Transport 2018
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Transport 2018 28 NOVEMBER 2018 NEW SOUTH WALES AUDITOR-GENERAL’S REPORT FINANCIAL AUDIT THE ROLE OF THE AUDITOR-GENERAL The roles and responsibilities of the Auditor- General, and hence the Audit Office, are set out in the Public Finance and Audit Act 1983 and the Local Government Act 1993. We conduct financial or ‘attest’ audits of GPO Box 12 State public sector and local government Sydney NSW 2001 entities’ financial statements. We also audit the Total State Sector Accounts, a consolidation of all agencies’ accounts. Financial audits are designed to add The Legislative Assembly The Legislative Council credibility to financial statements, enhancing Parliament House Parliament House their value to end-users. Also, the existence Sydney NSW 2000 Sydney NSW 2000 of such audits provides a constant stimulus to entities to ensure sound financial management. In accordance with section 52A of the Public Following a financial audit the Audit Office Finance and Audit Act 1983, I present a report titled issues a variety of reports to entities and ‘Transport 2018’. reports periodically to parliament. In combination these reports give opinions on the truth and fairness of financial statements, and comment on entity compliance with certain laws, regulations and government directives. They may comment on financial prudence, probity and waste, and recommend operational improvements. Margaret Crawford Auditor-General We also conduct performance audits. 28 November 2018 These examine whether an entity is carrying out its activities effectively and doing so economically and efficiently and in compliance with relevant laws. Audits may cover all or parts of an entity’s operations, or consider particular issues across a number of entities. As well as financial and performance audits, the Auditor-General carries out special reviews and compliance engagements. Performance audits are reported separately, with all other audits included in one of the regular volumes of the Auditor-General’s Reports to Parliament – Financial Audits. © Copyright reserved by the Audit Office of New South Wales. All rights reserved. No part of this publication may be reproduced without prior consent of the Audit Office of New South Wales. The Audit Office does not accept responsibility for loss or damage suffered by any person acting on or refraining from action as a result of any of this material. audit.nsw.gov.au contents Transport 2018 Section one – Transport 2018 Executive summary 1 Introduction 3 Financial reporting 5 Audit observations 12 Service delivery 17 Section two – Appendices Appendix one – Status of 2016 and 2017 recommendations 43 Appendix two – Cluster agencies 44 Appendix three – Financial data 45 Appendix four – Bus contracts regions 46 Section one Transport 2018 This report analyses the results of our audits of the Transport cluster agencies for the year ended 30 June 2018. Executive summary This report analyses the results of our audits of financial statements of the Transport cluster for the year ended 30 June 2018. The table below summarises our key observations. 1. Financial reporting Audit opinions Unqualified audit opinions were issued on the 2017–18 financial statements of all agencies in the Transport cluster. Valuation of assets Asset valuations are complex and continue to create challenges. The Transport cluster has a large geographically dispersed asset base, requiring significant resources, judgement and estimation techniques to determine fair values. Although agencies complied with the requirements of the accounting standards and Treasury policies on valuations, we identified some opportunities for improvements at Roads and Maritime Services (RMS). RMS incorporated data from its asset condition assessments for the first time in the valuation methodology which improved the valuation outcome. Overall, we were satisfied with the valuation methodology and key assumptions, but we noted some deficiencies in the asset data in relation to asset component unit rates and old condition data for some components of assets. Also, a bypass and tunnel were incorrectly excluded from RMS records and valuation process since 2013. This resulted in an increase for these assets’ value by $133 million. Revenue growth Transport agencies’ revenue growth increased at a higher rate than patronage. Public transport passenger revenue increased by $114 million (8.3 per cent) in 2017–18, and patronage increased by 37.1 million (5.1 per cent) across all modes of transport based on data provided by Transport for NSW (TfNSW). Negative Opal Cards Negative balance Opal Cards resulted in $3.8 million in revenue not collected in 2017–18 ($7.8 million since the introduction of Opal). Cost recovery Overall cost recovery from public transport users (on rail and State Transit Authority of New South Wales (STA) bus services) decreased from 23.2 per cent to 22.4 per cent between 2016–17 and 2017–18. The main reason for the decrease is due to expenditure increasing at a faster rate than revenue in 2017–18. 2. Audit observations Internal controls There was an increase in findings on internal controls across the Transport cluster. Key themes related to information technology, employee leave entitlements and asset management. Write-off of assets The Transport cluster wrote-off over $200 million of assets which were replaced by new assets or technology. Majority of this asset write-off was reported by RMS, with $199 million relating to the write-off of existing roads, bridges, maritime assets, traffic signals and controls network replaced during the year. 1 NSW Auditor-General's Report to Parliament | Transport 2018 | Executive summary Transport Asset Holding Entity TAHE has been established to be a dedicated asset manager for (TAHE) the delivery of public transport asset management. The Transport Administration Amendment (Transport Entities) Act 2017 will convert RailCorp into TAHE. RailCorp is expected to transition to TAHE from 1 July 2019. Several working groups are considering different aspects of the TAHE transition including its status as a for- profit Public Trading Enterprise and which assets to transfer to TAHE. Maintenance Agencies in the transport cluster do not have a consistent approach to managing maintenance. Some transport agencies estimate backlog maintenance while others do not quantify it. Individual agencies define and report on backlog maintenance in an inconsistent manner. A maintenance backlog is the estimated cost to bring infrastructure, buildings and other structures to a defined standard, measured at a point in time. Postponing maintenance can lead to more costly and extensive maintenance. TfNSW advised it is liaising with Infrastructure NSW to develop a consistent definition of maintenance backlog across all transport service providers. Similarly, not all agencies monitor unplanned maintenance across the Transport cluster. Unplanned maintenance can be more expensive than planned maintenance. TfNSW should develop a consistent approach to define, monitor and track unplanned maintenance across the cluster. 2 NSW Auditor-General's Report to Parliament | Transport 2018 | Executive summary 1. Introduction This report provides Parliament and other users of the Transport cluster’s financial statements with the results of our audits, our observations, analysis, conclusions and recommendations in the following areas: • financial reporting • audit observations. 1.1 Snapshot of the cluster Transport for NSW (TfNSW) is the lead agency in the Transport cluster. It is responsible for the coordination, funding allocation, policy and planning and other delivery functions for transport services. TfNSW is controlled by the Department of Transport (the Department). The Department does not control the Chief Investigator of the Office of Transport Safety Investigations (OTSI) or the Port Authority of New South Wales. Department Total assets: $160 billion Total revenue: $18.5 billion Total liabilities: $12.6 billion Total expenses: $13.0 billion Agencies Investigator Ports Notes: 1 TfNSW includes Transport Service of New South Wales (Transport Service). 2 All NSW TrainLink services are provided by the NSW Government through an overarching entity: NSW Trains. 3 Total revenue and expenses include gains and losses. 4 The Residual Transport Corporation was also established effective 1 July 2017. Financial statements were not submitted for audit and Transport advises that the entity did not trade. 3 NSW Auditor-General's Report to Parliament | Transport 2018 | Introduction 1.2 Changes to the cluster Effective from 1 July 2017, the Transport Administration Amendment (Transport Entities) Act 2017: • established a new entity, Residual Transport Corporation New South Wales (RTC), to hold, manage, operate and maintain transport assets vested in or owned by it. RTC is controlled by TfNSW • established Sydney Trains and NSW Trains as stand-alone entities. Previously Sydney Trains and NSW Trains were subsidiary corporations of Rail Corporation New South Wales (RailCorp). The Transport cluster was also impacted by the Transport Administration Amendment (Sydney Metro) Act 2018. Effective from 1 July 2018 the amendment established a new entity, Sydney Metro. Sydney Metro will be responsible for delivering metro passenger services and developing land around the metro stations, depots and stabling yards. 1.3 Operational snapshot Notes: a Bus passenger journeys and passenger revenue include STA and private bus operators. Government funding represents the net contract payments to STA and private