acceptance of – reports – satisfaction with – timeliness financial commentary – accounts payable performance – break-even target – financial statistics – financial statements – freedom of information g governance – committees – disclosure – ethics – management – reporting, financial – risk management – stakeholders – structure – Government Information (Public Access) Act – application information h highlights i industrial relations information management internal audit Internal Audit and Risk Management Statement ISO 31000:2009

30 35 35 94 33 4, 78–79 47

80 21 18 13, 91 16 19 52 95 52 54 55 48, 96 41 44 48 46 43 47 49 50 44, 45 48, 96 96

inside front cover 32 31 47 49 49

Glossary 1 inside front cover

management mission modifications multicultural policies and services program o objectives occupational health and safety see work health and safety office executive – performance statements office hours overseas – secondments – travel p

43 1 10, 20–22 94 1 4 72 back cover 32 85

parliamentarian satisfaction 8 parliamentary committees, appearances before 86 people 29 people development 34 performance audits 23–28 – follow-up 12, 23 – recommendations, – acceptance of 18 – reports 23–26, 91 – satisfaction 16, 17 performance management 31 presentations 38 – private sector 38, 90 – public sector 38, 87 privacy 46 professional activities 38–39 professional development 34 Public Accounts Committee 9, 12–14, 23, 40, 45, 47, 50 – hearings 12, 14, 23 publications 91 q quality assurance r reporting, financial reviews, internal and external risk management s

43–47 47 43, 47 44, 47, 49

social club 33 stakeholders/clients 1, 50 staff – counselling 33 – productivity 31 – recruitment 32 – turnover 32 strategic plan 6, 43 structure – governance 45 – organisation 1 t training turnover, staff v values vision w Waste Reduction and Purchasing Plan work health and safety y year ahead, the

33, 34 32 1, 30, 46 1, 30

35 35

Adverse opinion Expressed when the auditor concludes that misstatements, in the aggregate or individually, are both material and pervasive to the financial report. Audit evidence Audit evidence is examined to determine the accuracy of account balances in the financial statements. Main sources of audit evidence are: inspection (records or tangible assets); observation; external confirmation; re-calculation; re-performance; analytical procedures; and enquiry. Audit methodology A particular set of processes or procedures used to assess a company’s financial and business risk. Controlled entity A controlled entity is one that satisfies the test of control in s. 50AA of the Corporations Act 2001 and includes: £ an entity which the company wholly owns (‘wholly owned subsidiary’); or £ an entity in which the company holds an interest of any kind (including a shareholding interest or membership interest) and the company has control of the entity. CPA Accounting body CPA Australia. ICAA Accounting body Institute of Chartered Accountants Australia. Internal control framework An integrated set of policies and procedures, based on a common structure of components, concepts and definitions, designed to assist management to achieve its goals and objectives. Management letter Letter sent to client outlining financial information found in audit. Material misstatements Misstatements, including omissions, are considered to be material if they, individually or in the aggregate, could reasonably be expected to influence the economic decisions of users taken on the basis of the financial report. Modified auditor’s opinion Modifications of an audit opinion can be adverse, qualified or disclaimed. Adverse opinions are issued when misstatements in the financial statements are material and pervasive. Qualified opinions are issued when there are material misstatements in the financial statements or we cannot get all the evidence we require. An opinion is disclaimed only where auditors cannot get the evidence they need and the effects could be material and pervasive. Risk management policy A policy setting out the how the risks which have been identified by the risk assessment procedure will be managed and controlled.

6

98 Audit Office of New South Wales | Annual Report 2011/12

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2011/12

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