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SOUTH AUSTRALIAN COMMUNITY HOUSING AUTHORITY

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The South Australian Community Housing Authority (the ‘Authority’ or ‘SACHA’) is established pursuant to the South Australian Co-operative and Community Housing Act 1991 (the Act).

 

Functions

 

The Authority has a broad range of functions covering the development, promotion and administration of community housing in South Australia.  In performing these functions the Authority has the following main roles:

·                     The provision of advice to the Minister for Housing on issues relating to community housing.

·                     The registration of housing co-operatives and associations as provided for under the Act.

·                     Ensuring the full and proper accountability of community housing organisations which receive funds or other support from the Authority or other public sector agencies.

·                     The provision of administrative and other support services to community housing organisations.

 

 

Financial Arrangements and Structure

 

The following chart illustrates the relationship between SACHA and the agencies which provide funding to it on one hand and the community housing organisations (CHOs) which receive support from it on the other.

 

 

 

 

 

Structure

 

The structure of the Authority in 2005-06 is illustrated in the following organisation chart (note changes in structure as at 1 July 2006 as discussed below).

 

 

 

Changes to Functions and Structure

 

During 2005-06 the Minister for Housing advised SACHA of a restructure of the South Australian Housing System pursuant to the Minister’s power under the South Australian Co-operative and Community Housing Act 1991.  It is expected that these reforms will be implemented during 2006-07.  As part of transitional arrangements, SACHA agreed to enter into a new Service Level Agreement with the Department for Families and Communities for the Department to provide Housing and Asset Services on behalf of the Authority effective from 1 July 2006 (refer Note 27 of SACHA’s financial statements).

 

Audit Committee

 

The Authority has an Audit Committee which comprises three Authority members appointed by the Board.  The Audit Committee meets on at least a quarterly basis and reports to the Board on the effectiveness of controls over the operations of the Authority. 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 19(2) of the South Australian Co-operative and Community Housing Act 1991 and subsection 31(1)(b) of the Public Finance and Audit Act 1987 provide for the Auditor-General to audit the financial statements of the Authority.

 

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 Authority 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 all major financial systems and was directed primarily towards obtaining sufficient evidence to enable an audit opinion to be formed on the financial statements and internal control.

 

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

 

·                     expenditure (both operating and capital)

·                     revenue including contributions from CHOs

·                     payroll

·                     non-current property assets

·                     accounting for arrangements with CHOs.

 

 

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 Authority 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 Authority 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; monitoring of community housing organisations;  and public liability insurance as outlined under ‘Audit Communications to Management’, are sufficient to provide reasonable assurance that the financial transactions of the Authority 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 Chair of the Authority.  Responses to the management letter were generally considered to be satisfactory.  The main matters raised with the Authority and the related responses are considered herein.

 

Monitoring of Community Housing Organisations

 

Arrangements between the Authority and CHOs require CHOs to submit audited financial statements for the preceding financial year by 30 of September of each year.  Once received, the audited financial statements are used by the Authority to verify compliance with the funding agreement including confirmation of the completeness of contribution revenue.  Audit’s 2005-06 review noted that a significant number of CHO’s had not submitted, or were late to submit, audited statements for the 2004-05 financial year.  Audit recommended the follow up and timely review of all outstanding CHO audited financial statements.

 

The Authority responded that 94 percent of CHOs audited financial statements for 2004-05, had been received and the remainder actively followed up since May 2006.

 

Public Liability Insurance

 

The Authority enters into contractual arrangements with building contractors to build houses. The tender documents require the contractors to have adequate public liability insurance prior to signing of the contract and existing until the expiry of a defect liability period.  As part of these requirements successful tenders need to provide a certificate of currency for their public liability insurance prior to taking possession of the site.  The 2005-06 audit revealed instances where certificates of currency were not provided prior to possession and coverage insurance fell short of the defect liability period.  Audit recommended that the Authority implement procedures to ensure the currency of the contractors public liability insurance as required by tender documents.

 

The Authority responded that it is now checking for current certificates of insurance prior to engagement and is instituting review processes.

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

Highlights of Financial Report

 

 

2006

2005

Percentage

 

$’million

$’million

Change

EXPENSES

 

 

 

Borrowing costs

8.5

8.5

-

Depreciation expense

6.8

6.6

3

Employee expenses

3.2

2.5

28

Other expenses

4.2

4.9

(14)

Total Expenses

22.7

22.5

1

INCOME

 

 

 

Contributions from CHOs

7.9

8.5

(7)

Other income

1.9

5.0

(62)

Total Income

9.8

13.5

(27)

Net Cost of Providing Services

12.9

9.0

43

 

 

 

 

REVENUES FROM GOVERNMENT

 

 

 

Government grants

25.3

27.8

(9)

Net Result

12.4

18.8

(34)

Net Cash Flows from Operations

9.8

10.8

(9)

Net Cash Flows used in Investing Activities

(12.8)

(21.4)

(40)

 

 

 

 

ASSETS

 

 

 

Current assets

6.0

9.7

(38)

Non-current assets

734.6

679.8

8

Total Assets

740.5

689.5

7

LIABILITIES

 

 

 

Current liabilities

2.8

2.6

8

Non-current liabilities

120.4

120.4

-

Total Liabilities

123.2

123.0

-

EQUITY

617.3

566.5

9

 

First-time Adoption of Australian equivalents to International Financial Reporting Standards

 

The 2005-06 financial report is the first financial report to be prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS).  Previous financial reports were prepared in accordance with Australian Generally Accepted Accounting Principles (GAAP).

 

Reference should be made to Note 4 of the Authority’s financial report which explains the transition from previous GAAP to AIFRS and the effect on the reported financial position, financial performance and cash flows.  The principal effects of AIFRS are:

 

·                     derecognition of gains or losses arising from the transfer of properties to CHOs as the transfer of legal title fails to satisfy the revenue recognition requirements under AASB 118 Revenue;

·                     debentured properties previously recorded as a receivable asset are now recognised as land and buildings of the Authority under AASB 116 Property, Plant and Equipment and a depreciation expense is now recorded in the Income Statement.

 

The impact of changes have been retrospectively applied to the comparative figures (refer to reconciliations in Note 4 to the financial report).

 

Income Statement

 

Operating Income

 

A structural analysis of operating revenues of the Authority for the five years to 2006 is presented in the following chart (restated for the retrospective application of AIFRS).

 

 

The above chart indicates the extent to which the Authority is reliant on Government grants.

 

Government Grants

 

Government grants (reflecting funding for both recurrent and capital purposes) have gradually decreased over the period.  Included within Government Grants for 2005-06 are grants specifically provided for the purpose of acquiring South Australian Housing Trust properties of $9 million ($10.9 million).   These grants are received as a property transfer from the South Australian Housing Trust at market value and therefore are not a cash inflow within the Cash Flow Statement.

 

Contributions from Community Housing Organisations

 

General contributions from the CHOs (excluding insurance premiums recharged to CHOs) were $7 million a reduction of $600 000 from the previous year.  Contributions are based on criteria in funding agreements with each CHO including means tests.   During 2005-06 new funding agreements were signed by a majority of CHOs impacting on the level of contributions received.  After allowing for rental subsidies, the general contributions were insufficient to meet the Authority’s borrowing costs, which totalled $8.5 million ($8.5 million).

 

The following chart shows the trend of general contributions from CHOs over the past five years, highlighting the decrease in contributions and average contribution per property.

 

Expenses

 

For the five years to 2006, a structural analysis of the main operating expense items for the Authority is shown in the following chart (restated for the retrospective application of AIFRS).

 

 

The chart highlights that over the period of review the Authority’s borrowing costs and other expenses have remained relatively constant.

 

The increase in depreciation is consistent with increases in the value of property assets over the same period.

 

Operating Result

 

For 2005-06 the Net Result decreased by $6.4 million from $18.8 million to $12.4 million.  The decrease in the main reflects:

 

·                     During 2004-05 the Authority recognised $4 million in contributed assets revenue, no such contributed assets were received in 2005-06. Reference should be made to Note 14 of the Authority’s Financial Report.

·                     Reduction of revenues from Government of $2.5 million reflecting a reduction of Commonwealth/State Housing Agreement funds.  Reference should be made to Note 16 of the Authority’s Financial report.

 

The Authority consistently reports surplus net results due primarily to Government capital grants, the expenditure of which is reflected in the Balance Sheet as additions to non-current assets.  The consistency of the Authority’s surplus is reflected in the equity section of the Balance Sheet where retained earnings amounted to $351 million at 30 June 2006 essentially reflecting the cumulative value of capital grants over time.

 

Balance Sheet

 

The Balance Sheet contains one dominant item of assets (Property) and one dominant item of liabilities (borrowings), both of which are non-current.

 

For the five years to 2006 a structural analysis of property and borrowings is shown in the following chart (restated for the impact of AIFRS).

The growth in property assets primarily reflects property value appreciation but also the cumulative value of grants as discussed previously.

 

Properties

 

The number of registered CHOs during 2005-06 was 119 (121).  The Authority has earned general contributions totalling $7.0 million ($7.6 million) from the following properties:

 

 

 

2006

2005

Property Type

Number

Number

Debentured properties

4 288

4 179

Properties leased from SAHT and sub-lease back to CHO’s

6

93

Properties directly leased to CHOs

29

32

Total

4 323

4 304

 

 

In addition to the above properties, a total of 14 (18) properties were leased back to the South Australian Housing Trust (SAHT), 101 (107) properties were included in work in progress and 94 (92) properties were held by the Authority.

 

The value of properties at 30 June 2006 was $734 million ($680 million), an increase of $54 million reflecting, in the main:

 

·                     purchase and construction of housing of $19.4 million;

·                     SA Housing Trust property transfers of $9 million;

·                     revaluation increase of $38.5 million;

·                     offset by disposals of $5.5 million and depreciation of $6.8 million.

 

The following chart shows the growth in the value of debentured properties issued to CHOs over the past seven years.