The Legal Services Commission (the Commission) is a body corporate established pursuant to subsection 6(1) of the Legal Services Commission Act 1977 (the Act). As determined by subsection 6(3) of the Act the Commission is not an instrumentality of the Crown and is independent of the Government.
The Act provides for the Commission to undertake a variety of functions concerning legal assistance including:
provide, or arrange for legal assistance and determine the criteria under which that assistance is to be granted;
co-operate and make reciprocal arrangements with persons administering schemes of legal assistance in other States and Territories of the Commonwealth or elsewhere;
initiate and carry out educational programmes to promote an understanding by the public of their rights, powers, privileges and duties under the laws of the Commonwealth or the State;
perform other functions as the Attorney-General may direct.
The structure of the Commission is illustrated in the following organisation chart.
The Commission has an Audit and Risk Management Committee which comprises two Commissioners and the Director. The Committee meets at least three times a year and reports to the Board of Commissioners. The Committee’s primary function is to monitor and oversee audit and risk management and associated policies and procedures. Representatives of the Auditor-General’s Department attend meetings of the Committee as observers.
Section 25 of the Legal Services Commission Act 1977 provides for the Auditor-General to audit the accounts of the Commission in respect of 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 Commission 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 (FMF) as required by Treasurer’s Instruction2 ‘Financial Management Policies’.
During 2002-03, specific areas of audit attention included:
payroll
expenditure (including legal and administrative expenses)
revenue, receipting and banking
accounts receivable
fixed assets
budgetary control.
Matters arising during the course of the audit were detailed in a management letter to the Chairperson of the Commission and a satisfactory response was received. Major matters raised with the Commission and the related responses are considered in Audit Findings and Comments.
In my opinion, 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 Legal Services Commission as at 30 June 2003, its financial performance and its cash flows for the year then ended.
Audit formed the opinion that the controls exercised by the Commission in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities is sufficient to provide reasonable assurance that the financial transactions of the Commission have been conducted properly and in accordance with law.
In recent years the audit has included a review of the Commission’s progress with respect to implementing the prescribed elements set out in the FMF. The audits revealed that the Commission was progressing satisfactorily with respect to all components of the FMF with the exception of Planning and Analysis and Control.
In 2002-03 a follow-up review revealed that the Commission has made progress in addressing issues relating to the review of the internal audit function and Terms of Reference of the Audit and Risk Management Committee (formerly the Audit Committee). Further, the Commission has formally endorsed its risk management reporting framework.
Notwithstanding this, the Commission had not yet established a framework for the development, approval and review of its policies and procedures as recommended by Audit in 2001-02.
In response, the Commission provided a listing of policies and their approval processes.
The audit of the Commission’s general control environment revealed that internal controls were operating satisfactorily. Notwithstanding this observation, Audit identified opportunities to enhance the existing controls. These matters were raised with the Commission for consideration and a satisfactory response was received.
|
2003 |
2002 |
Percentage |
|
|
$’million |
$’million |
Change |
|
|
OPERATING REVENUE |
|||
|
Commonwealth Government grants |
11 |
10 |
10 |
|
State Government grants |
12 |
12 |
- |
|
Other revenue |
4 |
3 |
33 |
|
Total Operating Revenue |
27 |
25 |
8 |
|
OPERATING EXPENDITURE |
|||
|
Employment expenses |
10 |
9 |
11 |
|
Legal Expenses |
13 |
12 |
8 |
|
Other expenses |
3 |
3 |
- |
|
Total Operating Expenses |
26 |
24 |
8 |
|
Operating Surplus from Ordinary |
|||
|
Activities |
1 |
1 |
- |
|
Net Cash Flows from Operations |
1 |
1 |
- |
|
ASSETS |
|||
|
Current assets |
8 |
7 |
14 |
|
Non-current assets |
4 |
4 |
- |
|
Total Assets |
12 |
11 |
9 |
|
LIABILITIES |
|||
|
Current liabilities |
2 |
2 |
- |
|
Non-current liabilities |
1 |
1 |
- |
|
Total Liabilities |
3 |
3 |
- |
|
EQUITY |
9 |
8 |
13 |
A structural analysis of operating revenues for the Commission in recent years is presented in the following chart.
The majority of the Commission’s revenue is provided by the State and Commonwealth Governments.
In meeting the cost of providing legal aid, the Commission is funded by the Commonwealth in accordance with an agreement between the Commonwealth and State Governments. The agreement commenced on 1 July 2000 and covers a four year period to 30 June 2004.The Commonwealth grants received by the Commission are expended in accordance with the agreement between the Commonwealth and State Governments. Legal assistance is only to be provided within South Australia for matters arising under Commonwealth law which are a matter of priority. The matters of priority are predominantly in the areas of family law, criminal law, and certain civil matters.
General grants from the Commonwealth Government provided in accordance with the funding agreement (excluding specific Commonwealth grants provided for primary dispute resolution of $125 000 and child support of $408 000), totalled $10 million ($9.9 million) and comprised 38 percent (39 percent) of total Revenues from Ordinary Activities of the Commission.
The funding provided by the State is determined through the budgetary process of the South Australian Government. The State grants received by the Commission are expended on State Law matters and these are predominately criminal cases, and community advice and education.
General grants from the State Government (excluding specific State grants for expensive cases of $2.5 million and extended duty solicitor service of $120 000) totalled $9.7 million ($9.4 million) and comprised 35 percent (37 percent) of total Revenues from Ordinary Activities of the Commission.
The above chart illustrates for the past five years, the proportions of State and Commonwealth funding provided in accordance with the agreement between the Governments (general grants only). It also illustrates the number of cases that have been assigned that relate to Commonwealth and State grant funding.
During the year ending 30 June 2003, total operating expenses increased by 7 percent to $26.4 million.
A structural analysis of the main operating expense items for the Commission is shown in the following chart which illustrates that the composition of the Commission’s expenses has remained relatively constant with a gradual increase in employee benefits and legal expenses.
The item ‘Legal Expenses – Expensive Cases’ in the chart above predominantly reflects expenditure relating to the provision of legal representation to the defendants in the Snowtown Murders Case. As at 30 June 2003 a total of $7.3 million has been spent on this case, for which the equivalent amount of State Government grant funding has been received over the period of three years.
Referrals to private practitioners for the 2002-03 year totalled 7 856 (7 895) or 61 percent (60 percent) of approvals. Fees to private legal practitioners for these cases (legal expenses) amounted to $10.7 million ($9.6 million) and comprised 40 percent (39 percent) of total Expenses from Ordinary Activities. Applications assigned to the in-house practitioners totalled 5 120 (5 347) or 39 percent (40 percent).
The following chart shows the trend in referrals to private practitioners and assignment to in-house practitioners over the past five years.
The Statement of Financial Performance for the year ended 30 June 2003 reports total Revenues from Ordinary Activities of $27.4 million ($25.5 million) and total Expenses from Ordinary Activities of $26.4 million ($24.6 million), resulting in an Operating Surplus from Ordinary Activities of $1 million ($900 000).
The following chart shows the revenues, expenses and surplus for the four years to 2003.
The chart highlights that the Commission has consistently achieved a small surplus every year over the period.
For the four years to 2003 a structural analysis of assets and liabilities is shown in the following chart.
This analysis shows a gradual increase in assets and no change in liabilities over the period under review. Total assets have grown by 50 percent. This growth is primarily a result of an increase in cash at bank and an increase in statutory charge debtors (relate to the Commission’s charges over property owned by some recipients of legal aid to secure legal costs owed).
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 |
1.1 |
1.4 |
1.6 |
1.5 |
|
Investing |
(0.4) |
(0.6) |
(0.1) |
(0.3) |
|
Financing |
0.0 |
0.0 |
0.0 |
0.0 |
|
Change in Cash |
0.7 |
0.8 |
1.5 |
1.2 |
|
Cash at 30 June |
7.2 |
6.5 |
5.7 |
4.2 |
The analysis of cash flows shows a gradual increase in cash at the end of each reporting period primarily as a result of a small positive cash contribution from operating activities each year. This trend is consistent with the operating surpluses achieved each year.
The cash balance of $7.2 million as at 30 June 2003 is sufficient to meet the Commission’s outstanding liabilities and future commitments of $3 million (as disclosed in Notes 16 and 17).