NSW Commission of Audit Final Report Government Expenditure doc

NSW Commission of Audit Final Report Government Expenditure 4 May 2012 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 2 Table of Contents Acknowledgement 5 Part I: OVERVIEW 6 1. Introduction 7 1.1 Key expenditure themes 7 1.2 Broad direction of recommendations 10 1.3 The Interim Report 16 1.4 Terms of reference 17 2. Expenditure by the NSW Government 21 2.1 Introduction 21 2.2 Government policy and priorities 23 2.3 Previous Expenditure Allocations 25 2.4 Adequate capital expenditure 33 2.5 Sustainable expenditure 35 2.6 Conclusions 41 Part II: SERVICE DELIVERY 42 3. Health 43 3.1 Government Policy 43 3.2 The current situation 49 3.3 Making better expenditure decisions 59 4. Education and training 43 4.1 Government policy 71 4.2 Present arrangements and expenditure 75 4.3 Future changes in arrangements and education 83 5. Family and Community Services 93 5.1 Overview 93 5.2 NGO service delivery 97 5.3 Out of home care 104 5.4 Social housing 109 5.5 Individualised funding 113 5.6 Boarding housing reform 116 5.7 Intensive support for multiple and complex needs families 117 6. Justice: Police, Corrective Services and Juvenile Justice 121 6.1 Government policy and priorities 121 6.2 The NSW Police Force 124 6.3 Corrective Services 130 6.4 Juvenile Justice 145 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 3 Part III: BUSINESS AND COMMUNITY 151 7. Transport 153 7.1 Government policy 153 7.2 Structural reform 155 7.3 The business of Transport 157 7.4 Railcorp 163 7.5 Roads and Maritime Services 169 7.6 Buses 178 7.7 Franchising services 180 7.8 Infrastructure and freight 181 8 Electricity 185 8.1 Government policy 185 8.2 Industry structure 188 8.3 Current situation 196 9. Water 211 9.1 Government policy 211 9.2 Urban water 213 9.3 Rural water 231 10. Workers‟ Compensation 239 10.1 Overview 239 10.2 The WorkCover Insurance Scheme 244 10.3 Addressing the cost drivers 250 Part IV: INTERNAL EFFICIENCIES 272 11. Corporate and shared services 273 11.1 Introduction 273 11.2 The current situation 275 11.3 The case for change 281 11.4 Making the change 284 11.5 Expenditure 296 12. Procurement 297 12.1 Procurement of goods and services 297 12.2 Capital procurement 306 12.3 ICT Procurement 313 12.4 Comment 318 13. Public sector insurance and Workers‟ Compensation 319 13.1 Overview 319 13.2 Workers‟ Compensation 322 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 4 14. Concessions 333 14.1 Overview 333 14.2 Making concessions more effective and efficient 337 Part V: NEXT STEPS 340 15. Program and expenditure evaluations 341 15.1 Overview 341 15.1 Increasing transparency 343 16. Recommendations 349 Appendices 373 Bibliography 420 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 5 Acknowledgement The work of the Commission of Audit on this Report has been conducted by an Advisory Board chaired by David Gonski AC and a small secretariat led by Kerry Schott. The secretariat staff included Louis Kastoun and Michael Abrahams from Treasury, Nigel Bailey from KPMG, Peter Connelly from Premier and Cabinet (for a short time), and Kathryn Olsen in support and as office manager. The secretariat was assisted by several consultants on specific issues. Boston Consulting Group provided case studies of devolution (see Appendix 6) and Third Horizon and KPMG assisted with the chapter on electricity utilities (Chapter 8). In all the areas covered the secretariat had access to reports prepared for agencies, and in particular those prepared for the Department of Finance and Services and Treasury. Some chapters especially benefited from particular agency expertise. Agencies made time to comment, fully and frankly, and the Commission of Audit found this input invaluable. The way in which significant reforms are being embraced by the public service bodes well for the future. The Advisory Board had extensive experience and specialist knowledge. Their work and subsequent comments have been extremely helpful to the secretariat. With such a large topic, and such a small work group it is inevitable that we have made mistakes. The important thing to note is the directions for expenditure that the Commission of Audit has indicated. We are confident that any errors we have made do not change the broad directions that we are signalling. We hope that the NSW Government and the public service find this report, and the earlier Interim Report, helpful. NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 6 Part I: Overview NSW Commission of Audit . CONFIDENTIAL Final Report: Expenditure 7 1. Introduction The Commission of Audit believes that NSW is at a turning point. For many years financial management in NSW has been confusing, lacking in transparency and below the standards expected of efficient and effective government. This situation is not sustainable. The interim and final reports of the Commission have considered the current predicament and provide directions for how NSW can achieve outstanding services over time within the limits of its financial resources. 1.1 Key expenditure themes In relation to expenditure the NSW Public Service has felt under siege since 2005-06. At that time the State budget began deteriorating significantly and continued to do so, given the growth in expenditure which is well in excess of the growth in revenue. In response the Government established the Commission of Audit to review and benchmark current operating and capital expenditure. The objective of the Commission has been to identify opportunities to deliver improved services to the people of NSW in a more efficient and cost effective manner and to provide a sustainable budget position going forward. The benchmarking with other jurisdictions has demonstrated that there are significant areas for improvement in delivery and cost of services. This report sets out broad principles and directions for expenditure in the context of the Government‟s policies, key strategies and priorities as summarised in the key themes below. It also provides recommendations for change. A number of the recommendations can be fast tracked and implemented over the next year while others will require investment over a number of years. The implementation of these recommendations will require a coordinated and disciplined approach across government together with a clear communication program. In undertaking this review the Commission has been impressed by the capability, enthusiasm and willingness of many in the public service to embrace and recommend change to improve service delivery. Six key themes emerged as the Report progressed:  Devolution The devolution of authority and accountability, specifically in the areas of education and health, means expenditure (and power) must move from the centre to more local units. The capabilities of both people and systems need to be significantly improved along with a clearer understanding of the respective responsibilities of central and local roles and how to move from here to there. The experience of front line public servants needs to inform the development and delivery of government policy. NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 8  Partnerships, outsourcing Partnerships, outsourcing and divestments are an increasing part of modern government and service delivery. Where groups outside government can deliver better services at lower cost and with greater innovation than government then that should be expedited. The contracted not for profit providers of the government‟s human and social services need to be recognised as partners with the public service in implementing government programs. In areas like social housing, out of home care for children, and disability services, the not for profit sector is actively exploring new partnerships with government and the private sector. And this partnership activity is growing. This should be encouraged. It is also evident that many relatively routine tasks, like cleaning and maintenance, are more cost effective when done by private enterprise who specialise in these roles. While outsourcing has been used by government for some time there are still many areas of government that have not fully embraced outsourcing. There are also some opportunities for divestments where sale value exceeds properly calculated retention value.  Workforce flexibility Greater workforce flexibility allows modern work practices to be implemented. This is not happening sufficiently because of a perceived or real restriction in workplace practices. The outcome is a frustration to those wanting to do their best and having to work around needless hierarchy and bureaucracy. This is observable throughout the public service and it impedes talent and new ideas which undoubtedly exist within the service. The Commission notes how impressed it has been by the talent, capacity for hard work and forward thinking it has seen displayed by so many public servants.  Transparent and evidence based decisions More transparent and evidence based decisions around programs is essential. For programs and schemes, especially those that have been in place for many years, it is worth reviewing whether or not they are achieving what was intended. This comment applies across the public sector to both small and large programs. The matrix by which program effectiveness is measured need to be significantly improved to ensure that the full long term costs and benefits are incorporated in the calculation of public benefits from programs. Where benchmarks have been available they have been used to compare costs and performance standards. NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 9  Collaboration and coordination Collaboration and coordination across government can improve outcomes significantly. This is the case for some important services and also for internal activities that require coordination and consistent standards across the sector. Modern governance arrangements should also harness cross sectoral partnerships between the public, private and community sectors. The Commission also notes that better collaboration and coordination between the Commonwealth and State Governments would improve outcomes. Attention is typically focussed on the taxation behaviours of each of these governments but the overlap of expenditure responsibilities can be better managed. A similar comment also applies to the local / state government relationship.  Budget constraint Finally, there is a severe budget constraint and government must prioritise its activities. Government should not do things that others can do more effectively, and what government does must be done efficiently. Expectations about services that can be delivered within the existing budget must be managed. Within the above six key themes the recommendations focus on the issues that the Commission hopes will assist the significant reforms that are underway. The Commission has:  examined service delivery issues  evaluated existing performance levels  identified improvements  produced recommendations. The direction of these recommendations is set out in the next section. The report includes chapters on Government services and covers government policy; present structure and expenditure; available benchmarking compared to other jurisdictions; case studies of other models of delivery; and specific recommendations to provide improved and more sustainable services. NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 10 1.2 Broad direction of recommendations The recommendations are discussed by theme in this section. These recommendations are also set out in each chapter as they arise and the discussion leading up to the recommendation provides the context and reasoning. A full set of the 132 recommendations, showing the cluster responsibility, timeframe for implementation, and theme are in Chapter 16. Theme: Devolution The majority of recommendations around the devolution of services in Health and Education concern communication and consultation, capability requirements, budgets and financial reporting, and increased expenditure on systems and staff capability. Local units, whether they are schools, hospitals or TAFE Institutes, will need to be responsive to the needs of their local areas. It is quite urgent that local budgets be well understood and managed as the funding model changes to an activity base (in Health), to individual entitlements (in TAFE), and to a local school base (in Education). The Commission is generally of the view that devolution should not increase expenditure in aggregate though capabilities and systems will need attention at the start. Expenditure in local units should however increase and be offset by reductions at the centre. These are exciting reforms that offer a new era for TAFE, more power and responsibility to school principals, and more community and clinician input and responsibility within Health. The devolution of services will be challenging. It must be clearly understood by both the centre and local units what their roles and responsibilities are, and what they are not. (Recommendations: 8,14,22,27,35,36,37.) The financial and management systems needed must be put in place along with the necessary IT and other support. This is easier to suggest than to do but it is a critical factor for success. (Recommendations: 15,18,19,25,29,45.) It is also essential that training is provided for those responsible at local levels. (Recommendations: 12,17,23,38,39.) Building up capability for more local responsibility also needs to be supplemented by capability at the centre around strategy and monitoring and assistance. And case studies show that communication and consultation are the area most critical for success, and the one most frequently overlooked. (Recommendations: 9,13,28.) [...]... matters arising from the Financial Audit 19 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure This page is intentionally left blank 20 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 2 Expenditure by the NSW Government Key points:  The allocation of expenditure is changing to reflect the policy and priorities of the new NSW Government Expenditures to increase the focus... underway 16 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 1.4 Terms of reference Preface The Commission of Audit delivers a long standing commitment by the Government to review the current fiscal situation of the State of NSW and to establish a framework for future reform The Audit is to be delivered in two stages: 1 Financial Audit (the Lambert Review), comprising: a Review of State... Final Report addresses expenditure Governance of Commission of Audit An Advisory Board of Commissioners, directed by a Chairman, has provided advice to the CEO of the Commission of Audit on both the Stage 2 Interim Report (Management) and the Final Report Expenditure Audit The Commissioners on the Advisory Board were chosen on the basis of their management and professional background with expertise in areas... was addressed in the Commission of Audit s Interim Report that covered Management in the NSW Government The issue has also emerged in this Expenditure Report because a lack of flexibility is adding to expenses and inhibiting better service delivery Better ways of doing things can 11 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure be blocked by agreed rules between government and unions... Terms of reference for the Expenditure and Management Audit were: a a review of all costs and performance of State Government services to global benchmarks b measures to drive better performance through increased accountability and transparency in financial reporting 18 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure The Expenditure and Management Audit will deliver against these Terms of. .. expenditure at an aggregate level across government gives general answers to the first three of these questions The question of whether or not expenditure is efficient is addressed for specific areas throughout this Final Report 22 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 2.2 Government policy and priorities The policy of the incoming government is set around five strategies to:... CONFIDENTIAL Final Report: Expenditure Dr Schott is also the CEO of the Commission of Audit, and is an ex officio member of the Advisory Board Chris Eccles and Phil Gaetjens are also ex officio members of the Advisory Board and are Director General of the Department of Premier and Cabinet and the Secretary of the Treasury respectively Financial Audit (The Lambert Review) The first stage Financial Audit was... Strategy 2 Expenditure and Management Audit Background The Commission of Audit reports to the Treasurer The Financial Audit (Lambert Review) was completed before the 2011-12 Budget and informed that budget and the second stage Expenditure and Management Audit An interim report of the Expenditure and Management Audit was issued in February 2012 This covered Management and this Final Report addresses expenditure. .. (Recommendation: 62.) 15 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 1.3 The Interim Report In its previous Interim Report on Management, the Commission of Audit concluded that reforms needed to begin now The time had come to stop analysing what to do and just do it The recommendations in the Schott Interim Report called for action on four fronts:  fixing the structures of Government  managing... Lambert Report of 2011 In this report the Commission has recommended the privatisation of state owned electricity utilities though this should be managed without undue haste (Recommendations: 74,75.) 14 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure A more commercial outcome for Railcorp and the water utilities is also supported (Recommendation: 88.) Of considerable concern to the Commission . NSW Commission of Audit Final Report Government Expenditure 4 May 2012 NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 2 Table of Contents . find this report, and the earlier Interim Report, helpful. NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 6 Part I: Overview NSW Commission of Audit . CONFIDENTIAL. (Recommendation: 62.) NSW Commission of Audit CONFIDENTIAL Final Report: Expenditure 16 1.3 The Interim Report In its previous Interim Report on Management, the Commission of Audit concluded that