DEPARTMENT OF FINANCE AND DEREGULATION FINANCIAL STATEMENTS
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DEPARTMENT OF FINANCE AND DEREGULATION FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2011 Department of Finance and Deregulation STATEMENT OF COMPREHENSIVE INCOME for the period ended 30 June 2011 30 June 2011 $'000 30 June 2010 $'000 169,989 188,136 19,133 2,331 392 1,359 190,887 15,387 587,614 158,002 186,287 16,266 4,600 69,101 1,133 63,836 13,674 512,899 85,545 86,411 58,414 84,211 3,979 10,041 328,601 88,519 83,216 11,291 75,555 1,635 7,840 268,056 3,005 3,005 331,606 1,614 1,614 269,670 256,008 243,229 4F 239,800 (16,208) 230,691 (12,538) 5 13,463 (29,671) 12,784 (25,322) Deficit after income tax (29,671) (25,322) Deficit attributable to the Australian Government (29,671) (25,322) (7,442) (7,442) (37,113) 24,197 24,197 (1,125) Notes EXPENSES Employee benefits Suppliers Depreciation and amortisation Finance costs Write-down and impairment of assets Losses from asset disposals Insurance claims Other expenses Total expenses 3A 3B 3C 3D 3E 3F 3G LESS: OWN-SOURCE INCOME Own-source revenue Rendering of services Insurance premiums Reinsurance and other recoveries Rental income Interest Other revenue Total own-source revenue Gains Other gains Total gains Total own-source income 4A 4B 4C 4D 4E Net cost of services Revenue from Government Deficit before income tax on continuing operations Income tax expense Deficit after income tax on continuing operations OTHER COMPREHENSIVE INCOME Changes in asset revaluation reserves Total other comprehensive (loss)/income after income tax Total comprehensive loss attributable to the Australian Government 6 32 The above statement should be read in conjunction with the accompanying notes. 1 Department of Finance and Deregulation BALANCE SHEET as at 30 June 2011 Notes ASSETS Financial assets Cash and cash equivalents Trade and other receivables Other financial assets Total financial assets Non-financial assets Land and buildings Property, plant and equipment Investment property Intangibles Other non-financial assets Total non-financial assets 8A 8B 8C 9A, 9C 9B, 9C 9D 9E, 9F 9G Total assets LIABILITIES Payables Suppliers Unearned revenue Return of equity Outstanding insurance claims Other payables Total payables Interest bearing liabilities Other interest bearing liabilities Total interest bearing liabilities Provisions Employee provisions Other provisions Total provisions 10A 10B 10C 10D 10E 11 12A 12B Total liabilities Net assets EQUITY Contributed equity Asset revaluation reserves Retained earnings Total equity The above statement should be read in conjunction with the accompanying notes. 30 June 2011 $'000 30 June 2010 $'000 1,631 809,048 8,772 819,451 3,321 817,698 3,227 824,246 371,126 6,486 920,961 29,769 2,466 1,330,808 328,898 6,634 779,660 28,874 2,727 1,146,793 2,150,259 1,971,039 19,231 78,054 49,642 298,616 4,149 449,692 28,050 66,113 55,070 243,762 11,330 404,325 16 16 36 36 47,477 6,419 53,896 41,429 6,362 47,791 503,604 452,152 1,646,655 1,518,887 1,293,503 176,616 176,536 1,646,655 1,128,622 184,058 206,207 1,518,887 2 Department of Finance and Deregulation STATEMENT OF CHANGES IN EQUITY for the period ended 30 June 2011 Retained earnings Opening balance Balance carried forward from previous period Comprehensive income Revaluation adjustment Surplus (Deficit) for the period Total comprehensive income of which: Attributable to the Australian Government Transactions with owners Distributions to owners Returns on capital: Returns of contributed equity Contributions by owners Departmental capital budget Equity injection – Appropriation Restructuring (refer Note 13) Sub-total transactions with owners Transfers between equity components Closing balance as at 30 June Closing balance attributable to the Australian Government Asset revaluation reserves 2011 2010 $'000 $'000 Contributed equity/capital 2011 2010 $'000 $'000 2011 $'000 2010 $'000 206,207 214,014 184,058 177,376 1,128,622 (29,671) (25,322) (7,442) - 24,197 - (29,671) (25,322) (7,442) - - 176,536 176,536 17,515 206,207 206,207 The above statement should be read in conjunction with the accompanying notes. Total equity 2011 $'000 2010 $'000 1,098,851 1,518,887 1,490,241 - - (7,442) (29,671) 24,197 (25,322) 24,197 - - (37,113) (1,125) - - (53,198) (96,223) (53,198) (96,223) 176,616 176,616 (17,515) 184,058 184,058 14,913 161,796 41,370 164,881 1,293,503 1,293,503 116,126 9,868 29,771 1,128,622 1,128,622 14,913 161,796 41,370 164,881 1,646,655 1,646,655 116,126 9,868 29,771 1,518,887 1,518,887 3 Department of Finance and Deregulation CASHFLOW STATEMENT for the period ended 30 June 2011 30 June 2011 $'000 30 June 2010 $'000 OPERATING ACTIVITIES Cash received Goods and services Appropriations Insurance premiums Reinsurance and other recoveries Interest Other Net cash transferred from the OPA Net GST received Total cash received 154,266 233,427 86,411 1,135 11,518 118,913 7,178 612,848 168,862 230,369 83,492 2,987 5 9,454 5,924 501,093 Cash used Employees Suppliers Insurance claims Net cash transferred to the OPA Interest & other costs Total cash used Net cash from (used by) operating activities 163,023 241,791 136,033 540,847 72,001 155,478 187,864 54,656 64,871 16 462,885 38,208 Proceeds from sales of property, plant and equipment 59 18,834 Repayments of loans 2 61 15 18,849 15,553 6,152 Notes 14 INVESTING ACTIVITIES Cash received Total cash received Cash used Purchase of land and buildings Purchase of plant and equipment Purchase of intangibles Purchase of investment properties Total cash used Net cash from (used by) investing activities FINANCING ACTIVITIES Cash received Appropriations - contributed equity Restructuring Total cash received Cash used Capital repayments Total cash used Net cash from (used by) financing activities Net increase (decrease) in cash held Cash and cash equivalents at the beginning of the reporting period Cash and cash equivalents at the end of the reporting period 8A The above statement should be read in conjunction with the accompanying notes. 2,231 599 10,807 13,393 140,128 168,719 (168,658) 82,667 102,811 (83,962) 153,593 153,593 92,739 14,687 107,426 58,626 58,626 94,967 78,753 78,753 28,673 (1,690) (17,081) 3,321 1,631 20,402 3,321 4 Department of Finance and Deregulation SCHEDULE OF COMMITMENTS as at 30 June 2011 30 June 2011 $'000 30 June 2010 $'000 Commitments receivable Property leases1 GST recoverable on commitments Total commitments receivable 539,488 30,999 570,487 405,206 33,971 439,177 Commitments payable Capital commitments Land and buildings2 Total capital commitments 161,290 161,290 294,586 294,586 Other commitments Operating leases3 Goods and services contracts Net GST payable Total other commitments Net commitments receivable by type 13,573 177,969 49,044 240,586 168,611 7,914 99,786 36,837 144,537 54 BY MATURITY Commitments receivable One year or less From one to five years Over five years Total commitments receivable 115,617 230,735 224,135 570,487 106,379 163,706 169,092 439,177 Commitments payable Capital commitments One year or less From one to five years Total capital commitments 158,740 2,550 161,290 186,772 107,814 294,586 8,386 5,187 13,573 3,326 4,588 7,914 164,606 42,031 20,376 227,013 168,611 87,115 33,946 15,562 136,623 54 BY TYPE Other commitments Operating leases One year or less From one to five years Total operating lease commitments Others One year or less From one to five years Over five years Total others Net commitments receivable by maturity Commitments are GST inclusive where relevant. The above schedule should be read in conjunction with the accompanying notes. 5 Department of Finance and Deregulation SCHEDULE OF COMMITMENTS (continued) as at 30 June 2011 Property lease commitments receivable includes rent to be received from the Australian Government’s non-Defence Commonwealth owned property portfolio within Australia and any sub-lease revenue from other properties. 2 Land and buildings represent outstanding contractual commitments for construction projects. 3 Operating leases comprise: 1 Nature of leases General description of leasing arrangement Leases for office accommodation - Leases are for office accommodation for the Department’s business operations. - Lease terms and conditions are dependent on market conditions in each location. Leases for motor vehicles - Leases are for Commonwealth cars and motor vehicles for the Department’s employees. No contingent rentals exist. There are no purchase options available to the Department. Leases for computer equipment - Computing equipment for the Department is supplied through an outsourcing arrangement. Computer equipment is either purchased or leased from suppliers. For leased equipment, various schedules exist commencing from March 2005 and expiring in May 2013. The above schedule should be read in conjunction with the accompanying notes. 6 Department of Finance and Deregulation SCHEDULE OF CONTINGENCIES as at 30 June 2011 30 June 2011 $'000 30 June 2010 $'000 Contingent assets Claims for damages or costs Total contingent assets 57 57 - Contingent liabilities Claims for damages or costs Total contingent liabilities Net contingent asset (liabilities) 57 143 143 (143) Contingencies are GST inclusive where relevant. Contingent liabilities and assets are disclosed in Note 15 Contingent liabilities and assets. The above schedule should be read in conjunction with the accompanying notes. 7 Department of Finance and Deregulation SCHEDULE OF ASSET ADDITIONS for the period ended 30 June 2011 The following non-financial non-current assets were added in 2010-11: Additions funded in the year By purchase – appropriation equity By purchase – appropriation ordinary annual services Total funded additions funded in the year Buildings Investment Properties Intangibles Total $'000 Property, plant & equipment $'000 $'000 $'000 $'000 13,856 1,697 15,553 140,128 140,128 2,231 2,231 1,312 9,495 10,807 155,296 13,423 168,719 Buildings Investment Properties Intangibles Total $'000 $'000 Property, plant & equipment $'000 $'000 $'000 6,152 6,152 81,372 81,372 560 560 7,301 6,092 13,393 88,673 12,804 101,477 The following non-financial non current assets were added in 2009-10: Additions funded in the year By purchase – appropriation equity By purchase – appropriation ordinary annual services Total funded additions funded in the year The above schedule should be read in conjunction with the accompanying notes. 8 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS 30 June 2011 $'000 30 June 2010 $'000 20A 20B 20C 20D 20E 4,746 114,404 455,787 1,344,325 10,550 1,929,812 1,929,812 5,183 76,784 66,143 1,349,896 13,126 1,511,132 1,511,132 20F 20G 2,559,425 42 1,269,670 2,559,425 4,489,237 1,269,712 2,780,844 202,098 6,349,500 198,077 666 25,054 13 133 2,423,493 1,500,411 3,165 10,702,610 215,294 5,858,535 189,484 651 15,979 4,545 24 2,003,752 260,860 8 8,549,132 Notes Income administered on behalf of Government for the period ended 30 June 2011 Revenue Non-taxation revenue Rendering of services Interest Dividends Superannuation contributions Other revenue Total non-taxation revenue Total revenues administered on behalf of Government Gains Reversals of previous asset write-downs Other gains Total gains administered on behalf of Government Total income administered on behalf of Government Expenses administered on behalf of Government for the period ended 30 June 2011 Employee benefits Superannuation Suppliers Grants Depreciation and amortisation Write-down and impairment of assets Finance costs Other expenses Other losses Losses from asset sales 21A 21B 21C 21D 21E 21F 21G 21H 21I 21J Total expenses administered on behalf of Government The above schedule should be read in conjunction with the accompanying notes. 9 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 30 June 2011 $'000 30 June 2010 $'000 22A 22B 22C 22D (745,093) 227,211 22,229,317 62,056 21,773,491 (1,520,796) 199,402 25,258,644 61,358 23,998,608 22E 22F 22G 22H 23,833 56,439 132 2,791 83,195 21,856,686 33,752 60,845 203 3,918 98,718 24,097,326 Payables Suppliers Other payables Total payables 23A 23B 404,283 7,645 411,928 524,000 6,027 530,027 Interest bearing liabilities Other interest bearing liabilities Total interest bearing liabilities 23C 1,339 1,339 1,735 1,735 23D 23E 23F 168,028 94,885,610 16,749 95,070,387 95,483,654 168,975 92,695,039 15,488 92,879,502 93,411,264 Notes Assets administered on behalf of Government as at 30 June 2011 Financial assets Cash and cash equivalents Receivables Investments Accrued revenue Total financial assets Non-financial assets Land and buildings Property, plant and equipment Intangibles Other non-financial assets Total non-financial assets Total assets administered on behalf of Government Liabilities administered on behalf of Government as at 30 June 2011 Provisions Employee provisions Superannuation provisions Other provisions Total provisions Total liabilities administered on behalf of Government The above schedule should be read in conjunction with the accompanying notes. 10 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 30 June 2011 $'000 30 June 2010 $'000 2,397 1,344,325 1,324,999 109,309 462,584 63,207 3,306,821 10,890 1,349,896 1,147,746 74,384 66,553 12,953 71,799 2,734,221 Cash used Employees Suppliers Grants – NBF Distribution Grants – Other Superannuation Interest and other costs Total cash used Net cash from (used by) operating activities 202,403 201,359 2,420,672 3,487 4,987,451 7,815,372 (4,508,551) 177,846 187,480 2,000,451 1,219 4,404,355 24 6,771,375 (4,037,154) INVESTING ACTIVITIES Cash received Proceeds from sales of property, plant, and equipment Proceeds from sale of investments Repayments of advances and loans Matured government securities Proceeds from liquidation of administered investments Total cash received 317 42,535,970 11,328 6,606 6,955 42,561,176 254 67,137,930 8,613 1,606 15,242 67,163,645 Cash used Purchase of property, plant and equipment Purchase of land and buildings Purchase of intangibles Purchase of investments Total cash used Net cash from (used by) investing activities 3,347 4,639 176 38,971,010 38,979,172 3,582,004 12,108 19,633 282 64,952,522 64,984,545 2,179,100 Notes Administered cash flows for the period ended 30 June 2011 OPERATING ACTIVITIES Cash received Rendering of services Superannuation contributions – employers Superannuation funds contribution Interest Dividends Net GST received from ATO Other Total cash received The above schedule should be read in conjunction with the accompanying notes. 11 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 30 June 2011 $'000 30 June 2010 $'000 FINANCING ACTIVITIES Cash received Appropriations - contributed equity Total cash received 1,330,625 1,330,625 1,147,746 1,147,746 Cash used Nation-building Funds equity distribution Total cash used Net cash from (used by) financing activities 1,230,433 1,230,433 100,192 304,253 304,253 843,493 Net increase (decrease) in cash held (826,355) (1,014,561) (1,520,796) (800,054) 537,118,955 (536,370,504) 494,935,747 (495,677,083) 748,451 (741,336) 4,049,327 (3,195,720) 3,664,466 (2,629,311) 853,607 (745,093) 1,035,155 (1,520,796) Notes Cash and cash equivalent at the beginning of the reporting period Official Public Account (Finance – Whole-of-Government) Transfers from other entities Transfers to other entities Net cash received (transferred) from other entities Finance administered Cash from Official Public Account - for Appropriations Cash to Official Public Account - for Appropriations Net cash received from Official Public Account Cash and cash equivalents at the end of the reporting period 22A The above schedule should be read in conjunction with the accompanying notes. 12 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 30 June 2011 $'000 30 June 2010 $'000 7,223 7,632 7,223 7,632 1,319 160 - 1,319 160 66,837 13,231 70,993 13,855 80,068 74,164 84,848 77,376 3,226 3,827 170 3,681 3,732 219 7,223 7,632 1,319 160 1,319 160 26,620 38,348 1,869 29,782 38,805 2,406 66,837 70,993 8,845 4,386 - 10,867 2,893 95 13,231 74,164 13,855 77,376 Administered Commitments as at 30 June 2011 BY TYPE Commitments receivable GST recoverable on commitments Total commitments receivable Commitments payable Capital commitments Land and buildings Property, plant and equipment Total capital commitments Other commitments Operating leases1 Goods and services contracts Total other commitments Net commitments payable by type BY MATURITY Commitments receivable One year or less From one to five years Over five years Total commitments receivable Commitments payable Capital commitments One year or less Total capital commitments Other commitments Operating leases One year or less From one to five years Over five years Total operating lease commitments Others One year or less From one to five years Over five years Total others Net commitments payable by maturity Commitments are GST inclusive where relevant. The above schedule should be read in conjunction with the accompanying notes. 13 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 1 Operating leases comprise: Nature of lease Leases for office accommodation Leases for motor vehicles Leases for computer equipment General description of leasing arrangement - Leases are for office accommodation for electorate offices for Senators and Members of Parliament. - Lease terms and conditions are dependent on market conditions in each location. - Leases of motor vehicles are for Senators, Members of Parliament and some of their staff. No contingent rentals exist. There are no purchase options available to the Department. - Computing equipment for electorate offices is supplied through an outsourcing arrangement. The above schedule should be read in conjunction with the accompanying notes. 14 Department of Finance and Deregulation SCHEDULE OF ADMINISTERED ITEMS (CONTINUED) 30 June 2011 $'000 30 June 2010 $'000 565,208 565,208 531,885 531,885 Administered contingencies as at 30 June 2011 Administered contingent liabilities Indemnities Total administered contingent liabilities Unquantifiable and remote but material contingencies are disclosed in Note 25 Administered contingent assets and liabilities. Statement of activities administered on behalf of Government The major administered activities of Finance are directed towards achieving the three outcomes described in Note 1 to the financial statements. The major financial activities include investments, entitlements and services provided to Members of Parliament and Senators, grants and superannuation benefits payable, fees and interest and loans. Details of planned activities for the year can be found in the Agency Portfolio Budget and Portfolio Additional Estimates Statements for 2010-11 that have been tabled in the Parliament. The above schedule should be read in conjunction with the accompanying notes. 15 Department of Finance and Deregulation Administered Asset Additions for the period ended 30 June 2011 The following non-financial non-current assets were added in 2010-11 Buildings Additions funded in the year By purchase - appropriation equity By purchase - appropriation ordinary annual services Total funded additions funded in the year Intangibles Total $'000 Property, plant & equipment $'000 $'000 $'000 5,980 5,980 1,686 84 1,770 176 176 1,862 6,064 7,926 Buildings Intangibles Total $'000 Property, plant & equipment $'000 $'000 $'000 10,389 10,389 2,853 1,399 4,252 237 45 282 3,090 11,833 14,923 The following non-financial non-current assets were added in 2009-10 Additions funded in the year By purchase - appropriation equity By purchase - appropriation ordinary annual services Total funded additions funded in the year The above schedule should be read in conjunction with the accompanying notes. 16 Department of Finance and Deregulation TABLE OF CONTENTS TO FINANCIAL STATEMENTS NOTES: Note 1 Summary of significant accounting policies ..................................................................... 18 Note 2 Events after the reporting period ....................................................................................... 32 Note 3 Expenses .............................................................................................................................. 33 Note 4 Own-source income ............................................................................................................ 36 Note 5 Income tax expense (competitive neutrality) .................................................................... 37 Note 6 Other comprehensive income ............................................................................................ 37 Note 7 Business activities .............................................................................................................. 38 Note 8 Financial assets ................................................................................................................... 39 Note 9 Non-financial assets ............................................................................................................ 41 Note 10 Payables ............................................................................................................................... 48 Note 11 Other interest bearing liabilities ......................................................................................... 49 Note 12 Provisions ............................................................................................................................ 49 Note 13 Restructuring ....................................................................................................................... 50 Note 14 Cash flow reconciliation ..................................................................................................... 56 Note 15 Contingent liabilities and assets ........................................................................................ 57 Note 16 General insurance activities ............................................................................................... 59 Note 17 Senior executive remuneration .......................................................................................... 66 Note 18 Remuneration of auditors ................................................................................................... 69 Note 19 Financial instruments .......................................................................................................... 70 Note 20 Income administered on behalf of Government................................................................ 74 Note 21 Expenses administered on behalf of Government ........................................................... 76 Note 22 Assets administered on behalf of Government ................................................................ 78 Note 23 Liabilities administered on behalf of Government ............................................................ 87 Note 24 Administered reconciliation table ...................................................................................... 89 Note 25 Administered contingent assets and liabilities ................................................................. 90 Note 26 Administered financial instruments ................................................................................... 91 Note 27 Superannuation ................................................................................................................. 103 Note 28 Appropriations ................................................................................................................... 123 Note 29 Special accounts ............................................................................................................... 130 Note 30 Compensation and debt relief .......................................................................................... 134 Note 31 Reporting of outcomes ..................................................................................................... 135 Note 32 Comprehensive income (loss) attributable to Finance .................................................. 141 17 Notes to and forming part of the Financial Statements Note 1 1.1 Summary of significant accounting policies Objectives of the Department of Finance and Deregulation The Department of Finance and Deregulation (the Department) is an Australian Government controlled entity. The objectives of the Department are detailed in the body of this Annual Report. The Department is structured to meet the following three outcomes: Outcome 1: Informed decisions on Government finances and continuous improvement in regulation making through: budgetary management and advice; transparent financial reporting; a robust financial framework; and best practice regulatory processes. Outcome 2: Improved government administration and operations through systems, policy and advice on: procurement; Commonwealth property management and construction; government enterprises; risk management; and application of information and communications technology. Outcome 3: Support for Parliamentarians and others with entitlements and organisations as approved by Government through the delivery of entitlements and targeted assistance. The Department's activities contributing towards these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, revenues and expenses controlled or incurred by the Department in its own right. Administered activities involve the management or oversight by the Department, on behalf of the Government, of items controlled or incurred by the Government. The continued existence of the Department in its present form and with its present programs is dependent on Government policy and on continuing appropriations by the Parliament for the Department's administration and programs. 1.2 Basis of preparation of the financial statements The financial statements are general purpose financial statements and are required by section 49 of the Financial Management and Accountability Act 1997. The financial statements and notes have been prepared in accordance with: Finance Minister's Orders (FMOs) for reporting periods ending on or after 1 July 2010; and Australian Accounting Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period. The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets and liabilities at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. The financial statements are presented in Australian dollars and values are rounded to the nearest thousand dollars unless otherwise specified. Unless an alternative treatment is specifically required by an accounting standard or the FMOs, assets and liabilities are recognised in the Balance Sheet when and only when it is probable that future economic benefits will flow to the Department or a future sacrifice of economic benefits will be required and the amounts of the assets or liabilities can be reliably measured. However, assets and liabilities arising under agreements equally proportionately unperformed are not recognised unless required by an accounting standard. Liabilities and assets that are unrecognised are reported in the Schedule of Commitments and the Schedule of Contingencies (other than unquantifiable contingencies, which are reported at Note 15). Unless an alternative treatment is specifically required by an accounting standard, income and expenses are recognised in the Statement of Comprehensive Income when and only when the flow, consumption or loss of economic benefits has occurred and can be reliably measured. Administered revenues, expenses, assets, liabilities and cash flows reported in the Schedule of Administered Items and related notes are accounted for on the same basis and using the same policies as for departmental items, except as otherwise stated in Note 1.24. 18 Notes to and forming part of the Financial Statements 1.3 Significant accounting judgement and estimates In the process of applying the accounting policies listed in this note, the Department has made the following judgements that have the most significant impact on the amounts recorded in the financial statements: The fair value of land and buildings and investment properties has been taken to be the market value of similar properties or discounted cash flows as determined by an independent valuer. Further information can be found in Note 1.17. The Department recognises a departmental liability for outstanding Comcover insurance claims. These liabilities are based on an actuarial assessment as at 30 June 2011. Further details on the valuation methodology are provided at Note 1.22. Leave provisions also involve actuarial assumptions based on the likely tenure of existing staff, patterns of leave claims and payouts, future salary movements and future discount rates. See Note 1.8 for further information. The Department recognises administered liabilities for the Australian Government’s unfunded civilian superannuation schemes. These liabilities are based on an actuarial assessment as at 30 June 2011. Further details on the valuation methodology are provided at Note 1.25. The Department has made judgements in relation to the valuation of administered investments and other financial investments. Further information on administered investments is located at Note 1.24. A significant balance has been recorded for Comcover's Pan Pharmaceutical related reinsurance and recoveries that the Department is confident of recovering. Refer Note 8B for further details. No other accounting assumptions or estimates have been identified that have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period. 1.4 New Australian Accounting Standards Adoption of new Australian Accounting Standards requirements No new accounting standard has been adopted earlier than the application date as stated in the standard. The following new standards issued prior to the signing of the statements by the Secretary and Chief Financial Officer are applicable to the current reporting period and had a financial impact on the Department: AASB 8 Operating Segments AASB 107 Statement of Cash Flows AASB 117 Leases AASB 118 Revenue AASB 136 Impairment of Assets AASB 139 Financial Instruments: Recognition and Measurement Other new accounting standards, revised standards or amending standards that were issued prior to the signing of the statement by the Secretary and Chief Financial Officer and are applicable to the current reporting period did not have a financial impact and are not expected to have a future financial impact on the Department. Future Australian Accounting Standards requirements The following new standards, amendments to standards or interpretations were issued prior to signing of the statements by the Secretary and Chief Financial Officer which are expected to have a financial impact on the Department for future reporting periods: AASB 7 Financial Instruments: Disclosures AASB 101 Presentation of Financial Statements AASB 139 Financial Instruments: Recognition and Measurement 19 Notes to and forming part of the Financial Statements Other new accounting standards, revised standards or amending standards that were issued prior to the signing of the statement by the Secretary and Chief Financial Officer and are applicable to future reporting periods are not expected to have a future financial impact on the Department. 1.5 Transactions with the Government as owner Equity injections Amounts appropriated that are designated as 'equity injections' for a year (less any formal reductions) and Departmental Capital Budgets (DCB) are recognised directly in contributed equity in that year. Restructuring of administrative arrangements Net assets received from or relinquished to another Australian Government agency or authority under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity. Other distributions to owners The FMOs require that distributions to owners be debited to contributed equity unless in the nature of a dividend. Proceeds from the sale of property are recognised as a return of equity. On an annual basis, the Property Special Account is reviewed to ensure that an adequate cash balance is maintained. Excess funds are returned to the Official Public Account (OPA). In the 2010-11 financial year, by agreement, the Department returned $53.2 million to the OPA (2009-10: $96.2 million). This represents sale proceeds, returns of excess funds and returns of unused appropriations. 1.6 Revenue All revenues referred to in these notes are revenues relating to the core operating activities of the Department. Revenues from general insurance activities and superannuation schemes are addressed in Notes 1.22 and 1.25, respectively. Details of revenue amounts are given in Note 4 (Departmental) and Note 20 (Administered). Revenues from Government Amounts appropriated for departmental outputs (adjusted for any formal additions and reductions) are recognised as revenue when the Department gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is only recognised when it is earned. Appropriations receivable are recognised at their nominal amounts. Resources received free of charge Resources received free of charge are recognised as revenue when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Resources received free of charge are recorded as either revenue or gains depending on their nature. Other types of revenue Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when the amount of revenue, stage of completion and transaction costs incurred can be reliably measured and the probable economic benefits from the transactions will flow to the Department. The stage of completion of contracts at the reporting date is determined by reference to the proportion that costs incurred to date bear to the estimated total costs of the transactions. Receivables for goods and services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance account. Collectability of debts is reviewed at balance date. Allowances are made when collectability of the debt is no longer probable. Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement. 20 Notes to and forming part of the Financial Statements Rent Rental revenue from the non-Defence domestic property portfolio is recognised systematically over the period of the lease. 1.7 Gains Resources received free of charge Resources received free of charge are recognised as gains, when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense or a decrease to the liability. Resources received free of charge are recognised as either revenue or gains depending on their nature. Contributions of assets at no cost of acquisition or for nominal consideration are recognised at their fair value when the asset qualifies for recognition, unless received from another Government agency as a consequence of a restructuring of administrative arrangements (refer to Note 1.5). Sale of assets Gains from disposal of assets are recognised when control of the asset has passed to the buyer. 1.8 Employee benefits This policy applies to departmental, administered COMCAR, and other administered employee benefits. Other administered employee benefits relate to the entitlements owed to Senators, Members of Parliament and their staff, the administration of which is managed by the Ministerial and Parliamentary Services Division within the Department. Administered employee liabilities relating to superannuation schemes are addressed at Note 1.25. Wages and salaries Liabilities for services rendered by employees are recognised at the reporting date to the extent that they have not been settled. Liabilities for 'short-term employee benefits' (as defined in AASB 119 Employee Benefits) and termination benefits due within twelve months of the end of the reporting period are measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability. Other employee benefit liabilities are measured as net total of the present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly. Leave The liability for employee benefits includes provision for annual leave and long service leave. No provision is made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Department is estimated to be less than the annual entitlement for sick leave. The leave liabilities are calculated on the basis of employees' remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the Department's employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The liability for long service leave has been determined by reference to the work of an actuary. The estimate of the present value of the liability takes into account expected attrition rates and future pay increases through promotion and inflation as at 30 June 2011. Separation and redundancy Provision is made for separation and redundancy benefit payments. The Department recognises a provision for termination when it has developed a detailed formal plan for the terminations and has informed those employees affected that it will carry out the terminations. 21 Notes to and forming part of the Financial Statements Superannuation Staff of the Department are members of either the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS Accumulation Plan (PSSap) or other superannuation funds held outside the Commonwealth. The CSS and PSS are defined benefit schemes for the Commonwealth. The PSSap is a defined contribution scheme. The liability for the defined benefits is recognised in the Administered financial schedules (refer Note 1.25) and are settled by the Australian Government in due course or as they become payable. The Department makes employer contributions at rates determined by an actuary to be sufficient to meet the current costs to the Government of the superannuation entitlements of the Department's employees in the defined benefit schemes. The Department accounts for the contributions as if they were contributions to defined contribution plans. The superannuation liability recognised at 30 June represents outstanding contributions for the final fortnight of the year. 1.9 Leases A distinction is made between finance leases and operating leases. Finance leases Finance leases effectively transfer from the lessor to the lessee substantially all the risks and rewards incidental to ownership of leased assets. Where an asset is acquired by means of a finance lease, the asset is capitalised at either the fair value of the lease property or, if lower, the present value of minimum lease payments at the inception of the contract and a corresponding liability recognised at the same time and for the same amount. The discount rate used is the interest rate implicit in the lease. Leased assets are amortised over the period of the lease unless the asset has been classified as an investment property. Lease payments are allocated between the principal component and interest expense. Operating leases An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all the risks and rewards incidental to ownership. Operating lease payments are expensed on a straight line basis, which is representative of the pattern of benefits derived from the leased assets. Surplus leased space and lease incentives The net present value of future net outlays in respect of surplus space under non-cancellable lease agreements is expensed in the period in which the space becomes surplus. Lease incentives received in the form of 'free' leasehold improvements and rent holidays are also recognised as liabilities, and are reduced by allocating the lease payments between rental expense and reduction of the liability when rental payments occur. 1.10 Borrowing costs All borrowing costs are expensed as incurred. 1.11 Foreign currency Transactions denominated in a foreign currency are converted at the exchange rate at the date of the transaction. 1.12 Cash Cash and cash equivalents includes cash on hand, cash held with outsiders and demand deposits in bank accounts with an original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value. Cash is recognised at its nominal amount. Cash or cash equivalent balances which are held for the longer term for investment purposes are classified as investments. 22 Notes to and forming part of the Financial Statements 1.13 Financial assets The Department classifies its financial assets in the following categories: financial assets at fair value through profit and loss; held-to-maturity investments; available-for-sale financial assets; and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised when control over future economic benefits is established and the amount of the benefit can be reliably measured. Financial assets are derecognised when the contractual rights to the cash flows from the financial assets expire or the asset is transferred to another entity. In the case of a transfer to another entity, the risks and rewards of ownership are also transferred. Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognised on an effective interest rate basis except for financial assets that are recognised at fair value through profit and loss. Financial assets at fair value through profit and loss Financial assets are classified as financial assets at fair value through profit and loss where the financial asset: has been acquired principally for the purpose of selling in the near future; is a part of an identified portfolio of financial instruments that the Department manages together and has a recent actual pattern of short-term profit taking; or is a derivative that is not designated and effective as a hedging instrument. Assets in this category are classified as current assets. Financial assets at fair value through profit and loss are stated at fair value, with any resultant gain or loss recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest earned on the financial asset. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non current assets unless management intends to dispose of the asset within 12 months after the reporting period. Available-for-sale financial assets are recorded at fair value. Gains and losses arising from changes in fair value are recognised directly in the reserves (equity) with the exception of impairment losses. Interest is calculated using the effective interest method and foreign exchange gains and losses on monetary assets are recognised directly in profit and loss. Where the asset is disposed of or is determined to be impaired, part (or all) of the cumulative gain or loss previously recognised in the reserve is included in profit and loss for the period. Where a reliable fair value cannot be established for unlisted investment in equity instruments, cost is used. The Department has no such instruments. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Department has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost using the effective interest method less impairment, with revenue recognised on an effective yield basis. 23 Notes to and forming part of the Financial Statements Loans and receivables Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non current assets. The fair value of short-term receivables is the transaction cost or the face value because there is no interest rate applicable and subsequent measurement is not required as the effect of discounting is not material. Impairment of financial assets Financial assets are assessed for impairment at the end of each reporting period. Financial assets held at amortised cost - If there is objective evidence that an impairment loss has been incurred for loans and receivables or held-to-maturity investments held at amortised cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the asset's original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income. Available-for-sale financial assets - If there is objective evidence that an impairment loss on an available-for-sale financial asset has been incurred, the amount of the difference between its cost, less principal repayments and amortisation, and its current fair value, less any impairment loss previously recognised in expenses, is transferred from equity to the Statement of Comprehensive Income. Financial assets held at cost - If there is objective evidence that an impairment loss has been incurred the amount of the impairment loss is the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate for similar assets. 1.14 Financial liabilities Financial liabilities are classified as either financial liabilities at fair value through profit and loss or other financial liabilities (at amortised cost). Financial liabilities are recognised and derecognised upon ‘trade date’. Financial liabilities at fair value through profit and loss Financial liabilities at fair value through profit and loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit and loss. The net gain or loss recognised in profit and loss incorporates any interest paid on the financial liability. Other financial liabilities (at amortised cost) Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. Supplier and other payables are recognised at amortised cost. Liabilities are recognised to the extent goods or services have been received (and irrespective of having been invoiced). 1.15 Financial guarantee contracts Financial guarantee contracts are accounted for in accordance with AASB 139 Financial Instruments: Recognition and Measurement. They are not treated as a contingent liability, as they are regarded as financial instruments outside the scope of AASB 137 Provisions, Contingent Liabilities and Contingent Assets. 24 Notes to and forming part of the Financial Statements 1.16 Acquisition of assets Assets are recorded at cost on acquisition, except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate. Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor agency's accounts immediately prior to the restructuring. 1.17 Property, plant and equipment Asset recognition threshold Purchases of property, plant and equipment are recognised initially at cost in the Balance Sheet, except for purchases costing less than $5,000. These are expensed in the year of acquisition, other than where they form part of a group of similar items that are significant in total. The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to the 'make good' provision for properties leased by the Department where there exists an obligation to restore the property to its original condition. These costs are included in the value of the Department's leasehold improvements with a corresponding provision for the make good costs. Revaluations Fair values for each class of asset are determined as shown below. Asset class Land Buildings Investment properties Leasehold improvements Plant and equipment Fair value measured at: Market selling price Market selling price or discounted cash flows Market selling price or discounted cash flows Depreciated replacement cost Market selling price or depreciated replacement cost Following initial recognition at cost, property, plant and equipment are carried at fair value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets. Revaluation adjustments are made on a class basis. Any revaluation increment is credited to equity under the heading of asset revaluation reserve except to the extent that it reverses a previous revaluation decrement of the same asset class that was previously recognised through the Statement of Comprehensive Income or has been classified as an investment property. Revaluation decrements for a class of assets are recognised directly through surplus/deficit except to the extent that they reverse a previous revaluation increment for that class of the assets. Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset restated to the revalued amount. Depreciation Depreciable property, plant and equipment assets are written down to their estimated residual values over their estimated useful lives to the Department using, in all cases, the straight-line method of depreciation. Depreciation commences from the time the assets are first held ready for use. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease. The useful life for decommissioning, restoration and make-good is estimated from the date the liability arises to the date the obligation is expected to be met. The useful life of each asset is the estimated period of time over which it is expected to be able to be used or the benefits represented by it are expected to be derived by the Department. Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary 25 Notes to and forming part of the Financial Statements adjustments are recognised in the current and future reporting periods as appropriate. Residual values are re-estimated for a change in prices only when assets are revalued. Depreciation rates applying to each class of depreciable asset are based on the following useful lives: 2011 2010 Buildings on freehold land 3 to 100 years 3 to 100 years Leasehold improvements Lesser of useful life or lease term Lesser of useful life or lease term Plant and equipment 2 to 45 years 2 to 45 years The aggregate amount of depreciation and amortisation allocated for each class of asset during the reporting period is disclosed in Note 3C (Departmental) and Note 21E (Administered). Investment property A number of the Department's non-Defence properties within Australia are classified as investment properties. These properties are held at fair value, with any changes in the fair value recorded through the Statement of Comprehensive Income. Investment properties are not depreciated and are valued annually. Gain or loss on disposal The gain or loss on disposal of land, buildings, property, and plant and equipment is determined as the difference between the carrying amount of the asset at the time of disposal and the proceeds from disposal, less selling costs. Buildings under construction Buildings under construction are classified as construction work in progress under land and buildings. They are measured at cost, and are not depreciated. Derecognition An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal. 1.18 Intangible assets The Department's intangible assets comprise internally developed and externally acquired software for internal use. These assets are carried at cost less accumulated amortisation and accumulated impairment losses. Software is amortised on a straight-line basis over its anticipated useful life. The useful lives of the Department’s software are 3 to 7 years (2009-10: 3 to 7 years). All software assets were assessed for indication of impairment as at 30 June 2011. 1.19 Impairment of assets All financial assets were assessed for impairment as at 30 June 2011. Where indications of impairment exist, the asset's recoverable amount is estimated and an impairment adjustment made if the asset's recoverable amount is less than its carrying amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset's ability to generate future cash flows, and the asset would be replaced if the Department were deprived of the asset, its value in use is taken to be its depreciated replacement cost. 1.20 Unearned income Deposits and prepayments for services yet to be rendered are recognised as a liability at the time of receipt. Revenues are recognised in relation to these items at the time the service is provided. 26 Notes to and forming part of the Financial Statements 1.21 Contingent liabilities and contingent assets Contingent liabilities and contingent assets are not recognised in the Balance Sheet but are reported in the relevant schedules and notes. They may arise from uncertainty as to the existence of a liability or asset, or represent a liability or asset in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not virtually certain, and contingent liabilities are recognised when settlement is greater than remote. 1.22 General insurance activities Comcover is the Commonwealth's self managed fund for insurable risks. Comcover operates under the section 20 special account provision of the Financial Management and Accountability Act 1997. The Department and other Australian Government agencies in the General Government Sector (GGS) have insured with the fund for risks other than workers compensation, which is dealt with through continuing arrangements with Comcare. Comcover’s agreements with insured agencies meet the substance of the definition of General Insurance Contracts under AASB 1023 General Insurance Contracts and the Department has fully complied with AASB 1023 in relation to all transactions, valuations of assets and liabilities and disclosures. Accounting policies in relation to these items are as follows: Premiums Premiums are amounts charged to fund members. The earned portion of premiums received and receivable is recognised as revenue. Premiums are treated as earned from the date of attachment of risk. The pattern of recognition over the policy or indemnity period is based on time, which is considered to closely approximate the pattern of risks underwritten. Unearned premiums are determined using the pro-rata method. Outwards reinsurance The Department no longer undertakes significant reinsurance. To the extent it does, premiums ceded to reinsurers are recognised as an expense in accordance with the pattern of reinsurance service received. Reinsurance recoveries are recognised as revenue for claims incurred. Recoveries receivable are measured as the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims. Claims The liability for outstanding claims covers the expected future payments in relation to claims reported but not yet paid, claims incurred but not yet reported (IBNR), claims incurred but not enough reported (IBNER) and anticipated direct and indirect costs of settling these claims. The liability for outstanding claims is subject to an annual actuarial review. The general approach to the actuarial estimation of outstanding claims is to analyse all available experience. Based on this review, the expected future payments are determined and discounted to present value using the risk free rate. The provision for the outstanding claims liability also contains a risk margin to reflect the inherent uncertainty in the central estimate. The Department’s policy is to adopt a risk margin to increase the probability that the net liability is adequately provided to a 75 per cent confidence level. General insurance disclosure and actuarial assumptions are included in Note 16. 1.23 Taxation / Competitive Neutrality The Department is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST). Income tax equivalent amounts are recognised as noted below under Competitive Neutrality. GST policy Revenues, expenses and assets are recognised net of GST except where the amount of GST incurred is not recoverable from the Australian Taxation Office. Receivables, payables, commitments and contingencies are reported inclusive of GST. Competitive Neutrality The Department applies the principles of the Australian Government's Competitive Neutrality Policy Statement to its 27 Notes to and forming part of the Financial Statements significant business operations, namely the non-Defence domestic property operations and Comcover. The taxation equivalent regime is applied as a competitive neutrality charge calculated annually based upon accounting income (adjusted for significant non-taxable items) for the Department's non-Defence domestic property operations and Comcover. The tax equivalent amounts shown in Note 3G and Note 5 are returned to the Official Public Account. The Department recognises these transactions according to their nature. Regulatory, debt, rates and other equivalents are recognised as part of other expenses and income tax equivalents are reported separately as income tax expense in the Statement of Comprehensive Income. 1.24 Reporting of Administered activities Administered assets, liabilities, revenue, expenses and cash flows are disclosed in the Schedule of Administered Items and related notes. Except where otherwise stated below, administered items are accounted for on the same basis using the same policies as for departmental items, including the application of Australian Accounting Standards. Administered items are controlled by the Government and managed or overseen by the Department on behalf of the Government. Administered items include: investments for former superannuation schemes and controlled entities; civilian superannuation schemes for Australian Government employees; Nation-building Funds; entitlements and services provided to current and former Members of Parliament; grants and benefits payable; fees, fines and interest; and loans. For the purposes of presenting administered financial information, with the exception of employer contributions to Australian Government employee superannuation entitlements and Nation-building Fund payments, only transactions external to the General Government Sector (GGS) are recognised in these financial statements as revenues, expenses, assets and liabilities administered on behalf of the Government. Funding flows to and from the Official Public Account with entities within the GGS are recognised in the Administered Cash Flow and the Administered Reconciliation Table (refer Note 24). The GGS provides public services that are mainly non-market in nature and for the collective consumption of the community, or involve the transfer or redistribution of income. These services are largely financed through taxes and other compulsory levies, user charging and external funding. This sector comprises all government departments, offices and other bodies. The purpose of separating administered and departmental items is to provide for the separate scrutiny of the items and enable assessment of the Department's administrative efficiency in providing goods and services. Administered items are distinguished from agency items in the financial statements by shading. Administered cash transfers to and from the Official Public Account Revenue collected by the Department for use by the Government rather than by the Department is administered revenue. Collections are transferred to the Official Public account maintained by the Department. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of the Government. These transfers to and from the OPA are adjustments to the administered cash held by the Department on behalf of the Government and reported as such in the Statement of Cash Flows in the Schedule of Administered Items and in the Administered Reconciliation Table in Note 24. Revenue All administered revenues are those relating to the course of ordinary activities performed by the Department on behalf of the Australian Government. Interest revenue is recognised on a time proportional basis taking into account the interest rates applicable to the financial assets. Dividend revenue represents dividends received from entities, which mainly relate to administered investments of the Department. Dividends are recognised when the right to receive the payment is established. 28 Notes to and forming part of the Financial Statements Grants The Department administers a number of grant schemes on behalf of the Australian Government. Grant liabilities are recognised to the extent that: the services required have been performed by the grantee have been performed; or the grant eligibility criteria have been satisfied, but payments due have not been made. A commitment is recorded when the Australian Government enters into an agreement to make the grants but services have not been performed or criteria satisfied. Where grant moneys are paid in advance of performance or eligibility, a prepayment is recognised. Payments made for non-reciprocal grants, where those grants are not subject to future criteria, are fully expensed in the year of payment. Administered investments Administered investments in controlled entities are not consolidated because their consolidation is relevant only at the Whole-of-Government level. Administered investments other than those held for sale are measured at their fair value as at 30 June 2011. Fair value has been taken to be the present value of future cash flows or the net assets of the entities. Additional details relating to administered investments can be found at Note 22C. Loans and receivables Where loans and receivables are not subject to concessional treatment, they are carried at amortised cost using the effective interest method. Gains and losses due to impairment, derecognition and amortisation are recognised in the statement of administered revenues and expenses in the Schedule of Administered Items. Financial assets at fair value through profit and loss Financial assets are classified as financial assets at fair value through profit and loss (FVPL) where the financial asset: has been acquired principally for the purpose of selling in the near future; is a part of an identified portfolio of financial instruments that the Department manages together and has a recent actual pattern of short-term profit taking; or is a derivative that is not designated and effective as a hedging instrument. Assets in this category are classified as current assets. Financial assets at fair value through profit and loss are stated at fair value, with any resultant gain or loss recognised in profit and loss. The net gain or loss recognised in the profit and loss incorporates any interest earned on the financial asset. Interest on financial assets at FVPL is included in line item “Total realised gains on fair value investments” of Note 20G. Guarantees The amounts guaranteed by the Australian Government are disclosed where relevant in the Schedule of Administered Items - Contingencies and in Note 25. At the time of completion of the financial statements, all guarantees were remote and there was no reason to believe that they would be called upon. Indemnities The maximum amounts payable under the indemnities given is disclosed in the Schedule of Administered Items – Contingencies and in Note 25. At the time of completion of the financial statements, there was no reason to believe that the indemnities would be called upon and no recognition of a liability was therefore required. 1.25 Superannuation schemes The Department recognises an administered liability for the present value of the Australian Government's expected future payments arising from the Parliamentary Contributory Superannuation Scheme, Judges' Pensions Scheme, Governor-General Pension Scheme, death and invalidity benefits for Federal Magistrates and the unfunded components of the Commonwealth Superannuation Scheme (CSS) and the Public Sector Superannuation scheme (PSS). The 29 Notes to and forming part of the Financial Statements funded components of these schemes are reported in the financial statements of the respective schemes. The Department also has the responsibility to record the Australian Government's transactions in relation to the CSS and PSS schemes. Accounting policies in relation to these items are as follows: Employer contributions Employer contributions received from Australian Government agencies and entities are recorded as administered revenues. Benefits paid and employee contributions Gross benefits paid less employee contributions and employer productivity contributions (offsets) received are recognised as a net reduction in the liability. Increases in the accrued benefits liability Increases in the accrued benefits liability, pursuant to regular estimates of the liability taking account of actuarial reviews, are recognised as an expense and classified as employee superannuation expense, except for actuarial gains or losses which are recognised in equity. In accordance with AASB 119 Employee Benefits, the liability is assessed annually by applying the projected unit credit method in assessing the balance of the liability. The rate used to discount long term employee benefits and post employment benefits is determined by reference to the government bond rate at the reporting date on high quality corporate bonds except where there is not a deep market in these bonds, in which case the market yield on national government bonds is used. In the case of discounting the superannuation liability, the market yield on government bonds has been used. Additional superannuation information can be found at Note 27. 1.26 Nation-building Funds Investments Investments are recognised and derecognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned. Investments are initially measured at fair value, net of transaction costs that are directly attributable to the acquisition or issue of the investment. All investments are designated as financial assets through profit and loss on purchase with any resultant gain or loss recognised in the profit and loss. The net gain or loss recognised in profit and loss incorporates any interest earned on the financial asset. Transaction costs associated with the purchase of investments are expensed as incurred. This includes expenses associated with due diligence on unlisted investment schemes and collective investment vehicles. The following methods are adopted by the Nation-building Funds in determining the fair value of investments: Mortgage backed securities, bank bills, negotiable certificates of deposit, corporate debt securities and other fixed income securities that are traded in active markets are valued at the quoted bid price; and Term deposits are recognised at their nominal amount. Revenue Interest revenue is recognised using the effective interest method as set out in AASB 139 Financial Instruments: Recognition and Measurement except for financial assets that are recognised at fair value through profit and loss. Foreign currency (i) Functional and presentation currency Items included in the financial statements of the Nation-building Funds are measured using the currency of the primary economic environment in which the Department operates ("the functional currency"). The financial statements are presented in Australian dollars, which is the Nation-building Funds functional and presentation currency. (ii) Transactions and balances All foreign currency transactions during the period are brought to account using the exchange rate in effect at the date of the transaction. Foreign currency items at reporting date are translated at the exchange rate existing at reporting date. Exchange differences are recognised in the profit and loss in the period in which they arise. 30 Notes to and forming part of the Financial Statements Derivative financial instruments The Nation Building Funds have entered into forward foreign exchange contracts to manage its exposure to foreign exchange risk. The Nation Building Funds also use interest rate futures and swaps to manage their exposure to interest rate risk; and credit default swaps to manage their exposure to credit risk and/or gain indirect exposure to credit risk. The use of derivative financial instruments by the Nation Building Funds is governed by the Nation-building Funds Act 2008. The Nation Building Funds have not designated any derivatives as cash flow or fair value hedges. All derivatives are accounted for at fair value through profit and loss. 1.27 Environmental liabilities The Department recognises a provision for restoration and remediation when there is a present obligation as a result of a past event, or it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 1.28 Comparative figures Unless otherwise stated, comparative figures are provided and, where necessary, have been adjusted in accordance with the Finance Minister's Orders. 1.29 Rounding Amounts have been rounded to the nearest $1,000 unless stated otherwise. 1.30 Changes to prior year disclosures The following changes relate to note disclosures only and do not impact primary financial statements which correctly reflected amounts. Departmental Special Accounts In Note 29 Special Accounts Table A, the 2009-10 comparative for the Property Special Account has been updated with the payment items with no effect to the net balance. Disclosure lines changed are payments to ‘suppliers’ (from $40.5 million to $25.9 million), ‘purchase of property, plant and equipment’ ($99.6 million to $88.3 million) and ‘capital repayments’ (from $15.3 million to $41.2 million). Major classes of administered expenses, income, assets and liabilities by outcomes In 2009-10, Finance reported administered investments for Outcome 2 as $4,620.2 million. The comparative has been updated to $4,754.2 million. Departmental financial instruments In prior years Finance has disclosed unearned revenue as a financial instrument. This item is an obligation to provide a service rather than an obligation to pay cash and does not fit the definition of a financial instrument. Unearned revenue has been removed from the comparatives. Prior year balances were adjusted as follows: Note 19 financial instruments (departmental) - removed comparative figure of $66.1 million. No adjustment to Note 26 administered financial instruments as the unearned revenue balance was zero at 30 June 2010. Gains and losses on valuation of property investments Finance reported a gain of $33.03 million and a loss of $102.13 million on valuation of investment properties in 2009-10 financial statements (the Statement of comprehensive income and associated notes 3E, 4E, 7, 9D, and 31B). The comparative disclosures in the Statement of comprehensive income and associated notes (4E, 7, 9D and 31B) have been changed to reflect a net loss on valuation ($69.10 million). Nation-building Funds income and expenses In 2009-10, Finance reported a net realised gain on sale of financial investments of $512.62 million in administered accounts. The comparatives have been adjusted as follows: realised gain on fair value investments $773.48 million (Note 20G); and realised losses on disposal of fair value investments $260.86 million (Note 21I). 31 Notes to and forming part of the Financial Statements Executive remuneration The comparative disclosures in Note 17 Senior executives remuneration has been changed to reflect changes in the Finance Minister Orders (FMOs). Note 2 Events after the reporting period The global financial conditions have changed since the end of the reporting period. The deterioration in global conditions has led to a depreciation in the Australian dollar (AUD), a decline in the 10 year bond rate and changes in credit rating of underlying debt securities. These developments have arisen since the reporting date, and as such, no adjustment is required to the amounts reported in the financial statements. If the deterioration in the global financial conditions had occurred during the reporting period, this would have had a material impact on the carrying amount and related disclosure of the following types of assets and liabilities: financial assets and financial liabilities with exposure to interest rate, currency, and other price risks; the credit rating of some financial assets held by the Nation-building Funds of some underlying debt instruments; and long-term assets and liabilities discounted to present value using the Government bond rate or other marketbased yields, including the unfunded superannuation liability. These movements are within the change in risk variable ranges used in financial instruments sensitivity analysis (Note 26G) of interest rate and foreign currency risk. 32 Notes to and forming part of the Financial Statements Note 3 30 June 2010 $'000 125,730 115,465 7,731 15,040 19,840 341 1,307 8,024 14,265 19,035 49 1,164 169,989 158,002 66,251 30,071 40,405 34,683 12,867 67,486 29,927 30,177 41,625 12,855 184,277 182,070 2,304 1,385 180,588 2,271 1,385 178,414 184,277 182,070 3,269 590 3,826 391 3,859 188,136 4,217 186,287 Expenses Note 3A Employee benefits Wages and salaries Superannuation: Defined contribution plans Defined benefit plans Leave and other entitlements Separations and redundancies Other employee benefits Total employee benefits Note 3B Suppliers Goods and services Outsourcing costs Insurance expenses Consultants and contractors Other goods and services Property management expenses Total goods and services Goods and services are made up of: Provision of goods - related entities Provision of goods - external parties Rendering of services - related entities Rendering of services - external parties Total goods and services Other supplier expenses Operating lease rentals - external parties: Minimum lease repayments Workers compensation expenses Total other supplier expenses Total supplier expenses 33 30 June 2011 $'000 Notes to and forming part of the Financial Statements Note 3C Depreciation and amortisation Depreciation: Buildings Property, plant and equipment Total depreciation Amortisation: Intangibles Total amortisation Total depreciation and amortisation Note 3D Finance costs Notional interest1 Total finance costs 30 June 2011 $'000 30 June 2010 $'000 7,253 2,352 6,052 1,846 9,605 7,898 9,528 8,368 9,528 19,133 8,368 16,266 2,331 4,600 2,331 4,600 1 Notional Interest expense has been recognised in relation to financial assets (Reinsurance recoveries) expected to be received in future years. Note 3E Write-down and impairment of assets Financial assets: Impairment on financial instruments Non-financial assets: Impairment on intangible assets Revaluation decrement - investment properties Total write-down and impairment of assets Note 3F Losses from asset disposals Investment properties: Proceeds from sale Carrying value of assets sold Selling expense Land and buildings: Proceeds from disposal Carrying value of assets sold Write-offs Property, plant and equipment: Carrying value of assets sold Intangibles: Carrying value of assets sold Total losses from asset sales 34 9 9 383 - 69,092 392 69,101 420 970 (2,334) 1,180 299 (59) - (16,500) 18,409 35 27 44 1 - 1,359 1,133 Notes to and forming part of the Financial Statements Note 3G Other expenses Act of Grace payments Competitive neutrality - regulatory1 Competitive neutrality - reinsurance charges1 Competitive neutrality - rates and other taxes1 Total other expenses 1 30 June 2011 $'000 30 June 2010 $'000 126 5,000 10,261 25 118 5,000 8,531 15,387 13,674 The Comcover and Property Special Accounts are subject to the Australian Government's Competitive Neutrality Policy. This include payment in lieu of reinsurance charges, levies payable by general insurers to the Australian Prudential Regulation Authority and indirect taxes, such as payroll tax, council rates, stamp duty and land tax as if they had applied to the Comcover and Property Special Accounts. These amounts have been paid or are payable by the Department to the Official Public Account. 35 Notes to and forming part of the Financial Statements 30 June 2011 $'000 Note 4 30 June 2010 $'000 Own-source income OWN-SOURCE INCOME Note 4A Rendering of services Rendering of services - related entities Total rendering of services 85,545 88,519 85,545 88,519 83,631 580 75,194 361 84,211 75,555 4 3,975 6 1,629 3,979 1,635 8,326 1,715 - 6,473 1,184 183 10,041 7,840 1,593 1,385 27 1,385 229 3,005 1,614 239,800 230,691 239,800 230,691 Note 4B Rental income Operating lease: Investment properties - related entities Investment properties - external parties Total rental income Note 4C Interest Loans Notional interest 1 Total interest 1 Reversal of Notional interest expense reported in Note 3D as a result of passage of time. Note 4D Other revenue Commission revenue Fleet Monitoring Body cost recovery Other revenues Total other revenue GAINS Note 4E Other gains Change in fair value of investment properties Resources received free of charge Other Total other gains REVENUE FROM GOVERNMENT Note 4F Revenue from Government Appropriations: Departmental appropriation Total revenue from Government Finance received $0.003 million (2010: $nil) under the Paid Parental Leave Scheme. These amounts were offset against the amounts paid to employees in the Statement of Comprehensive Income. 36 Notes to and forming part of the Financial Statements Note 5 30 June 2011 $'000 30 June 2010 $'000 13,463 12,784 13,463 12,784 Income tax expense Income tax expense Competitive neutrality - Commonwealth tax equivalent expense1 Total income tax expense Comcover and Property Special Accounts are subject to the Australian Government’s Competitive Neutrality Policy. Income tax expense includes income tax payable under the Income Tax Assessment Act 1997 as if the Act had applied to the Comcover and Property Special Accounts. These amounts have been paid or are payable by the Department to the Official Public Account. 1 The Note 6 Other comprehensive income Changes in asset revaluation reserves Non-financial assets revaluation reserve adjustment: Land Buildings Property, plant and equipment Make good provision Total changes in asset revaluation reserves 37 (22,232) 14,790 - 13,412 10,779 28 (22) (7,442) 24,197 Notes to and forming part of the Financial Statements Note 7 Business activities Property management The Department delivers services and provides advice related to the Australian Government's non-Defence property portfolio, including construction and project delivery services. This portfolio includes commercial office buildings, law courts, laboratories and heritage properties within Australia. The portfolio is managed with an aim of optimising return on investment, whilst recognising public interest considerations, the requirement for tenant satisfaction and the need to maintain the condition of the property portfolio. Total revenue from appropriations Total revenue from ordinary activities Unrealised investment property revaluation increment/(decrement) Total expenses from ordinary activities before income tax Net surplus (deficit) from ordinary activities before income tax Income tax equivalent Net surplus (deficit) from ordinary activities after income tax Total financial assets Total non-financial assets Total payables Total provisions Equity 30 June 2011 $'000 30 June 2010 $'000 284 106,126 1,593 (52,499) 55,504 (13,463) 108,535 (69,092) (59,770) (20,327) (12,784) 42,041 (33,111) 250,468 1,283,653 (66,409) (7,748) 279,276 1,099,096 (95,391) (7,429) 1,459,964 1,275,552 Comcover Comcover is the Australian Government's self-managed general insurance fund. It promotes best practice risk management throughout the Australian General Government Sector and provides agencies with general insurance and risk management services. Total revenue from appropriations Total revenue from ordinary activities Total expenses from ordinary activities before income tax Net surplus (deficit) from ordinary activities before income tax Net surplus (deficit) from ordinary activities after income tax 1 11,912 150,183 (233,806) 10,150 97,354 (108,436) (71,711) (71,711) (932) (932) Total financial assets Total payables Total provisions Equity 399,459 (301,564) (648) 415,104 (245,554) (596) 97,247 168,954 1 The Comcover deficit in 2010-11 is predominantly due to the 2011 natural disasters. 38 Notes to and forming part of the Financial Statements Note 8 30 June 2010 $'000 519 11 279 49 773 2,031 12 470 613 195 1,631 3,321 65,529 315 41,946 4,930 65,844 46,876 66,891 928 239,768 242,529 32,939 50,310 904 314,358 261,229 46,197 583,055 672,998 34,233 125,053 863 49,189 51,133 2 - 160,149 809,048 100,324 820,198 - 2,500 809,048 2,500 817,698 85,273 723,775 122,366 695,332 809,048 817,698 Financial assets Note 8A Cash and cash equivalents Cash at bank Cash on hand Cash held in Comcover Special Account Cash held in Property Special Account Cash held in Coordinated Procurement Special Account Total cash and cash equivalents Note 8B Trade and other receivables Goods and services: Goods and services - related entities Goods and services - external parties Total receivables for goods and services Appropriations receivable for existing outputs: Other departmental undrawn Business Services Special Account Comcover Special Account Property Special Account Coordinated Procurement Contracting Special Account Total appropriations receivable Other receivables: Reinsurance and recovery receivable Reinsurance debtor – Pan Pharmaceuticals1 Loans GST receivable from the Australian Tax Office Total other receivables Total trade and other receivables (gross) Less impairment allowance account: Goods and services Total impairment allowance account Total trade and other receivables (net) Receivables are expected to be recovered in: No more than 12 months More than 12 months Total trade and other receivables (net) 1 In 30 June 2011 $'000 August 2008, the Department paid Mr Selim, founder of Pan Pharmaceuticals Ltd (Pan) $55 million out of the Comcover Special Account as settlement for legal action Mr Selim took against the Commonwealth. A further four case settlements totalling $74.55 million were paid in November/December 2010 to customers claiming loss following Pan’s collapse in 2003. All settlements are covered by the Department’s reinsurance arrangements. The Department’s reinsurers have denied liability. The Department’s legal advice is that the reinsurance claims are valid and recoverable. The debtor has been discounted to reflect the risk of protracted negotiations, but no amount has been provided for impairment both because the Department has a strong case for recovery and it is not possible to reliably estimate any possible reduction in the recovery in accordance with paragraph 12 of 39 Notes to and forming part of the Financial Statements AASB 1023 General Insurance Contracts. Note 8B 30 June 2011 $'000 30 June 2010 $'000 756,514 811,406 49,588 1,160 40 1,746 2,521 654 768 4,849 809,048 820,198 - 2,500 - 2,500 Trade and other receivables (continued) Receivables (gross) are aged as follows: Not overdue Overdue by: 0 to 30 days 31 to 60 days 61 to 90 days More than 90 days Total receivables (gross) The impairment allowance account is aged as follows: Not overdue Total impairment allowance account Reconciliation of the impairment allowance account: Movement in relation to 2011 Opening balance Amounts reversed Closing balance Goods and services $'000 2,500 (2,500) - Total $'000 2,500 (2,500) - Goods and services $'000 2,500 2,500 Total $'000 2,500 2,500 Movement in relation to 2010 Opening balance Closing balance Note 8C Other financial assets Accrued revenue: Goods and services Lease incentives Total other financial assets Total other financial assets is expected to be recovered in: No more than 12 months More than 12 months Total other financial assets 40 5,117 3,655 3,227 - 8,772 3,227 5,477 3,295 3,093 134 8,772 3,227 Notes to and forming part of the Financial Statements Note 9 30 June 2011 $'000 30 June 2010 $'000 157,194 144,926 157,194 144,926 13,101 192,380 3,278 171,210 205,481 174,488 11,142 (2,730) 39 9,030 454 8,451 371,126 9,484 328,898 1,092 7,698 (2,304) 457 6,177 - 6,486 6,634 Non-financial assets Note 9A Land and buildings Land: Land at fair value Total land Buildings on freehold land: Work in progress Fair value Total buildings on freehold land Leasehold improvements: Fair value Accumulated depreciation Work in progress - at cost Total leasehold improvements Total land and buildings Note 9B Property, plant and equipment Property, plant and equipment: Work in progress - at cost Fair value Accumulated depreciation Total property, plant and equipment All assets have been valued on the fair value basis in accordance with the revaluation policy set out in Note 1.17. All independent revaluations were conducted by registered valuers. A valuation decrement for land of $22.2 million (2009-10: increment of $13.4 million) and an increment for buildings on freehold land of $14.8 million (2009-10: decrement of $8.0 million) were credited to the asset revaluation reserve by asset class and included in the equity section of the balance sheet. No valuation adjustment was made for leasehold improvements (2009-10: $2.8 million increment) and for property, plant and equipment (2009-10: $0.03 million increment) during the year. No indicators of impairment were found for land and buildings or property, plant and equipment. No land and buildings or property, plant and equipment are expected to be disposed of within the next 12 months. 41 Notes to and forming part of the Financial Statements Note 9C Reconciliation of the opening and closing balances of property, plant and equipment (2010-11) Land $'000 As at 1 July 2010 Gross book value Accumulated depreciation/amortisation and impairment Net book value 1 July 2010 Additions: By purchase Revaluations and impairments through other comprehensive income Restructuring Depreciation/amortisation expense Disposals: Other disposals – cash considerations Net book value 30 June 2011 Net book value as of 30 June 2011 represented by: Gross book value Accumulated depreciation/amortisation and impairment Closing net book value at 30 June 2011 42 Leasehold Total land and Buildings improvements buildings $'000 $'000 $'000 Plant and equipment $'000 Total $'000 144,926 144,926 174,488 174,488 9,484 9,484 328,898 328,898 6,634 6,634 335,532 335,532 (22,232) 34,500 - 13,856 14,790 6,870 (4,523) 1,697 (2,730) 15,553 (7,442) 41,370 (7,253) 2,231 (2,352) 17,784 (7,442) 41,370 (9,605) 157,194 205,481 8,451 371,126 (27) 6,486 (27) 377,612 157,194 157,194 205,481 205,481 11,181 (2,730) 8,451 373,856 (2,730) 371,126 8,790 (2,304) 6,486 382,646 (5,034) 377,612 Notes to and forming part of the Financial Statements Note 9C (cont’d): Reconciliation of the opening and closing balances of property, plant and equipment (2009-10) As at 1 July 2009 Gross book value Accumulated depreciation/amortisation and impairment Net book value 1 July 2009 Additions: By purchase Revaluations and impairments through other comprehensive income Reclassification Depreciation/amortisation expense Restructuring Other movements1 Write-offs Disposals: Other disposals - cash consideration Net book value 30 June 2010 Net book value as of 30 June 2010 represented by: Gross book value Closing net book value at 30 June 2010 1 Land $'000 Buildings $'000 Leasehold improvements $'000 Total land and buildings $'000 Plant and equipment $'000 Total $'000 174,516 174,516 199,712 199,712 16,912 (8,430) 8,482 391,140 (8,430) 382,710 12,606 (3,530) 9,076 403,746 (11,960) 391,786 13,412 (25,002) - 5,554 8,029 (27,330) (4,113) (7,364) - 598 2,750 2 (1,939) (409) 6,152 24,191 (52,330) (6,052) (7,364) (409) 560 28 (2) (1,846) (1,138) (44) 6,712 24,219 (52,332) (7,898) (7,364) (1,138) (453) (18,000) 144,926 174,488 9,484 (18,000) 328,898 6,634 (18,000) 335,532 144,926 144,926 174,488 174,488 9,484 9,484 328,898 328,898 6,634 6,634 335,532 335,532 Other movements relate to assets reclassified as other non financial assets during the year. 43 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 236,597 684,364 262,858 516,802 920,961 779,660 Reconciliation of the opening and closing balances of investment property As at 1 July 2010 779,660 714,049 Additions: By assets under construction By reclassification Disposals Revaluation increment/(decrement) Transfers - restructuring Net book value at 30 June 2011 140,128 (420) 1,593 920,961 81,372 52,331 (1,180) (69,092) 2,180 779,660 Note 9D Investment properties Land and buildings: Land at fair value Buildings at fair value Total investment property Rental income from investment properties was $84.2 million in 2010-11 (2009-10: $75.6 million). Operating expenses in relation to these properties were $19.8 million in 2010-11 (2009-10: $18.5 million). All formal revaluations are independent and are conducted in accordance with the revaluation policy stated in Note 1.17. In 2010-11, the formal revaluations were conducted by Herron Todd White and Jones Lang LaSalle. The net revaluation increment of $1.6 million (2009-10: decrement of $69.1 million) was recorded through the Statement of Comprehensive Income. No indicators of impairment were found for investment property. Note 9E Intangibles Computer software - at cost: Internally developed - in progress Internally developed - in use Purchased Total computer software (gross) Accumulated amortisation Accumulated impairment losses Total computer software (net) Other intangibles: Internally developed - in progress Total other intangibles (gross) Accumulated amortisation Total other intangibles (net) Total intangibles 8,142 41,904 23,922 3,826 46,715 12,975 73,968 (41,409) (2,790) 63,516 (32,362) (2,407) 29,769 28,747 - 1,053 - 1,053 (926) 29,769 127 28,874 Impairment loss of $0.4 million (2009-10: $nil) was recorded through the Statement of Comprehensive Income. No intangibles are expected to be sold or disposed of within the next 12 months. 44 Notes to and forming part of the Financial Statements Note 9F Reconciliation of the opening and closing balances of intangibles (2010-11) As at 1 July 2010 Gross book value Accumulated amortisation Accumulated impairment Net book value 1 July 2010 Additions: By purchase Internally developed Reclassifications Amortisation Net impairment Disposals: Other disposals Net book value 30 June 2011 Net book value as of 30 June 2011 represented by: Gross book value Accumulated amortisation Accumulated impairment Closing net book value at 30 June 2011 45 Computer software internally developed $'000 Computer software purchased $'000 Other intangibles internally developed $'000 Total $'000 50,541 (25,834) (2,407) 22,300 12,975 (6,528) 6,447 1,053 (926) 127 64,569 (33,288) (2,407) 28,874 3,230 961 (5,213) - 7,572 (829) (4,315) (383) 5 (132) - 7,577 3,230 (9,528) (383) 21,278 (1) 8,491 - (1) 29,769 50,046 (26,361) (2,407) 21,278 23,921 (15,047) (383) 8,491 - 73,967 (41,408) (2,790) 29,769 Notes to and forming part of the Financial Statements Note 9F (continued) Reconciliation of the opening and closing balances of intangibles (2009-10) As at 1 July 2009 Gross book value Accumulated amortisation Accumulated impairment Net book value 1 July 2009 Additions: By purchase Reclassifications Amortisation Net book value 30 June 2010 Net book value as of 30 June 2010 represented by: Gross book value Accumulated amortisation Accumulated impairment Closing net book value at 30 June 2010 46 Computer software internally developed $'000 Computer software purchased $'000 Other intangibles internally developed $'000 Total $'000 46,952 (26,780) (2,407) 17,765 15,778 (10,318) 5,460 1,571 (947) 624 64,301 (38,045) (2,407) 23,849 10,039 (2) (5,502) 22,300 3,269 46 (2,328) 6,447 85 (44) (538) 127 13,393 (8,368) 28,874 50,541 (25,834) (2,407) 22,300 12,975 (6,528) 6,447 1,053 (926) 127 64,569 (33,288) (2,407) 28,874 Notes to and forming part of the Financial Statements Note 9G Other non-financial assets Prepayments Total other non-financial assets Total other non-financial assets are expected to be recovered in: No more than 12 months More than 12 months Total other non-financial assets No indicators of impairment were found for other non-financial assets. 47 30 June 2011 $'000 30 June 2010 $'000 2,466 2,466 2,727 2,727 2,176 290 2,197 530 2,727 2,466 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 Trade creditors and accruals Goods and services tax Total suppliers 19,231 19,231 21,267 6,783 28,050 Supplier payables expected to be settled within 12 months: Related entities External parties Total suppliers 3,998 15,233 8,445 19,605 19,231 28,050 Note 10B Unearned revenue Australian Government entities (related entities) External entities Total unearned revenue 76,387 1,667 64,965 1,148 78,054 66,113 Unearned revenue is expected to be settled in: No more than 12 months More than 12 months Total unearned revenue 77,571 483 65,269 844 78,054 66,113 Note 10C Return of equity Property special account - cash returns Total return of equity 49,642 55,070 49,642 55,070 311,299 (12,683) 259,177 (15,415) 298,616 243,762 172,774 125,842 137,328 106,434 298,616 243,762 2,843 721 585 - 2,510 2,048 6,772 4,149 11,330 4,149 4,149 11,330 11,330 Note 10 Payables Note 10A Suppliers Settlement is usually made within 30 days. The return of equity is expected to be settled within the next 12 months. Note 10D Outstanding insurance claims Outstanding claims - general insurance business: Gross expected future claims payable Discount to present value Total outstanding insurance claims Total outstanding claims are expected to be settled in: No more than 12 months More than 12 months Total outstanding insurance claims Note 10E Other payables Salaries and wages Other payables Separations and redundancies Competitive neutrality tax payable Total other payables Total other payables are expected to be settled in: No more than 12 months Total other payables 48 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 Lease incentives1 Total other interest bearing liabilities 16 16 36 36 Other interest bearing liabilities are expected to be settled in: No more than 12 months More than 12 months Total other interest bearing liabilities 4 12 16 20 16 36 Note 11 1 The Other interest bearing liabilities Department has received incentives in the form of rent-free periods on entering property operating leases. Note 12 Provisions Note 12A Employee provisions Leave Other Total employee provisions 47,449 28 41,401 28 47,477 41,429 Employee provisions are expected to be settled in: No more than 12 months More than 12 months Total employee provisions 37,447 10,030 27,211 14,218 47,477 41,429 Note 12B Other provisions Provision for make good costs2 Provision for remediation costs Total other provisions 922 862 5,497 5,500 6,419 6,362 Other provisions are expected to be settled in: No more than 12 months More than 12 months Total other provisions 5,497 922 579 5,783 6,419 6,362 Reconciliation of other provisions: Carrying amount 1 July 2010 Additional provisions made Amounts reversed Amounts used Unwinding of discount or change in discount rate Closing balance 30 June 2011 2 Provision for restoration $'000 6,362 18 (13) (3) 55 6,419 Total $'000 6,362 18 (13) (3) 55 6,419 The Department currently has 3 agreements for the leasing of premises that have provisions requiring the Department restore the premises to their original condition at the conclusion of the lease. The Department has made a provision to reflect the present value of this obligation. 49 Notes to and forming part of the Financial Statements Note 13 Restructuring Note 13A Departmental restructuring Net assets assumed – current year 2011 $'000 Net assets/(liabilities) assumed from all entities 41,370 The net assets/(liabilities) assumed by each function are set out below. Management of The Lodge and Kirribilli House As a result of a restructuring arising from an Administrative Arrangements Order issued on 14 October 2010, Finance assumed responsibility from the administered accounts of the Department of Prime Minister and Cabinet (PM&C) for the management of the Official Establishments (The Lodge and Kirribilli House). In respect of the function assumed, the book value of the Official Establishments transferred to Finance and recognised as at 30 November 2010 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 41,370 41,370 41,370 Income and expenses for the function assumed were as follows: Income Recognised by Finance from 1 December 2010 Recognised by PM&C administered up to 30 November 2010 Total income Expenses Recognised by Finance from 1 December 2010 Recognised by PM&C administered up to 30 November 2010 Total expenses 50 284 284 267 23 290 Notes to and forming part of the Financial Statements Note 13A Departmental restructuring (continued) Net assets assumed – comparative year 2010 $'000 Net assets/(liabilities) assumed from all entities 16,867 The net assets/(liabilities) assumed by each function are set out below. Media Commissions Special Account (MCSA) On 20 August 2009, Determination 2009/23 was passed to close the Media Commissions Special Account (MCSA), an administered special account, and transferred its balance to the Coordinated Procurement Contracting Special Account (CPCSA), a departmental special account. In respect of the function assumed, the net book value of assets transferred to the Finance departmental CPCSA and recognised as at 31 January 2010 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 14,687 14,687 14,687 Income and expenses for the function assumed was as follows: Income Recognised by Finance departmental from 1 February 2010 Recognised by Finance administered up to 31 January 2010 Total income Expenses Recognised by Finance departmental from 1 February 2010 Recognised by Finance administered up to 31 January 2010 Total expenses 4,035 630 4,665 3,446 608 4,054 Pearls Building The Fisheries Legislation Amendment (New Governance Arrangements for the Australian Fisheries Management Authority and Other Matters) Act 2008 converted Australian Fisheries Management Authority (AFMA) to a commission prescribed under the Financial Management and Accountability Act 1997. Sections 138-143 of the Fisheries Legislation authorises the transfer of title of real property from AFMA to the Commonwealth. A commercial building on Thursday Island known as the Pearls Building was transferred to the Commonwealth and recorded as an asset in the non-defence property portfolio. The Pearls Building is now leased to AFMA to continue their operations. In respect of the function assumed, the book value of assets transferred to Finance and recognised as at 30 June 2010 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 51 2,180 2,180 2,180 Notes to and forming part of the Financial Statements There were no incomes or expenses for the function assumed. Note 13A Departmental restructuring (continued) Net assets relinquished – current year There were no functions relinquished in the current year. Net assets relinquished – comparative year 2010 $'000 Net assets/(liabilities) relinquished from all entities 6,999 The net assets/(liabilities) relinquished by each function are set out below. Office of Evaluation and Audit The Office of Evaluation and Audit (OEA) conducts audits and evaluations to support the Government to improve the operation and effectiveness of programs for Aboriginal and Torres Strait Islander people. OEA was transferred from Finance to the Australian National Audit Office (ANAO) for the purpose of providing better integration and efficiency of like activities. In respect of the function relinquished, the net book value transferred by Finance as at 14 December 2009 was: Assets relinquished Financial assets Non-financial assets Total assets relinquished Liabilities relinquished Payables Provisions Total liabilities relinquished Net assets/(liabilities) relinquished 365 365 (365) Income and expenses for the function relinquished was as follows: Expenses Recognised by ANAO from 15 December 2009 Recognised by Finance up to 14 December 2009 Total expenses 2,449 2,056 4,505 Christmas Island Immigration Detention Centre In 2002-03, responsibility for the management of the design and construction of the Christmas Island Immigration Detention Centre was transferred to Finance. Upon reaching practical completion and being accepted as fit for purpose, a total value of $313.3 million was transferred to the Department of Immigration and Citizenship (DIAC) on 7 April 2008. The project final certificate was issued on 25 March 2010, after which project completion was agreed and final cost was transferred to DIAC. In respect of the function relinquished, the net book transferred by Finance as at 30 June 2010 was: Assets relinquished Financial assets Non-financial assets Total assets relinquished Liabilities relinquished Payables Provisions Total liabilities relinquished Net assets/(liabilities) relinquished There were no incomes or expenses for the function relinquished. 52 7,364 7,364 7,364 Notes to and forming part of the Financial Statements Note 13B Administered restructuring Net assets assumed – current year There were no functions assumed in the current year. Net assets assumed – comparative year 2010 $'000 Net assets/(liabilities) assumed from all entities (761,089) The net assets/(liabilities) assumed by each function are set out below. The Governor-General Pension Scheme The administration and policy responsibility for the Governor General Pension Scheme transferred from PM&C to Finance on 1 July 2009 (Administrative Arrangements Order issued on 6 May 2010). In respect of function assumed, the net book value transferred to Finance as at 1 July 2009 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 16,014 16,014 (16,014) Income and expenses for the functions assumed were as follows: Income Recognised by Finance administered from 1 July 2009 Recognised by PM&C on 1 July 2009 Total income Expenses Recognised by Finance administered from 1 July 2009 Recognised by PM&C on 1 July 2009 Total expenses 865 865 The Judges' Pensions Scheme The administration and policy responsibility for the Judges' Pensions Scheme transferred to Finance from the Attorney General’s Department (AGD) on 1 January 2010 (Administrative Arrangement Orders issued on 6 May 2010). In respect of function assumed, the net book value transferred to Finance as at 1 January 2010 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 53 743,500 743,500 (743,500) Notes to and forming part of the Financial Statements Note 13B Administered restructuring (continued) Income and expenses for the functions assumed were as follows: Income Recognised by Finance administered from 1 January 2010 Recognised by AGD up to 31 December 2009 Total income Expenses Recognised by Finance administered from 1 January 2010 Recognised by AGD up to 31 December 2009 Total expenses 32,500 29,500 62,000 The Federal Magistrates Death and Invalidity Arrangements The administration and policy responsibility for death and invalidity benefits paid to Federal Magistrates transferred to Finance from the Attorney General’s Department on 1 January 2010 (Administrative Arrangement Orders issued on 6 May 2010). In respect of function assumed, the net book value transferred to Finance as at 1 January 2010 was: Assets recognised Financial assets Non-financial assets Total assets recognised Liabilities recognised Payables Provisions Total liabilities recognised Net assets/(liabilities) assumed 1,575 1,575 (1,575) Income and expenses for the functions assumed were as follows: Income Recognised by Finance administered from 1 January 2010 Recognised by AGD up to 31 December 2009 Total income Expenses Recognised by Finance administered from 1 January 2010 Recognised by AGD up to 31 December 2009 Total expenses 54 540 478 1,018 Notes to and forming part of the Financial Statements Net assets relinquished – current year There were no functions relinquished in the current year. Net assets relinquished – comparative year 2010 $'000 Net assets/(liabilities) relinquished from all entities 14,687 The net assets/(liabilities) relinquished by each function are set out below. Media Commissions Special Account On 20 August 2009, Determination 2009/23 was passed to close the Media Commissions Special Account, an administered special account, and transfer its balance to the Coordinated Procurement Contracting Special Account, a departmental special account. In respect of function relinquished, the net book value transferred by Finance administered on 31 January 2010 was: Assets relinquished Financial assets Non-financial assets Total assets relinquished Liabilities relinquished Payables Provisions Total liabilities relinquished Net assets/(liabilities) relinquished 14,687 14,687 14,687 Income and expenses for the function relinquished were as follows: Income Recognised by Finance departmental from 1 February 2010 Recognised by Finance administered up to 31 January 2010 Total income Expenses Recognised by Finance departmental from 1 February 2010 Recognised by Finance administered up to 31 January 2010 Total expenses 55 4,035 630 4,665 3,446 608 4,054 Notes to and forming part of the Financial Statements 30 June 2011 $'000 Note 14 30 June 2010 $'000 Cash flow reconciliation Reconciliation of cash and cash equivalents as per Balance Sheet to Cash Flow Statement Cash and cash equivalents as per: Cash flow statement Balance sheet Difference Reconciliation of net cost of services to net cash from operating activities: Net cost of services Add revenue from Government Less income tax expense Total Adjustments for non-cash items Net gains from sale of assets Revaluation increment Revaluation decrement Other income not providing cash Depreciation and amortisation Net write-down of assets Changes in assets/liabilities (Increase)/decrease in net receivables (Increase)/decrease in accrued revenues (Increase)/decrease in prepayments Increase/(decrease) in employee provisions Increase/(decrease) in other provisions Increase/(decrease) in other debt - lease incentives Increase/(decrease) in outstanding insurance claims Increase/(decrease) in reinsurance and recoveries Increase/(decrease) in other payables - unearned revenue Increase/(decrease) in other payables - other Increase/(decrease) in trade creditor payables Net cash from (used by) operating activities 56 1,631 1,631 3,321 3,321 - - (256,008) 239,800 (13,463) (243,229) 230,691 (12,784) (29,671) (25,322) 389 (1,593) 19,133 383 1,133 (33,034) 102,126 (1,514) 16,266 9 31,764 (5,545) 261 6,048 57 (20) 54,854 11,941 (7,181) (8,819) (57,799) (2,382) 282 673 5,580 (37) 9,178 (5,392) 18,461 3,039 6,941 72,001 38,208 Notes to and forming part of the Financial Statements Note 15 Contingent liabilities and assets Claims for damages/costs 2011 2010 $'000 $'000 Contingent assets Balance from previous period New Total contingent assets Contingent liabilities Balance from previous period Re-measurement Liabilities recognised Obligations expired Total contingent liabilities Net contingent assets (liabilities) Total 2011 $'000 2010 $'000 57 57 - 57 57 - 143 (143) 57 60,143 (10,000) (50,000) 143 (143) 143 (143) 57 60,143 (10,000) (50,000) 143 (143) Quantifiable contingent assets Sharjade v Darwinia - Breach of Heads of Agreement between parties Sharjade is no longer an unquantifiable contingency. The contingent asset is estimated to be $0.06 million. The Sharjade claim has been lost in the NSW Court, Supreme Court and dismissed in the High Court. The Department is now seeking to recover costs supported by a bank guarantee. Unquantifiable contingent liabilities General remediation costs The Commonwealth domestic property portfolio managed by Finance has approximately 100 properties. A small number of these have had potential remediation issues identified that are currently the subject of further investigation. Except to the extent a provision for remediation costs has been raised in Note 12B, to date the majority of these properties have not had a provision recognised as neither the conditions for legal or constructive obligation have been met nor is there a reliable estimate of the obligation available at 30 June 2011. Comcover - insurance claims Comcover provides general insurance services and promotes risk management across the Australian Government. Comcover provides for outstanding claims based on current information as disclosed in Note 10D. The nature of some claims means there is significant uncertainty around these estimates. Current claims that hold a high degree of risk include: WestPoint – shareholders of WestPoint have launched a class action claim against the Australian Securities and Investment Commission. Equine influenza – there are potential insurance claims from the Australian Quarantine Inspection Service arising from the findings of the Callinan Report on Equine Influenza. Insulation scheme – a number of claims have been received in connection with the operation and termination of the Insulation Scheme program managed by the former Department of the Environment, Water, Heritage and the Arts. Superannuation On 20 April 2007, the High Court of Australia found against the Commonwealth on a claim for negligent misstatement relating to superannuation benefits for a former employee of the former Department of the Interior. There is a potential for more claims to arise from other former temporary employees who upon their retirement can demonstrate negligent misstatement over their eligibility to join an Australian Government superannuation scheme. Comcover has assumed responsibility for the claims under its insurance arrangements with the relevant agencies or their predecessors. The liability cannot be reliably measured. Current construction projects 57 Notes to and forming part of the Financial Statements There is the potential liability for costs relating to delays or rectification of some projects. Davis Samuel case The Department is subject to a counter claim in relation to legal action before the ACT Supreme Court. The counter claim is subject to sufficient uncertainty that it is not possible to quantify the amount, if any, of the liability. The Department is defending this case and judgement is yet to be handed down. Unquantifiable contingent assets ACT / NSW border properties There are a number of various sized parcels of land that are the residue of larger holdings that were acquired by compulsory acquisition of NSW lands (in favour of the Commonwealth) as part of the creation of the ACT. Due diligence is being carried out to confirm title ownership (Commonwealth or NSW Government), obtain formal titles, zoning, boundaries and values of each property. Davis Samuel case The Department is engaged in legal action seeking recovery of funds misappropriated during 1997-98. Hearing of the Commonwealth’s claim concluded in the ACT Supreme Court in September 2008. Recent advice suggests judgement is not expected to be handed down before the end of 2011. 58 Notes to and forming part of the Financial Statements Note 16 General insurance activities Accounting estimates and judgements (a) The ultimate liability arising from claims made under the insurance contracts The estimation of claims incurred but not reported (IBNR) is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Department, where more information about the claim event is generally available. In calculating the estimated cost of unpaid claims the Department uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the development pattern of the current claims will be reasonably consistent with experience. Allowance is made, however, for changes or uncertainties that may create distortions in the underlying statistics or that might cause the cost of unsettled claims to increase or decrease when compared with the cost of previously settled claims including: Changes in the economic environment; Changes in the mix of business; Medical and technological development; Changes in benefit structures or policy coverage; and Changes in claims management practice. Provisions are calculated gross of all recoveries. A separate estimate is made of the amounts that will be recoverable from third parties and from reinsurers based upon the gross provisions. These decreasing adjustments are estimated as a percentage of the gross claims liability based on the historical claims experience. The decreasing adjustments vary by class of business. (b) Actuarial assumptions and methods The risks covered by the Department can be classified into the following groups: Property; Commercial motor vehicle; Public liability (including Directors and Officers and medical malpractice); Professional indemnity; Aviation & marine liability; and Miscellaneous (including accidents and other classes). Both public liability and professional indemnity risks are on a 'claims made' basis, whereas all other risks are on a 'claims incurred' basis. (c) Process used to determine outstanding claims liabilities (actuarial methods) The general approach to actuarial estimation of the outstanding claims liabilities is to analyse all available experience, including numbers of reported claims, amounts of claim payments, changes in case estimates and incurred loss ratios. This analysis allows patterns to be identified in the experience. Based on this, development patterns associated with the run-off of outstanding claims at the balance date can be estimated. The determination of the outstanding claims liabilities involves three steps: The determination of the central estimate of outstanding claims at the balance date. The central estimate of outstanding claims includes an allowance for claims incurred but not reported (IBNR) and claims incurred but not enough reported (IBNER). A provision is made for claims of negligent misstatement regarding superannuation scheme eligibility except where the claimant has not yet retired or incurred a loss. The central estimate has no deliberate bias towards either over or under estimation. The determination of a claims handling expense allowance to be added to the central estimate of outstanding claims. The determination of a risk margin provision to be added to the central estimate of outstanding claims. Property, motor and miscellaneous Separate analyses are carried out for small and large claims. Large claims are defined as those claims with reported incurred costs greater than a defined limit (being $100,000 for property and $50,000 for motor and miscellaneous). For small claims, the standard actuarial run off techniques of payment per claim incurred, projected case estimates and incurred claim development methods have been adopted in the determination of the central estimate of the outstanding claims liability for this risk. 59 Notes to and forming part of the Financial Statements Note 16 General insurance activities (continued) For large claims, the standard actuarial method known as the ‘Bornhuetter-Ferguson’ method has been adopted in the determination of the central estimate of the outstanding claims liability for the Property portfolio. For the other portfolios, the large claims historical experience has been too sparse for standard actuarial analysis. Hence, a multiple of assumed number of IBNR claims and average claim size has been adopted as the central estimate of the outstanding claims liability. Public liability and professional indemnity Separate analyses were carried out for the incurred costs of claims capped at a defined limit ($188,632 for each class) and any incurred costs above the cap. For the capped component, the standard actuarial run off techniques of payments per claim incurred, BornhuetterFerguson and projected case estimates have been adopted in the determination of the central estimate of the outstanding claims liability. The above capped component however is highly variable due to the sparse claims experience and relative immaturity of Comcover’s portfolio (around ten years of experience). It is less suited to estimation by statistical analysis and hence any assessment of its contribution to the outstanding claims liability carries a heavier judgemental component. The actuarial ‘Bornhuetter-Ferguson’ method has been adopted in determination of the central estimate for these portfolios. Aviation and marine liability Separate analyses were carried out for small and large claims. Large claims are defined as those claims with reported incurred costs greater than a defined limit (being $100,000). Due to the sparse experience of this class of business, judgement was involved in estimating the outstanding claims liability for both small and large claims. In both cases, the ‘Bornhuetter-Ferguson’ method has been used to estimate the liability. (d) Process used to determine risk margin The central estimate of the outstanding claims liability determined under the methods described above contain no deliberate bias towards under or over estimation. This does not necessarily mean that they will have a 50% probability of adequacy, as the distribution of general insurance claims is normally skewed, so that the central estimate provides a probability of sufficiency in excess of 50%. These estimates can be increased by a margin to provide a higher probability of being sufficient. The overall risk margin is adopted by the Department after considering the uncertainty in the portfolio, industry trends and the Department’s risk appetite. The adopted risk margin for the outstanding claims liabilities as at 30 June 2011 is approximately 20% of the net outstanding claims liability (inclusive of claims handling expenses). (e) Key actuarial assumptions The key actuarial assumptions for the determination of the outstanding claims liabilities are set out in the table below. Assumption Classes 2011 2010 Claims handling expense Discount rate All classes All classes Public liability and professional indemnity aviation and marine liability Property, motor vehicle and miscellaneous Property, public liability and professional indemnity Public liability (above cap) Professional indemnity (above cap) Professional indemnity Property (large claims) Public liability 3.1% 4.4% to 5.9% 4.3% to 5.0% 3.6% 4.4% to 5.9% 3.5% to 4.3% 3.0% 3.0% $184,712,496 $137,385,092 30% to 55% 75% 35% 92% $13,840 30% to 55% 75% 25% 35% to 94% $12,770 Claims inflation Size of very large claims Bornhuetter-Ferguson loss ratio Average claim size (capped component) Figures are in the current values, i.e. assumptions as at 30 June 2011 are in 30 June 2011 values, whilst those as at 30 June 2010 are in 30 June 2010 values. 60 Notes to and forming part of the Financial Statements Note 16 General insurance activities (continued) (f) Process used to determine actuarial assumptions Claims handling expense The adopted claims handling expense rate of 3.1% of the projected gross claim payments has been determined based on similar benchmark portfolios. Discount rate The future investment earnings assumptions are estimates of the future annual risk free rates of return. They have been derived from the yield curve on Australian Government Bonds as at 30 June 2011. Claims inflation The assumed claims inflation rates have been based on Access Economics’ five year forecast of wage inflation with an assumption of 4.4% to 5.9% per annum for the long-tail classes, and with an assumption of 3.0% per annum for the shorttail classes. Results of the investigations of past claims inflation in excess of wage inflation, referred to as superimposed inflation, indicated no evidence of superimposed inflation. Average claim size (capped component of public liability class) The average claim size assumptions for the capped component of claims costs have been based on the results of an investigation of Comcover claims experience. Bornhuetter-Ferguson loss ratios The Bornhuetter-Ferguson loss ratios have been based on investigations of Comcover’s claims experience, with consideration also given to differences in premium levels between different years. Very large claims There have been numerous claims reported over which there is a degree of uncertainty. The assumed size of these claims for the valuation (on an inflated and discounted central estimate basis) is a key assumption. 61 Notes to and forming part of the Financial Statements Note 16 (g) General insurance activities (continued) Sensitivity analysis The outstanding claims liabilities included in the reported results are calculated based on some key actuarial assumptions as disclosed above. The movement in any of the above key actuarial assumptions will impact the performance and balance of the Comcover special account. The tables below describe how a change in each of the assumptions will affect the total net outstanding claims liabilities including risk margins. Assumption Claims handling expense Discount rate Claims inflation Total size of reported large claims Bornhuetter-Ferguson loss ratios (above cap) Average claim size (capped component) Bornhuetter-Ferguson loss ratios (capped) Bornhuetter-Ferguson loss ratios (large claims) (h) Classes All Classes All Classes All Classes All Classes Public liability and professional indemnity Public liability and professional indemnity All Classes All Classes Public liability Public liability Professional indemnity Professional indemnity Public liability Public liability Professional indemnity Professional indemnity Property Property Adjusted amounts Statement of Statement of Comprehensive Comprehensive Income - gross Income - net of of reinsurance reinsurance 2,914 2,914 (2,914) (2,914) (3,056) (2,663) 3,156 2,749 1,695 1,614 Movement +1% -1% +1% -1% +1% Impact on outstanding claims liabilities 2,914 (2,914) (3,056) 3,156 1,695 -1% (1,667) (1,667) (1,587) 1,587 +10% -10% +10% -10% +10% -10% +10% -10% +10% -10% +10% -10% 4,148 (4,148) 3,137 (3,137) 675 (675) 904 (904) 76 (76) 687 (687) 4,148 (4,148) 3,137 (3,137) 675 (675) 904 (904) 76 (76) 687 (687) 4,148 (4,148) 3,137 (3,137) 675 (675) 904 (904) 76 (76) 687 (687) (4,148) 4,148 (3,137) 3,137 (675) 675 (904) 904 (76) 76 (687) 687 Equity 2,914 (2,914) 2,663 (2,749) (1,614) Impact of changes to key assumptions The movement in assumptions for claims handling expenses, discount rate and claims inflation are the absolute movement in the assumption (e.g. +1% increases the claims handling expenses from 3.1% to 4.1%) while the movement for other assumptions is a pro-rata change to the assumption. The most significant change to the net outstanding claims liabilities is the adverse development of the reported large claims (claims with outstanding claims estimate above $5 million at 30 June 2011). The next largest change to the net outstanding claims liabilities from a change in assumptions arises from changes in discount rates, followed by claims inflation. 62 Notes to and forming part of the Financial Statements Note 16 (i) General insurance activities (continued) Net claims incurred table 2010-11 2009-10 Current year $'000 Prior year $'000 Total $'000 Current year $'000 Prior year $'000 Total $'000 Direct business expenses Gross claims incurred and related expenses - undiscounted Reinsurance and other recoveries - undiscounted Net claims incurred - undiscounted 144,557 (740) 143,817 40,806 (56,203) (15,397) 185,363 (56,943) 128,420 64,927 (682) 64,245 (2,316) 10,804 8,488 62,611 10,122 72,733 Discount and discount movement - gross claims incurred Discount and discount movement - reinsurance and other recoveries Net discount movement Net claims incurred (4,870) 7 (4,863) 138,954 7,601 (1,477) 6,124 (9,273) 2,731 (1,470) 1,261 129,681 (3,617) 7 (3,610) 60,635 3,063 258 3,321 11,809 (554) 265 (289) 72,444 30,966 - 30,966 29,928 - 29,928 Other underwriting expenses Other underwriting expenses Claims background Claims paid 2010-11 policy year Claims paid prior policy years Claims not settled Estimated claims incurred but not reported 63 $'000 8,416 124,824 160,149 138,467 Notes to and forming part of the Financial Statements Note 16 (j) General insurance activities (continued) Reinsurance and other recoveries receivable 2011 $'000 2010 $'000 Reinsurance and other recoveries - current Reinsurance and other recoveries - non current Total 18,985 15,248 34,233 23,601 25,588 49,189 The reinsurance and other recoveries comprise expected future reinsurance recoveries: - on outstanding claims liability Total reinsurance and other recoveries receivable 34,233 34,233 49,189 49,189 311,299 (12,683) 298,616 259,177 (15,415) 243,762 Discounting effect Outstanding claims - general insurance business: Expected future claims payments (undiscounted) Discount to present value Total The weighted average expected term to settlement from the reporting date of the outstanding claims is estimated to be 1.15 years. The following average inflation rates and discount rates were used in measuring the liability of outstanding claims. Claims expected to be paid: Not later than one year Later than one year Inflation rate Discount rate 3.0% to 4.25% 4.8% Inflation rate Discount rate 3.0% to 4.5% 4.8% to 5.8% Reconciliation of changes in net discounted liability Gross Balance as at 1 July 2010 Current year claims incurred Change in previous year's outstanding claims liability Current year claims paid Previous year claims paid Effect of change in discount rate Balance as at 30 June 2011 64 $'000 243,762 139,425 48,236 (8,416) (124,824) 433 298,616 Reinsurance and other recoveries $'000 (49,189) (733) (57,552) 244 73,126 (129) (34,233) Net $'000 194,573 138,692 (9,316) (8,172) (51,698) 304 264,383 Notes to and forming part of the Financial Statements Note 16 (k) General insurance activities (continued) Claims development table Prior $'000 2002 $'000 2003 $'000 2004 $'000 2005 $'000 2006 $'000 2007 $'000 2008 $'000 2009 $'000 2010 $'000 2011 $'000 64,177 49,367 48,285 41,933 38,732 35,803 35,707 39,597 39,924 39,960 122,334 93,139 74,359 66,172 57,472 72,715 150,573 162,858 211,977 69,428 50,990 38,378 25,527 25,163 34,096 40,157 39,889 44,375 27,556 32,291 31,994 45,030 38,133 38,756 58,575 74,992 73,810 64,399 64,386 61,741 69,131 72,995 64,753 59,706 60,625 60,543 56,296 52,022 55,135 55,992 50,162 53,726 61,744 55,743 140,720 40,936 39,960 211,977 39,889 38,756 61,741 60,625 55,135 53,726 55,743 140,720 799,208 33,497 7,439 82 1,621 9,142 32,978 6,982 225 (350) 6,857 204,736 7,241 144 (208) 7,177 31,169 8,720 47 (479) 8,288 18,320 20,436 59 (1,243) 19,252 48,908 12,833 403 (755) 12,481 45,891 14,734 416 (570) 14,580 27,128 28,007 802 (1,805) 27,004 26,163 27,563 690 (1,615) 26,638 18,523 37,220 1,117 (2,410) 35,927 8,155 132,565 3,575 (4,870) 131,270 495,468 303,740 7,560 (12,684) 298,616 25,782 18,042 16,389 14,275 16,190 13,650 18,792 17,332 17,643 17,709 108,591 84,412 65,839 59,884 50,769 66,044 77,983 80,977 87,510 61,120 43,458 31,490 23,555 23,225 31,825 30,858 30,532 39,738 25,205 22,071 22,291 19,325 19,748 20,271 55,126 72,476 68,035 62,476 61,263 58,654 64,329 68,745 58,046 55,802 56,381 58,590 55,193 50,998 53,913 54,512 49,437 53,002 61,063 55,036 139,980 30,676 17,709 87,510 30,532 20,271 58,654 56,381 53,913 53,002 55,036 139,980 603,664 23,237 7,439 82 1,621 9,142 17,651 58 225 (14) 269 81,676 5,834 144 (125) 5,853 29,236 1,296 47 (68) 1,275 17,860 2,411 59 (119) 2,351 45,814 12,840 403 (755) 12,488 43,503 12,878 416 (445) 12,849 26,096 27,817 801 (1,799) 26,819 25,441 27,561 690 (1,615) 26,636 17,822 37,214 1,117 (2,410) 35,921 7,912 132,068 3,575 (4,863) 130,780 336,248 267,416 7,559 (10,592) 264,383 Estimate of gross ultimate claims costs At end of first year One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Current estimate of ultimate claims cost Cumulative payments to date Undiscounted gross provision Claim handling expense Discounting impact Discounted gross provision Estimate of net ultimate claims costs At end of first year One year later Two years later Three years later Four years later Five years later Six years later Seven years later Eight years later Nine years later Current estimate of ultimate claims cost Cumulative payments to date Undiscounted net provision Claim handling expense Discounting impact Discounted net provision 65 Total $'000 Notes to and forming part of the Financial Statements Note 17 Senior executive remuneration Note 17A Actual remuneration expensed during the reporting period Short-term employee benefits: Salary (including annual leave taken) Annual leave accrued Executive vehicle scheme Other benefits Total short-term employee benefits Post-employment benefits: Superannuation Total post-employment benefits Other long-term benefits: Long-service leave Total other long-term benefits Termination benefits Total 30 June 2011 $ 30 June 2010 $ 16,709,732 1,455,328 1,658,694 709,753 20,533,507 14,954,869 1,417,162 1,633,985 686,192 18,692,208 2,983,771 2,983,771 2,930,887 2,930,887 743,236 743,236 1,072,955 1,072,955 203,195 24,463,709 22,696,050 Note 17A excludes acting arrangements and part-year services where remuneration expensed is less than $150,000. 66 Notes to and forming part of the Financial Statements Note 17B Average annual remuneration packages for substantive senior executives as at the end of the reporting period Fixed elements and bonus paid1 Total remuneration (including part-time arrangements): $150,000 to $179,999 $180,000 to $209,999 $210,000 to $239,999 $240,000 to $269,999 $270,000 to $299,999 $300,000 to $329,999 $390,000 to $419,999 $420,000 to $449,999 Total Senior Executives No. 30 40 10 6 2 4 1 93 As at 30 June 2011 Fixed elements Salary Allowances Total $ $ $ Bonus paid2 $ 146,953 166,275 198,790 224,240 252,500 283,550 429,720 25,000 25,000 25,000 25,000 25,000 25,000 - 171,953 191,275 223,790 249,240 277,500 308,550 429,720 - Senior Executives No. 42 32 17 3 3 1 1 99 As at 30 June 2010 Fixed elements Salary Allowances Total $ $ $ Bonus paid2 $ 144,955 167,371 198,155 230,617 272,815 282,118 412,787 - 25,000 25,000 25,000 25,000 25,000 25,000 - 169,955 192,371 223,155 255,617 297,815 307,118 412,787 - 6,906 8,679 11,631 10,540 20,799 - Notes: 1. This table reports on substantive senior executives who were employed by Finance on the reporting date. Fixed elements are based on the employment agreement of each individual – each row represents an average figure (based on head count) for the individuals in that remuneration package band (i.e. the ‘Total’ column). 2. Represents average actual bonuses paid during the reporting period. The ‘Bonus paid’ is excluded from the ‘Total’ calculation (for the purpose of determining remuneration package bands). Bonus arrangements ceased in 2009-10 as under the Individual Section 24.1 (Public Service Act 1999) Determination for SES Officers, there is no provision for the payment of performance bonuses. A percentage of their bonus was rolled into base salary in the 2009-10 financial year for those who were eligible. 67 Notes to and forming part of the Financial Statements Variable Elements: With the exception of bonuses, variable elements were not included in the 'Fixed elements and bonus paid' table above. The following variable elements were available as part of senior executives' remuneration package: (a) On average senior executives were entitled to the following leave entitlements: Annual leave (AL): entitled to 20 days (2010: 20 days) each full year worked (pro-rata for part-time SES); Personal leave (PL): entitled to 18 days (2010: 18 days) or part-time equivalent; Long service leave (LSL): in accordance with Long Service Leave (Commonwealth Employees) Act 1976; and Supplementary leave: entitled to 5 days or part-time equivalent (2010:5 days) where the Secretary or Deputy Secretary has agreed to provide additional paid leave in recognition of significant additional hours worked over an extended period. (b) Senior executives were members of one of the following superannuation funds: Australian Government Employee Superannuation Trust (AGEST): this fund is for employees' who may elect to join a compliant fund. Employer contributions were set at 15.4%. More information on AGEST can be found at http://www.agest.com.au; Commonwealth Superannuation Scheme (CSS): this scheme is closed to new members, and employer contributions averaged 21.73% in 2010-11 (including productivity component). More information on CSS can be found at http://www.css.gov.au; Public Sector Superannuation Scheme (PSS): this scheme is closed to new members, with current employer contributions set at 16.2% in 2010-11 (including productivity component). More information on PSS can be found at http://www.pss.gov.au; Public Sector Superannuation Accumulation Plan (PSSap): employer contributions were set at 15.4% (2010: 15.4%), and the fund has been in operation since July 2005. More information on PSSap can be found at http://www.pssap.gov.au; and Other: there were some senior executives who had their own superannuation arrangements (e.g. selfmanaged superannuation funds). Their employer contributions were set at 15.4%. (c) Variable allowances: There are no variable allowances. (d) Others: Various salary sacrifice arrangements were available to senior executives including super, motor vehicle and expense payment fringe benefits. Note 17C Other highly paid staff During the reporting period, there were 2 employees whose salary plus performance bonus were $150,000 or more. These employees did not have a role as senior executive and were therefore not disclosed as senior executives in Note 17A and Note 17B. 68 Notes to and forming part of the Financial Statements Note 18 Remuneration of auditors 30 June 2011 $'000 30 June 2010 $'000 668 710 7 668 710 7 1,385 1,385 Financial statement audit services were provided free of charge to the Department. The fair value of the services provided was: Finance’s financial statements Whole-of-Government financial statements Advance to the Finance Minister Total fair value of services provided No other services were provided by the auditors of the financial statements. 69 Notes to and forming part of the Financial Statements Note 19 30 June 2011 $'000 30 June 2010 $'000 1,620 65,827 8,772 3,314 44,376 3,227 76,219 50,917 - 2 76,219 2 50,919 19,231 693 16 21,304 1,889 36 19,940 19,940 23,229 23,229 (9) (9) (9) (9) - 6 (9) 6 (3) Financial instruments Note 19A Categories of financial instruments Financial assets Loans and receivables: Cash and cash equivalents Trade and other receivables Accrued revenue Total Fair value through profit and loss (designated): Loans Total Carrying amount of financial assets Financial liabilities At amortised cost: Suppliers Other payables Lease incentives Total Carrying amount of financial liabilities Note 19B Net income and expense from financial assets Loans and receivables Impairment Net gain (loss) loans and receivables Fair value through profit and loss Designated as fair value through profit and loss: Interest revenue Net gain (loss) at fair value through profit and loss Net gain (loss) from financial assets The net income/(expense) from financial assets not at fair value from profit and loss for 2010-11 is ($0.009 million) (2009-10: ($0.009 million)). Note 19C Net income and expense from financial liabilities There was no net income and expense from financial liabilities not at fair value through profit and loss for the current and prior years. Note 19D Fair value of financial instruments The carrying values of the Department's financial assets and liabilities are a reasonable approximation of their fair values. Loans and receivables designated at fair value through profit and loss There are no changes in the fair value of loans and receivables designated at fair value through profit and loss that arise due to credit risk for the current and prior years. 70 Notes to and forming part of the Financial Statements Note 19D Fair value of financial instruments (continued) Fair value measurements recognised in the Statement of Comprehensive Income The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Level in the fair value hierarchy: Financial assets Loans Total financial assets at fair value Financial assets Loans Total financial assets at fair value Level 3 2011 $'000 Total 2011 $'000 - - Level 3 2010 $'000 Total 2010 $'000 2 2 2 2 Reconciliation of Level 3 fair value hierarchy The following table presents the movement in level 3 instruments for the period ended 30 June 2011: Level 3 2011 $'000 Financial assets at fair value 2 Opening balance (2) Loan repayments Closing balance - Note 19E Level 3 2010 $'000 17 (15) 2 Financial liabilities designated at fair value through profit and loss Cumulative changes in credit risk of financial liabilities designated at fair value through profit and loss The Department has no financial liabilities designated at fair value through profit and loss. Note 19F Financial assets reclassified No financial assets were reclassified in the current and prior years. 71 Notes to and forming part of the Financial Statements Note 19G Credit risk The Department is exposed to minimal credit risk. The maximum exposure to credit risk is to the risk that arises from the potential default of a debtor. This amount is equal to the total amount of financial assets (2011: $74.6 million and 2010: $47.6 million). The Department’s maximum exposure to credit risk at reporting date in relation to each class of recognised financial assets is the carrying amount of those assets as indicated in the balance sheet. Credit terms for trade and other receivables are generally net 30 days. Loans are made under contract with varying terms to maturity and fixed interest rates. Trade and other receivables as at 30 June are primarily due from other Government agencies as part of a coordinated procurement activity that Finance is managing on behalf of the Commonwealth. The credit risk is assessed as minimal. The Department holds no collateral to mitigate against credit risk. The following table illustrates the Department’s gross exposure to credit risk, excluding any collateral or credit enhancements: 2011 2010 $'000 $'000 Financial assets 65,827 Trade and other receivables 44,376 8,772 Accrued revenue 3,227 Loans 2 Total 74,599 47,605 Financial liabilities Suppliers Other payables Lease incentives Total (19,231) (693) (16) (19,940) Credit quality of financial instruments not past due or individually determined as impaired Not past Not past Past due or due nor impaired due nor impaired impaired 2011 2011 2010 $'000 $'000 $'000 Financial assets 1,620 Cash and cash equivalents 3,314 13,293 52,534 Trade and other receivables 35,584 8,772 Accrued revenue 3,227 Loans 2 Total 23,685 52,534 42,127 Ageing of financial assets that were past due but not impaired for 2011 0 to 30 31 to 60 61 to 90 days days days $'000 $'000 $'000 49,588 1,160 40 Trade and other receivables Total 49,588 1,160 40 Ageing of financial assets that were past due but not impaired for 2010 0 to 30 days 31 to 60 days $'000 $'000 Trade and other receivables 2,521 654 Total 2,521 654 There are no financial assets that have been assessed as impaired. 72 61 to 90 days $'000 768 768 (21,304) (1,889) (36) (23,229) Past due or impaired 2010 $'000 8,792 8,792 90+ days Total $'000 1,746 1,746 $'000 52,534 52,534 90+ days Total $'000 4,849 4,849 $'000 8,792 8,792 Notes to and forming part of the Financial Statements Note 19H Liquidity risk The Department's financial liabilities are payables, finance leases and other interest bearing liabilities. The exposure to liquidity risk is based on the notion that the Department will encounter difficulty in meeting its obligations associated with financial liabilities. This is highly unlikely due to appropriation funding, mechanisms available to the Department (e.g. Advance to the Finance Minister) and internal policies and procedures put in place to ensure there are appropriate resources to meet its financial obligations. The Department is appropriation funded from the Australian Government. The Department manages its funds to ensure it has adequate funds to meet payments as they fall due. In addition, the Department has policies in place to ensure payments are made when due and has no experience of default. The following tables illustrate the maturities for financial liabilities. Maturities for non-derivative financial liabilities 2011 On Within 1 demand year $'000 $'000 5,802 13,429 Suppliers 125 568 Other payables 4 Lease incentives Total 5,927 14,001 1 to 2 years $'000 4 4 2 to 5 years $'000 8 8 >5 years $'000 - Maturities for non-derivative financial liabilities 2010 On demand $'000 Suppliers 21,304 Other payables 1,889 Lease incentives 15 Total 23,208 1 to 2 years $'000 4 4 2 to 5 years $'000 11 11 >5 years $'000 2 2 Within 1 year $'000 4 4 Total $'000 19,231 693 16 19,940 Total $'000 21,304 1,889 36 23,229 The Department has no derivative financial liabilities in both the current and prior year. Note 19I Market risk The Department holds basic financial instruments that are not exposed to significant market risks. The Department is not exposed to currency risk or other price risk. The only interest bearing items on the balance sheet are loans, leases and other interest bearing liabilities. Loans and leases bear interest at a fixed rate and will not fluctuate due to changes in the market interest rate. Note 19J Assets pledged or held as collateral The Department has not pledged any assets as collateral, nor does it hold any assets as collateral. Note 19K Concessional loans The Department has no concessional loans. 73 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 4,533 213 4,746 5,183 5,183 Note 20B Interest Government securities Housing agreements Nation-building Funds investments Deposits State and Territory governments Total interest 1,431 17,732 58,823 35,620 798 114,404 1,620 18,124 28,581 27,165 1,294 76,784 Note 20C Dividends Commonwealth entities Total dividends 455,787 455,787 66,143 66,143 254,815 1,087,631 1,879 1,344,325 264,058 1,083,725 2,113 1,349,896 7,229 3,321 10,550 262 9,107 630 3,127 13,126 1,929,812 1,511,132 Note 20 Income administered on behalf of Government REVENUE Non-taxation revenue Note 20A Rendering of services Rendering of services - related entities Rendering of services - external parties Total rendering of services Note 20D Superannuation contributions Commonwealth Superannuation Scheme Public Sector Superannuation Scheme Parliamentary Contributory Superannuation Scheme Total superannuation contributions Note 20E Other revenue Donations received Recovery of superannuation overpayments Media commission Other Total other revenue Total revenue administered on behalf of Government 74 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 - 42 42 215,856 80,087 293,516 114,623 14,827 2,203 721,112 426,648 63,743 187,328 82,379 10,872 2,508 773,478 Net unrealised gains in the fair value of investments Net foreign currency gains1 Resources received free of charge Assets recognised for the first time Reversal of prior year expenses Total other gains 1,785,656 3,783 48,874 2,559,425 147,830 263,946 3,857 298 80,261 1,269,670 Total gains administered on behalf of Government 2,559,425 1,269,712 Total income administered on behalf of Government 4,489,237 2,780,844 GAINS Note 20F Reversals of previous asset write-downs Reversal of impairment losses Total reversals of previous asset write-downs Note 20G Other gains Realised gains on fair value investments: Interest - bank bills and negotiable certificate of deposits Interest - mortgage backed securities Interest - corporate debt securities Interest - government debt securities Interest - asset backed securities Interest - other Total realised gains on fair value investments 1 This is partly offset by $1,500.4 million (2009-10: $260.9 million) losses reported in Note 21I. 75 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 141,253 131,419 17,311 8,228 13,315 6,563 8,436 6,972 20 202,098 17,052 6,484 14,972 1,616 9,195 6,616 27,940 215,294 3,342,221 2,884,371 51,582 71,326 3,327,617 2,443,321 53,712 33,885 6,349,500 5,858,535 31,330 35,257 49,236 11,700 3,756 15,145 13,747 7,735 22,157 31,910 50,590 9,409 4,182 18,857 14,437 7,881 167,906 159,423 Goods and services are made up of: Provision of goods - external parties Rendering of services - related entities Rendering of services - external parties Total goods and services 33,354 1,859 132,693 24,294 1,856 133,273 167,906 159,423 Other supplier expenses Operating lease rentals - external parties: Minimum lease payments Workers compensation premiums Total other supplier expenses Total suppliers 28,794 1,377 29,032 1,029 30,171 198,077 30,061 189,484 666 651 666 651 Note 21 Expenses administered on behalf of Government Note 21A Employee benefits Wages and salaries Superannuation: Defined contribution plans Defined benefit plans Leave and other entitlements Separations and redundancies Fringe benefits tax Other employee expenses Increase in post employment benefits liability Total employee benefits Note 21B Superannuation Commonwealth Superannuation Scheme (CSS) Public Sector Superannuation Scheme (PSS) Parliamentary Contributory Superannuation Scheme (PCSS) Other superannuation schemes Total superannuation expense Note 21C Suppliers Goods and services Printing and stationery Fees and charges Travel expenses Property operating expenses COMCAR operating expenses Communication and other office expenses Outsourcing costs Other goods and services Total goods and services Note 21D Grants Private sector: Non-profit organisations Total grants 76 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 18,300 6,553 10,327 5,425 24,853 15,752 201 227 201 25,054 227 15,979 13 - 4 4,541 13 4,545 Note 21G Finance costs Notional interest 133 24 Total finance costs 133 24 Note 21H Other expenses Act of Grace payments Movement in Act of Grace provision Payments to Nation-building Funds Portfolio Special Accounts 707 2,114 2,420,672 571 2,730 2,000,451 Total other expenses 2,423,493 2,003,752 924,908 575,503 260,860 1,500,411 260,860 (4,087) 7,015 - 2,928 - 214 81 214 81 (40) 63 (254) 181 23 (73) (4,127) 7,292 (254) 262 3,165 8 10,702,610 8,549,132 Note 21E Depreciation and amortisation Depreciation: Buildings Property, plant and equipment Total depreciation Amortisation: Intangibles Total amortisation Total depreciation and amortisation Note 21F Write-down and impairment of assets Impairment on receivables Write down of Administered investments Total write-down and impairment of assets Note 21I Other losses Net unrealised changes in fair value of financial investments Realised losses on disposal of fair value investments Total other losses1 1 This is offset by $1,785.7 million (2009-10: $263.9 million) gains reported in Note 20G. Note 21J Losses from asset sales Financial assets – administered investments: Proceeds from sale Carrying value of asset sold Net loss from liquidation of financial assets Land and buildings: Carrying value asset sold Net loss from disposal of land and buildings Property, plant and equipment: Proceeds from sale Carrying value of asset sold Net loss from disposal of property, plant and equipment Total proceeds from disposals Total value of assets disposed Net loss from disposal of assets Total expenses administered on behalf of Government 77 Notes to and forming part of the Financial Statements Note 22 30 June 2011 $'000 30 June 2010 $'000 (746,617) 1 1,523 (745,093) (1,530,690) 1 9,893 (1,520,796) Assets administered on behalf of Government FINANCIAL ASSETS Note 22A Cash and cash equivalents Official Public Account1 Cash on hand Department of Finance and Deregulation bank account Total cash and cash equivalents 1 The Official Public Account (OPA) represents the Australian Government's central bank accounts held with the Reserve Bank of Australia. These accounts are managed by the Department of Finance and Deregulation for central drawing and receipting of funds to and from Financial Management and Accountability Act 1997 agencies. The balance of cash at bank disclosed does not include the agencies bank balances swept to the OPA each night under devolved banking arrangements, as they are reported by the individual agencies. The balance of cash at bank is net of the Australian Government's surplus funds, invested by the Australian Office of Financial Management, which causes the negative position (surplus funds are determined by subtracting minimum working capital requirements from the sum of the OPA and agencies bank accounts). Note 22B Receivables Goods and services: Goods and services receivable - related entities Goods and services receivable - external parties GST receivable from Australian Taxation Office Total goods and services 841 2,207 1,519 475 1,316 1,339 4,567 3,130 172,638 172,638 178,480 178,480 11,000 39,021 17,797 - 50,021 227,226 15 227,211 17,797 199,407 5 199,402 Loans: Concessional loans - state and territory governments2 Total loans Other receivables: Dividends receivable Unsettled investment sales Total other receivables Total receivables (gross) Less: allowance for impairment Total receivables (net) 2 States and Territories loans have been measured at amortised cost using the effective interest method as at the earliest practicable date to determine the retrospective effect of applying AASB 139 Financial Instruments: Recognition and Measurement. A 10 year long term bond rate at the earliest practicable date for each loan has been applied to calculate discounts on the concessional loans (refer Note 26H). 78 Notes to and forming part of the Financial Statements Note 22B 30 June 2011 $'000 30 June 2010 $'000 59,511 167,700 32,256 167,146 227,211 199,402 226,819 191,765 139 5 108 155 6,893 351 280 118 227,226 199,407 - 5 15 - 15 5 Goods and services $'000 Total $'000 5 (3) 13 15 5 (3) 13 15 Goods and services $'000 Total $'000 43 (42) 4 43 (42) 4 5 5 Receivables (continued) Receivables are expected to be recovered in: No more than 12 months More than 12 months Total receivables (net) Receivables were aged as follows: Not overdue Overdue by: Less than 30 days 30 to 60 days 61 to 90 days More than 90 days Total receivables (gross) The impairment allowance account is aged as follows: Not overdue Overdue by: More than 90 days Total impairment allowance account Reconciliation of the impairment allowance account Movement in relation to 2011 Opening balance Amounts recovered and reversed Increase/decrease recognised in net surplus Closing balance Movement in relation to 2010 Opening balance Amounts recovered and reversed Increase/decrease recognised in net surplus Closing balance 79 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 15,506 22,112 15,506 22,112 4,310,281 113,269 4,583,400 148,644 4,423,550 4,732,044 173,397 3,526,761 6,488,174 3,132,655 2,276,629 604,259 89,396 461,515 5,746,162 6,205,720 2,535,230 3,001,336 751,555 118,769 16,291,271 18,820,287 159,748 20,678 30,414 937 180,426 31,351 Note 22C Investments Securities Government securities1 Total securities Commonwealth companies2: Government Business Enterprises (GBEs) Non-GBEs Total Commonwealth companies Nation-building Funds investments at fair value3: Interest bearing securities: Bank bills Negotiable certificate of deposit Corporate debt securities Mortgage backed securities Government debt securities Asset backed securities Other income fixed securities Total interest bearing securities Derivatives: Currency contracts Interest swap agreements Total derivatives Cash and cash equivalents held by NBF Total Nation-building Funds investments at fair value Other investments: Investments in other entities Total other investments Total investments Investments are expected to be recovered in: No more than 12 months More than 12 months Total investments 1,318,564 1,652,789 17,790,261 20,504,427 - 61 22,229,317 61 25,258,644 17,888,381 4,340,936 20,507,102 4,751,542 22,229,317 25,258,644 1 These consist of assets of former Superannuation schemes administered by the Australian Government. 2 All of the investments in Commonwealth companies are 100% owned by the Commonwealth. The names of each of the Commonwealth companies held, and their principle activities, are as follows: ASC Pty Ltd – Provision of ongoing capability for the through life support of the COLLINS class submarine and shipbuilder for the Air Warfare Destroyers. Australian River Co Ltd – Charter and sub-charter of vessels. Medibank Private Ltd – Provision of health insurance services. 80 Albury-Wodonga Corporation – operates as a majority property-owner and land developer in the Albury-Wodonga region. It continues to dispose of its property assets in an orderly manner to provide a financial return to government in preparation for its winding up. Notes to and forming part of the Financial Statements Note 22C Investments (continued) GBEs are Commonwealth Companies with independent legal existence and whose principle function is to engage in commercial activities in the private sector. GBEs include Medibank Private Limited and ASC Pty Ltd and were valued by management based on cash flow projections and a discount range of between 10.1% to 12.2%. Non GBEs include all other Commonwealth Companies. Albury-Wodonga Corporation has been valued by management using the present value of cash flows. These valuation methodologies have been reviewed for the June 2011 financial statements. Australian River Co Ltd has been valued using net assets as reported on 30 June 2010. 3 The Nation-building Funds Act 2008 (the Act), established three financial asset funds to provide financing sources to meet the Government’s commitment to Australia’s future by investment in critical areas of property such as transport, communications, energy, water, education research and health. The Building Australia Fund (BAF), Education Investment Fund (EIF) and Health and Hospitals Fund (HHF) are financial asset funds consisting of cash and investments. Note 22D Accrued revenue Accrued employer superannuation contributions Interest Other Total accrued revenue Accrued revenue is expected to be recovered within 12 months. 81 30 June 2011 $'000 30 June 2010 $'000 58,262 3,745 49 62,056 57,019 4,136 203 61,358 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 40,205 1,792 (18,164) 23,833 33,630 1,425 (1,303) 33,752 60,374 1,148 (5,083) 56,439 57,301 3,544 60,845 NON-FINANCIAL ASSETS Note 22E Land and buildings Leasehold improvements: Fair value Work in progress Accumulated depreciation/amortisation Total land and buildings Note 22F Property, plant and equipment Property, plant and equipment: Fair value Work in progress Accumulated depreciation Total property, plant and equipment All assets have been valued on the fair value basis in accordance with the revaluation policy set out in Note 1.17. All independent revaluations were conducted by registered valuers. An increment for leasehold improvements of $2.6 million (2009-10: increment of $9.7 million), and an increment for property, plant and equipment of $0.4 million (2009-10: increment of $8.1 million) were credited to the asset revaluation reserve by asset class and included in the equity section of the balance sheet. No indicators of impairment were found for land and buildings or property, plant and equipment. No land and buildings or property, plant and equipment are expected to be disposed of within the next 12 months. 82 Notes to and forming part of the Financial Statements Table A Reconciliation of the opening and closing balances of property, plant and equipment (2010-11) Buildings Property, leasehold plant and improvements equipment Total $'000 $'000 $'000 As at 1 July 2010 35,055 60,845 95,900 Gross book value (1,303) (1,303) Accumulated depreciation/amortisation Net book value 1 July 2010 33,752 60,845 94,597 Additions: 5,980 1,770 7,750 By purchase 2,614 395 3,009 Revaluations and impairments recognised in other comprehensive income 46 46 Reclassification (18,300) (6,553) (24,853) Depreciation/amortisation expense From acquisition of entities or operations (including restructuring) Disposals: (213) (89) (302) Write-offs 25 25 Other disposals Net book value 30 June 2011 23,833 56,439 80,272 Net book value as of 30 June 2011 represented by: 41,997 61,522 103,519 Gross book value (18,164) (5,083) (23,247) Accumulated depreciation/amortisation Closing net book value at 30 June 2011 23,833 56,439 80,272 Table B – Reconciliation of the opening and closing balances of property, plant and equipment (2009-10) Buildings Property, leasehold plant improvements and equipment $'000 $'000 As at 1 July 2009 Gross book value 43,112 63,441 Accumulated depreciation/amortisation and impairment (18,586) (9,097) Net book value 1 July 2009 24,526 54,344 Additions: By purchase 10,389 4,252 Revaluations and impairments recognised in other comprehensive 9,687 8,092 income Reclassification (418) (237) Depreciation/amortisation expense (10,327) (5,425) Disposals: Write-offs (81) (181) Other disposals (24) Net book value 30 June 2010 33,752 60,845 Net book value as of 30 June 2010 represented by: Gross book value 35,055 60,845 Accumulated depreciation/amortisation (1,303) Closing net book value at 30 June 2010 33,752 60,845 83 Total $'000 106,553 (27,683) 78,870 14,641 17,779 (655) (15,752) (262) (24) 94,597 95,900 (1,303) 94,597 Notes to and forming part of the Financial Statements Note 22G Intangibles Computer software: Externally acquired – in use Total computer software (gross) Accumulated amortisation Total computer software (net) Other intangibles: Internally developed – in use Total other intangibles (gross) Accumulated amortisation Total other intangibles (net) Total intangibles 84 30 June 2011 $'000 30 June 2010 $'000 1,157 950 1,157 (1,025) 132 950 (792) 158 - 77 - 77 (32) - 45 132 203 Notes to and forming part of the Financial Statements TABLE A – Reconciliation of the opening and closing balances of intangibles (2010-11) Computer Other software intangibles purchased purchased $'000 $'000 As at 1 July 2010 950 77 Gross book value (792) (32) Accumulated amortisation and impairment Net book value 1 July 2010 158 45 Additions: 175 1 By purchase or internally developed (46) Reclassification (201) Amortisation Net book value 30 June 2011 132 Net book value as of 30 June 2011 represented by: Gross book value Accumulated amortisation and impairment Closing net book value at 30 June 2011 1,157 (1,025) 132 TABLE B – Reconciliation of the opening and closing balances of intangibles (2009-10) Computer software purchased $'000 As at 1 July 2009 Gross book value 714 Accumulated amortisation and impairment (571) Net book value 1 July 2009 143 Additions: By purchase or internally developed 237 Amortisation (222) Net book value 30 June 2010 158 Net book value as of 30 June 2010 represented by: Gross book value Accumulated amortisation and impairment Closing net book value at 30 June 2010 85 950 (792) 158 Total $'000 1,027 (824) 203 176 (46) (201) 132 - 1,157 (1,025) 132 Other intangibles purchased $'000 Total $'000 32 (27) 5 746 (598) 148 45 (5) 45 282 (227) 203 77 (32) 45 1,027 (824) 203 Notes to and forming part of the Financial Statements Note 22H Other non-financial assets Prepayments Total other non-financial assets 30 June 2011 $'000 30 June 2010 $'000 2,791 3,918 2,791 3,918 2,444 347 3,513 405 2,791 3,918 21,856,686 24,097,326 No indicators of impairment were found for other non-financial assets. Total other non-financial assets are expected to be recovered in: No more than 12 months More than 12 months Total other non-financial assets Total assets administered on behalf of Government 86 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 Note 23A Suppliers Trade creditors and accruals Unsettled investments purchases Derivative financial liabilities Total suppliers 14,184 365,036 25,063 20,226 245,031 258,743 404,283 524,000 Supplier payables expected to be settled within 12 months are made up of: Related entities External parties Total supplier payables expected to be settled within 12 months 1,018 394,093 9,505 514,495 395,111 524,000 9,172 - 9,172 404,283 524,000 Note 23B Other payables Salaries and wages GST annotation loan Other Total other payables 3,624 3,960 61 2,982 2,893 152 7,645 6,027 Total other payables are expected to be settled in: No more than 12 months Total other payables 7,645 6,027 7,645 6,027 Note 23C Other interest bearing liabilities Lease incentives1 Total other interest bearing liabilities 1,339 1,735 1,339 1,735 462 877 507 1,228 1,339 1,735 Note 23 Liabilities administered on behalf of Government PAYABLES Supplier payables expected to be settled greater than 12 months are made up of: External parties Total supplier payables expected to be settled greater than 12 months Total suppliers Other interest bearing liabilities are expected to be settled in: No more than 12 months More than 12 months Total other interest bearing liabilities 1 The Department has received incentives in the form of rent-free periods and capital incentives on entering property operating leases. 87 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 PROVISIONS Note 23D Employee provisions Leave Life Gold Pass Holders’ entitlements Severance travel entitlements Former Prime Ministers’ entitlements Total employee provisions 30,432 45,502 4,960 87,134 31,399 47,614 4,322 85,640 168,028 168,975 Employee provisions are expected to be settled in: No more than 12 months More than 12 months Total employee provisions 25,337 142,691 168,028 25,360 143,615 168,975 Parliamentary Contributory Superannuation Scheme (PCSS) Commonwealth Superannuation Scheme (CSS) Public Sector Superannuation (PSS) Other superannuation schemes 836,468 60,039,140 33,135,943 874,059 802,604 60,065,758 30,992,101 834,576 Total superannuation provisions 94,885,610 92,695,039 Superannuation provisions are expected to be settled in: No more than 12 months More than 12 months 3,808,193 91,077,417 4,682,078 88,012,961 Total superannuation provisions 94,885,610 92,695,039 Note 23E Superannuation provisions The opening balance for the CSS, PSS and PCSS unfunded liabilities have been based on actuarial valuations as at 30 June 2010. The unfunded liabilities at 30 June 2011 reflect this valuation updated for all related movements including benefit accruals for additional years of service by current contributors, a nominal interest charge and payment to eligible recipients throughout the year. A financial asset fund, the Future Fund was established by the Government for the purpose of accumulating assets to offset expected future Australian Government superannuation liabilities. Other superannuation schemes include the schemes for Governors-General, Judges’ pension and the death and disability arrangements for Federal Magistrates. Additional superannuation information can be found at Note 27. Note 23F Other provisions Act of Grace Same Sex Relationships Act Make good Total other provisions 12,590 1,091 3,068 12,352 3,136 16,749 15,488 Other provisions are expected to be settled in: No more than 12 months More than 12 months Total other provisions 2,749 14,000 2,398 13,090 16,749 15,488 88 Notes to and forming part of the Financial Statements Note 23F Other provisions (continued) Reconciliation of the opening and closing balances of other provisions (2010-11) Same Sex Relationships Act of Act Grace Make good $'000 $'000 $'000 Carrying amount 1 July 2010 12,352 3,136 Valuation increment 188 927 (146) Additional provisions made 903 132 Amounts used (689) (199) Unwinding of discount or change in discount rate 145 Closing balance 30 June 2011 1,091 12,590 3,068 Total $'000 15,488 969 1,035 (888) 145 16,749 In 2011, five agreements for leasing of premises that have provisions to restore the premises to their original condition at the conclusion of the lease were signed. A provision to reflect the present value of these obligations was made. Note 24 Administered reconciliation table Opening administered assets less administered liabilities as at 1 July Adjusted opening administered assets less administered liabilities Plus: Administered income Less: Administered expenses (non CAC) Administered transfers to/from Australian Government: Appropriation transfers from OPA: Annual appropriations for administered expenses (non CAC) Administered assets and liabilities appropriations Special appropriations (unlimited) (non CAC) Transfers to OPA Restructuring Administered revaluations taken to/from reserves Movement in carrying amount of superannuation Equity distribution Transfers from other entities (whole of government) Transfers to other entities (whole of government) Net reduction in appropriation Assets and makegood valuation Closing administered assets less administered liabilities as at 30 June 89 30 June 2011 $'000 30 June 2010 $'000 (69,313,938) (69,313,938) 4,489,237 (10,702,610) (58,743,946) (58,743,946) 2,519,984 (8,287,963) 230,689 195,100 1,330,625 1,149,400 3,818,638 3,408,392 (3,195,720) (2,586,807) (775,776) (301,538) 2,989,352 496,476 (8,166,091) (1,230,433) (304,253) 537,118,955 494,935,747 (536,370,504) (495,677,083) 13,172 3,155 16,834 (73,626,968) (69,313,938) Notes to and forming part of the Financial Statements Note 25 Administered contingent assets and liabilities Contingent liabilities Balance from previous period Re-measurement Total contingent liabilities Net contingent assets (liabilities) 2011 $'000 Indemnities 2010 $'000 2011 $'000 Total 2010 $'000 531,885 33,323 565,208 (565,208) 501,766 30,119 531,885 (531,885) 531,885 33,323 565,208 (565,208) 501,766 30,119 531,885 (531,885) Quantifiable administered contingent assets and liabilities An indemnity has been provided to Southern Cross Airports Corporation as purchaser of the Sydney Airports Corporation Limited (SACL) in the event of a liability arising under Chapter 3 of the Duties Act 1997 (New South Wales) by reason of the sale of shares in SACL constituting a relevant acquisition in a land rich private corporation. The NSW Office of State Revenue issued a notice of assessment on 17 November 2006. The Australian Government does not consider SACL was land rich. Action has been initiated in the NSW Supreme Court to overturn the assessment. The liability is estimated to be $565.2 million based on the SACL duties interest calculator. Unquantifiable administered contingent assets and liabilities The Department does not have any unquantifiable administered contingent assets or liabilities. 90 Notes to and forming part of the Financial Statements Note 26 Administered financial instruments Note 26A Categories of financial instruments Financial assets Held-to-maturity: Government securities Total Loans and receivables: Cash and cash receivables Trade receivables Unsettled sales Nation-building Funds (NBF) investments - cash and cash equivalents1 Accrued revenue Loans to state and territory governments Total Available for sale: General Government Enterprises (GBEs) Non-GBEs Investments in other entities Total Fair value through profit and loss (designated): NBF - derivatives NBF - interest bearing securities Total Carrying amount of financial assets Financial liabilities At amortised cost: Suppliers Unsettled investment purchases Other payables Lease incentives Total Fair value through profit and loss (designated): Total derivative financial liabilities Total Carrying amount of financial liabilities 1The 30 June 2011 $'000 30 June 2010 $'000 15,506 22,112 15,506 22,112 (745,093) 3,048 39,021 1,318,564 3,794 172,638 (1,520,797) 1,791 1,652,789 61,358 178,479 791,972 373,620 4,310,281 113,269 - 4,583,400 148,644 61 4,423,550 4,732,105 180,426 16,291,271 31,350 18,820,288 16,471,697 21,702,725 18,851,638 23,979,475 14,173 365,036 3,971 1,339 20,226 245,031 3,134 1,735 384,519 270,126 25,063 258,743 25,063 409,582 258,743 528,869 Nation-building Funds had cash with a futures broker to cover exchange traded futures positions as required under clearing house rates. As at 30 June 2011, the Nation-building Funds had $32.4 million in futures margins to cover open positions. This cash remains a financial asset of the Nation-building Funds, however any alternate use of this cash is restricted. 91 Notes to and forming part of the Financial Statements 30 June 2011 $'000 30 June 2010 $'000 1,431 1,620 1,431 1,620 18,530 35,620 (13) 19,418 27,165 42 (4) 54,137 46,621 Available for sale Dividend revenue Gain/loss recognised in equity Net gain/(loss) available for sale 455,787 (301,538) 66,143 2,989,352 154,249 3,055,495 Fair value through profit and loss Designated as such: Net exchange gains Realised gains on fair value investments Net unrealised changes in the fair value of investments Realised losses on disposal of fair value of investments Interest revenue Net gain/(loss) at fair value through profit and loss Net gain/(loss) from financial assets 1,785,656 721,112 (924,908) (575,503) 58,823 263,946 773,478 147,830 (260,860) 28,581 1,065,180 1,274,997 952,975 4,056,711 Note 26B Net income and expense from financial assets Held-to-maturity Interest revenue Net gain/(loss) held-to-maturity Loans and receivables Interest revenue Interest – deposits Reversal of prior year impairment Impairment Net gain/(loss) loans and receivables The net income/expense from financial assets not at fair value from profit and loss is $209.8 million (2009-10: $3,103.7 million). Note 26C Net income and expense from financial liabilities There was no income and expense from financial liabilities in 2010-11 and 2009-10. 92 Notes to and forming part of the Financial Statements Note 26D Fair value of financial instruments The carrying values of the Department’s administered financial assets and liabilities are a reasonable approximation of their fair values. Loans and receivables designated at fair value through profit and loss There are no changes in the fair value of loans and receivables designated as fair value through profit and loss that arise due to credit risk. All changes in fair value are attributable to changes in market conditions. Fair value measurements recognised in the Statement of Comprehensive Income The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). Fair value measurements categorised by fair value hierarchy Level 1 2011 $'000 Level 2 2011 $'000 Level 3 2011 $'000 Total 2011 $'000 - - 4,310,281 113,269 4,310,281 113,269 - 16,291,271 180,426 16,471,697 4,423,550 16,291,271 180,426 20,895,247 - - 25,063 25,063 25,063 25,063 Level 1 2010 $'000 Level 2 2010 $'000 Level 3 2010 $'000 Total 2010 $'000 - - 4,583,400 148,644 4,583,400 148,644 - 18,820,288 31,350 18,851,638 61 4,732,105 18,820,288 31,350 61 23,583,743 - - 258,743 258,743 258,743 258,743 Financial assets at fair value Commonwealth companies: GBEs Non GBEs NBF investments: Interest bearing securities Derivatives Total financial assets at fair value Financial liabilities at fair value Derivatives Total financial liabilities at fair value Financial assets at fair value: Commonwealth companies: GBEs Non GBEs NBF investments: Interest bearing securities Derivatives Investments in other entities Total financial assets at fair value Financial liabilities at fair value Derivatives Total financial liabilities at fair value 93 Notes to and forming part of the Financial Statements Note 26D Fair value of financial instruments (continued) Reconciliation of Level 3 fair value hierarchy Financial assets at fair value: Opening balance Liquidation Gains (losses) recognised in equity Closing balance Financial assets at fair value: Opening balance Purchases Liquidation Gains (losses) recognised in equity1 Closing balance 1 These GBEs Non-GBEs Level 3 Total 2011 $'000 Investments in other entities 2011 $'000 2011 $'000 4,583,399 (273,119) 4,310,280 148,645 (6,955) (28,420) 113,270 61 (61) - 4,732,105 (7,016) (301,539) 4,423,550 GBEs Non-GBEs Level 3 Total 2010 $'000 2010 $'000 Investments in other entities 2010 $'000 1,614,876 2,968,523 4,583,399 143,058 (15,242) 20,829 148,645 61 61 1,757,934 61 (15,242) 2,989,352 4,732,105 2011 $'000 2010 $'000 gains and losses are disclosed in the Administered reconciliation table. Refer to Note 24 under administered revaluations taken to/from reserves. 94 Notes to and forming part of the Financial Statements Note 26E Credit risk The administered activities of the Department are exposed to a moderate level of credit risk in its financial investments portfolio and a low risk in other financial assets such as trade receivables, advances and loans to state, territory and local governments and shares in government controlled and funded entities. The financial investments portfolio relates to the Nation-building Funds (NBF). As at 30 June 2011, NBF had an exposure of greater than 10% of its net assets to interest bearing securities issued by major domestic banks. Exposure to individual counterparties greater than 5% of the NBF net assets was $5,393.1 million ($2,939.5 million for the Building Australia Fund (BAF), $1,162.5 million for the Education Investment Fund (EIF) and $1,291.1 million for the Health and Hospital Fund (HHF)). The Department has assessed the risk of default on payment and has not identified any amounts to be allocated to a doubtful debts account. The following table illustrates the Department’s gross exposure to credit risk, excluding any collateral held or credit enhancement. Gross exposure to credit risk Financial assets Trade and other receivables Administered investments Investments in other entities NBF investments Government securities Accrued revenue Total 2011 $'000 2010 $'000 214,707 4,423,550 16,471,697 15,506 3,794 21,129,254 180,269 4,732,044 61 18,851,638 22,112 61,358 23,847,482 The Department holds no collateral to mitigate against credit risk. Credit exposure by credit rating The following table provides information regarding the credit risk exposures of the debt instruments held by the NBF according to the credit ratings of the underlying debt instruments. Credit risk exposures of debt instruments held by NBF Credit rating Long term rated securities: AAA AA+ AA AAA+ A AAa2 Aa3 A2 A3 Short term rated securities: A-1+ A-1 Other : US Government guaranteed Other non debt financial instruments Total debt securities held by NBF1 1Includes 95 BAF 2011 $'000 EIF 2011 $'000 HHF 2011 $'000 Total NBF 2011 $'000 2,722,062 96,459 1,492,915 502,701 587,192 365,935 255,864 8,782 6,146 4,176 18,073 1,755,402 60,066 997,456 330,592 376,923 234,206 163,919 5,397 4,097 2,516 11,126 1,474,865 50,214 786,079 279,124 320,735 202,108 140,538 4,527 3,415 2,155 9,323 5,952,329 206,739 3,276,450 1,112,417 1,284,850 802,249 560,321 18,706 13,658 8,847 38,522 1,791,100 120,256 799,408 29,697 889,611 45,615 3,480,119 195,568 292,669 100,891 8,365,221 210,032 68,803 5,049,640 156,442 53,641 4,418,392 659,143 223,335 17,833,253 investments $16,471.8 million, cash $1,318.6 million and receivables $42.9 million. Notes to and forming part of the Financial Statements Note 26E Credit risk (continued) Credit quality of financial instruments not past due or individually determined as impaired Not past due Not past due Past due or nor impaired impaired nor impaired 2011 2011 2010 $'000 $'000 $'000 Financial assets 214,300 407 Trade and other receivables 172,628 4,423,550 Administered investments 4,732,044 Investments in other entities 61 16,471,697 NBF investments 18,851,638 15,506 Government securities 22,112 3,794 Accrued revenue 61,358 Total 21,128,847 407 23,839,841 Past due or impaired 2010 $'000 7,642 7,642 Ageing of financial assets that are past due but not impaired for 2011 0 to 30 31 to 60 61 to 90 days days days $'000 $'000 $'000 139 5 108 Trade and other receivables Total 139 5 108 90+ days $'000 155 155 Total $'000 407 407 Ageing of financial assets that are past due but not impaired for 2010 0 to 30 31 to 60 days days $'000 $'000 Trade and other receivables 6,893 351 Total 6,893 351 90+ days $'000 118 118 Total $'000 7,642 7,642 96 61 to 90 days $'000 280 280 Notes to and forming part of the Financial Statements Note 26F Liquidity risk The Department's administered financial liabilities are trade creditors and other payables. The exposure to liquidity risk is based on the notion that the Department will encounter difficulty in meeting its obligations associated with administered financial liabilities. This is highly unlikely due to appropriation funding and mechanisms available to the Department (e.g. Advance to the Finance Minister) and internal policies and procedures put in place to ensure there are appropriate resources to meet its financial obligations. The Department's administered activities are appropriated from the Australian Government and the Department manages its budgeted administered funds to ensure it has adequate funds to meet payments as they fall due. In addition, the Department has policies in place to ensure timely payments are made when due and has no past experience of default. The Department has $25.1 million (2009-10: $258.7 million) derivative financial liabilities, of which $15.9 million are recoverable within 12 months. The following tables illustrate the maturities for financial liabilities. Maturities for non-derivative financial liabilities 2011 On Within 1 demand year $'000 $'000 148,939 230,270 Suppliers 3,971 Other payables 462 Other interest bearing liabilities Total 152,910 230,732 1 to 2 years $'000 372 372 2 to 5 years $'000 505 505 >5 years $'000 - Total $'000 379,209 3,971 1,339 384,519 Maturities for non derivative financial liabilities 2010 On demand $'000 Suppliers 13,826 Other payables 3,134 Other interest bearing liabilities Total 16,960 1 to 2 years $'000 420 420 2 to 5 years $'000 721 721 >5 years $'000 87 87 Total $'000 265,257 3,134 1,735 270,126 97 Within 1 year $'000 251,431 507 251,938 Notes to and forming part of the Financial Statements Note 26G Market risk Other than balances held by the Nation-building Funds, administered investments and Consolidated Revenue Fund (CRF) balances, the Department holds basic financial instruments that are not exposed to certain market risks. In regards to the Nation-building Funds, administered investments and the CRF, the Department is exposed to interest rate risk and foreign currency risk. The following table is a sensitivity analysis of the risk the Department is exposed to. Sensitivity analysis of interest rate risk 2011 Risk variable Change in risk variable % Effect on: Profit and loss Equity $'000 $'000 Interest rate risk1 Overnight cash deposits with the RBA ASC Pty Ltd Medibank Pty Ltd Albury Wodonga Corporation BAF EIF HHF Deposit rate Deposit rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate +1.75% -1.75% +1.75% -1.75% +1.75% -1.75% +1.75% -1.75% +1.75% -1.75% +1.75% -1.75% +1.75% -1.75% 7,210 (4,692) 69,273 (79,206) 38,858 (44,080) 36,060 (41,435) (16,539) 18,065 (681,355) 1,019,359 (3,334) 3,540 - Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate +15.00% -15.00% +15.00% -15.00% +15.00% -15.00% 1,014 (1,014) 495 (495) 659 (659) - Foreign Currency2 BAF EIF HHF 98 Notes to and forming part of the Financial Statements Note 26G Market risk (continued) Sensitivity analysis of interest rate risk 2010 Risk variable Change in risk variable % Effect on: Profit and loss Equity $'000 $'000 +1.50% -1.50% +0.75% -0.75% +0.50% -0.50% +1.50% -1.50% +1.50% -1.50% +1.50% -1.50% +1.50% -1.50% +1.50% -1.50% 11,150 (11,144) 134,103 (136,921) 77,347 (78,892) 67,468 (68,967) (8,800) 8,700 (213,500) 213,400 (4,036) 4,255 (98) 101 - +14% -14% +14% -14% +14% -14% 1,430 (1,430) 886 (886) 799 (799) - Interest rate risk1 Overnight cash deposits with the RBA ASC Pty Ltd Medibank Pty Ltd Albury Wodonga Corporation Australian Industry Development Corporation BAF EIF HHF Deposit rate Deposit rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate Discount rate - Foreign currency2 BAF EIF HHF 1 Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Exchange rate Interest rate risk The Department is exposed to interest rate risk in relation to overnight cash deposits with the Reserve Bank of Australia (RBA), the NBF investments and administered investments. The impact of a change in interest rates is disclosed in the above table. The Department has also issued a number of fixed interest loans that are not subject to any degree of interest rate risk. 2 Foreign currency exchange risk The NBF undertake certain transactions denominated in foreign currencies and hence are exposed to the effects of exchange rate fluctuations. Exchange rate exposures are managed utilising forward foreign exchange contracts. The above sensitivity analysis table demonstrates the impact on the operating result of a movement in the value of the Australian dollar relative to the basket of actual net exposures as at year end, with all other variables held constant. The NBF’s exposure in Australian equivalents to foreign currency risk at the reporting date was as follows for 2011: BAF Total physical exposure Total derivative exposure Total net exposure EIF Total physical exposure Total derivative exposure Total net exposure HHF Total physical exposure Total derivative exposure Total net exposure Total NBF exposure 99 USD $'000 EURO $'000 GBP $'000 OTHER $'000 Total $'000 1,717,524 (1,705,970) 11,554 1,235,019 (1,240,473) (5,454) 298,132 (297,226) 906 1,459 (435) 1,024 3,252,134 (3,244,104) 8,030 1,187,211 (1,177,962) 9,249 754,897 (760,419) (5,522) 185,772 (185,193) 579 941 (905) 36 2,128,821 (2,124,479) 4,342 958,631 (950,630) 8,001 28,804 650,682 (655,397) (4,715) (15,691) 156,994 (156,798) 196 1,681 831 (606) 225 1,285 1,767,138 (1,763,431) 3,707 16,079 Notes to and forming part of the Financial Statements Note 26G Market risk (continued) Investments under the NBF are exposed to risk of loss arising from movement in the prices of various assets flowing through interest rate changes. The total exposure for each class of NBF financial investments is set out below. Exposure of NBF financial investments by class Financial Assets BAF Cash and cash receivables Interest bearing securities Other financial assets Total BAF EIF Cash and cash receivables Interest bearing securities Other financial assets Total EIF HHF Cash and cash receivables Interest bearing securities Other financial assets Total HHF Total NBF Financial Assets BAF Cash and cash receivables Interest bearing securities Other financial assets Total BAF EIF Cash and cash receivables Interest bearing securities Other financial assets Total EIF HHF Cash and cash receivables Interest bearing securities Other financial assets Total HHF Total NBF 100 Floating interest rate 2011 $'000 Fixed interest rate 2011 $'000 Noninterest bearing 2011 $'000 Total 2011 $'000 583,161 3,353,384 3,936,545 4,327,786 4,327,786 100,890 100,890 583,161 7,681,170 100,890 8,365,221 434,054 2,138,159 2,572,213 2,408,624 2,408,624 68,803 68,803 434,054 4,546,783 68,803 5,049,640 301,349 1,780,136 2,081,485 8,590,243 2,283,266 2,283,266 9,019,676 53,641 53,641 223,334 301,349 4,063,402 53,641 4,418,392 17,833,253 Floating interest rate 2010 $'000 Fixed interest rate 2010 $'000 Noninterest bearing 2010 $'000 Total 2010 $'000 714,173 3,129,577 3,843,750 6,125,234 6,125,234 14,020 14,020 714,173 9,254,811 14,020 9,983,004 504,022 2,029,214 2,533,236 3,117,401 3,117,401 9,253 9,253 504,022 5,146,615 9,253 5,659,890 434,594 1,750,343 2,184,937 8,561,923 2,668,519 2,668,519 11,911,154 8,078 8,078 31,351 434,594 4,418,862 8,078 4,861,534 20,504,428 Notes to and forming part of the Financial Statements Note 26G Market risk (continued) Interest rates futures contracts The NBF had open positions in exchange traded interest rate futures contracts as at 30 June 2011. The Nation-building Funds Act 2008 governs the use of financial derivatives. Exchange traded interest rate futures are used by the NBF investment managers to manage the exposure to interest rates and to ensure it remains within approved limits. The notional value of the open contracts and their fair value are set out below. Notional value 2011 $'000 (2,462,568) (1,680,658) (1,351,813) (5,495,039) BAF EIF HHF Total Note 26H Fair market value 2011 $'000 (45,530) (26,072) (23,129) (94,731) Concessional loans The following table provides information on the carrying value of concessional loans the Department holds with States and Territories. Australian Capital Territory housing loans Nominal value Less: Unexpired discount Carrying value Other Australian Capital Territory loans Nominal value Less: Unexpired discount Carrying value Returned servicemen – New South Wales Nominal value Less: Unexpired discount Carrying value Returned servicemen – Queensland Nominal value Less: Unexpired discount Carrying value Returned servicemen – South Australia Nominal value Less: Unexpired discount Carrying value Returned servicemen – Western Australia Nominal value Less: Unexpired discount Carrying value Total concessional loans 101 2011 $'000 2010 $'000 177,715 67,565 110,150 185,082 71,779 113,303 - 1,259 10 1,249 47,385 15,806 31,579 48,570 16,628 31,942 26,725 8,720 18,005 27,446 9,204 18,242 2,082 770 1,312 2,117 806 1,311 5,172 1,548 3,624 164,670 5,381 1,659 3,722 169,769 Notes to and forming part of the Financial Statements 102 Notes to and forming part of the Financial Statements Note 27 Superannuation Note 27A Commonwealth Superannuation Scheme (CSS) Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information Members generally receive an unfunded indexed pension benefit on retirement, disablement, redundancy or death (to an eligible spouse/children) with an option in most cases to receive the funded component as a once off lump sum or convert to additional non-indexed pension. The CSS scheme is closed to new members. Reconciliation of the present value of the defined benefit obligation Financial year ended Present value of defined benefit obligations at beginning of the year Current service cost Productivity contributions Interest cost Contributions by scheme participants Actuarial gains/(losses) Benefits paid Total benefits paid from CRF (including ACT/NT/ANU)1 Benefits paid from CRF for ACT/NT/ANU Benefits paid from CSS Fund (excluding ACT/NT/ANU) Taxes, premiums and expenses paid Present value of defined benefit obligations at end of the year 30 June 2011 $'000 (64,446,182) (302,285) (32,226) (3,330,711) (90,130) 261,660 3,663,914 4,004,725 (338,455) (2,356) 4,834 (64,271,126) 30 June 2010 $'000 (59,837,471) (301,633) (34,294) (3,305,617) (97,505) (4,259,230) 3,384,424 3,695,604 (309,214) (1,966) 5,144 (64,446,182) 30 June 2011 $'000 4,380,424 290,775 13,779 3,093,400 3,215,599 161,214 (338,455) 55,042 32,226 90,130 3,663,914 4,004,725 (338,455) (2,356) 4,834 4,231,986 30 June 2010 $'000 4,259,430 279,633 221,343 2,877,787 2,970,133 168,293 (309,214) 48,575 34,294 97,505 3,384,424 3,695,604 (309,214) (1,966) 5,144 4,380,424 Reconciliation of the fair value of scheme assets Financial year ended Fair value of scheme assets at beginning of the year Expected return on scheme assets Actuarial gains/(losses) Employer contributions - net appropriation from CRF Employer contributions - appropriation from CRF (incl. ACT/NT/ANU) Emerging cost contributions from ACT/NT/ANU Benefits paid from CRF for ACT/NT/ANU Funded benefits paid from CSS Fund to CRF for ACT/NT/ANU Employer contributions - productivity contribution Contributions by scheme participants Benefits paid Total benefits paid from CRF (including ACT/NT/ANU)1 Benefits paid from CRF for ACT/NT/ANU Benefits paid from CSS Fund (excluding ACT/NT/ANU) Taxes, premiums & expenses paid Fair value of scheme assets at end of the year 1 Total benefits paid from the Consolidated Revenue Fund (CRF) include both the unfunded and funded components of benefit payments and are inclusive of payments made to employees of the ACT Government (ACT), the NT Government (NT) and the Australian National University (ANU). These are excluded from the calculations of the present value of defined benefit obligations. Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets administered on behalf of Government As at 30 June 2011 30 June 2010 $'000 $'000 (64,271,126) (64,446,182) Defined benefit obligation 4,231,986 Fair value of scheme assets 4,380,424 Net superannuation (liability)/asset (Refer Note 23E) (60,039,140) (60,065,758) 103 Notes to and forming part of the Financial Statements Note 27A Commonwealth Superannuation Scheme (CSS) (continued) Total expense recognised in the schedule of income and administered on behalf of Government Financial year ended 30 June 2011 30 June 2010 $'000 $'000 302,285 Current service cost 301,633 3,330,711 Interest cost 3,305,617 (290,775) Expected return on assets (279,633) Superannuation expense/(income) (Refer Note 21B) 3,342,221 3,327,617 Amounts recognised directly in administered equity Financial year ended Actuarial gains/(losses) Cumulative amount of actuarial gains and losses recognised in administered equity Financial year ended Cumulative amount of actuarial gains/(losses) 30 June 2011 30 June 2010 $'000 $'000 275,439 (4,037,887) 30 June 2011 30 June 2010 $'000 $'000 (8,592,290) (8,867,729) Scheme Assets The fair value of scheme assets is represented by: Financial year ended Australian equity Market neutral funds Long / short funds International equity Objective based funds Credit Property Cash Bonds 30 June 2011 30 June 2010 26.5% 10.2% 1.9% 28.7% 3.6% 6.3% 12.8% 4.8% 5.2% 27.1% 8.8% 2.2% 27.6% 3.0% 6.7% 14.3% 5.2% 5.1% Fair value of scheme assets The fair value of scheme assets does not include amounts relating to: any of the Department’s (and the Australian Government’s) own financial instruments; and any property occupied by, or other assets used by the Department (or the Australian Government). except property holdings, including interest in various unit trusts, may include leases to the Department (or the Australian Government); and Government bonds, amounting to $9.14 million (ARIA Investments Trust) as at 30 June 2011 ($1.65 million as at 30 June 2010). Expected rate of return on scheme 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 asset class. The returns used for each asset class are net of investment tax and investment fees. 104 Notes to and forming part of the Financial Statements Note 27A Commonwealth Superannuation Scheme (CSS) (continued) Actual return on scheme assets Financial year ended 30 June 2011 30 June 2010 $'000 $'000 304,554 500,976 7.5% 11.8% Actual return on scheme assets Actual return on scheme assets as a percentage Principal actuarial assumptions at balance sheet date Financial year ended 30 June 2011 30 June 2010 5.3% pa 5.3% pa 7.0% pa 4.0% pa 2.5% pa 5.2% pa 5.2% pa 7.0% pa 4.0% pa 2.5% pa Discount rate (active members) Discount rate (pensioners) Expected rate of return on plan assets (active members) Expected salary increase rate (excluding promotional increases) Expected pension increase rate Other material assumptions Assumptions have been made regarding rates of retirement, death (for active, preserved and pension members), mortality improvements, invalidity, resignation, retrenchment, retention and take up rates of pensions in the scheme. Assumptions have also been made for the ages of spouses and rates of member contributions. Unless stated otherwise in this report, all assumptions are the same as those used for the Long Term Cost Report as at 30 June 2008. Certain estimates and approximations were required to determine the year end assets and liabilities in the Statement of Administered Items in the timeframe required. The fair value of scheme assets as at 30 June 2011 was estimated using the audited fair value of scheme assets at 30 June 2010 with cash flow items provided by ARIA, other than benefits paid during the year, which were based on information provided by the Department. An estimate of the actual rate of investment return earned by the scheme during the year to 30 June 2011 was used in determining the fair value of scheme assets. In relation to the Defined Benefit Obligation, member data as at 30 June 2010 was projected forward allowing for decrements in accordance with the 2008 Long Term Cost Report. The data was then adjusted for the difference between actual benefit payments and those based on the assumed decrements. Salaries at 30 June 2011 were estimated using an assumption derived from the Australian Public Service Remuneration Survey. Members’ account balances were increased to be consistent with the estimated level of Earning Rates prevailing at 30 June 2011. Historical information Financial year ended Present value of defined benefit obligation Fair value of scheme assets Surplus/(deficit) in scheme Experience adjustments gain/(loss) scheme assets Experience adjustments gain/(loss) scheme liabilities Expected contributions Financial year ended Expected employer contributions2 2 30 June 2011 $'000 (64,271,126) 30 June 2010 $'000 (64,446,182) 30 June 2009 $'000 (59,837,471) 30 June 2008 $'000 (55,663,789) 30 June 2007 $'000 (56,768,939) 4,231,986 (60,039,140) 13,779 4,380,424 (60,065,758) 221,343 4,259,430 (55,578,041) (1,048,332) 5,555,721 (50,108,068) (478,388) 6,203,524 (50,565,415) 378,081 (442,361) (1,541,732) 2,863,710 (1,971) (1,516,083) 30 June 2012 $'000 29,541 30 June 2011 $'000 30,037 This represents the employer productivity contributions, which are paid into the CSS fund. 105 Notes to and forming part of the Financial Statements Note 27A Commonwealth Superannuation Scheme (CSS) (continued) Funding arrangements for employer contributions (a) Deficit The following is a summary of the most recent financial position of the Commonwealth Superannuation Scheme determined in accordance with AAS 25 Financial Reporting by Superannuation Plans. Financial year ended Accrued benefits (unfunded liability) 3 30 June 2011 $'000 (59,200,000) 30 June 2010 $'000 (59,200,000) 3 This valuation is sourced from the long-term cost report as at 30 June 2008 when a complete valuation was undertaken. This valuation is for the entire scheme, which includes a component relating to the ACT and NT Governments and the ANU. (b) Contribution recommendations The Scheme is largely unfunded. While employers pay productivity contributions of between 2% and 3% into the CSS Fund, the remaining employer contributions are not funded in advance. (c) Funding method Where a benefit becomes payable that cannot be fully met from the moneys held in the CSS fund, all moneys in the CSS fund in respect of the members are paid into the Consolidated Revenue Fund and the Commonwealth then assumes responsibility for the payment of the benefit. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected CPI increase 6.0% pa 4.0% pa + a promotional salary increase scale 2.5% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The Commonwealth Superannuation Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities including in relation to military schemes, parliamentarians, federal judges and Governors-General. 106 Notes to and forming part of the Financial Statements Note 27B Public Sector Superannuation Scheme (PSS) Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information Members have the choice of receiving lump sum or pension benefits on retirement, death, disablement and resignation. Members may also preserve their benefit. The PSS scheme is closed to new members. Reconciliation of the present value of the defined benefit obligations Financial year ended Present value of defined benefit obligations at beginning of the year Current service cost Productivity contributions Interest cost Contributions by scheme participants Actuarial gains/(losses) Benefits paid Total benefits paid from CRF (including ACT/ANU)1 Benefits paid from CRF for ACT/ANU Benefits paid from PSS Fund (excluding ACT/ANU) Taxes, premiums & expenses paid Present value of defined benefit obligations at end of the year Reconciliation of the fair value of scheme assets Financial year ended Fair value of scheme assets at beginning of the year Expected return on scheme assets Actuarial gains / (losses) Employer contributions - net appropriation from CRF Employer Contributions-appropriation from CRF (including ACT/ANU) Emerging cost contributions from ACT/ANU Benefits paid from CRF for ACT/ANU Funded benefits paid from PSS Fund to CRF for ACT/ANU Employer contributions - productivity contribution Contributions by scheme participants Benefits paid Total benefits paid from CRF (including ACT/ANU)1 Benefits paid from CRF for ACT/ANU Benefits paid from PSS Fund (excluding ACT/ANU) Taxes, premiums & expenses paid Fair value of scheme assets at end of the year 30 June 2011 $'000 (41,543,533) (1,493,929) (209,739) (2,137,986) (545,357) 322,588 856,843 910,426 (62,644) 9,061 31,461 (44,719,652) 30 June 2010 $'000 (34,153,268) (1,209,619) (212,901) (1,892,379) (538,789) (4,255,871) 687,359 731,400 (50,160) 6,119 31,935 (41,543,533) 30 June 2011 $'000 10,551,432 747,544 29,209 388,732 374,553 42,903 (62,644) 33,920 209,739 545,357 856,843 910,426 (62,644) 9,061 31,461 11,583,709 30 June 2010 $'000 9,307,754 658,677 226,380 326,225 309,124 41,121 (50,160) 26,140 212,901 538,789 687,359 731,400 (50,160) 6,119 31,935 10,551,432 1 Total benefits paid from the Consolidated Revenue Fund (CRF) include both the unfunded and funded components of benefit payments and are inclusive of payments made to employees of the ACT Government (ACT) and the Australian National University (ANU). These are excluded from the calculations of the present value of defined benefit obligations. Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets administered on behalf of Government As at 30 June 2011 30 June 2010 $'000 $'000 (44,719,652) Defined benefit obligation (41,543,533) 11,583,709 Fair value of scheme assets 10,551,432 Net superannuation (liability)/asset (Refer Note 23E) (33,135,943) (30,992,101) 107 Notes to and forming part of the Financial Statements Note 27B Public Sector Superannuation Scheme (PSS) (continued) Total expense recognised in the schedule of income and administered on behalf of Government Financial year ended 30 June 2011 $'000 1,493,929 Current service cost 2,137,986 Interest cost (747,544) Expected return on assets Superannuation expense / (income) (Refer Note 21B) 2,884,371 Amounts recognised directly in administered equity Financial year ended Actuarial gains/(losses) Cumulative amount of actuarial gains and losses recognised in administered equity Financial year ended Cumulative amount of actuarial gains/(losses) 30 June 2010 $'000 1,209,619 1,892,379 (658,677) 2,443,321 30 June 2011 $'000 351,797 30 June 2010 $'000 (4,029,491) 30 June 2011 $'000 (9,437,441) 30 June 2010 $'000 (9,789,238) 30 June 2011 30 June 2010 26.5% 10.2% 1.9% 28.7% 3.6% 6.3% 12.8% 4.8% 5.2% 27.1% 9.0% 2.2% 27.6% 3.0% 6.9% 14.3% 4.8% 5.1% Scheme assets The fair value of scheme assets is represented by: Financial year ended Australian equity Market neutral funds Long / short funds International equity Objective based funds Credit Property Cash Bonds Fair value of scheme assets The fair value of scheme assets does not include amounts relating to: any of the Department’s (and the Australian Government’s) own financial instruments; and any property occupied by, or other assets used by the Department (or the Australian Government). except property holdings, including interest in various unit trusts, may include leases to the Department (or the Australian Government); and Government bonds, amounting to $26.11 million (ARIA Investments Trust) as at 30 June 2011 ($4.13 million as at 30 June 2010). Expected rate of return on scheme 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 asset class. The returns used for each asset class are net of investment tax and investment fees. Actual return on scheme assets Financial year ended Actual return on scheme assets Actual return on scheme assets as a percentage 108 30 June 2011 $'000 776,753 7.4% 30 June 2010 $'000 885,057 9.5% Notes to and forming part of the Financial Statements Note 27B Public Sector Superannuation Scheme (PSS) (continued) Principal actuarial assumptions at the balance sheet date Financial year ended 30 June 2011 30 June 2010 5.3% pa 5.3% pa 7.0% pa 4.0% pa 2.5% pa 5.2% pa 5.2% pa 7.0% pa 4.0% pa 2.5% pa Discount rate (active members) Discount rate (pensioners) Expected rate of return on plan assets (active members) Expected salary increase rate (excluding promotional increases) Expected pension increase rate Other material assumptions Assumptions have been made regarding rates of retirement, death (for active, preserved and pension members), mortality improvements, invalidity, resignation, retrenchment, retention and take up rates of pensions in the scheme. Assumptions have also been made for the ages of spouses and rates of member contributions. Unless stated otherwise in this report, all assumptions are the same as those used for the Long Term Cost Report as at 30 June 2008. Certain estimates and approximations were required to determine the year end assets and liabilities in the Statement of Administered Items in the timeframe required. The fair value of scheme assets as at 30 June 2011 was estimated using the audited fair value of scheme assets at 30 June 2010 with cash flow items provided by ARIA, other than benefits paid during the year which were based on information provided by the Department. An estimate of the actual rate of investment return earned by the scheme during the year to 30 June 2011 was used in determining the fair value of scheme assets. In relation to the Defined Benefit Obligation, member data as at 30 June 2010 was projected forward allowing for decrements in accordance with the 2008 Long Term Cost Report. The data was then adjusted for the difference between actual benefit payments and those based on the assumed decrements. Salaries at 30 June 2011 were estimated using an assumption derived from the Australian Public Service Remuneration Survey. Members’ account balances were increased to be consistent with the estimated level of Earning Rates prevailing at 30 June 2011. Historical information Financial year ended Present value of defined benefit obligation Fair value of scheme assets Surplus/(deficit) in scheme Experience adjustments gain/(loss) scheme assets Experience adjustments gain/(loss) scheme liabilities Expected contributions Financial year ended Expected employer contributions2 2 30 June 2011 $'000 (44,719,652) 30 June 2010 $'000 (41,543,533) 30 June 2009 $'000 (34,153,268) 30 June 2008 $'000 (25,702,650) 30 June 2007 $'000 (24,045,221) 11,583,709 (33,135,943) 29,209 10,551,432 (30,992,101) 226,380 9,307,754 (24,845,514) (2,273,405) 10,514,985 (15,187,665) (1,017,448) 10,463,798 (13,581,423) 963,033 (446,882) (1,457,523) 251,498 75,420 (277,688) 30 June 2012 $'000 203,931 This represents the employer productivity contributions, which are paid into the PSS fund. 109 30 June 2011 $'000 235,808 Notes to and forming part of the Financial Statements Note 27B Public Sector Superannuation Scheme (PSS) (continued) Funding arrangements for employer contributions (a) Deficit The following is a summary of the most recent financial position of the Public Sector Superannuation Scheme determined in accordance with AAS 25 Financial Reporting by Superannuation Plans. Financial year ended Accrued benefits (unfunded liability)3 30 June 2011 $'000 (20,900,000) 30 June 2010 $'000 (20,900,000) 3 This valuation is sourced from the long-term cost report as at 30 June 2008 when a complete valuation was undertaken. This valuation is for the entire scheme, which includes a component relating to the ACT and the ANU. (b) Contribution recommendations The Scheme is largely unfunded. While employers pay productivity contributions of between 2% and 3% into the PSS fund, the remaining employer contributions are not funded in advance. (c) Funding method Where a benefit becomes payable that cannot be fully met from the moneys held in the PSS fund, all moneys in the PSS fund in respect of the members are paid into the Consolidated Revenue Fund and the Commonwealth then assumes responsibility for the payment of the benefit. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected CPI increase 6.0% pa 4.0% pa + a promotional salary increase scale 2.5% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The Public Sector Superannuation Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities including in relation to military schemes, parliamentarians, federal judges and Governors-General. 110 Notes to and forming part of the Financial Statements Note 27C Parliamentary Contributory Superannuation Scheme (PCSS) Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information Members who leave Federal Parliament are entitled to either a lump sum or pension benefit depending on the length of their parliamentary service. For certain members, payment of their pension entitlement is deferred until age 55. The scheme is closed to new members. Reconciliation of the present value of the defined benefit obligations Financial year ended Present value of defined benefit obligations at beginning of the year Current service cost1 Interest cost Actuarial gains/(losses) Benefits paid Present value of defined benefit obligations at end of the year 30 June 2011 $'000 (802,604) (10,758) (40,824) (17,347) 35,065 (836,468) 30 June 2010 $'000 (737,715) (13,232) (40,480) (41,076) 29,899 (802,604) 1 Includes the cost of benefits accruing as a result of contributions deducted from members’ salaries that are paid into the Consolidated Revenue Fund. Reconciliation of the fair value of scheme assets Financial year ended Employer contributions2 Benefits paid Fair value of scheme assets at end of the year 2Employer 30 June 2011 $'000 35,065 35,065 - 30 June 2010 $'000 29,899 29,899 - contributions include appropriations from the Consolidated Revenue Fund. Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets administered on behalf of Government 30 June 30 June As at 2011 2010 $'000 $'000 (836,468) Defined benefit obligation (802,604) Net superannuation (liability)/asset (Refer Note 23E) (836,468) (802,604) Total expense recognised in the schedule of income administered on behalf of Government 30 June Financial year ended 2011 $'000 10,758 Current service cost3 40,824 Interest cost Superannuation expense / (income) (Refer Note 21B) 51,582 3 Includes 30 June 2010 $'000 13,232 40,480 53,712 the cost of benefits accruing as a result of contributions deducted from members’ salaries that are paid into the Consolidated Revenue Fund. 111 Notes to and forming part of the Financial Statements Note 27C Parliamentary Contributory Superannuation Scheme (PCSS) (continued) Amounts recognised directly in equity Financial year ended Actuarial gains/(losses) 30 June 2011 $'000 (17,347) 30 June 2010 $'000 (41,076) 30 June 2011 $'000 (59,134) 30 June 2010 $'000 (41,787) Cumulative amount of actuarial gains and losses recognised in administered equity Financial year ended Cumulative amount of actuarial gains/(losses) Scheme assets The scheme is an unfunded arrangement with no assets. Expected rate of return on scheme assets The expected return on assets assumption is not relevant as the scheme is an unfunded arrangement with no assets. Principal actuarial assumptions at the balance sheet date Financial year ended 30 June 2011 30 June 2010 Discount rate (active members) Discount rate (pensioners) Expected salary increase rate Expected pension increase rate 5.3% pa 5.3% pa 4.0% pa 4.0% pa 5.2% pa 5.2% pa 4.0% pa 4.0% pa Other material assumptions Assumptions have been made regarding rates of death (for active members and pensioners), mortality improvements, invalidity, retirement/defeat at future elections, commutation of pensions and pensioner marital status. Unless stated otherwise in this report, all assumptions are the same as those used for the actuarial investigation of the scheme as at 30 June 2008. Certain estimates and approximations were required to determine the year end assets and liabilities in the Statement of Administered Items in the timeframe required. In relation to the Defined Benefit Obligation, member data as at 1 July 2010 was projected forward to 30 June 2011 allowing for the actual increase in the backbench salary which occurred during the year, including the increase which is effective from 1 July 2011, and expected changes in membership as a result of the federal election (based on the assumptions used for the actuarial investigation of the Scheme as at 30 June 2008). Pensioner data as at 1 July 2010 was projected forward to 30 June 2011 allowing for mortality in accordance with the 2008 actuarial investigation and the actual increase in the backbench salary which occurred during the year, including the increase which is effective from 1 July 2011. Historical information Financial year ended Present value of defined benefit obligation Surplus/(deficit) in scheme Experience adjustments gain/(loss) scheme liabilities 112 30 June 2011 $'000 (836,468) 30 June 2010 $'000 (802,604) 30 June 2009 $'000 (737,714) 30 June 2008 $'000 (668,297) 30 June 2007 $'000 (689,454) (836,468) (29,420) (802,604) 3,682 (737,714) 57,533 (668,297) 31,553 (689,454) (12,910) Notes to and forming part of the Financial Statements Note 27C Parliamentary Contributory Superannuation Scheme (PCSS) (continued) Expected contributions 30 June 2012 $'000 35,649 Financial year ended Expected employer contributions4 4 Employer 30 June 2011 $'000 35,698 contributions represent appropriations from the Consolidated Revenue Fund to pay benefits. Funding arrangements for employer contributions (a) Deficit The following is a summary of the most recent financial position of the Parliamentary Contributory Superannuation Scheme calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans. 30 June 30 June Financial year ended 2011 2010 $'000 $'000 (701,600) (701,600) Accrued benefits (unfunded liability)5 5 This valuation is sourced from the long-term cost report as at 30 June 2008 when a complete valuation was undertaken. (b) Contribution recommendations The Scheme is unfunded. The defined benefits are not funded in advance. (c) Funding method Where a benefit in the Scheme becomes payable, the Australian Government assumes responsibility for the payment from the Consolidated Revenue Fund. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected CPI increase 6.0% pa 4.0% pa + a promotional salary increase scale 4.0% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The Parliamentary Contributory Superannuation Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities including in relation to military schemes, Commonwealth public servants, federal judges and Governors-General. 113 Notes to and forming part of the Financial Statements Note 27D Governor-General Pension Scheme Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information The Governor-General Pension Scheme is an unfunded defined benefits scheme. It provides a pension benefit on retirement of 60% of the salary payable to the Chief Justice less any other government pensions or retiring allowances and surcharge adjustments. The scheme is totally unfunded and members do not contribute towards the cost of benefits. Reconciliation of the present value of the defined benefit obligations 30 June 2011 $'000 (18,385) (924) (276) 1,227 (18,358) 30 June 2010 $'000 (16,014) (865) (2,636) 1,130 (18,385) 30 June 2011 $'000 30 June 2010 $'000 1,227 1,227 - 1,130 1,130 - Reconciliation of the net surplus/deficit to recognise assets and liabilities in the schedule of assets administered on behalf of government 30 June As at 2011 $'000 (18,358) Defined benefit obligation Net superannuation (liability)/asset (18,358) 30 June 2010 $'000 (18,385) (18,385) Total expense recognised in the schedule of income administered on behalf of government 30 June Financial year ended 2011 $'000 Current service cost1 924 Interest cost Superannuation expense / (income) 924 30 June 2010 $'000 865 865 Financial year ended Present value of defined benefit obligations at beginning of the year Interest cost Actuarial gains/(losses) Benefits paid Present value of defined benefit obligations at end of the year Reconciliation of the fair value of scheme assets Financial year ended Fair value of scheme assets at beginning of the year Employer contributions Benefits paid Fair value of scheme assets at end of the year 1 The service cost represents the cost of accruing benefits for the serving Governor-General. Amounts recognised directly in administered equity Financial year ended Actuarial gains/(losses) 114 30 June 2011 $'000 (276) 30 June 2010 $'000 (2,636) Notes to and forming part of the Financial Statements Note 27D Governor-General Pension Scheme (continued) Cumulative amount of actuarial gains and losses recognised in administered equity 30 June 2011 $'000 (2,912) Financial year ended Cumulative amount of actuarial gains/(losses) 30 June 2010 $'000 (2,636) Scheme Assets The scheme is an unfunded arrangement with no assets. Expected rate of return on scheme assets The expected return on assets assumption is not relevant as the scheme is an unfunded arrangement with no assets. Principal actuarial assumptions at the balance sheet date Financial year ended 30 June 2011 30 June 2010 Discount rate Expected salary increase rate Expected pension increase rate 5.3% pa 4.0% pa 4.0% pa 5.2% pa 4.0% pa 4.0% pa Other material assumptions The demographic assumptions used as at 30 June 2011 are those used for the preparation of the Long Term Cost Report for the Judges' Pensions Scheme as at 30 June 2008. Historical information Financial year ended Present value of defined benefit obligation Surplus/(deficit) in scheme Experience adjustments gain/(loss) - scheme liabilities 30 June 2011 $'000 (18,358) 30 June 2010 $'000 (18,385) 30 June 2009 $'000 (16,014) 30 June 2008 $'000 (12,118) 30 June 2007 $'000 (12,128) (18,358) (276) (18,385) (2,636) (16,014) (1,417) (12,118) (150) (12,128) 270 Expected contributions Financial year ended Expected employer contributions2 2Employer 30 June 2012 $'000 1,300 30 June 2011 $'000 1,200 contributions represent the appropriation for expected benefit payments. Funding arrangements for employer contributions (a) Deficit The financial position of the Governor-General Pension Scheme calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans has not been prepared, as no Long Term Cost Report (LTCR) was available at the time when the scheme was transferred to the Department. A LTCR is due to be issued in financial year 2011-12. 115 Notes to and forming part of the Financial Statements Note 27D (b) Governor-General Pension Scheme (continued) Contribution recommendations The Scheme is unfunded. The defined benefits are not funded in advance. (c) Funding method Where a benefit in the Scheme becomes payable, the Australian Government assumes responsibility for the payment from the Consolidated Revenue Fund. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected pension increase 6.0% pa 4.0% pa 4.0% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The Governor-General Pension Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities including in relation to military schemes, Commonwealth public servants, parliamentarians and federal judges. 116 Notes to and forming part of the Financial Statements Note 27E Judges' Pensions Scheme Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information The Judges' Pensions Scheme is a defined benefit scheme. It provides a pension benefit of 60% of the appropriate current judicial salary for eligible retired judges. The scheme is unfunded. Members do not contribute towards the cost of benefits. Reconciliation of the present value of the defined benefit obligation Financial year ended Present value of defined benefit obligations at beginning of the year1 Current service cost2 Interest cost2 Actuarial gains/(losses)3 Benefits paid Present value of defined benefit obligations at end of the year 30 June 2011 $'000 (814,200) (27,100) (42,100) (6,300) 35,800 (853,900) 30 June 2010 $'000 (743,500) (11,400) (21,100) (54,500) 16,300 (814,200) 1The present value of defined benefit obligations at the beginning of the year for the financial year 2009-10 represents the opening balance of the defined benefit obligation as at 1 January 2010, as administration of the scheme was transferred to the Department on that date. 2The service cost, interest cost and benefit paid reported for the financial year 2009-10 represents six months cost from 1 January 2010 to 30 June 2010, after the scheme was transferred to the Department. 3The actuarial gains/(losses) reported for financial year 2009-10 represents actuarial losses for the six months from 1 January 2010 to 30 June 2010, after the scheme was transferred to the Department. Reconciliation of the fair value of scheme assets Financial year ended Fair value of scheme assets at beginning of the year Employer contributions4 Benefits paid Fair value of scheme assets at end of the year 4Employer 30 June 2011 $'000 30 June 2010 $'000 35,800 35,800 - 16,300 16,300 - contributions include appropriations from the Consolidated Revenue Fund. Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets administered on behalf of Government 30 June 30 June As at 2011 2010 $'000 $'000 (853,900) Defined benefit obligation (814,200) Net superannuation (liability)/asset (853,900) (814,200) Total expense recognised in the schedule of income administered on behalf of Government 30 June Financial year ended 2011 $'000 27,100 Current service cost5 42,100 Interest cost Superannuation expense / (income) 69,200 117 30 June 2010 $'000 11,400 21,100 32,500 Notes to and forming part of the Financial Statements 5The service cost represents the total cost of accruing benefits, as no contributions are made by the Judges. Note 27E Judges' Pensions Scheme (continued) Amounts recognised directly in administered equity Financial year ended Actuarial gains/(losses) 30 June 2011 $'000 (6,300) 30 June 2010 $'000 (54,500) 30 June 2011 $'000 (60,800) 30 June 2010 $'000 (54,500) Cumulative amount of actuarial gains and losses recognised in administered equity Financial year ended Cumulative amount of actuarial gains/(losses)6 6The cumulative actuarial losses for the financial year 2009-10 represent six months to 30 June 2010. Scheme Assets The scheme is an unfunded arrangement with no assets. Expected rate of return on scheme assets The expected return on assets assumption is not relevant as the scheme is an unfunded arrangement with no assets. Principal actuarial assumptions at the balance sheet date Financial year ended 30 June 2011 30 June 2010 Discount rate Expected salary increase rate Expected pension increase rate 5.3% pa 4.0% pa 4.0% pa 5.2% pa 4.0% pa 4.0% pa Other material assumptions The demographic assumptions used as at 30 June 2011 are those used for the preparation of the Long Term Cost Report for the Judges' Pensions Scheme as at 30 June 2008. Benefits payable (including payments of surcharge debt) under the Judges' Pensions Act 1968 and the Superannuation (Productivity Benefit) Act 1988 are paid from Consolidated Revenue on an emerging (or pay as you go) basis. Thus, contributions made equal benefits paid for the Judges' Pensions Scheme. Historical information Financial year ended Present value of defined benefit obligation Surplus/(deficit) in scheme Experience adjustments gain/(loss) scheme liabilities 30 June 2011 $'000 (853,900) 30 June 2010 $'000 (814,200) 30 June 2009 $'000 (680,500) 30 June 2008 $'000 (572,057) (853,900) (6,300) (814,200) (54,500) (680,500) (84,400) (572,057) 7,200 30 June 2012 $'000 38,000 30 June 2011 $'000 34,000 Expected contributions Financial year ended Expected employer contributions7 7Employer 118 contributions represent the appropriation for expected benefit payments. Notes to and forming part of the Financial Statements Note 27E Judges' Pensions Scheme (continued) Funding arrangements for employer contributions (a) Deficit The following is a summary of the most recent financial position of the Judges' Pensions Scheme calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans. 30 June 30 June Financial year ended 2011 2010 $'000 $'000 (615,200) Accrued benefits (unfunded liability) 8 (615,200) 8This valuation is sourced from the Long Term Cost Report as at 30 June 2008 when a complete valuation was undertaken. (b) Contribution recommendations The Scheme is unfunded. The defined benefits are not funded in advance. (c) Funding method Where a benefit in the Scheme becomes payable, the Australian Government assumes responsibility for the payment from the Consolidated Revenue Fund. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected pension increase 6.0% pa 4.0% pa + a promotional salary increase scale 4.0% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. The Judges' Pensions Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. The Government has established the Future Fund for the purpose of accumulating assets to help meet this liability. The Future Fund is also intended to cover other superannuation unfunded liabilities including in relation to military schemes, Commonwealth public servants and Governors-General. 119 Notes to and forming part of the Financial Statements Note 27F Federal Magistrates Death and Invalidity Scheme Accounting policy Actuarial gains and losses are recognised immediately in administered equity in the year in which they occur. Scheme information The scheme entitles a retired disabled Federal Magistrate to a pension of 60% of the salary the Magistrate would have received if they had not been retired, and is payable until the earlier of the Magistrate attaining age 70 or his/her death. In addition, where a retired Federal Magistrate has not attained the age of 65, they continue to receive employer superannuation contributions in respect of this pension. Once the Federal Magistrate reaches age 70, pension payments in respect of his/her service as a Federal Magistrate cease. The scheme also provides a death benefit where a Federal Magistrate or disabled Federal Magistrate dies before attaining age 65. The benefit is the amount of the superannuation contributions that would have been made if the Magistrate had not died or retired in the period until he or she would have reached age 65. The scheme is unfunded and financed solely by the Australian Government. Members do not contribute towards the cost of benefits. Reconciliation of the present value of the defined benefit obligation Financial year ended Present value of defined benefit obligations at beginning of the year 1 Current service cost2 Interest cost2 Actuarial gains/(losses)3 Benefits paid Present value of defined benefit obligations at end of the year 30 June 2011 $'000 (1,991) (1,076) (126) 1,176 216 (1,801) 30 June 2010 $'000 (1,674) (487) (53) 104 119 (1,991) 1The present value of defined benefit obligations at the beginning of the year for the financial year 2009-10 represents the opening balance of the defined benefit obligation as at 1 January 2010, as administration of the scheme was transferred to the Department on that date. 2The service cost, interest cost and benefit paid reported for the financial year 2009-10 represents six months cost from 1 January 2010 to 30 June 2010, after the scheme was transferred to the Department. 3The actuarial gains/(losses) reported for financial year 2009-10 represents actuarial losses for the six months from 1 January 2010 to 30 June 2010, after the scheme was transferred to the Department. Reconciliation of the fair value of scheme assets Financial year ended Employer contributions4 Benefits paid Fair value of scheme assets at end of the year 4Contributions 30 June 2011 $'000 216 216 - by Employer include appropriations from the Consolidated Revenue Fund. Reconciliation of the net surplus/(deficit) to recognised assets and liabilities in the schedule of assets administered on behalf of Government 30 June As at 2011 $'000 (1,801) Defined benefit obligation Net superannuation (liability)/asset (1,801) 120 30 June 2010 $'000 119 119 - 30 June 2010 $'000 (1,991) (1,991) Notes to and forming part of the Financial Statements Note 27F Federal Magistrates Death and Invalidity Scheme (continued) Total expense recognised in the schedule of income administered on behalf of Government 30 June Financial year ended 2011 $'000 1,076 Current service cost5 30 June 2010 $'000 487 126 1,202 53 540 Interest cost Superannuation expense / (income) 5The service cost represents the total cost of accruing benefits, as no contributions are made by the Federal Magistrates. Amounts recognised directly in administered equity Financial year ended Actuarial gains/(losses) 30 June 2011 $'000 1,176 30 June 2010 $'000 104 30 June 2011 $'000 1,280 30 June 2010 $'000 104 Cumulative amount of actuarial gains and losses recognised in administered equity Financial year ended Cumulative amount of actuarial gains/(losses)6 6 The cumulative actuarial losses for the financial year 2009-10 represent six months to 30 June 2010. Scheme Assets The scheme is an unfunded arrangement with no assets. Expected rate of return on scheme assets The expected return on assets assumption is not relevant as the scheme is an unfunded arrangement with no assets. Principal actuarial assumptions at the balance sheet date Financial year ended 30 June 2011 30 June 2010 Discount rate Expected salary increase rate Expected pension increase rate 5.3% pa 4.0% pa 4.0% pa 5.2% pa 7.0% pa 4.0% pa Other material assumptions The demographic assumptions used as at 30 June 2011 are those used for the preparation of the Long Term Cost Report for the Judges' Pensions Scheme as at 30 June 2008. Benefits payable are paid from Consolidated Revenue on an emerging (or pay as you go) basis. Thus contributions made equal benefits paid. Historical information Financial year ended Present value of defined benefit obligation Surplus/(deficit) in scheme Experience adjustments gain/(loss) scheme liabilities 121 30 June 2011 $'000 (1,801) 30 June 2010 $'000 (1,991) 30 June 2009 $'000 - (1,801) 1,176 (1,991) 104 - Notes to and forming part of the Financial Statements Note 27F Federal Magistrates Death and Invalidity Scheme (continued) Expected contributions 30 June 2012 $'000 223 Financial year ended Expected employer contributions7 7Employer 30 June 2011 $'000 210 contributions represent the appropriation for expected benefit payments. Funding arrangements for employer contributions (a) Deficit The financial position of the Federal Magistrates Death and Invalidity Scheme calculated in accordance with AAS 25 Financial Reporting by Superannuation Plans has not been prepared, as a LTCR has not been conducted since the first pensioner became eligible under the scheme within the past three years. (b) Contribution recommendations The Scheme is unfunded. The defined benefits are not funded in advance. (c) Funding method Where a benefit in the Scheme becomes payable, the Australian Government assumes responsibility for the payment from the Consolidated Revenue Fund. (d) Economic assumptions The long-term economic assumptions adopted for the last actuarial review of the scheme as at 30 June 2008 were: Expected rate of return on assets (discount rate) Expected salary increase rate Expected pension increase 6.0% pa 4.0% pa + a promotional salary increase scale 4.0% pa Nature of asset/liability The Department has recognised a liability in the Schedule of Administered Items in respect of its defined benefit superannuation arrangements administered on behalf of the Government. Federal Magistrates Death and Invalidity Scheme does not impose a legal liability on the Department to cover any deficit that exists in the scheme. This liability instead rests with the Australian Government. 122 Notes to and forming part of the Financial Statements Note 28 Appropriations Note 28A Annual appropriations (‘Recoverable GST exclusive’) 2011 DEPARTMENTAL Ordinary annual services Other services Equity Total departmental ADMINISTERED Ordinary annual services Outcome 13 Outcome 2 Outcome 3 Other services Administered assets and liabilities3 Total administered 1 Appropriation Appropriation Act Annual Appropriations appropriation reduced1 $'000 $'000 Section 30 FMA Act Section 31 Section 32 $'000 $'000 Appropriation applied2 $'000 Variance $'000 Total appropriation $'000 $'000 254,122 (16) 39 15,542 591 270,278 (256,255) 14,023 161,796 415,918 (16) 39 15,542 591 161,796 432,074 (158,694) (414,949) 3,102 17,125 15,135 666 225,092 (1,946) (6,405) 3,501 923 - - 16,690 666 219,610 (13,240) (666) (217,987) 3,450 1,623 2,054 242,947 (8,351) 4,424 - - 2,054 239,020 (4,566) (236,459) (2,512) 2,561 Acts (No. 1, 3) 2010-11: determination to reduce appropriations upon request (No. 20 of 2010-11) and section 11. ‘Appropriation applied’ includes cash payments made from current and prior year appropriations compared to ‘Annual Appropriation’ which includes only current year appropriations. 3 Comsuper spent money from the Consolidated Revenue Fund (CRF) on behalf of the Department. The money spent has been included in the table above. 2 123 Notes to and forming part of the Financial Statements Note 28A: Annual appropriations (continued) 2010 DEPARTMENTAL Ordinary annual services Other services Equity Previous years’ outputs Total departmental ADMINISTERED Ordinary annual services Outcome 13 Outcome 2 Outcome 3 Other services Administered assets and liabilities3 Total administered 1 Appropriation Appropriation Act Annual Appropriations appropriation reduced1 $'000 $'000 Section 30 FMA Act Section 31 Section 32 $'000 $'000 Appropriation applied $'000 Variance2 $'000 Total appropriation $'000 $'000 232,442 (39,756) 311 20,175 (2,813) 210,359 (226,799) (16,440) 116,127 1,522 350,091 (39,756) 311 20,175 (2,813) 116,127 1,522 328,008 (128,498) (2,731) (358,028) (12,371) (1,209) (30,020) 14,390 652 200,880 (1,022) (1) (15,961) 1,382 1,842 - - 14,750 651 186,761 (13,065) (651) (194,555) 1,685 (7,794) 1,969 217,891 (16,984) 3,224 - - 1,969 204,131 (1,653) (209,924) 316 (5,793) Acts (No. 1, 3) 2003-04, 2005-06, 2006-07, 2007-08, 2008-09, 2009-10: section 11 and ss. 14(1). ‘Appropriation applied’ includes cash payments made from current and prior year appropriations compared to ‘Annual Appropriation’ which includes only current year appropriations. 3 Comsuper spent money from the Consolidated Revenue Fund (CRF) on behalf of the Department. The money spent has been included in the table above. 2 124 Notes to and forming part of the Financial Statements Note 28B Unspent departmental annual appropriations (‘Recoverable GST exclusive’) 2011 $'000 75,632 46,954 27,843 18,368 13,967 2,150 1,000 55,811 6,689 248,414 Appropriation Act (No. 2) 2007 - 2008 Appropriation Act (No. 2) 2008 - 2009 Appropriation Act (No. 2) 2009 - 2010 Appropriation Act (No. 2) 2010 - 2011 Appropriation Act (No. 4) 2006 - 2007 Appropriation Act (No. 4) 2007 - 2008 Appropriation Act (No. 4) 2009 - 2010 Appropriation Act (No. 1) 2008 - 2009 Appropriation Act (No. 1) 2009 - 2010 Appropriation Act (No. 1) 2010 - 2011 Appropriation Act (No. 1) 2010 - 2011 – Capital Appropriation Act (No. 3) 2008 - 2009 Appropriation Act (No. 3) 2009 - 2010 Total unspent departmental annual appropriations Note 28C 2010 $'000 75,632 46,954 27,843 17,998 2,150 1,000 8,916 36,961 798 1,119 219,371 Special appropriations (‘Recoverable GST exclusive’) Finance has recently become aware that there is an increased risk of non-compliance with Section 83 of the Constitution where payments are made from special appropriations in circumstances where the payments do not accord with conditions included in the relevant legislation. Finance will investigate these circumstances and any impact on its special appropriations shown below and seek legal advice as appropriate. Authority Superannuation Act 1922 s.7(4), s.119T(2)(b), s.119ZC(5), s.134(1) Administered Type Unlimited amount Superannuation Act 1976 s.27R(4), s.54L(2), s.54ZA, s.110TG(2), s.112(2), s.112(5), s.112(9), s.124(1)(b), s.124(1)(c)(i), s.128(7A), s.140(3), s.145(5), s.145(9)(b), s.160A(2), s.166(4), s.180(4), s.241(2) Administered Unlimited amount Superannuation Act 1990 s.18, s.33E(2), s.37(1), s.37(3), s.37A(2), s.38(2), s.43(4) Administered Unlimited amount Superannuation Act 2005 s.18, s.33E(2), s.37(1), s.37(3), s.37A(2), s.38(2), s.43(4) Administered Unlimited amount Parliamentary Contributory Superannuation Act 1948 s.15C(11), s.22DH(4), s.26D, s.27 Administered Parliamentary Superannuation Act 2004 s.18 Administered Unlimited amount 125 Unlimited amount Purpose An Act to provide superannuation benefits for persons employed by the Commonwealth and by certain Commonwealth authorities and to make provision for the families of those persons. An Act to make provision for and in relation to an occupational superannuation scheme, known as the Commonwealth Superannuation Scheme, for people employed by the Commonwealth and for certain other people. An Act to make provision for and in relation to an occupational superannuation scheme for persons employed by the Commonwealth, and for certain other persons. An Act to make provision for and in relation to an occupational superannuation scheme for persons employed by the Commonwealth, and for certain other persons. An Act to make provision for contributory superannuation for persons who have served as Members of the Parliament. An Act to make provision for contributory superannuation for persons who have served as Members of the Parliament. Appropriation applied 2011 2010 $'000 $'000 (143,680) (148,774) (3,857,924) (3,543,660) (910,022) (730,623) (37) (12) (33,840) (29,849) (2,709) (2,241) Notes to and forming part of the Financial Statements Note 28C Special appropriations (‘Recoverable GST exclusive’) (continued) Members of Parliament (Life Gold Pass) Act 2002 s.31 Administered Parliamentary Entitlements Act 1990 s.11 Administered Unlimited amount An Act to set out the entitlements of holders of a life gold pass. (1,600) (2,552) Unlimited amount (147,306) (146,275) Governor-General Act 1974 s.5 Administered Unlimited amount (1,229) (1,140) Judges' Pensions Act 1968 s.12A(5), 14(b) Administered Federal Magistrates Act 1999 s. 9G Administered Unlimited amount An Act relating to the provision of benefits to Members of each House of the Parliament. An Act to make provision in relation to the salary of the Governor-General, and the payment of allowances to persons, and to the widows or widowers of persons, who have held the office of Governor-General. An Act to make provision for pensions for Judges and their families. An Act relating to Federal Magistrates, and for other purposes. (35,641) (16,594) (210) (30) Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Act 2008, s.4 Administered Unlimited amount (158) - Financial Management and Accountability Act 1997 s.28 Departmental & Administered Commonwealth of Australia Constitution Act s.66 (Ministers of State Act 1952 s.5) limited to $3,500,000 annually balance lapsed Administered Airports (Transitional) Act 1996, s.39, s.44, s.70, s.78 and s.86(1) Administered Australian Industry Development Corporation Act 1970, s.34 and s.34ZX(2)1 Administered CFM Sale Act 1996, s.56(2)2 Administered Refund (547) (1,573) (3,340) (3,214) An Act relating to the leasing of airports, and for related purposes. An Act to establish an Australian Industry Development Corporation. - - - - - - Commonwealth Funds Management Limited Act 1990, s.8(2)2 Administered Unlimited amount An Act relating to the sale of Commonwealth Funds Management Limited, and for related purposes. An Act relating to the constitution of the Superannuation Fund Investment Trust as a public company providing investment services on a commercial basis to the public and private sector, and for related purposes. - - 126 Unlimited amount Limited amount Unlimited amount Unlimited amount Unlimited amount An Act eliminating discrimination against samesex couples and the children of same-sex relationships in Commonwealth Acts that provide for reversionary superannuation benefits upon the death of a scheme member, and in related taxation treatment of superannuation benefits Repayments required or permitted by law (where no other appropriation for repayment exists). An Act to determine the number of the Ministers of State and to make provision for their salaries and allowances. Notes to and forming part of the Financial Statements Note 28C Special appropriations (‘Recoverable GST exclusive’) (continued) CSL Sale Act 1993, s.29(2) and s.50(2)2 Administered Lands Acquisitions Act 1989, s.124(5) Administered Unlimited amount Parliamentary Retiring Allowances (Increases) Act 1967, s.5(c) Administered Parliamentary Retiring Allowances (Increases) Act 1971, s.10(2) Administered Public Accounts and Audit Committee Act 1951, s.22(3) Administered Public Works Committee Act 1969, threshold limit of $15,000,000 and allowances limited to $30,000 Administered Qantas Sale Act 1992, s.45(2) and s.46(2), except to the extent administered by the Treasurer or the Minister for Transport and Regional Services and s. 18 and limited by s.15(4) to the amount of $1.4 billion Administered Superannuation (Pension Increases) Act 1961, s.6(2) and s.6(4) Administered Superannuation (Pension Increases) Act 1967, s.6(2) and s.6(4) Administered Superannuation (Pension Increases) Act 1971, s.11(2) and s.11(4) Administered Telstra Corporation Act 1991, s.8AS(3) and s.8AL(1)3 Administered Transferred Officers' Allowances Act 1948, s.8 Administered Western Australia (South-West Region Water Supplies) Agreement Act 1965, s.4, limited to $12,000,000 Administered Unlimited amount Aboriginal and Torres Strait Islander Act 2005, Part 4B Administered Unlimited amount 127 An Act relating to the sale of CSL Limited, and for related purposes. An Act relating to the acquisition of land by the Commonwealth and certain authorities and dealings with land so acquired, and for other purposes. An Act to provide for increases in certain parliamentary retiring allowances. An Act to provide for increases in certain parliamentary retiring allowances. An Act to provide for a joint Parliamentary Committee of Public Accounts and Audit. An Act relating to the Parliamentary Standing Committee on Public Works. - - - - - - - - - - - - Limited amount An Act relating to the sale of Qantas Airways Limited, and for related purposes. - - Unlimited amount An Act to provide for increases in certain superannuation pensions. An Act to provide for increases in certain superannuation pensions. An Act to provide for increases in certain superannuation pensions. An Act relating to Telstra Corporation Limited, and for other purposes. An Act to provide for the payment of allowances to certain transferred officers. An Act relating to an Agreement between the Commonwealth and the State of Western Australia in relation to water supplies in the southwest region of that state. An Act to establish a Torres Strait Regional Authority, an indigenous land corporation and a corporation to be known as Indigenous Business Australia, and for related purposes. - - - - - - - - - - - - - - Unlimited amount Unlimited amount Unlimited amount Limited amount Unlimited amount Unlimited amount Unlimited amount Unlimited amount Limited amount Notes to and forming part of the Financial Statements Note 28C Special appropriations (‘Recoverable GST exclusive’) (continued) Aerospace Technologies of Australia Limited Sale Act 1994 Administered Unlimited amount AIDC Sale Act 1997 Administered Unlimited amount Albury-Wodonga Development Act 1973 Administered Total Unlimited amount An Act relating to the sale of AeroSpace Technologies of Australia Limited, and for related purposes. An Act to amend the Australian Industry Development Corporation Act 1970, and for other purposes. An Act relating to the Development of the AlburyWodonga Area. - - - - - - (5,138,243) (4,626,537) 1Repealed 22 April 2011 per AIDC Sale Act 1997 Proclamation These Acts were repealed from 18 December 2010 as per FFLA Act 2010 3This Act was repealed from 18 December 2010 as per FFLA Act 2010 2 Comsuper drew from the special appropriation authorised by the Superannuation Act 1922 s.7(4), s.119T(2)(b), s.119ZC(5), s.134(1), the Superannuation Act 1976 s.27R(4), s.54L(2), s.54ZA, s.110TG(2), s.112(2), s.112(5), s.112(9), s.124(1)(b), s.124(1)(c)(i), s.128(7A), s.140(3), s.145(5), s.145(9)(b), s.160A(2), s.166(4), s.180(4), s.241(2), the Superannuation Act 1990 s.18, s.33E(2), s.37(1), s.37(3), s.37A(2), s.38(2), s.43(4), the Superannuation Act 2005 s.18, s.33E(2), s.37(1), s.37(3), s.37A(2), s.38(2), s.43(4) and the Same-Sex Relationships (Equal Treatment in Commonwealth Laws – Superannuation) Act 2008 s. 4. The money spent has been included in the table above. The Department of the House of Representatives and the Department of the Senate drew from the special appropriation authorised by the Parliamentary Superannuation Act 2004 s.18. The money spent has been included in the table above. The Department of the Attorney-General, Defence, House of Representatives and the Senate drew from the special appropriation authorised by the Parliamentary Entitlements Act 1990 s.11. The money spent has been included in the table above. Fair Work Australia drew from the special appropriation authorised by the Judges Pension Act 1968 s. 12A(5), 14(b). The money spent has been included in the table above. Note 28D Drawdown by Finance in relation to annual and special appropriations (‘Recoverable GST exclusive’) Royal Australian Mint 2010-11 Total receipts Total payments $'000 - Royal Australian Mint 2009-10 Total receipts Total payments 128 $'000 1,618 (1,618) Australian Secret Intelligence Organisation $'000 28,782 (28,782) Department of Prime Minister and Cabinet $'000 - Australian Secret Intelligence Organisation $'000 21,197 (21,197) Department of Prime Minister and Cabinet $'000 1,140 (1,140) Notes to and forming part of the Financial Statements Note 28E Reduction in administered items (‘Recoverable GST exclusive’) 2010-11 Ordinary annual services Outcome 1 Outcome 2 Outcome 3 Administered capital budget Total As per Appropriation Act (Act 1 s.11; Act 2 s.12) Amount required – by Amount required – as Appropriation Act represented by: Act (No.1) Act (No.3) Spent Retention 13,189,432.48 665,569.99 208,645,000.00 1,061,012.15 223,561,014.62 0.00 0.00 8,980,974.49 0.00 8,980,974.49 12,408,030.36 665,569.99 199,870,604.95 1,061,012.15 214,005,217.45 781,402.12 0.00 17,755,369.54 0.00 18,536,771.66 Total amount required Total amount appropriated in 2010-11 Total reduction effective in 2011-12 13,189,432.48 665,569.99 217,625,974.49 1,061,012.15 232,541,989.11 15,135,000.00 666,000.00 219,642,000.00 5,450,000.00 240,893,000.00 1,945,567.52 430.01 2,016,025.51 4,388,987.85 8,351,010.89 Note: 1. Numbers in this section of the table are not rounded as required. 2. Administered items for 2010-11 will be reduced to these amounts when the financial statements are tabled in Parliament as part of the Department’s 2010-11 annual report. This reduction is effective in 2011-12, but the amounts are reflected in Note 28A in the 2010-11 financial statements in column ‘Appropriations reduced’ as they are adjustments to the 2010-11 appropriations. 2009-10 Ordinary annual services Outcome 1 Outcome 2 Outcome 3 Total As per Appropriation Act (Act 1 s.11; Act 2 s.12) Amount required – by Appropriation Amount required – as represented Act by: Act (No.1) Act (No.3) Spent Retention 13,379,923.94 651,116.72 197,989,315.90 212,020,356.56 0.00 0.00 90,000.00 90,000.00 12,329,058.88 651,116.72 183,149,240.71 196,129,416.31 1,050,865.06 0.00 14,930,075.19 15,980,940.25 Total amount required Total amount appropriated in 2009-10 Total reduction effective in 2010-11 13,379,923.94 651,116.72 198,079,315.90 212,110,356.56 14,390,000.00 652,000.00 200,880,000.00 215,922,000.00 1,010,076.06 883.28 2,800,684.10 3,811,643.44 Note: 1. Numbers in this section of the table are not rounded as required. 2. Administered items for 2009-10 were reduced to these amounts when the financial statements were tabled in Parliament as part of the Department’s 2009-10 annual report. This reduction is effective in 2010-11, but the amounts are reflected in Note 28A in the 2009-10 financial statements in column ‘Appropriations reduced’ as they are adjustments to the 2009-10 appropriations. 129 Notes to and forming part of the Financial Statements Note 29 Special accounts Table A – Special accounts Finance has recently become aware that there is an increased risk of non-compliance with Section 83 of the Constitution where payments are made from special accounts in circumstances where the payments do not accord with conditions included in the relevant legislation. Finance will investigate these circumstances and any impact on its special accounts shown below and seek legal advice as appropriate. Departmental Special Accounts Comcover1 Balance carried forward from previous period Appropriation for reporting period Other receipts Rendering of services Restructuring Premiums Reinsurance and other recoveries Proceeds from sale of property, plant and equipment Other GST credits (FMA s30A) Available for payments Payments made Employees Suppliers Insurance claims paid Purchase of property, plant and equipment Capital repayments GST paid to ATO Competitive neutrality Balance carried forward to the next period Represented by: Cash at bank Appropriation receivable Total cash Add: Receivables - Net GST receivable from the ATO Less: Other payables - Net GST payable to the ATO Balance carried forward to the next period 130 Property2 Business Services3 Coordinated Procurement Contracting4 2011 2010 $'000 $'000 44,492 10,074 4,972 6,844 2011 $'000 315,176 11,912 2010 $'000 318,580 10,150 2011 $'000 258,639 160,860 2010 $'000 195,218 114,323 2011 $'000 904 - 2010 $'000 836 - 29 87,713 1,037 208 416,075 83 84,452 5,899 (18) 419,146 108,234 59 308 528,100 108,160 18,849 5 436,555 24 928 70 906 37,502 8,359 95,325 (2,210) (33,799) (134,754) (5,126) 240,186 (2,422) (40,483) (54,656) (1,291) (5,118) 315,176 (7,122) (40,438) (154,950) (57,560) (4,208) (20,239) 243,583 (5,562) (25,875) (88,251) (41,198) (4,246) (12,784) 258,639 928 (2) 904 279 239,768 240,047 139 240,186 470 314,358 314,828 348 315,176 50 242,529 242,579 1,004 243,583 614 261,229 261,843 (3,204) 258,639 928 928 928 904 904 904 Total Departmental 2011 $'000 619,211 177,744 2010 $'000 524,708 131,317 68,607 14,687 6,511 106,723 145,789 87,713 1,037 59 8,667 208 1,040,428 176,850 14,687 84,452 5,899 18,849 6,568 963,330 (7,414) (53,842) (8) (1,125) 32,936 (5,106) (55,225) (1,900) 44,492 (16,746) (128,079) (134,754) (154,958) (57,560) (5,333) (25,365) 517,633 (13,090) (121,585) (54,656) (88,251) (41,198) (7,437) (17,902) 619,211 773 32,939 33,712 195 46,197 46,392 (776) 32,936 (1,900) 44,492 1,102 516,164 517,266 1,143 (776) 517,633 1,279 622,688 623,967 348 (5,104) 619,211 Notes to and forming part of the Financial Statements Note 29 Special accounts (continued) Table A – Special accounts Other Trust Moneys5 Balance carried forward from previous period Other receipts Interest Investments realised Other GST credits (FMA S30A) Available for payments Payments made Suppliers Transfer to other special accounts Purchase of investments Equity distribution & other movements Balance carried forward to the next period Represented by: Cash at bank Appropriation receivable Balance carried forward to the next period 131 Media Commission6 Administered Special Accounts Education Investment Fund8 2011 2011 2010 2010 $'000 $'000 $'000 $'000 Building Australia Fund7 2011 $'000 2010 $'000 2011 $'000 2010 $'000 456 881 - 15,697 - 20,000 - 629 1,085 439 1,320 - 1,284 16,981 25,843 23,047,659 2,515 366 23,076,383 14,859 32,210,202 80,121 32,325,182 (827) - (864) - - (1,596) (14,687) (698) (836,993) (21,008,925) (1,230,433) 258 456 - - 1 257 456 - 258 456 - Health and Hospital Fund9 Total Administered 2011 $'000 2010 $'000 2011 $'000 2010 $'000 - - 1,000 456 37,578 16,046 11,483,365 243 11,499,654 9,023 19,964,005 19,973,028 17,322 9,007,479 45,800 213 9,070,814 7,809 14,963,784 14,972,593 59,211 43,538,503 48,944 822 43,647,936 31,691 67,137,991 81,844 67,289,104 (442,101) (31,578,828) (304,253) (913,677) (10,585,951) - (1,252,288) (18,720,740) - (694,209) (8,376,580) - (319,640) (14,652,953) - (2,445,706) (39,971,456) (1,230,433) (2,016,489) (14,687) (64,952,521) (304,951) 32 - 26 - 25 - 341 456 - 32 - 26 - 25 - 1 340 456 - 32 - 26 - 25 - 341 456 Notes to and forming part of the Financial Statements Note 29 Special accounts (continued) 1 Comcover Special Account Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For receipts and expenditure relating to the administration of Comcover including direct and indirect costs for staff and the Advisory Council, and for expenditure in relation to Comcover's operations in meeting liabilities that arise from its function as the Commonwealth's insurable risks claims manager. This account is non-interest bearing. 2 Property Special Account Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: Facilitates the management of the Commonwealth's non-Defence domestic property portfolio. This account is non-interest bearing. 3 Business Services Special Account Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For expenditure relating to the whole of government contract for providing fleet management and leasing services, the sentencing and disposing of records associated with the former Department of Administration Services (DAS), and managing and settling any personal injury and other legal claims arising from activities associated with the former DAS. This account is non-interest bearing. 4 Coordinated Procurement Contracting Special Account Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For expenditure relating to the whole of government contract for providing fleet management and leasing services, the centralised government advertising activities, and other co-coordinate procurement contracts for the benefit of government entities. The account is noninterest bearing. 5 Other Trust Moneys Special Account Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For the receipt of moneys temporarily held in trust for other persons. The account is non-interest bearing. 6 Media Commission Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: Funds in this account are used to transfer media commissions through the Central Advertising System and to reduce the balance without making real or notional payment. The Media Commission Special Account was closed on 29 January 2010 and replaced by the Coordinated Procurement Contracting Special Account. This account is non-interest bearing. 7 Building Australia Fund Legal Authority: Financial Management and Accountability Act 1997, s21. Purpose: For making payments in relation to transport infrastructure, communications infrastructure (including the National Broadband Network), energy infrastructure and water infrastructure. The balance of the special account is invested by the Future Fund Board of Guardians. The Future Fund Board of Guardians invests amounts standing to the credit of the special account, although the special account itself is non-interest bearing. 8 Education Investment Fund Legal Authority: Financial Management and Accountability Act 1997, s21. Purpose: For making payments in relation to higher education infrastructure, research infrastructure, vocational education and training infrastructure, and any other eligible education infrastructure. The balance of the special account is invested by the Future Fund Board of Guardians. The Future Fund Board of Guardians invests amounts standing to the credit of the special account, although the special account itself is non-interest bearing. 9 Health and Hospital Fund Legal Authority: Financial Management and Accountability Act 1997, s21. Purpose: For making payments in relation to health infrastructure. The balance of the special account is invested by the Future Fund Board of Guardians. The Future Fund Board of Guardians invests amounts standing to the credit of the special account, although the special account itself is non-interest bearing. The following Special Accounts have not been used during the current and comparative year: (a) Services for other Government and Non-Agency Bodies Account [Special Public Money] Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For expenditure in connection with services performed on behalf of other Governments and bodies that are not FMA agencies. To date there have not been any transactions through this account. (b) Lands Acquisition Account (Lands Acquisition Act 1989) [Special Public Money] Legal Authority: Financial Management and Accountability Act 1997, s20. Purpose: For the holding of amounts of compensation due to be paid to a person in respect of compulsory acquisition of interests in land where the amount of compensation payable to the person has been determined but where the person has not, because of some default or delay on the part of the person, received payment of the compensation within a 3 month period after the date of the determination. To date there have not been any transactions through this account. 132 Notes to and forming part of the Financial Statements Note 29 Special accounts (continued) TABLE B – Movements in Nation-building Funds’ investments Investments established under the Nation-building Funds Act 2008 Opening balance Realised investments Interest earned Foreign currency realised reinvested Amounts paid to other portfolio agencies Realised investments - re-invested Amounts transferred to operations1 Closing fund balance 1 Building Australia Fund 2011 $'000 9,738,202 20,940,621 367,732 644,385 (2,054,018) (21,208,059) (10,878) 8,417,985 2010 $'000 9,957,348 31,867,315 338,592 227,235 (660,080) (31,986,058) (6,150) 9,738,202 Education Investment Fund 2011 2010 $'000 $'000 5,503,558 6,469,146 10,579,864 19,746,890 212,914 219,118 416,960 144,378 (906,533) (1,248,186) (10,742,335) (19,823,691) (7,130) (4,097) 5,057,298 5,503,558 The operations of the Nation-building Funds are funded from revenues generated by the funds. 133 Health and Hospital Fund 2011 $'000 4,726,442 8,312,232 187,751 357,217 (642,239) (8,457,826) (6,159) 4,477,418 2010 $'000 4,824,547 14,774,837 161,105 125,746 (316,298) (14,840,153) (3,342) 4,726,442 Nation-building Fund Total 2011 2010 $'000 $'000 19,968,202 21,251,041 39,832,717 66,389,042 768,397 718,815 1,418,562 497,359 (3,602,790) (2,224,564) (40,408,220) (66,649,902) (24,167) (13,589) 17,952,701 19,968,202 Notes to and forming part of the Financial Statements Note 30 2011 $ 2010 $ - 25,000 1,360,932 1,204,666 1,443 - Compensation and debt relief Departmental No ‘Act of Grace’ expenses were incurred during the reporting period (2010: 4 expenses). Administered 66 ‘Act of Grace’ expenses were incurred during the reporting period (2010: 67 expenses). 66 of the above expenses amounting to $1,360,932 were paid on a periodic basis (2010: 67 expenses amounting to $1,204,666). These are expected to continue in future years. The estimated amount outstanding in relation to payments being made on a periodic basis as at 30 June 2011 was $12,590,000 ($12,352,208 at 30 June 2010). 2 waivers of amounts owing to the Australian Government were made pursuant to subsection 34(1) of the Financial Management and Accountability Act 1997. (2010: no waivers). 134 Notes to and forming part of the Financial Statements Note 31 Reporting of outcomes Note 31A Net cost of outcome delivery Outcome 1 2011 2010 $'000 $'000 Expenses Administered Departmental Total expenses Income from non-government sector Administered Activities subject to cost recovery Dividends Interest Superannuation contributions Other sources of non-taxation revenue Other gains Total administered Departmental Sales of goods and services from related entities Premiums Rent Reinsurance and other recoveries Other revenue Interest Other gains Total departmental Total own source income Net cost/(contribution) of outcome delivery Outcome 2 2011 2010 $'000 $'000 Outcome 3 2011 2010 $'000 $'000 Not attributable 2011 2010 $'000 $'000 Total 2011 $'000 2010 $'000 10,311,998 126,525 10,438,523 8,155,708 117,918 8,273,626 3,594 430,433 434,027 5,800 360,978 366,778 387,018 44,118 431,136 387,624 46,787 434,411 - - 10,702,610 601,076 11,303,686 8,549,132 525,683 9,074,815 78,781 1,344,325 7,243 2,555,088 3,985,437 49,619 1,349,896 9,251 1,265,381 2,674,147 455,787 3 11 455,801 66,143 630 61 66,834 4,746 3,296 4,337 12,379 5,183 3,245 4,270 12,698 35,620 35,620 27,165 27,165 4,746 455,787 114,404 1,344,325 10,550 2,559,425 4,489,237 5,183 66,143 76,784 1,349,896 13,126 1,269,712 2,780,844 7,530 1,104 8,634 3,994,071 6,444,452 8,357 69 2 1,219 9,647 2,683,794 5,589,832 67,939 86,411 84,211 58,414 10,041 3,975 1,751 312,742 768,543 (334,516) 70,461 83,216 75,555 11,291 7,728 1,632 207 250,090 316,924 49,854 10,076 4 150 10,230 22,609 408,527 9,701 43 1 188 9,933 22,631 411,780 35,620 (35,620) 27,165 (27,165) 85,545 86,411 84,211 58,414 10,041 3,979 3,005 331,606 4,820,843 6,482,843 88,519 83,216 75,555 11,291 7,840 1,635 1,614 269,670 3,050,514 6,024,301 The Department uses an activity based costing system to determine the attribution of its shared items. The basis of attribution in the above table is consistent with the basis used for the 2010-11 Budget. Outcomes 1, 2 and 3 are described in Note 1.1. Net costs shown include intra-government costs that are eliminated in calculating the actual budget outcome. 135 Notes to and forming part of the Financial Statements Note 31A Net cost of outcome delivery (continued) Income from activities is subject to competitive neutrality. The following competitive neutrality expenses were incurred in relation to those activities: Competitive Neutrality Regulatory neutrality expense Reinsurance charges State tax equivalent expense Commonwealth tax equivalent expense Total competitive neutrality 136 2011 $'000 2010 $'000 126 5,000 10,261 13,463 28,850 118 5,000 6,375 25,328 36,821 Notes to and forming part of the Financial Statements Note 31B Major classes of departmental expense, income, assets and liabilities by outcomes 2011 $'000 Outcome 1 2010 $'000 2011 $'000 Outcome 2 2010 $'000 2011 $'000 Outcome 3 2010 $'000 Departmental expenses Employee benefits Suppliers expense Depreciation and amortisation Finance costs Write-down and impairment of assets Net losses from disposal of assets Insurance claims Other Total expenses 85,275 37,108 3,908 34 193 8 126,526 80,300 31,902 5,462 29 4 221 117,918 55,602 136,879 14,457 2,288 124 1,346 190,887 28,850 430,433 49,358 138,009 8,849 4,559 69,094 815 63,836 26,458 360,978 29,112 14,149 768 9 75 5 44,118 28,344 16,376 1,955 12 3 97 46,787 - Departmental income Income from government Sale of goods and rendering of services Rental income Insurance premiums Reinsurance and other recoveries Other revenue Other gains Interest Total revenue 121,905 7,530 1,104 130,539 118,327 8,357 69 1,219 2 127,974 84,771 67,939 84,211 86,411 58,414 10,041 1,751 3,975 397,513 74,509 70,461 75,555 83,216 11,291 7,728 207 1,632 324,599 33,124 10,076 150 4 43,354 37,855 9,701 43 188 1 47,788 - 137 Not attributed 2011 2010 $'000 $'000 2011 $'000 Total 2010 $'000 - 169,989 188,136 19,133 2,331 392 1,359 190,887 28,850 601,077 158,002 186,287 16,266 4,600 69,101 1,133 63,836 26,458 525,683 - 239,800 85,545 84,211 86,411 58,414 10,041 3,005 3,979 571,406 230,691 88,519 75,555 83,216 11,291 7,840 1,614 1,635 500,361 Notes to and forming part of the Financial Statements Note 31B Major classes of departmental expense, income, assets and liabilities by outcomes (continued) Not attributed1 2011 2010 $'000 $'000 2011 $'000 Outcome 1 2010 $'000 2011 $'000 Outcome 2 2010 $'000 2011 $'000 Outcome 3 2010 $'000 Departmental assets Cash and cash equivalent Trade and other receivables Accrued revenue Land and buildings Infrastructure, plant and equipment Investment property Intangibles Other non-financial assets Total assets 3,873 1,083 1,349 8,380 51 14,736 2 350 1,780 11 75 141 2 2,361 665 775,210 7,257 362,714 990 920,961 7,524 676 2,075,997 1,527 787,307 1,071 319,447 1,321 779,660 9,166 164 1,899,663 14,036 424 1,542 65 1,549 17,616 5 1,291 354 230 37 49 395 2,361 966 15,929 8 6,870 4,082 12,316 1,739 41,910 Departmental liabilities Suppliers Return of equity Unearned revenue Outstanding insurance claims Other payables Other interest bearing liabilities Employee provisions Other provisions Total liabilities 3,729 480 823 19,048 24,080 1,797 1,958 16,621 20,376 15,260 49,642 77,328 298,616 757 12,802 5,497 459,902 8,189 55,070 66,009 243,762 8,633 10,934 5,500 398,097 28 246 14 16 5,257 42 5,603 380 104 739 4,329 65 5,617 214 2,555 10,370 880 14,019 1 Assets and liabilities that cannot be reliably attributed to outcomes. 138 2011 $'000 Total 2010 $'000 1,787 28,750 22 9,210 5,201 19,518 2,166 66,654 1,631 809,048 8,772 371,126 6,486 920,961 29,769 2,466 2,150,259 3,321 817,698 3,227 328,898 6,634 779,660 28,874 2,727 1,971,039 17,684 36 9,545 797 28,062 19,231 49,642 78,054 298,616 4,149 16 47,477 6,419 503,604 28,050 55,070 66,113 243,762 11,330 36 41,429 6,362 452,152 Notes to and forming part of the Financial Statements Note 31C Major classes of administered expenses, income, assets and liabilities by outcomes Administered expenses Grants Employees Superannuation Suppliers Depreciation and amortisation Write-down and impairment of assets Finance costs Net loss from sale of assets Other Other losses Total expenses Administered income Rendering of services Interest Dividends Super contributions Other revenue Other gains Total income 1 2011 $'000 Outcome 1 2010 $'000 2,709 6,349,500 35,885 2,423,493 1,500,411 10,311,998 78,781 1,344,325 7,243 2,555,088 3,985,437 Income that can not be reliably attributed to outcomes. 139 Not attributed1 2011 2010 $'000 $'000 2011 $'000 Outcome 2 2010 $'000 2011 $'000 Outcome 3 2010 $'000 5,858,535 32,561 2,003,752 260,860 8,155,708 666 2,928 3,594 651 608 4,541 5,800 199,389 162,192 25,054 13 133 237 387,018 215,294 156,315 15,979 4 24 8 387,624 - 49,619 1,349,896 9,251 1,265,381 2,674,147 3 455,787 11 455,801 66,143 630 61 66,834 4,746 3,296 4,337 12,379 5,183 3,245 4,270 12,698 35,620 35,620 2011 $'000 Total 2010 $'000 - 666 202,098 6,349,500 198,077 25,054 13 133 3,165 2,423,493 1,500,411 10,702,610 651 215,294 5,858,535 189,484 15,979 4,545 24 8 2,003,752 260,860 8,549,132 27,165 27,165 4,746 114,404 455,787 1,344,325 10,550 2,559,425 4,489,237 5,183 76,784 66,143 1,349,896 13,126 1,269,712 2,780,844 Notes to and forming part of the Financial Statements Note 31C Major classes of administered expenses, income, assets and liabilities by outcomes (continued) Outcome 1 Outcome 2 Outcome 3 Not attributed1 Total 2011 $'000 2010 $'000 2011 $'000 2010 $'000 2011 $'000 2010 $'000 2011 $'000 2010 $'000 2011 $'000 2010 $'000 Administered assets Cash and cash equivalents Trade and other receivables Investments Accrued revenue Land and buildings Infrastructure, plant and equipment Intangibles Other Total assets 178,840 17,805,767 62,007 18,046,614 56 149,026 20,504,427 61,155 1,147 20,715,811 11,001 4,423,550 4,434,551 27 18,901 4,754,217 4,773,145 1,524 1,109 49 23,833 56,439 132 2,791 85,877 9,811 31,475 203 33,752 60,845 203 2,771 139,060 (746,617) 36,261 (710,356) (1,530,690) (1,530,690) (745,093) 227,211 22,229,317 62,056 23,833 56,439 132 2,791 21,856,686 (1,520,796) 199,402 25,258,644 61,358 33,752 60,845 203 3,918 24,097,326 Administered liabilities Suppliers Other payables Other interest bearing liabilities Employee provisions Superannuation Other provisions Total liabilities 396,402 94,885,610 13,681 95,295,693 511,256 2,519 92,695,039 12,352 93,221,166 63 63 24 24 7,881 7,582 1,339 168,028 3,068 187,898 12,744 3,484 1,735 168,975 3,136 190,074 - - 404,283 7,645 1,339 168,028 94,885,610 16,749 95,483,654 524,000 6,027 1,735 168,975 92,695,039 15,488 93,411,264 1 Assets and liabilities that can not be reliably attributed to outcomes. 140 Notes to and forming part of the Financial Statements Note 32 Total comprehensive income attributable to Finance Total comprehensive income (loss) is attributed to: Budget funded operations Comcover Special Account Property Special Account Business Services Special Account Coordinated Procurement Contracting Special Account Total comprehensive loss attributable to Finance (37,113) (1,125) 7,442 14,602 (15,069) (24,197) 12,146 (13,176) 12,864 (71,711) 42,041 23 1,714 (15,069) 19,767 (932) (33,111) (64) 1,164 (13,176) per the Statement of comprehensive income to budget funded operations and projects. Special Accounts are appropriated through their own determinations. 2 Relates 141 30 June 2010 $'000 Comprehensive income (loss) attributable to Finance Total comprehensive loss attributable to the Australian Government1 Plus: non-appropriated expenses: Changes in asset revaluation reserve Depreciation and amortisation expenses2 1 As 30 June 2011 $'000
