The University of South Australia was established pursuant to the University of South Australia Act 1990. The mission of the University is to advance, disseminate and preserve knowledge through the provision of a teaching, learning and research environment which fosters excellence in scholarship, innovation, and social responsibility.
The University operated from six campuses during 2001: City East, City West, Magill, Mawson Lakes, Underdale and Whyalla.
During 2001, the following entities were controlled by the University:
ITEK Pty Ltd — The University established ITEK Pty Ltd as trustee for ITEK Trust and GTA Trust which provide University business incubation and technology commercialisation services.
University of South Australia Foundation Incorporated — The main purposes of the Foundation are to generate interest in the University and to attract broadly based levels of philanthropic support for the benefit of the University.
Consolidated operations for the year resulted in an surplus from ordinary activities of $6.9 million ($2.4 million in 2000).
Income from fee paying overseas students totalled $37.9 million, an increase of $9 million from the previous year total of $28.9 million.
Section 19 of the University of South Australia Act 1990 provides for the Auditor‑General to audit the accounts of the University in respect of each year of operation.
The audit program covered all major financial systems and was directed primarily towards obtaining sufficient evidence to enable an audit opinion to be formed with respect to the Financial Statements and internal control.
The scope of the audit for 2001 included:
strategic planning
budgetary control
payroll
expenditure
fixed assets
revenue
procurement.
In addition, Audit conducted a review of certain computer processing environments of the University which included review of the University’s remote access facility with specific reference to access to key financial systems.
The audit of the University’s controlled entity ITEK Pty Ltd was carried out by a private accounting firm.
Matters arising during the course of the Audit were detailed in management letters to the Vice Chancellor. Responses to the management letters have been received by Audit and considered to be satisfactory. The observations in ‘Audit Findings and Comments’ hereunder summarise the major matters raised with the University and the related responses. The responses indicate the University’s approach to cost effective, risk based control.
Consistent with past practice, in 2001 the University recognised the first instalment of the Commonwealth Operating Grant for 2002 (totalling $ 13.9 million) which was received in December 2001 as revenue received in advance.
It was noted, however, the 2001 Department of Education, Science and Training (DEST) Guidelines were changed to remove the requirement to account for the advance grant as a liability. As a result, the requirements of Australian Accounting Standard AAS 15 ‘Revenue’ became applicable for the first time in 2001.
It is Audit’s opinion that the Commonwealth Operating Grant received from DEST represents a non-reciprocal transfer and as a consequence the University has control of the funds upon receipt. As a consequence, in accordance with AAS 15 ‘Revenue’, it is Audit’s view that the advance grant should be recognised as revenue in the year of receipt. As a result the Independent Audit Report on the University’s financial statement for 2001 was qualified with respect to the treatment of Government Operating Grants.
Details included under the heading ‘Extract From Independent Audit Report’ provides further information including the financial effect on the University’s financial statements resulting from the non compliance with the accounting standard.
Audit Committee
The University has an Audit Committee which comprises members of the Council, the Vice Chancellor (ex officio) and an academic staff representative. The Committee meets on at least a quarterly basis and reports to the Council.
The Committee operates within the framework of an Audit Committee Charter with the primary function of assisting Council in exercising due care, diligence and skill in discharging its oversight and monitoring responsibilities.
Representatives of the Auditor-General attend meetings of the Committee as observers.
Internal Audit
The University has an internal audit function which is performed by the Assurance Services Unit of the University. The Audit Committee approves and monitors the scope of the internal audit plan. Reviews undertaken by Assurance Services pursuant to the approved internal audit plan are reviewed by the Audit Committee. Work undertaken by Assurance Services is considered in determining the nature and extent of external audit coverage.
Overall Assessment
Audit noted that internal controls were generally operating satisfactorily throughout the period under review. Notwithstanding this observation, the audit highlighted some areas where it was considered that controls could be enhanced. The following summarises some of the more salient matters raised by Audit.
The 2000 audit revealed that for the majority of cost centres reviewed, there was insufficient or no evidence to support that actual expenditure was compared to budget regularly and that variances were explained on a timely basis.
Audit follow-up conducted as part of the 2001 audit revealed that consistent with last year’s findings, instances were noted where University officers who had financial responsibility for reviewing Finance One Cost Centre Reports were not retaining reports as evidence of their review.
In accordance with sound financial management practices, Audit recommended that cost centre managers provide evidence of their review of cost centre balances and financial performance. Furthermore, to ensure cost centre managers adopt a consistent approach in undertaking their financial performance monitoring responsibilities, it was recommended that consideration be given to providing guidance on what is expected (ie minimum standards) from managers with regards to the monitoring of financial performance.
The University will ensure that there is sufficient guidance on what is expected from managers within the Financial Management Guidelines and any related materials. It is expected that alternative technologies, such as web based access to financial information, will play an increasingly significant role in future financial management activities.
The 2000 audit revealed that the University did not have systems which support a detailed profitability analysis of activities (ie lines of business representing operations from which the University derives revenue), including analysis of net return on activities undertaken, other than at a cost centre level. The University in response indicated that it will continue to develop systems and methods to better analyse its varied activities and is committed to improving its costing processes as rapidly as resources permit.
A follow-up conducted as part of the 2001 audit noted the University issued a discussion paper which recognised the need for better costing and profitability analysis and suggests a way forward to meet this need. In essence the paper recommended a two stage process of systems development with the latter stage not planned to be undertaken until the 2003 financial year. Audit reported that it supported the direction the University had taken in relation to the development of systems and processes to better analyse the net return of University activities. Furthermore, given the expected timeframes associated with the proposals, Audit sought advice of any proposed high level analysis of returns that may be undertaken by the University for 2002 pending the implementation of the proposals outlined in the discussion paper.
The University indicated that in 2001 it began analysing net returns at a high level as evidenced in a report forwarded to the Finance Committee/Council in February 2002 which reported the contribution made by five broad lines of business activity to the operating result of the University. The University indicated that it intended to continue with such an analysis in 2002.
Audit review for 2001 included gaining an understanding of the University’s framework relating to the development, approval, promulgation and review of its finance policies and procedures. In this regard, Audit noted the need for an update of annual review and approval procedures to reflect the current organisational structure of the University.
In relation to the promulgation of its policies and procedures, Audit noted that the University’s financial policies and guidelines were not maintained in a coordinated document. It was recommended that consideration be given to creating and promulgating a complete set of finance procedures and guidelines in a format that can be easily referenced and maintained for the use of finance staff within the University.
The University indicated the relevant changes will be made to reflect the new policy and procedure framework and the existing authorities within the University. Further, the University indicated it will ensure its financial procedures and guidelines are complete and maintained in a format which facilitates easy reference.
Further to commentary provided relating to Budgetary Control practices, Audit made a number of observations specifically relating to the monitoring of payroll expenditure. Audit noted a lack of consistency in monitoring processes being used throughout the University, particularly in relation to established positions (ie non-casuals). Further, Audit review of policies and procedures relating to the monitoring of payroll budget information revealed that documented policies and procedures did not provide guidance to schools and units as to how payroll budget monitoring ought to be performed, or the extent of documentation to be kept.
To achieve consistent and cost effective payroll monitoring practices within the University, Audit recommended the University develop and promulgate appropriate policies and procedures which provide guidance to cost centre managers on payroll budget monitoring procedures. Ideally, these policies and procedures would include guidance on the minimum standards expected from cost centre managers.
The University considers that the high level review of payroll costs by managers is but one aspect of the control framework and should not be over-emphasised. The University indicated that it also relies on sound system processes being in place. In terms of specific checking processes, payroll variations across periods are checked within the payroll each fortnight against source documents. The broader matter of budget monitoring, including the monitoring of payroll transactions, will be addressed in its Financial Management Guidelines.
The procurement of goods and services for most organisations represents a key business activity which can have a significant impact on its operations both operationally and financially. The adoption of sound procurement practices with a strategic focus can deliver agencies significant ongoing benefits and will ultimately assist them in achieving their corporate objectives.
For a number years the Government has pursued the progressive implementation of various initiatives aimed at reforming procurement arrangements of public sector agencies. The State Supply Act 1985 (the Act), section 5, explicitly states that the Act does not apply to the University of South Australia (the University). Accordingly, the University is not required to comply with the State Supply Board regulatory framework and as such is somewhat removed from the reform process. Notwithstanding this, Audit considers that there will be some coherence between the principles outlined in the reform process and the University’s procurement arrangements. Accordingly, a review of the University’s procurement activities was conducted against this background.
The objective of the review was to assess the quality of the tendering and contracting activity of the University’s procurement processing cycle. This included an examination of the status of the University’s policy and procedural guidance and the examination of two case studies which involved detailed review of the quality of the execution of tendering and contacting processes undertaken by the University.
In summary, the findings emanating from Audit’s review of the University’s procurement practices highlighted that there is scope for the University to enhance its existing procedural guidance and there is a need for improved processes to ensure compliance with established procedures. Also, in relation to the quality of its contracting and tendering practices the case studies demonstrated that there was scope for the University to improve some aspects of its procurement practices. In particular, Audit noted opportunities to improve:
documentation supporting key phases of its procurement processes including procurement planning, procurement risk management and tender evaluation processes. In this regard, Audit acknowledged that procurement practices, including supporting documentation, should be cost effective and commensurate with the size, type and complexity of the procurement project being considered.
the release and management of commercially sensitive information obtained from tenderers as part of tender processes.
management of preferred supplier arrangements including the level of documented policies and procedures, monitoring of performance, the extension of expired contracts and the implementation of appropriate mechanisms to ensure competitive pricing arrangements over the term of the preferred supplier arrangement.
The University has responded satisfactorily to the matters raised highlighting its acceptance and/or consideration to the Audit suggestions having regard to its assessment of risk and feasibility relevant to the issues raised.
Audit review for 2001 included a review of the University’s remote access facility with specific reference to access to key financial systems (ie Remus and Finance One). The review identified a number of areas where improvements could be made to the University’s remote access facility. In particular, the review highlighted the need for the University to establish a suitable planning framework for the development of its network which has specific reference to security management issues. Further, the review highlighted a number of specific matters that require management attention including:
the introduction of a systematic review of available logs relating to the University’s remote access facility and the Remus system;
improvements to security logging facilities and staffing arrangements relating to the Finance One system.
The University responded satisfactorily to the matters raised by Audit.
The other main matters arising from the audit included:
Payroll — completeness of leave recording and completion of checklists by staff leaving the University.
Accounts Payable — documentation of accounts payable policies and procedures, purchase order release limits, the processing of invoice adjustments, review of accounts payable system reconciliations and vendor file maintenance.
Revenue — review of offshore program fees, raising of offshore program fees and procedures relating to the monitoring and write-off of bad debts.
The University responded satisfactorily to all of the other matters highlighting its acceptance and/or considerations in relation to Audit suggestions and having regard to its assessment of risk and feasibility relevant to each matter.
The following is an extract from the 2001 Independent Audit Report, which details the qualification to the University’s financial report.
Qualification
The University has reported as part of Other Liabilities in Note 20 to the financial statements, Commonwealth Grants representing revenue received in advance of $13.9 million.
The 2001 Department of Education, Science and Training (DEST) Guidelines were changed to remove the requirement to account for the advance grant as a liability. As a result, the requirements of Australian Accounting Standard AAS 15 ‘Revenue’ became applicable for the first time in 2001. The Commonwealth Operating Grant received from DEST is considered to be a non-reciprocal transfer and as a consequence the University has control of the funds upon receipt. In accordance with AAS 15 ‘Revenue’, the advance grant should have been recognised as revenue in the year of receipt. In addition, in accordance with the requirements of the transitional provisions of AAS 15 ‘Revenue’, the balance on 1 January 2001 of $13.7 million in the liability for revenue received in advance should have been transferred to Accumulated Results of Operations as at the beginning of the year. As a result, the revenue received under the Higher Education Funding Act 1988 recognised in Commonwealth Government Financial Assistance and the Operating Result From Ordinary Activities are both understated by $0.2 million; Accumulated Results of Operations is understated by $13.9 million and Current Liabilities-Other are overstated by $13.9 million.
The University has disclosed its accounting treatment of the operating grant received from DEST in Note 1(d) to the financial statements.
Qualified Audit Opinion
In my opinion, except for the effect on the financial report of the matter referred to in the qualification paragraphs, the financial report presents fairly in accordance with the Treasurer’s Instructions promulgated under the provisions of the Public Finance and Audit Act 1987, the Higher Education Funding Act 1988, applicable Australian Accounting Standards and other mandatory professional reporting requirements, the financial position of the University of South Australia and of the economic entity as at 31 December 2001, the results of their operations and their cash flows for the year then ended.
As required by subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987, the audit of the University of South Australia included an assessment of the controls exercised in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.
Audit formed the opinion that the controls exercised by the University of South Australia in relation to the receipt, expenditure and investment of money; the acquisition and disposal of property; and the incurring of liabilities, were sufficient to provide reasonable assurance that the financial transactions of the organisation were conducted properly and in accordance with law.
The consolidated result of operations for the year was a surplus of $6.9 million (surplus of $2.4 million in 2000), an increase of $4.5 million. The result reflects an increase of $21.4 million in Revenue from Ordinary Activities (excluding deferred government superannuation contribution) compared to an increase of $16.9 million in Expenses from Ordinary Activities (excluding deferred government superannuation contribution).
The increase in consolidated revenue is due mainly to an increase in revenue from fee paying overseas students; which increased by $9.0 million to $37.9 million from $28.9 million in 2000.
Funding from the University’s main revenue sources, Commonwealth Government Financial Assistance and the Higher Education Contribution Scheme (HECS), increased by $6.2 million from $166.3 million to $172.5 million. The increase is due mainly to an increase in Commonwealth Government Financial Assistance, notably a $5.6 million increase in Operating Financial Assistance Excluding HECS.
The following graph reflects the changing composition of revenues over recent years.
The graph demonstrates the success of the University in increasing the proportion of revenue from fee-paying overseas students.
The following graph highlights the upward trend in fee-paying overseas students.
Revenue from Fee-Paying Overseas Students
Consolidated operating expenses (excluding deferred government superannuation contribution) increased by $19.7 million from $248 million to $267.7 million. The main operating expense of the University (as for most service entities) is employee benefits. This item (including Commonwealth Supplemented Superannuation) increased by $13.3 million from $161.2 million to $174.5 million.
The following graph shows the changes in the academic and non-academic staff salaries components of employee benefits over recent years.
The graph highlights the effects (ie consolidated) of the University’s changes in staffing from 1997 and the more recent increases in staff salary costs. In 2001, academic staff salaries increased by $6.4 million or 9.7 percent to $72.4 million ($66 million) and non-academic staff salaries increased by $1.4 million or 2.7 percent to $53.7 million ($52.3 million).
Land and Buildings (Written Down Value $350 Million)
Consistent with Accounting Policy Statement (APS 3) ‘Revaluation of Non-Current Assets’ land and buildings were independently valued at 31 December 2001, being three years since the previous revaluation. The independent valuation, completed by the Department for Administrative and Information Services, valued land and buildings at written down current cost reflecting current use, consistent with the requirements of APS 3. This valuation was based on an initial useful life for the buildings of 60 years. The exceptions to this valuation approach were in respect of:
Underdale campus, which while valued consistent with the above approach, was adjusted for surplus unused capacity on the basis that the University is not fully utilising the facilities on this campus. The adjustment for surplus capacity is based on the percentage decrease in student numbers from the peak student load in 1995;
Salisbury campus, which has been valued separately by Colliers Jardine Consultancy & Valuations Pty Ltd, based on net market value, as this campus is in the process of being sold and is excess to University requirements.
The revaluation of the University’s land and building assets resulted in a net decrease in the Asset Revaluation Reserve of $2.4 million represented by:
|
$’000 |
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Land ‑ revaluation increment |
9 812 |
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Buildings ‑ revaluation decrement |
(12 221) |
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Net revaluation decrement |
2 409 |
Library (Written Down Value $32 Million)
University library assets were also revalued at 31 December 2001, based on the average replacement cost of book stocks (gross replacement cost), less adjustment for expired use (accumulated depreciation). This revaluation was completed as an internal management revaluation, consistent with deprival valuation principles as detailed in APS 3. The result of this revaluation was to decrease the value of library books by $2.3 million.