The Department for Administrative and Information Services (DAIS) is an Administrative Unit established under the Public Sector Management Act 1995.
The Department is the portfolio based agency providing support to the Minister for Administrative Services, the Minister for Industrial Relations, the Minister for Recreation Sport and Racing, the Minister for Aboriginal Affairs and Reconciliation and the Minister for Infrastructure. It has responsibility for a diverse range of government activities including:
project risk management, building asset management, procurement and contract services;
capital building works and major projects delivery;
information technology policy, support and management services;
internal services to government, for example forensic services and fleet management;
land valuation, survey and registration;
workplace registration and regulation and industrial relations services;
policy and programs in relation to Aboriginal affairs;
administration and assistance to the recreation, sport and racing industries.
The structure of the Department is illustrated in the following organisation chart
Note 34 to the Department’s Financial Statements provides a summary of the functions, and a breakdown of financial information in relation to the business unit operations of the Department. In addition Note 35 presents information relating to funds and financial transactions administered by the Department.
The Department has an Audit Committee which was operative during the 2002-03 financial year.
The broad functions of the Audit Committee are to regularly review the adequacy of the accounting, internal auditing, reporting and other financial management systems. The responsibilities extend to monitoring risk management practices, approving and evaluating the internal audit program, reviewing the annual financial statements and communicating with officers of the Auditor-General (External Auditors).
During the year the following changes to the functions of DAIS were effected:
The responsibility for the Hindmarsh Stadium was transferred to the Department from the Office for Venue Management, effective from 1 July 2002.
The Information Economy Office was transferred from DAIS to the Department for Further Education, Employment, Science and Technology, effective 1 October 2002.
The Media Monitoring Unit was transferred to DAIS from the Department of the Premier and Cabinet, with an effective date for reporting purposes of 1 July 2002.
The details of the above transfers, including the financial effect, are outlined in Note 4(c) to the Department’s financial statements.
Subsection 31(1)(b) of the Public Finance and Audit Act 1987 provides for the Auditor-General to audit the accounts of the Department for each financial year.
Subsection 36(1) (a) (iii) of the Public Finance and Audit Act 1987 provides for the Auditor-General to assess the controls exercised by the Department in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.
The audit program covered major financial systems and was directed primarily to obtaining sufficient evidence to enable an audit opinion to be formed with respect to the financial statements and internal controls. Further, with respect to the assessment of controls, the audit considered whether they were consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 ‘Financial Management Policies’.
In undertaking the audit of the Department recognition was given to the diverse and self contained nature of the activities of a number of the functional areas of the Department. This acknowledged that separate financial accounting systems and processes were often maintained in respect of the major functional areas, particularly at the subsidiary system level.
In this regard the scope of audit in respect of the various functional areas was directed at ensuring financial systems and accounting record keeping processes and controls were at a level that provided assurance as to the integrity of processing of financial transactions and preparation of financial statement information. The reviews of the specific functional areas are, however, not undertaken in isolation of the recognition that the Department is required to operate within an overall financial management and accountability framework through consideration and appropriate application of the Financial Management Framework (FMF).
In this context specific audit attention to each functional area that was subject to review involved consideration of the:
diverse nature and risks of those areas;
integrity of the stand alone and subsidiary financial systems;
materiality of the financial operations of that area with respect to the Department’s overall operations and associated implications in regard to financial statement reporting on the Department’s operations;
requirements of the Financial Management Framework.
In more specific terms the scope of the audit included a review of the following areas of financial activity:
Revenue collection, accounts payable, and personnel/payroll functions
Maintenance of the general ledger and associated reconciliations and subsidiary systems
Asset and liability identification, valuation and management
Tendering and contract management processes
Procurement and distribution operations
Residential and commercial property management
Motor vehicle fleet management
Management of whole-of-government contracts, including maintenance and information technology
Management and financial reporting
Operations of Aboriginal Affairs and Reconciliation
Operations of the Offices for Recreation and Sport and the Office for Racing.
Matters arising during the course of the audit were detailed in management letters to the Chief Executive Officer. Responses to the management letters were generally considered to be satisfactory. Major matters raised with the Department and the related responses are considered in Audit Findings and Comments together with an update on issues reported on last year.
The following is an extract from the 2002-03 Independent Audit Report, which details the qualification to the Departments financial report.
Note 2.11 to the Financial Statements sets out the accounting policy with respect to the sale and leaseback of motor vehicles previously owned by the Department. In my opinion the approach adopted by the Department is not consistent with the principles of Australian Accounting Standard AASB 1008 ‘Leases’, and in the absence of a superior standard does not appropriately reflect the value of the underlying assets and liability of the transaction. Financial statement balances affected are:
Motor Vehicles under finance lease.
Current borrowings – Finance lease on motor vehicles.
Non-current borrowings – Finance lease on motor vehicles.
Other Current liabilities – Deferred profit on sale and leaseback of motor vehicles.
In my opinion, had the standard been properly adopted assets would increase by $102million and liabilities would increase by $99 million.
In my opinion, except for the effects on the financial report of the matters 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, applicable Accounting Standards and other mandatory professional reporting requirements in Australia, the financial position of the Department for Administrative and Information Services as at 30June2003, its financial performance and its cash flows for the year then ended.
Audit formed the opinion that the controls exercised by the Department in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities, except for matters outlined under ‘Significant Matters Raised with Agencies’ is sufficient to provide reasonable assurance that the financial transactions of the Department have been conducted properly and in accordance with law.
As mentioned in last year’s Report the external audit activity of DAIS has not been executed in isolation of the review of DAIS adherence with the requirements of the FMF. Prior year reports conveyed a number of issues regarding the status of implementation of elements of the FMF within DAIS. During 2002-03, Audit has focussed attention on the status regarding the implementation and operation of risk management practices.
The implementation of the FMF from 1 July 1998 meant that a structured risk management practice is now formalised as an integral part of an overall effective agency management and control process.
In relation to DAIS, developments have proceeded over several years that align with certain requirements for risk management practice under the FMF. These developments have included; the formulation of a Risk Management Policy; appointment of a Principal Adviser Risk Management and Audit Services; the completion of a Risk Management Scoping Study; and the conduct of a Department wide review of strategic risk exposures.
As part of the annual strategic planning cycle, individual business units are required to undertake a risk analysis. The main output from this analysis is a list of the main risks to be addressed in each respective business unit’s strategic plan and the establishment of strategies to manage these risks.
Last year’s Report discussed the importance of the development of an overall Departmental risk management plan and process that clearly identifies the risk management strategies established and provides for an effective reporting and monitoring framework. I made comment last year that notwithstanding a Department wide review of strategic risk exposures, the Department had not documented an organisation wide risk management plan. Audit reiterated that documentation reflecting an overarching risk management plan is a critical element in the establishment of a risk management process. More specifically, the consolidation of existing documentation and reporting processes into on overall organisational risk management document required attention during 2002-03.
Audit follow up of progress in 2002-03 indicated that in June 2003 DAIS senior management approved that Internal Audit undertake a project to develop the Department’s risk management framework and plan.Further, this review is in the initial stages at the time of preparation of this Report.
In November 2002 DAIS changed to a new payroll system, the Complete Human Resources Information system (CHRIS).
Audit review of the controls and operations of CHRIS revealed significant control deficiencies within the fundamental elements of the payroll business cycle. The more salient observations are summarised below.
Documents initiating payroll transactions and master file updates were not reviewed to ensure they were valid (ie appropriately authorised).
Master file updates and payroll transactions were not independently reviewed to ensure information processed was valid, complete and accurate.
The process used for management review of payroll activity (bona fide and leave return procedures) did not ensure that all critical reports were adequately reviewed by the appropriate level of management and that all matters identified were followed-up and actioned.
Functions, processes and CHRIS system access within Employee Information and Services (EIS) were not organised in a manner to ensure duties were adequately segregated. EIS is the principal processing operation unit for the CHRIS system.
The Department responded that in respect of the above matters corrective action will be undertaken to address audit recommendations where they consider it to be administratively practical. Where this was not the case, the Department has outlined alternative approaches to addressing the control deficiencies.
Audit also noted that a substantial component of the EIS activity related to processing payroll transactions for other Government agencies (clients) as a service provider. Audit was advised that this role is likely to increase in the future. In order to gain efficiencies, the processes used to update and input transactions for these clients are combined with the processing of DAIS transactions (ie transaction processing is not segregated). Consequently, the arrangements for transaction processing for DAIS and client agencies are the same. In this context Audit was advised that the role of EIS was primarily to process transactions and that due to the number of employees paid and transactions processed some controls may not be practical nor efficient to implement.
As detailed above, the controls within EIS are not sufficient to ensure only valid information is accurately and completely input. Accordingly, the reviews performed by DAIS business units and client agencies over the information processed is of critical importance. In this regard, Audit observed that the level and nature of checking performed varied considerably between business units within DAIS.
In light of the aforementioned, Audit recommended that DAIS review the internal control framework (arrangements) over the entire payroll business cycle (including activities performed by business units) to ensure that any risks relating to the validity, completeness and accuracy of the payroll are appropriately addressed. In addition, it was recommended that the control framework over the payroll business cycle be documented, including the establishment of detailed responsibilities and procedures for business units.
It was further recommended that the above review also consider matters that may be pertinent to DAIS providing transaction processing services to clients and that client agencies be fully (and formally) appraised of DAIS’s role. This will enable those agencies to consider the appropriateness of control mechanisms within their own agencies.
The Department responded that a number of significant activities have contributed to the audit findings. These have included; projects spanning over seven months to convert two databases from the Concept system to the CHRIS system; development and implementation of new organisational arrangements; difficulties in sourcing appropriately skilled staff to fill vacancies within the payroll office; and transition of the payroll of two new client groups from other agencies to DAIS. The Department further added that, notwithstanding the impact of these activities on operations, internal controls are considered a high priority for DAIS and the Audit findings are a valuable tool in progressing this priority.
In 1996 and 1997 the Government entered into formal arrangements with the South Australian Soccer Federation (SASF), regarding the capital redevelopments and fit out works associated with Stage1 construction of the Hindmarsh Soccer Stadium. The arrangements resulted in SASF securing two loans; $4.1 million (Stage 1 Construction); and $2 million (Stage 1 Fit Out), to be applied with the Government funding to the abovementioned works.
As part of the arrangements the Government guaranteed SASF’s loans. The SASF has made no contribution to the loan repayments since 31 December 1998 and as a result the loan guarantees have been exercised and the Government has met these loan repayments. Notwithstanding this, DAIS has only disclosed a contingent liability in relation to the outstanding loan balances at Note 37 to its financial statements.
At 30 June 2003 total loan repayments met by the government under the guarantees amounted to $3.955 million (both principal repayments and interest payments). These amounts have been included in receivables, along with additional interest accruals in accordance with the loan underwriting arrangements. To date no payments have been received from SASF in relation to the loans receivables balance. In recognition of this, allowance for doubtful loans amounted to the entire loans receivable balance, including the interest accrual component.
In recognition of the status of these arrangements Audit considered that it was prudent to assess whether a liability should be recognised in the Statement of Financial Position. Audit’s assessment, based on an analysis of relevant accounting standards and concepts, was that:
a present obligation exists as a result of the Government entering into the guarantee arrangements;
based on previous loan repayment experience by SASF, it is probable that the Government will continue to meet future loan repayment obligations;
the liability under the arrangements can be reliably measured (ie principal outstanding).
On this basis Audit considered that, unless sufficient evidence can be provided to indicate that SASF will meet future loan repayments, the outstanding loans be recognised as a liability.
Audit also recommended that, in reviewing the recognition of a liability consideration also be extended to determine the appropriate accounting treatment relating to receivables recorded by DAIS as a result of the underwriting arrangements.
The Department responded in early September 2003 that it agrees that the SASF does not, at present, have the ability or the means to fund the loan obligations and that the current (1 year hence) obligations should be brought to account as a current liability.
With respect to the remainder of the loan, the Department considered that given that the loans are not fully payable until 2017, some 14 years hence, the predication of probability of not meeting loan obligations is highly speculative. The Department concluded, having regard to this consideration, that the SA Government arrangements with SASF regarding loan obligations of the SASF falling due more than one year forward would qualify as a contingent liability and disclosed in the notes to the accounts accordingly.
With respect to the receivables recorded so far by DAIS as a result of the underwriting arrangements, the Department agreed that it was not likely that the receivables would eventuate in the immediate future and therefore should not be recognised accordingly. It was noted that this would not limit the SA Government from recovering these amounts from the SASF at some point in the future, prior to the maturation of the loans, in accordance with the provisions of the loan agreement.
These proposed changes were not reflected in this years financial statements but will be considered for the 2003-04 reporting period.
In the previous two year’s Reports comment has been included on some matters associated with the outsourced provision of warehousing and logistic services. Comments covered issues relating to contractual arrangements, stock management control and information systems arrangements. Audit considered that these issues needed to be resolved as a matter of priority, particularly as the warehousing arrangements involve private sector participation.
The Contract’s original term of two years was extended by a further one year in October 2001.As part of the one year extension a letter of variation was executed principally to provide for resolution of certain aspects of the original agreement.
The 2002-03 audit focussed on obtaining an up-to-date status of issues in relation to the outsourcing arrangements including variations executed. Audit recognises that the Department has managed and addressed various aspects of the warehousing contract reported in prior years.
On 5 April 2003, Cabinet approved for the insourcing of the Supply SA warehouse operation.
The implications of the implementation of the insourcing option will result in a warehouse operation whereby:
costs, both fixed and variable, are managed and controlled by the Government;
the Government would be the licensee of any software license agreement and the lessee in any warehouse lease arrangement;
Government staff would be employed in the warehouse operations and all customer service functions;
The ownership of all warehouse (plant and machinery) assets would transfer to the Government.
The anticipated transfer of operations is expected to take place in October2003.There is a transition period of three months under the current contract conditions and the termination date is pending finalisation of the warehouse lease agreements. Audit intends to review the transfer of operations from the Contractor back in house, during 2003-04.This will include a follow up of any relevant outstanding matters raised by Audit over the past two years.
Contract Management
ORS is responsible for managing a range of unique and diverse contracts. These contracts create obligations and risks that need to be managed to ensure the exposure to Government is minimised. Examples of these include contracts relating to the Hindmarsh Stadium; ETSA Park; Southern Sports Complex; and Basketball Association.
Audit review of the processes in place to manage these contract obligations and risks revealed that a structured framework had not been established. In addition, there was no register maintained that identified current contracts or outlined the key obligations and risks under the contracts.
Three grant expenditure programs are administered by ORS, namely the Management and Development Program, Active Club Program and the Community Recreation and Sport Facilities Program. Audit review of each of the programs revealed a general lack of formal documented policies and procedures in relation to the assessment, monitoring and acquittal processes.
Audit recommended that, to ensure the integrity and objectivity of the process (in particular the evaluation and selection components) formal policies and procedures, which align with the operating objectives of ORS, be developed and implemented.
In accordance with the Management and Development Program Funding Guidelines and Application 2002-03, ORS requires all applicants to provide the following documentation in support of their application:
Organisation’s Long Term Strategic/Development Plan
Most recent audited financial statement
Evidence of incorporation status or comparable legal status
Endorsement of the State sporting or recreation association (if applicable).
The required documentation is important in determining the viability of the submissions received. Audit reviewed a sample of significant grants for the 2002-03 funding round and noted most of approved grant applications reviewed did not have the required supporting documentation on file.
The Department has responded positively to matters raised regarding ORS indicating that appropriate corrective action will be taken.
The audit of operations identified the requirement for improvement in the management arrangements applying to grant revenues and expenditures. Recommendations made were:
formal processes be established to properly administer grant revenues as applies in respect of grant expenditures;
evidencing procedures confirming review processes exercised over funding acquittals received from grant recipients be enhanced.
In addition, some internal control recommendations were made in relation to accounts payable and payroll processes.
A satisfactory response was received from the Department regarding the above matters.
Previous Reports have made comment concerning resolution of management issues pertaining to the future management and funding arrangements of the Land Ownership and Tenure System (LOTS). These issues have in recent years been the subject of discussion between DAIS and the Department for Environment and Heritage (DEH).
The Land Ownership and Tenure System (LOTS) is primarily directed toward recording land information. Information from LOTS is provided to government and non-government users. Many users are charged for information provided, while others (eg. Other government agencies and private sector entities who have arrangements with the Department), are not charged. LOTS information is provided either by Internet access (Property Assist), by dial up/direct connection (LOTS enquiries) or over the counter.
In January 2003 a Statement of Intent was agreed in principle between DEH and DAIS to re-align both agencies’ land administration and land management information systems to the respective agencies roles. Resulting from this process the chief executives of DEH and DAIS noted that an agreement had been reached to transfer, from 1 September 2003, the management responsibilities for LOTS and Property Assist and related IT and financial services from DEH to DAIS. In addition the Departments approved the establishment of a Joint Management Committee to manage the transition process.
The Government entered into a sale and leaseback facility managed by the Commonwealth Bank of Australia on 9 May 1996.On that date the Government sold all existing vehicles to a company for $175.8 million. The book value of the vehicles at the time was $169.9 million. The facility is set up on a perpetual basis with both parties having the option to terminate the agreement from year eight onwards. Once notice has been given that the facility is to be terminated the agreement has a ‘wind down’ period of seven years. The Department is responsible for the management of the motor vehicle lease arrangements.
Whilst Audit agreed with the Department that the lease facility was a finance lease as defined by Australian Accounting Standard AAS 17 ‘Accounting for Leases’, there was a divergence of opinion on the interpretation of a number of key definitions in the Standard. The matters on which there was a divergence of opinion were fully explained in Part B of the 1995-96 Report of the Auditor-General to Parliament. In summary, the Department considered that the underlying asset is not the individual vehicles used by government agencies but a ‘pool’ of vehicles which is available for use and that a component of the residual value on the vehicles is not guaranteed by the Government.
Audit, however, considered that there are separate ‘lease agreements’ in place for each vehicle and that the Government, under the lease facility, guarantees the full residual value of the vehicles.
As the difference in interpretations resulted in a material difference to the amounts disclosed in the Department’s financial statements, Audit has issued a qualification since the inception of the lease facility in 1995-96 in respect of the following asset and liabilities:
Motor vehicles under finance lease.
Current borrowings - finance lease on motor vehicles.
Non-current borrowings - finance lease on motor vehicles.
Other current liabilities - deferred profit on sale and leaseback of motor vehicles.
The Department for Administrative and Information Services (DAIS) has maintained, in respect of this year’s financial statements, the reporting treatment adopted in respect of last year’s financial statements. As such, Audit has again included a qualification in the Independent Audit Report for the year ended 30 June 2003 in respect of the aforementioned financial statement disclosure items. In Audit’s view had there been compliance with the requirements of the Standard, assets of DAIS would increase by $102 million and liabilities would increase by $99 million.
Executive Government is progressing its future long term IT infrastructure and systems requirements in preparation for the expiry of the EDS infrastructure contract and other major IT contracts with the private sector. Part of that review scope includes IT Governance arrangements for Executive Government, DAIS and Agencies.
At this time, DAIS is also progressing finalisation of a number of long standing projects including the development and revision of the draft ICT Directions Strategic Plan and the Information Security Management Framework (ISMF).
With respect to the ISMF, in April 2003, the SA Government Information Security Management Framework document was approved as the current Information Technology security standards and guidelines for implementation by Agencies. The ISMF will be introduced through a program of work including, a transition guide from current standards and guidelines, provision of agency security awareness training and the integration of new security work practices. Implementation of the overall program is estimated to cost in the vicinity of $1.3 million over four years.
For some time DAIS has provided ICT strategic planning, policy and guidance to Agencies in a consultative and advisory manner.
My Reports to Parliament (Part A) for the last few years have stressed the importance of key aspects of whole of government IT Governance and Management Control, (strategic planning, policy and guidance to agencies) and the need to address notable shortcomings. My Reports have also included comment on the need for improvement in critical Agency security control matters, (agency systems and computer processing environments) including business recovery arrangements.
Over the past year, Audit has maintained a focus on IT Governance and Management Control matters at a whole of government, and Agency level and has undertaken a number of specific reviews. Those reviews essentially addressed:
IT Governance and Management Control;
Project and Risk Management for Major IT Developments;
IT Security and Control;
IT Legal Considerations in Electronic Government.
Audit has formally conveyed in detail the issues arising from the reviews to the relevant Agencies and has received appropriate responses from those Agencies.
Specifically with respect to DAIS, Audit has:
reviewed the leadership, IT strategy development, and policy direction/guidance role provided by DAIS;
reviewed certain EDS managed computer processing environments at the Glenside site, in particular, the Justice agencies mainframe operations environments and a specific environment for the Department of Human Services;
given particular attention to the adequacy of control over the more recently outsourced Government wide CHRIS Human Resource Management System and its bureau based computer processing environments;
reviewed aspects of project management and achievements, and risk management arrangements for the DAIS E-Procurement initiative;
addressed matters of a legal and contract nature and certain aspects of risk management arrangements for the DAIS Service SA initiative. Further, the Service SA website facilities were reviewed for compliance with government requirements and better practice management.
At the time of preparation of this Report, the outcomes from the above reviews of the role of DAIS, and agency systems and computer processing environments, were being reported to and discussed with DAIS.
I intend to report on the issues arising from the reviews to Parliament, together with outcomes from certain other agency reviews, in the latter part of 2003.
Over the last few years, the Department has experienced a number of organisational changes. The more predominant of these are as follows:
On 1 January 2001, the South Australian Forestry Corporation was established under the South Australian Forestry Corporation Act 2000.From this date the Corporation assumed the functions previously carried out by the Forestry SA Business Unit of the Department. The transfer of functions also included the transfer of Forestry SA net assets, amounting to $795.9 million.
On 4 December 2001, the operations of the Office for Recreation, Sport and Racing from Department for Environment and Heritage, and the Division of State Aboriginal Affairs from the Department for Transport, Urban Planning and the Arts were transferred to the Department. The transfer of these operations included the transfer of net assets to the Department of $60.8 million and $3.7 million respectively.
The results of these changes has been incorporated into the discussion provided under ‘Interpretation and Analysis of Financial Statements’.
|
2003 |
2002 |
Percentage |
|
|
$’million |
$’million |
Change |
|
|
OPERATING REVENUE |
|||
|
Sales Revenue |
338 |
339 |
(0.3) |
|
Fees Regulatory Services |
90 |
77 |
16.9 |
|
Across Government Contracts |
90 |
85 |
5.9 |
|
Appropriation for operating purposes |
122 |
127 |
(3.9) |
|
Other Revenue |
26 |
25 |
4.0 |
|
Total Operating Revenue |
666 |
653 |
2.0 |
|
OPERATING EXPENDITURE |
|||
|
Cost Of Sales |
251 |
239 |
5.0 |
|
Across Government Contracts |
90 |
88 |
2.3 |
|
Employee expenses |
100 |
103 |
(2.9) |
|
Other expenses |
156 |
168 |
(7.0) |
|
Total Operating Expenses |
597 |
598 |
|
|
Profit before restructure and tax |
69 |
55 |
|
|
Net Cash Flows From Operations |
132 |
110 |
20.9 |
|
ASSETS |
|||
|
Current Assets |
322 |
300 |
7.3 |
|
Non-Current Assets |
621 |
546 |
13.7 |
|
Total Assets |
943 |
846 |
11.5 |
|
LIABILITIES |
|||
|
Current Liabilities |
94 |
96 |
(2.1) |
|
Non-Current Liabilities |
187 |
195 |
(4.1) |
|
Total Liabilities |
281 |
291 |
(3.4) |
|
EQUITY |
662 |
555 |
19.3 |
The main source of revenue for the Department is the sales revenue generated by its various business units (refer to note 34 to the financial statements). The majority of this revenue is sourced from services provided to other government agencies.
The Department also receives significant annual appropriations from the Government ($122 million in 2003).
For the 2001 and 2000 years sales revenue was higher as Forestry operations (as previously noted) were part of the Department until 1 January 2001 and these operations generated significant revenues. Subsequent to this period the operating revenues of the Department have remained relatively constant.
A structural analysis of operating revenues for the Department in the four years to 2003 is presented in the following chart.
A structural analysis of the main operating expense items for the Department is shown in the following chart.
Cost of sales is the main item of expenditure for the Department. These costs are directly related to the generation of sales revenue and their composition is further explained in Note 2.3 to the financial statements. Further, Note 4(a) provides a dollar breakdown of cost of sales into its main components.
As noted above in Operating Revenue, the 2000 and 2001 years include Forestry Operations.
The following chart shows the operating revenues, operating expenses and surpluses for the four years to 2003.
A structural analysis of assets and liabilities for the four years to 2003 is provided hereunder.
The above chart highlights that since 2001 there has been a significant growth trend regarding non-current assets. This has been due primarily to:
restructuring of government operations resulting in DAIS assuming control of additional assets such as sporting stadia;
revaluation upwards of assets.
The large non-current asset figure in 2000 reflects the fact that this was the last year that Forestry operations were part of DAIS prior to a separate entity being created to perform these functions.
The land, buildings and fitouts item of non-current assets is the most significant item in the Statement of Financial Position. In 2003 this item amounted to $430 million, representing 69 percent of total non-current assets and 45 percent of total assets.
The other significant item is Cash, which in 2003 amounted to $253 million, representing 78 percent of total current assets and 26 percent of total assets. As highlighted later on under the heading ‘Statement of Cash Flows’, since 2001 operations have generated large positive cash flows, which, after applying these cash flows to investing and financing activities, still leaves the Department with significant cash surpluses.
The following table summarises the net cash flows for the four years to 2003.
|
2003 |
2002 |
2001 |
2000 |
|
|
$’million |
$’million |
$’million |
$’million |
|
|
Net Cash Flows |
||||
|
Operations |
132.3 |
109.7 |
177.2 |
21.7 |
|
Investing |
(33.8) |
(67.7) |
(36.5) |
(38.5) |
|
Financing |
(43.5) |
(47.7) |
(43.7) |
3.5 |
|
Change In Cash |
55.0 |
(5.7) |
97.0 |
(13.3) |
|
Cash At 30 June |
253.4 |
198.4 |
204.1 |
107.1 |
The cash flow analysis indicates that the Department generates large cash flows from its operations which are then generally applied to satisfy its financing and investing activities. In 2003, the Department recorded an increase in cash of $55 million due mainly to significantly less funds utilised in its investing activities as compared to the previous year.
With respect to financing activities dividends of $57 million ($50 million) were paid to the Government.
The tables below indicate that, while a number of business units generate large revenue flows (ie Government ICS and SA Government Commercial Properties) they also have matching expenses resulting in relatively small contributions to the operating result of the Department.
The charts further highlight the significant consistent contribution made to the operating result by the Land Services Group. In 2003 it contributed $56.9 million, representing 82 percent of the total profit from ordinary activities of the Department ($48 million and 87 percent in 2002).
|
2003 |
2002 |
2001 |
2000 |
|
|
Business Unit |
$’million |
$’million |
$’million |
$’million |
|
Building maintenance |
56.7 |
55.2 |
56.2 |
49.0 |
|
Contract services |
25.7 |
25.6 |
24.0 |
24.3 |
|
Government ICS |
178.8 |
180.5 |
176.7 |
157.4 |
|
Land Services |
83.6 |
77.5 |
61.2 |
59.1 |
|
Office for Recreation and Sport |
26.9 |
22.9 |
na |
na |
|
SA Government Commercial Properties |
107.6 |
96.6 |
97.9 |
91.7 |
|
Fleet SA |
78.3 |
71.8 |
70.6 |
66.5 |
|
Business and Corporate Services |
46.0 |
53.7 |
36.4 |
32.3 |
|
Other |
62.2 |
69.0 |
116.3 |
193.2 |
|
Total |
665.8 |
652.8 |
639.3 |
673.5 |
|
2003 |
2002 |
2001 |
2000 |
|
|
Business Unit |
$’million |
$’million |
$’million |
$’million |
|
Building Maintenance |
55.9 |
53.8 |
55.0 |
47.2 |
|
Contract Services |
28.4 |
27.3 |
27.2 |
27.5 |
|
Government ICS |
168.3 |
168.2 |
156.9 |
129.5 |
|
Land Services |
26.7 |
29.5 |
29.0 |
25.2 |
|
Office for Recreation and Sport |
30.5 |
17.6 |
na |
na |
|
SA Government Commercial Properties |
99.2 |
91.9 |
95.5 |
86.8 |
|
Fleet SA |
84.0 |
80.3 |
75.0 |
66.9 |
|
Business and Corporate Services |
42.2 |
61.0 |
34.9 |
30.3 |
|
Other |
62.1 |
68.1 |
96.0 |
138.3 |
|
Total |
597.3 |
597.7 |
569.5 |
551.7 |
|
2003 |
2002 |
2001 |
2000 |
|
|
Business Unit |
$’million |
$’million |
$’million |
$’million |
|
Building Maintenance |
0.8 |
1.4 |
1.1 |
1.9 |
|
Contract Services |
(2.7) |
(1.7) |
(3.1) |
(3.2) |
|
Government ICS |
10.6 |
12.4 |
19.8 |
28.0 |
|
Land Services |
56.9 |
48.0 |
32.2 |
34.0 |
|
Office for Recreation and Sport |
(3.6) |
5.3 |
na |
na |
|
SA Government Commercial Properties |
8.4 |
4.7 |
2.5 |
4.9 |
|
Fleet SA |
(5.7) |
(8.5) |
(4.4) |
0.2 |
|
Business and Corporate Services |
3.8 |
(7.3) |
1.4 |
2.0 |
|
Other |
0.5 |
0.8 |
20.4 |
54.5 |
|
Total |
69.0 |
55.1 |
69.9 |
122.3 |
In previous Reports comment has been included in relation to the abovementioned facility arrangement. Earlier comment in this section of this Report provides background information to the facility arrangement and discusses it’s financial reporting treatment. The main benefit from entering into the facility was the anticipated achievement of a lower cost of funding the Government’s vehicle fleet.
Audit comments in past Reports have communicated the importance of exercising proper management over the ongoing arrangements due to the long term nature of the lease facility and its expected benefits over the extended period of time. This required an ongoing analysis of the elements affecting motor vehicle lease rate calculations to enable a proper assessment of the potential impact on the cost of the leaseback facility to the Government and ultimately expected benefits to be derived. The elements requiring consideration include changes in residual values of vehicles; changes in taxation law; and the number of replacement vehicle leases.
In the latter part of 1999-2000 the Department of Treasury and Finance (DTF) initiated a review of the facility to determine whether it remains economic, particularly in light of the changes to the taxation system. With respect to this review DTF received in 2000-01 a report from an external finance agency, which had been engaged by DTF to assist its review process.
During 2001-02 a review of the facility arrangement was completed by the South Australian Government Financing Authority (SAFA) and a report submitted to the SAFA Advisory Body in February 2002 and the Treasurer in March 2002.The Treasurer considered the conclusions and recommendations of the report and approved that SAFA evaluate options of continuing or terminating the lease arrangements.
Late in 2002-03 a voluntary termination and progressive wind down and sale of the vehicle fleet was agreed over a 24 month period from 10 July 2003 to 10 July 2005.Note 2.11 to the Department’s financial statements provides further details. This arrangement will be subject to full review by Audit in 2003-04.