SOUTH AUSTRALIAN ASSET MANAGEMENT CORPORATION

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

The State Bank of South Australia Act 1983 (as amended) provides for the South Australian Asset Management Corporation (SAAMC), formerly known as the State Bank of South Australia to ‘… manage, realise and otherwise deal with its remaining assets and liabilities and, with the approval of the Treasurer, other assets and liabilities of the Crown or an instrumentally of the Crown, to the best advantage of the State’.  The Act also provides for the Board of Directors of SAAMC to be subject to the control and direction of the Treasurer.

 

SAAMC and its controlled entities (ie former subsidiary and associated entities of the former State Bank of South Australia) commenced operations on 1 July 1994 with consolidated assets and liabilities of $8.3 billion and $8.2 billion respectively.  At 30 June 2006 assets and liabilities of SAAMC stood at $69 million and $8 million respectively.

 

At 30 June 2006 SAAMC staffing consisted of a part time Chief Executive Officer and one temporary employee.

 

AUDIT MANDATE AND COVERAGE

 

Audit Authority

 

Audit of the Financial Report

 

Subsection 31(1)(b) of the Public Finance and Audit Act 1987 provides for the Auditor-General to audit the accounts of the South Australian Asset Management Corporation 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 South Australian Asset Management Corporation 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 involved the review of major financial systems and records 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, areas of audit attention included: cash and investments; receivables and payables; financial accounting systems, including reconciliation processes; and financial statements verification.

 

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, the Corporations Act 2001, applicable Accounting Standards and other mandatory professional reporting requirements in Australia, the financial position of SAAMC 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 South Australian Asset 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 South Australian Asset Management Corporation have been conducted properly and in accordance with law.

Audit Communications to Management

 

SAAMC’s financial controls operating in relation to the auditable areas of review (including financial statements) were determined as satisfactory.  There were no matters identified during the course of the audit that necessitated communication in the form of a management letter to SAAMC.  Matters that were discussed with SAAMC management during the audit process were directed to ensuring appropriate reporting disclosures consistent with the requirements of SAAMC’s first year adoption of Australian equivalents to International Financial Reporting Standards.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

The major objective of SAAMC involves the management of the divesting of assets and repayment of liabilities rather than holding for long term operations and profit generation. 

 

Highlights of Financial Report

 

	2006	2005
	$’million	$’million
INCOME
Interest revenue	3	14
Non-interest income	2	5
Recoveries of debts	1	2
Income	6	21
EXPENSES
Borrowing costs (interest expense)	-	6
Other expenses	1	2
Total Expenses	1	8
Net Profit After Income Tax Equivalents	5	13
Net Cash Flows from Operations	16	7
ASSETS	69	69
LIABILITIES	8	7
EQUITY	61	62

 

Income Statement

 

The following chart shows the revenues/recoveries, expenses and net profits for the four years to 2006. 

 

Up until this year, both interest revenue and interest expense (borrowing costs) have always been the main components of SAAMC’s annual revenue and expense flows.  In 2003, interest revenue and interest expense were $56.0 million and $40.6 million respectively.  In 2006, while SAAMC recorded interest revenue of $3.5 million, it recorded for the first time no borrowing costs.

 

The reduction in revenue and expense flows over the years accompanied by an associated decrease in the level of net profits over the years, reflects SAAMC’s core objective of asset divestiture and liability extinguishment, rather than profit generation.

 

Balance Sheet

 

The table below presents a very broad analysis of the assets and liabilities and equity position of SAAMC for the four years to 2006.  The table shows over the years a significant trend reduction in assets and liabilities.

 

	2006	2005	2004	2003
	$’million	$’million	$’million	$’million
ASSETS
Securities	-	35	599	765
Other (including investment property)	69	34	187	170
Total Assets	69	69	786	935
LIABILITIES
Interest bearing liabilities	-	-	656	758
Other	8	7	9	9
Total Liabilities	8	7	665	767
EQUITY
Retained earnings	8	3	59	106
Other	53	58	62	62
TOTAL EQUITY	61	62	121	168

 

The net asset position of SAAMC at 30 June 2006 was $60.6 million, down slightly from $61.7 million at 30 June 2005.  During the year proceeds from the sale of securities (refer to Note 17) and the sale of an investment property (refer to Notes 1(k) and 18) were deposited and invested with the South Australian Government Financing Authority.

 

At 30 June 2006 the retained earnings of SAAMC were $7.9 million after payment of a dividend of $6 million to the Consolidated Account on direction of the Treasurer pursuant to section 22 of the State Bank of South Australia Act 1983 (as amended).  Refer to Statement of Changes in Equity.

 

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
Operations	16	7	10	33
Investing	(11)	696	152	483
Financing	(6)	(705)	(161)	(517)
Change in Cash	(1)	(2)	1	(1)
Cash at 30 June	2	3	5	4

 

Over the years from 2003 and 2006, cash flows from investing activities have mainly resulted from the sale of securities.  The proceeds have been used in relation to financing activities, associated with repaying borrowings and/or contributed capital to the Government, or payment of dividends to the Government, or in reinvestment activity principally with SAFA.