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ADELAIDE FESTIVAL CENTRE TRUST

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The Trust is a Body Corporate established pursuant to the Adelaide Festival Centre Trust Act 1971 (the Act).

 

Regulations have been enacted under the Public Corporations Act 1993 requiring that certain provisions of that Act be applied to the Trust.  The applied provisions relate mainly to the governance and performance aspects of the Trust’s operations.

 

Functions

 

The Trust is charged with the responsibility of encouraging and facilitating artistic, cultural and performing arts activities throughout the State; and controlling, managing and maintaining the Adelaide Festival Centre and Her Majesty’s Theatre.

 

In essence, the Trust is a presenter of arts programs and it aims to provide a balance of art forms for a variety of tastes and age levels.  The major components of the Trust’s operations include:

·                     management of various theatre facilities including the Adelaide Festival Centre complex comprising the Festival Theatre, the Space Theatre, the Amphitheatre and the Playhouse in addition to Her Majesty’s Theatre;

·                     programming activities relating to the staging of various theatrical productions in Adelaide either as a producer or presenter;

·                     operation of the BASS ticketing system pursuant to a licence agreement;

·                     operating the car park located within the Adelaide Festival Centre complex;

·                     utilising the services of contractors to operate catering facilities on its behalf;

·                     operating a scenery building and a stage engineering workshop.

 

Structure

 

The structure of the Trust is illustrated in the following organisation chart.

 

 

 

The Trust has eight trustees and is subject to the general control and direction of the Minister for the Arts.  To assist in its deliberations the Trust has established certain committees.  One of these committees is the Finance and Audit Committee which focuses on matters of a financial and audit nature. 


AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

Subsection 25(2) of the Adelaide Festival Centre Trust Act 1971 and subsection 31(1)(b) of the Public Finance and Audit Act 1987 provide for the Auditor-General to audit the accounts of the Adelaide Festival Centre Trust for each financial year.

 

Assessment of Controls

 

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 Adelaide Festival Centre Trust in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.

 

This assessment also considers whether those controls are consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 Financial Management Policies.

 

Scope of Audit

 

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.

 

During 2005-06, specific areas of audit attention included:

 

·                     expenditure

·                     revenue

·                     payroll

·                     ticketing operations

·                     contract management

·                     fixed assets

·                     general ledger

·                     computing environment.

 

 

AUDIT FINDINGS AND COMMENTS

 

Audit Opinions

 

Audit of the Financial Report

 

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 Adelaide Festival Centre Trust as at 30 June 2006, the results of its operations and its cash flows for the year then ended.

 

Assessment of Controls

 

In my opinion, the controls exercised by the Adelaide Festival Centre Trust in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities, except for the matters raised in relation to control environment; expenditure processing; fixed assets stock takes; and review of access levels within Masterpiece as outlined under ‘Audit Communications to Management’, are sufficient to provide reasonable assurance that the financial transactions of the Adelaide Festival Centre Trust have been conducted properly and in accordance with law.

 

Audit Communications to Management

 

Matters arising during the course of the audit were detailed in a management letter to the Chief Executive Officer in July 2006.  The response to the management letter was received in August 2006.  Major matters raised with the Trust are discussed herein.

 

Control Environment

 

In past years, Audit has reported opportunities to improve the Trust’s control environment.  In 2005-06 Audit noted that, there remained a need to improve aspects of the Trust’s control environment.

 

The Trust’s ‘Handbook of Accounting Guidelines and Work Instructions’ detail its policies and procedures which in the main, establishes the foundations for a satisfactory control environment.  However, consistent with prior year findings, the 2005-06 audit revealed a number of instances where key controls were not being performed by officers as required.  Audit recommended that the Trust implement appropriate mechanisms to ensure failures in the control environment are identified and addressed.

 

Expenditure Processing

 

Consistent with matters raised in the prior year’s report, Audit found that expenditure processing by the Trust is such that individual officers were solely responsible for all expenditure entry processes from batching, checking the validity/approval of invoices to posting the expenditure for automatic payment.  Notwithstanding the initial approval of a separate financial delegate, it was noted that expenditure transactions processed by an accounts payable officer were not subject to review by any other officer.  Audit considered that this presents a risk that invalid expenditure or errors could be processed without detection.

 

It was recommended that the Trust implement procedures to ensure that invoices processed into the accounts payable subsidiary system are independently reviewed for accuracy and validity.

 

The Trust responded that it was unable to find a suitable process that it could employ.

 

Fixed Assets Stock Takes

 

The Trust had not performed stock takes to verify the validity and completeness of the information maintained in the Trust’s asset register.  Audit recommended that procedures be undertaken by the Trust to ensure the existence of assets recognised in the asset register.  As these assets represent material balances in the Trust’s financial report, Audit undertook additional testing to ensure the validity of assets recognised.

 

The Trust responded that it will review assets during 2006-07 and that it would develop procedures to be included in its policy and procedure document.

 

Review of Access Levels within Masterpiece

 

The regular review of individual access levels to key financial systems is an important control to ensure that user access is consistent with job requirements and that an appropriate degree of segregation of duties is maintained.  The 2005-06 audit could not verify that this control had been performed.

 

The Trust responded that arrangements would be made to ensure the performance of the review.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

Highlights of Financial Report (Consolidated)

 

 

2006

2005

Percentage

 

$’million

$’million

Change

EXPENSES

 

 

 

Employee expenses

11.5

12.5

(8)

Depreciation

4.9

4.9

-

Other expenses

13.0

14.5

(10)

Total Expenses

29.4

31.9

(8)

INCOME

 

 

 

User charges and interest

16.6

18.2

(9)

Resources received free of charge

-

2.9

-

Total Income

16.6

21.1

(21)

Net Cost of Providing Services

12.8

10.9

17

 

 

 

 

REVENUES FROM SA GOVERNMENT

 

 

 

Revenues from SA Government

10.9

8.4

30

Net Result

(1.9)

(2.5)

-

 

 

 

 

Net Cash Flows from Operations

4.8

(0.6)

-

 

 

 

 

 

 

2006

2005

Percentage

 

$’million

$’million

Change

ASSETS

 

 

 

Current assets

10.6

5.0

112

Non-current assets

91.0

77.6

17

Total Assets

101.6

82.6

23

LIABILITIES

 

 

 

Current liabilities

8.0

6.3

27

Non-current liabilities

28.4

27.3

4

Total Liabilities

36.4

33.6

8

EQUITY

65.2

49.0

33

 

Income Statement

 

User Charges and Interest

 

User charges and interest includes numerous revenue generating activities including: theatre hire; BASS ticketing sales; scenery building and stage engineering; catering associated with cafes, bars and restaurants; programming activities including box office sales; car parking charges; and interest on cash balances.

 

User fees and interest decreased by $1.6 million to $16.6 million reflecting changes and movements in a number of the Trust’s revenue generating activities.  Major changes and movements were as follows:

 

·                     Programming activity decreased during 2005-06 resulting in an decrease in revenue from box office sales and also for revenue related to the recoup of associated programming expenditure.  This decreased activity has also resulted in a decrease in expenditure.

·                     Revenue associated with BASS ticketing sales decreased during 2005-06.  This decrease is partly the result of the loss of a ticketing contract with Adelaide Entertainment Centre in October 2005.

·                     In September 2004 the Trust entered into changed catering contract arrangements.  Under the current arrangements contractors are charged a monthly fee.  Prior to this date (ie the first quarter of the 2004-05 year) gross catering revenues and expenses were recognised in the Trust’s accounts.  As a result catering revenues recognised in the financial statements have decreased with a proportionate decrease in catering related expenses.

·                     The preceding items are somewhat offset by improved revenue in the Trust’s scenery and stage engineering workshop.  This increase in activity also resulted in increased expenditure.

 

Resources Received Free of Charge

 

During 2004-05 the Trust’s income included a non-operating item recognising the addition of an asset (a pedestrian bridge built as part of the Riverbank project) received free of charge amounting to $2.9 million.  The Trust did not receive assets free of charge in 2005-06.

 

Income

 

A structural analysis of income for the Trust in the five years to 2006 is presented in the following chart.

 

Revenues from SA Government

 

Revenue from SA Government in 2005-06 includes a grant of $1.9 million received on 29 June 2006 but paid to support the Trust’s operating budget for 2006-07.  This is a grant received in advance of requirements.  The Trust has not received advanced funding in previous years.  Without this grant revenues from SA Government would be comparable with prior years.

 

Expenses

 

Expenses reduced by $2.6 million to $29.4 million due mainly to the following changes/movements in activities:

 

·                     Employment related expenses reduced by $1.0 million

·                     Catering related expenses reduced by $400 000

·                     Programming activity reduced by $1.4 million; offset by

·                     Increase in scenery and stage engineering workshop expenditure of $300 000.

 

These items were discussed under ‘User Charges and Interest’.

 

Net Cost of Services and Net Result

 

The net cost of services in 2005-06 was $12.8 million, compared to $10.9 million for 2004-05.  The increase in part reflects a large non-operating revenue of $2.9 million in 2004-05 being the value of resources received free of charge.

 

The following chart shows the net cost of services and net result for the four years to 2005-06.

 

 

The chart shows the net cost of services in 2006 is the highest of the four years.  In 2005, the figure is reduced by non-operating revenue of $2.9 million for assets received free of charge.  Without this, the 2005 net cost of services would be the highest and 2006 an improvement on the previous year.  The chart also shows that revenues from SA Government have been insufficient to cover the net cost of services in any of the four years resulting in net deficits for all years.

 

The net result for 2005-06 is improved by $1.9 million in revenue from SA Government received on 29 June 2006 as described earlier.  In the absence of this amount, the net result for 2005-06 would have been a deficit of $3.9 million.

 

Balance Sheet

 

Current Assets and Liabilities – Solvency

 

As at 30 June 2006 current assets, $10.6 million, exceeded current liabilities, $8.0 million, by $2.6 million.  This is a changed position from the prior year where current liabilities exceeded current assets.  This liquidity position was achieved principally through the following items:

 

·                     $1.9 million advance on 2006-07 grant funding received on 29 June 2006 (refer to comments under Revenues from SA Government).

·                     Restructure of borrowings from South Australian Financing Authority removing the need for annual repayments of borrowings of $900 000 which were previously included in current liabilities.

The short-term financial position of the Trust was the subject of review by a consultant in June 2006 aimed at verifying the Trust’s 2006-07 draft budget and cash position.  It is intended that this review be followed by a second stage review, (the subject of a further consultancy) to be a comprehensive review of the Trust’s legislation and operating model.

 

Non-Current Assets

 

Non-current assets, $91 million, dominate the Trust’s asset balances.  Land and buildings amount to $78.4 million, 86 percent, of non-current assets.  The major movement in non-current asset balances during 2005-06 was a revaluation of all non-current assets except for Works of Art as at 30 June 2006.  This revaluation resulted in a $18.1 million increase in non-current assets and a corresponding increase in the asset revaluation reserve.  For detailed asset movements, reference should be made to Notes 15 and 16 of the Trust’s financial report.

 

For the four years to 2006, a structural analysis of assets and liabilities is shown in the following chart.

 

Cash Flow Statement

 

The following table summarises the net cash flows for the four years to 2006.

 

 

2006

2005

2004

2003

 

$’million

$’million

$’million

$’million

Net Cash Flows