Australia: Public sector management and the recommendations in the NSW Commission of Audit Interim Report


On 24 January 2012, the NSW Commission of Audit Interim Report: Public Sector Management (Interim Report) was released by Dr. Kerry Schott (former head of Sydney Water and a Treasury official) and her team on behalf of the NSW Commission of Audit (Commission).

The Interim Report sets out the ways in which the NSW Government can achieve its five strategies to:

  • rebuild the economy
  • return quality services
  • renovate infrastructure
  • strengthen local environment and communities, and
  • restore accountability to government.

The overall premise for the Interim Report is that a well-managed and efficient public sector contributes to the NSW economy by improving productivity and performance, which affects businesses and the community.

The Commission sets out the following strategies, which are examined in further detail below:

  • changing structure and accountability arrangements in government services "clusters"
  • financial management
  • management of people, and
  • asset management.

Structure and accountability arrangements in government services "clusters"

Currently, there are about 322,400 full time equivalent employees working in around 4,400 NSW Government entities. There are 22 Ministers, nine Directors General and hundreds of Chief Executives and other senior executives.

The Interim Report states that the agencies are currently grouped into nine "clusters" so that similar government services can be coordinated more effectively under the service delivery area of the particular cluster (for example, Premier and Cabinet, Treasury, Education and Communities and Health). However, the Commission noted that there is an inability for cluster groups to gain a single view of their organisation, for example, a cluster group cannot produce monthly reports or performance reports and there is no facility to send broadcast emails to all members of the group.

The Commission noted that there are so many entities within some clusters that co-ordination is impossible without some changes and recommended that:

  • the entities within the cluster be removed and a report to the Premier be prepared as to whether they still serve a purpose and, if so, if that purpose can be met more efficiently
  • the management support systems be reviewed to see how to better integrate the cluster and improve service delivery as well as prepare business cases to support any required additional expenditure
  • immediate steps should be taken to group or merge entities where appropriate and abolish them if they no longer serve a purpose, and
  • the Director General of each cluster should set up a leadership group including Chief Financial Officer, Chief Human Resources Manager, the Group General Counsel and operational Chief Executive Officers as appropriate.

According to the Commission, there has not been a clear articulation of accountability arrangements in clusters, which has resulted in confusion of the roles of Co-ordinating Ministers and Portfolio Ministers and between Directors General of Principal Departments and Chief Executives of subsidiary entities within each cluster, resulting in tension between these parties. To redress this, the Commission recommends that:

  • leadership responsibility should be set out and incorporated in Charter Letters and Performance Agreements to clarify the roles, and ensure clear accountabilities, of:
    • Co-ordinating Ministers and Portfolio Ministers, and
    • Directors General and Chief Executives
  • the Public Sector Employment and Management Act 2002 (NSW) and the Public Finance and Audit Act 1983 (NSW) be amended to ensure legal recognition of clusters, Principal Departments and other entities as appropriate for the particular cluster, and
  • transfers between clusters should be suspended until the current reforms are in place, with a further review to occur within 12-18 months.

The Commission also recommended that to build and strengthen capacity in the central agencies (the Department of Premier and Cabinet, NSW Treasury and the Department of Finance and Services):

  • forums of key professional groups should be established and report periodically to the Directors General Executive Committee on key strategic issues
  • central reporting requirements should be reviewed and the compliance burden reduced, and
  • an integrated reporting framework should be developed, which directly links cluster and central data systems.

Financial management

The NSW Financial Audit 2011 (Lambert Review) demonstrated that the budget position over the last decade, and the current financial position, was not sustainable. For the NSW Government to raise taxes and spend money, the Commission recommends that it establish the formal framework set out below.

Fiscal sustainability

Cluster borrowing and debt levels must be managed very carefully. In the public trading enterprise (PTE) sector, the commercial enterprises receive revenue from customers, have operating expenses and capital expenditure and can borrow with Treasury approval. However, non-commercial PTEs do not generate enough revenue to cover their expenses (for example, Railcorp's fares cover only 21% of its operating costs), they rely on grants and subsidies and have no capacity to borrow in their own right.

The Commission recommended that Treasury carefully analyse capital expenditure in the general government PTE sector and non-commercial PTE sector to assess the level of ongoing operating surpluses required each year to meet the borrowing costs on an ongoing basis and to see if there is a net benefit and assess whether infrastructure can be financed through a continuing operating surplus.

In order to meet its objective to provide more infrastructure, the Commission recommended that the NSW Government set up a specialised unit to investigate the lease or sale of assets and businesses and may potentially need to restructure before it can lease or sell any assets or businesses.

Financial accountability

To ensure that there is authority for the financial decisions of the NSW Government at a whole of government and agency level, the Commission advised that the individual cluster and portfolio budgets are managed by their Ministers, Directors General and Chief Executive Officers.

The Commission also recommended that:

  • the Public Service Commission should develop specific cross-sector workforce strategies to strengthen the sector's capabilities in strategic financial management, with particular focus on the role of Chief Financial Officers, and
  • the NSW Government should undertake formal training for Chief Financial Officers on recently announced reforms to the budget framework, systems and accountabilities.


The Commission advised that the budgeting system should be constructed in a comprehensive, disciplined, timely and transparent way.

The Commission recommended that Treasury, in consultation with agency Chief Financial Officers, should commence scoping the design of a new financial management information system which incorporates:

  • a standard chart of accounts across all agencies of government
  • a single, stable baseline set of forward estimates against which all decisions of government are measured, and
  • the production of timely financial reports to government on a monthly and annual basis as required.


The Commission advised that the appropriate structure should authorise the limits to the financial demands that may be made against the government's consolidated revenue and make clear where it will be used and on what basis department's baseline costs and government decisions are appropriated.

Financial reporting

The financial reports should be set to a standard that facilitates independent audit and meets the financial reporting needs of users, including whole of government reporting and management accounts.

The Commission recommended that Treasury should align NSW Government financial reporting with the practices of other States including the publication of a measures statement and reconciliation statement for expenses and revenues for the budget year and three forward estimate years.

Performance reporting

Performance reporting should include the standards of reporting (outcome, output or program reporting), accurate, complete and timely performance information and independent performance assessment (including cost, time, quality and continued relevance).

The Commission recommended that the publication of performance information in NSW financial reports should include financial reporting by program expenditure as well as reporting on performance through either a results or outcome framework.

The management of people

Wages in the NSW Government on average have increased over the last decade more than in other jurisdictions such as Victoria and Queensland. The Commission recommended that as it was important for the community that public servants are neither under nor over remunerated in comparison to other sectors, the Public Service Commission should undertake a remuneration comparison for NSW public sector classifications and executives and should not support the use of executive caps or employee freezes to control expenditure.

As most NSW public sector employees' pay and conditions are set out under one of the industrial relations instruments, (namely, the Crown Employees' Salaries and Conditions of Employment Awards) and a number of changes have been made to this framework, the Commission recommended that the NSW Government should review the Industrial Relations Act 1996 (NSW) to ensure that it is responsive to the needs of a modern public sector and it is not inconsistent with the federal legislative employment landscape that applies to the private and not for profit sectors.

Given the number of awards that some agencies administer and the administrative complexities that they have to deal with, the Commission recommended that the Department of Premier and Cabinet should consider a process of rationalisation of awards.

Employees are usually linked to a specific position in an organisational structure. As a result, the Commissioner recommended that there should be mechanisms to increase flexibility and efficiently manage resourcing. As effective management depends on data, the Commission also recommended that systems should be upgraded to enable efficient whole of sector reporting and strategies should be developed to assist Human Resource leaders and units across the sector.

To improve performance management, the Commission recommended that the Public Service Commission develop a program to promote its importance and develop and investigate mechanisms to provide guidance and incentives to high performers and in the recruitment of new staff.

Asset management

To improve infrastructure planning and investment the Commission recommended that the Government should release an asset management policy statement regarding the State's asset management, including clarity on how the State's infrastructure planning will be conducted. To improve asset planning and management, the Commission recommended implementing capital charging or levies and that all proposed capital investments only proceed if they comply with the appropriate business case requirements.

To improve planning and management at the cluster and agency level the Commission made a number of recommendations including:

  • yearly capital budget submissions as to the agreed priorities of clusters
  • projects in the State Infrastructure Strategy to be reflected as cluster priorities, and
  • all clusters to progressively be given 10-year capital allowances.

There were a number of other recommendations for Government to investigate the current situation, report and implement guidelines to assist with toll arrangements, land and infrastructure assets and construction procurement. The Commission also recommended that to improve investment, capital submissions and business cases should be thoroughly reviewed when considering the whole-of-life costs, including how these will be funded and increasing transparency and encouraging communication.


The Interim Report addresses the current issues in public sector management and demonstrates that there is much to improve on to achieve the NSW Government's five strategies. The Commission's recommendations provide some useful ways in which to move forward but these issues will take time and resources to rectify. The Commission notes that many of these issues are cultural in nature and anticipates that the more complicated issues will take up to four years to resolve. The key message from the Interim Report is that the Commission's recommendations need to start being implemented by the NSW Government in order for it to accomplish what it has set out to achieve over the next four years.

View the full Interim Report

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ashley Tsacalos
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