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LAND MANAGEMENT CORPORATION

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The Land Management Corporation (the Corporation) is a subsidiary corporation of the Minister for Infrastructure established pursuant to the provisions of the Public Corporations Act 1993 (the Act).  Its governing body is a board whose members are appointed by the Minister.

 

The Corporation was established on 24 December 1997 to undertake activities formerly controlled by the MFP Development Corporation, the MFP Projects Board and the then Minister for Government Enterprises.

 

Functions

 

The regulations establishing the Corporation provide for it to manage land and property through the acquisition, leasing and disposal of surplus and other land for commercial, industrial, residential or other purposes.  In performing those functions the Corporation is required to ensure the orderly development of land.

 

Structure

 

The structure of the Land Management Corporation is illustrated in the following organisation chart.

 

 

Audit Committee

 

The Corporation has an Audit Committee comprising three members of the Board.  The Audit Committee meets on a quarterly basis and reports to the Board.  The Audit Committee Charter requires the Committee to assess the quality of financial reporting, the effectiveness of internal controls and to maintain an effective and efficient audit.  It is also required to advise the Board on procedures and ways of working within the Corporation to align them with the organisation’s strategic direction.  Representatives of the Auditor-General’s Department attend meetings of the Audit Committee as observers.

 

 

AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

Subsection 31 (1) (b) of the Public Finance and Audit Act 1987 and clause 13(3) of the Schedule to the Public Corporations Act 1993 requires the Auditor-General to audit the accounts and financial statements of the Corporation.

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 Land Management Corporation in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities.

 

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:

 

·                     budgetary control

·                     expenditure

·                     inventory - land bank

·                     plant and equipment

·                     investment properties

·                     revenue, receipting and banking

·                     payroll

·                     cash at bank.

 

The work of the internal auditor was considered in planning the audit program.  In particular, reliance was placed on the work of internal audit in assessing the effectiveness of the Corporation’s internal control.  Reliance was placed on the internal audit work relating to the review of the management and monitoring of certain property development projects.

 

 

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 Land Management Corporation 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 Land Management Corporation in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities are sufficient to provide reasonable assurance that the financial transactions of the Land Management Corporation have been conducted properly and in accordance with law.

 

Audit Communications with Management

 

Matters arising during the course of the audit were detailed in a management letter to the Chief Executive.  The response to the management letter was generally satisfactory.  Major matters raised with the Corporation and the related responses are considered herein.

 

Key Reconciliations

 

Audit identified that a number of key monthly reconciliations were at times not kept up-to-date during the year.

 

Audit recommended that staff provide the Chief Executive or his Chief Finance Officer with a monthly certificate advising that certain key reconciliations between the general ledger and its subsidiary systems have been performed and balances in certain key general ledger clearing accounts have been reviewed and actioned. 

 

The Corporation advised that a monthly key reconciliation certificate will be presented to the Chief Financial Officer by the appropriate officers at the end of each month.

 

Procurement Policy Project Implementation Process

 

The most significant procurement operations of the Corporation are related to ‘prescribed construction projects’ as defined in the State Procurement Regulations 2005.  These projects are not subject to the requirements of the State Procurement Act 2004.  Instead, they are subject to the requirements of the latest Department of Premier and Cabinet Circular PC028 Construction Procurement Policy Project Implementation Process (PIP).  

 

Audit recommended that the Corporation assess whether its Project Management Framework (PMF) complies with the requirements of the latest Project Implementation Process Policy.

 

The Corporation advised that it is currently undertaking a significant review of the PMF which will address this matter.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

Comparisons are only for two years as a result of the impact of adopting Australian equivalents to International Financial Reporting Standards (AIFRS).  Any figures prior to 2004-05 were accounted for using the AGAAP method and are not readily comparable to the AIFRS figures.

 

Highlights of Financial Report

 

 

2006

2005

Percentage

 

$’million

$’million

Change

INCOME

 

 

 

Sales less cost of sales

31.7

15.0

111

Revenues from Government

12.6

10.0

26

Property income

14.6

11.0

33

Other income

22.8

24.8

(8)

Total Income

81.7

60.8

34

EXPENSES

 

 

 

Salaries and related payments

6.7

5.8

15

Borrowing costs

5.7

6.4

(11)

Contractors and consultants

2.3

6.6

(65)

Write down of land held for sale

3.7

4.6

(20)

Other expenses

17.9

17.2

4

Total Expenses

36.3

40.6

(11)

Profit before Income Tax Equivalent

45.4

20.2

125

Dividends Paid/Payable

35.7

2.2

n/a

 

 

 

 

Net Cash Flows from Operations

30.5

(1.8)

n/a

 

 

 

 

ASSETS

 

 

 

Current assets

27.8

52.7

(47)

Non-current assets

175.5

161.7

9

Total Assets

203.3

214.4

(5)

LIABILITIES

 

 

 

Current liabilities

55.5

39.1

42

Non-current liabilities

48.3

71.9

(33)

Total Liabilities

103.8

111.0

(6)

EQUITY

99.5

103.4

(4)

 

Income Statement

 

Contributions to the Government

 

In the three years to 30 June 2003 dividends paid by the Corporation to the Treasurer ranged from $6.1 million in 2003 to $1.8 million in 2001.  In 2003-04 the Corporation paid a special dividend of $50 million as part of total dividends for the year of $51.5 million.  In 2004-05 the Corporation paid $2.2 million in dividends.  In 2005-06 the Corporation paid a special dividend of $8.4 million as part of total dividends for the year of $35.7 million.

 

The Corporation also makes TER payments to the Treasurer which in 2005-06 was $5.6 million and ranged from $11.4 million in 2004 to $4.1 million in 2001.

 

Income

 

The following chart shows the changing composition of the Corporation’s income over the past two years.

 

The chart shows that income from Sales less cost of sales increased significantly by $16.7 million in 2005-06 (113 percent) compared to 2004-05 reflecting the impact of the Corporation’s total land sales.

 

The Corporation’s total land sales resulting from the following three areas of operation are analysed below.

 

Joint Venture Land Sales

 

Gross Sales of land through Joint Venture entities, to which the Corporation is party, increased slightly by $0.05 million to $2.8 million in 2005-06, contributing to an increase in Profit on land sales of $0.06 million to $2.3 million.

 

Other Land Sales

 

The following chart shows the value of other land sales by the Corporation over the last two years.

 

Analysis of the composition of other land sales identified that the:

 

·                     material land sales in 2005-06 occurred in Darlington, Huntfield Heights, Port Waterfront, Penfield, Edinburgh Parks and Seaford and totalled $41.8 million; while

 

·                     material land sales within 2004-05 occurred in Darlington, Huntfield Heights, Lonsdale and Seaford and totalled $11.7 million.

 

The land released by the Corporation in 2005-06 was 45 percent industrial land and 55 percent broad hectare land for residential development. The majority of the land released in 2004-05 was industrial in nature.

 

Industrial and Commercial Property Sales

 

The Corporation is responsible for providing industry assistance through the construction of purpose built commercial and industrial facilities through the Industrial and Commercial Premises Scheme.  Construction projects in progress are recorded as work in progress in the Balance Sheet.  On completion the Corporation enters into Deferred Purchase Agreements with the client for the recovery of costs incurred in constructing the premises.  Properties are secured by title held in the name of the Corporation until settlement.

 

The Corporation funds the cost of construction with back to back interest bearing loans with SAFA.  Under the terms and conditions of the Agreement clients make interest and principal repayments resulting in the reduction of the SAFA loans.

 

In 2005-06 there was one new Deferred Purchase Agreement entered into with clients. During 2004-05 the Corporation entered into agreements recognising the sale of premises to clients totalling $12.6 million, and the construction costs of $12.7 million were recognised as cost of sales.

 

Revenue from Government

 

The Corporation’s revenue from Government increased by $2.6 million to $12.6 million.  The increase is a result of the Corporation receiving an increase in capital grants of $1.4 million and an increase to the Land Tax Subsidy of $1.2 million.

 

Property Income

 

Property income increased during 2005-06 by $3.6 million due mainly to the additional properties owned as landlord following the transfer of properties from the former Industrial and Commercial Premises Corporation.

 

Other Income

 

Other income includes the Corporation’s share of the net profits of joint venture entities and interest on cash balances held with Treasury.  During 2005-06, other income has decreased by $2 million, due mainly to the recognition of prior period errors in 2004-05 of $3.8 million associated with the corporation depreciating investment properties.

 

Expenses

 

For the two years to 2006, a structural analysis of the main expense items for the Corporation is shown in the following chart.

The decrease in expenses for 2005-06 of $4.3 million compared with 2004-05 is associated mainly with:

 

·                     increased land tax - $1.2 million;

·                     a decrease of $4.2 million in payments to contractors and consultants;

·                     a decrease in write-down of $0.9 million associated with industrial premises constructed through the Industrial and Commercial Premises Scheme as detailed in ‘Further Commentary on Operations’ under the heading of ‘Industrial and Commercial Premises’.

 

Profit

 

The increase in total income, as discussed earlier, of $20.9 million in 2005-06, largely contributed to the increase in profit before income tax equivalent of $45.4 million.

 

The following chart shows the incomes, expenses and profits for the two years to 2006.

 

 

Balance Sheet

 

A structural analysis of assets and liabilities for the two years to 2006 is shown in the following chart.

Over the period, the Corporation’s net assets decreased by $3.9 million to $99.5 million.

 

Assets

 

The Corporation’s total assets decreased by $11.1 million to $203.3 million reflecting:

 

·                     decrease in mortgage debtors of $2.5 million;

·                     decrease in cash of $17.1 million reflecting an increase in repayment of borrowings and dividends paid offset by an increase in receipts from land sales.

Liabilities

 

The Corporation’s total liabilities decreased by $7.2 million to $103.8 million reflecting:

 

·                     payables increased by $2.8 million due mainly to the recognition of $8.9 million payable for land purchase for Edinburgh Parks;

·                     tax liabilities increased by $8.0 million in 2005-06 compared with 2004-05 due to the increase in profit;

·                     interest bearing liabilities decreased by $18.1 million due to the repayment of borrowings to the South Australian Government Financing Authority during 2005-06.

 

Asset Valuations

 

Land held for resale is recognised in the Balance Sheet at the lower of original cost or net realisable value in accordance with AASB 102 Inventories.

 

The land inventory value recorded by the Corporation with respect to land sold in 2005-06 in Darlington, Huntfield Heights, Port Waterfront, Penfield, Edinburgh Parks and Seaford was $13.1 million compared with the achieved gross sale price of $41.8 million.

 

In recognition that the market value is materially greater than the recorded book value, the Corporation have disclosed, by note to the financial statements (refer Note 2.7), the estimated market value of $503.5 million with respect to land held for sale as at 30 June 2006.

 

In determining the estimated market value consideration was given to the planned sales strategy adopted by the Corporation which anticipates that land held for sale will be disposed over an extended period of time.  The valuation assumes the Corporation’s entire land holding is not taken to market in its entirety.  In addition the valuation does not take into consideration the development costs to be incurred to prepare the land for sale or the future property market conditions.

 

Cash Flow Statement

 

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

 

 

2006

2005

 

$’million

$’million

Net Cash Flows

 

 

 

 

 

Operations

30.6

(1.8)

Investing

6.1

6.3

Financing

(53.8)

(5.8)

Change in Cash

(17.1)

(1.3)

Cash at 30 June

17.4

34.5

 

The analysis of cash flows shows that the Corporation’s cash reserves have decreased between 2005-06 and 2004-05. The reason for the significant cash outflow from financing activities is associated with the dividend payment of $35.7 million in 2006 and the repayment of borrowings of $18.1 million.

 

 

FURTHER COMMENTARY ON OPERATIONS

 

Mawson Lakes Government Infrastructure Project

 

As part of the joint venture arrangements for the Mawson Lakes Economic Development Project, the State Government committed to infrastructure works in July 1997 under a project commitment deed.  The deed committed the State Government, through a number of government agencies (ie Department for Transport, Energy and Infrastructure, Planning SA, Department of Education and Children’s Services and Land Management Corporation), to deliver specified infrastructure.

 

The Corporation’s obligations, under the original project commitment deed, amounted to $17.6 million (in 1996 dollars) over a nine year period. The Corporation’s most recent forecast of its future commitments under the arrangements is $1.3 million (in current dollars) to be spent in the next 12 months.  It is anticipated the Corporation will have satisfied all its obligations under the commitment deed by the end of 2007-08.

To date the Corporation has spent a total of $20.7 million meeting the Government’s obligations on Mawson Lakes infrastructure.

 

Port Adelaide Waterfront Redevelopment

 

The Port Adelaide Waterfront Redevelopment Project represents a major urban renewal project of waterfront land at Port Adelaide.  A key phase of the project involves completing a detailed development proposal for the economic and urban revitalisation of the inner Port Adelaide region.  To facilitate the completion of this development proposal, Cabinet approved the Corporation proceeding with a registration of interest process. In June 2001 the Corporation, commenced this process to select two parties to prepare comprehensive development proposals for the project.

 

In September 2001 the Corporation selected two consortia which were subsequently contracted by the Corporation to prepare development proposals.  Development proposals were submitted by the two selected consortia in April 2002 and in June 2002 the Board endorsed the selection of the Newport Quays Consortium.