The New South Wales auditor general has warned her unqualified audit of the state’s finances could be at risk after the secretary of transport told a public hearing he had not yet agreed to provide an extra $5.2bn to fund a controversial rail corporation.
A day after her scathing report accused the NSW Treasury of being “unnecessarily obstructive” during her audit of the government’s finances, auditor general Margaret Crawford told a parliamentary inquiry on Thursday that her unqualified audit would need to be “reaffirmed” after earlier evidence from transport secretary Rob Sharp.
At the centre of Crawford’s extraordinary report was the Transport Asset Holding Entity (Tahe), a corporation established by the NSW government to hold $40bn in NSW rail assets, in a move that had the effect of inflating the state’s budget by several billion dollars.
Crawford’s signoff on the state’s overall finances was delayed by three months last year as a result of what she labelled “significant accounting issues” with the body.
Her office eventually gave the government an unqualified audit on the state’s finances on Christmas Eve after the government agreed to inject a further $5.2bn into Tahe.
However, during evidence to the inquiry earlier on Thursday, Sharp suggested negotiations on the access fees paid to Tahe remained ongoing and that his department had not signed off on the agreement.
“The agreement was to agree to a framework [to] negotiate in February and March the actual agreement,” he said.
“We know what the number [put forward by Tahe] is but as I indicated we do have a formal negotiation process we go through – all of these are up for discussion.”
The evidence sent shock waves through the office of the auditor, who gave evidence to the public inquiry shortly after Sharp.
In her opening statement, Crawford told the hearing she had been “quite alarmed” by Sharp’s evidence because she had been told that the $5.2bn payment had been agreed to before signing off on the audit.
“We agreed in good faith to accept the heads of agreement undertakings [but] on the basis of what we’ve heard today we will now have to reaffirm those commitments,” she said.
Crawford’s deputy, Ian Goodwin, told the inquiry that if the extra funding was not secured then “we’re back to where we were before December”.
The Guardian previously revealed that on 18 December a heads of agreement deal was signed between Tahe and its “customers”, the state’s rail networks, to inject funds into the corporation.
The extra funding was part of an “access fee” paid to Tahe by transport for use of the state’s rail network. But only $1.1bn of the extra funding had been agreed to up to 2024-25, meaning another $4.1bn would be required over the 10-year agreement.
Asked at the inquiry by Labor’s shadow treasurer Daniel Mookhey whether the new information could impact her unqualified audit of the state’s finances, Crawford said it “does have consequences”.
The funding agreement, she said, was “one of the key matters that meant that we could be satisfied [there would be] a reasonable return on the state’s equity investment into Tahe”.
“We accepted in good faith that that would be followed through on quickly and [the] heads of agreement would be turned into a legal agreement. I think that now needs to be clarified,” she said.
Crawford’s evidence comes just 24 hours after her scathing report accused Treasury of having “tested the constructive partnership” between the two offices by withholding key information about Tahe during her audit.
Giving evidence, Goodwin said it was “not the first time we’ve heard evidence presented to this committee that is [the] first time we’ve heard a fact”.
He said that Treasury had left the auditor’s office with him in no doubt that the heads of agreement would be executed as it was presented to them before the finances were signed off, revealing the document even had a table that included the $5.2bn.
“The $5.2bn was never in question. The evidence presented that it might be in question is the first time this office has heard that and we need to clarify that because that’s important,” he said.
“If the $5.2bn doesn’t have reality it undermines the projections Treasury put to the audit about the rate of return and we’re back to where we were before December.”
He told the inquiry that during discussions with a senior Treasury official last year it had been made “quite clear to me that those amounts would follow through and if they didn’t everyone would be embarrassed”.
Earlier on Thursday the new secretary of the treasury department, Paul Grimes, told the inquiry he would order an “independent assessment” of the processes that led to the “important, serious matters” raised in the auditor’s report.
The premier, Dominic Perrottet, said on Thursday he had yet to read the auditor’s report but that if Treasury “needs to review its processes in relation to its engagement, whether the auditor general or any of the other integrity agencies, they should take that on board and adopt that process”.
“What’s important is that the government considers it, the relevant minister focuses on it and ensures that within the public service changes that need to be made in relation to a whole range of areas are taken on board and adopted and that’s what my expectation would be,” he said.
