UNIVERSITY OF ADELAIDE

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The University is established by the University of Adelaide Act 1971.

 

Functions

 

The University undertakes higher education and research activities.

 

Structure

 

The structure of the University of Adelaide is illustrated in the following organisation chart.

 

 

The University’s principal source of revenue is Commonwealth Government grants  for general or specific purposes which support the University’s teaching and research activities.  In addition to these sources of funds, the University receives student tuition fees and charges, endowments, general bequests and sponsorships.

 

As at 31 December 2005 the University had a number of controlled entities as detailed in Notes 2 and 33 to the Financial Statements.

 

Audit, Compliance and Risk Committee

 

The University has an Audit, Compliance and Risk Committee which comprises two members of Council and up to three members who are not  Council members of which one must be a University staff member.  The Committee has an Audit Committee Charter which requires it to assist Council in exercising due care, diligence and skill in discharging its oversight and monitoring responsibilities.  Representatives of the Auditor-General attended meetings of the Committee throughout the year.

 

 

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 University of Adelaide 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 University of Adelaide 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, specific areas of audit attention included:

 

·                     budgetary control

·                     procurement and accounts payable

·                     payroll

·                     revenue including government financial assistance, student fees, research income and other revenue

·                     fixed assets

·                     financial assets

·                     liabilities, including provisions

·                     general ledger

·                     corporate governance arrangements

·                     internal audit activities.

 

Audit also reviewed aspects of the University’s PeopleSoft system which administers student records and financial transactions.  The review considered aspects of information security access controls, operational and business continuity.

 

The audits of the controlled entities for the year ending 31 December 2005 were carried out by private accounting firms.

 

The work of the internal auditor was considered in designing the audit programs.

 

 

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 Higher Education Funding Act 1988, applicable Accounting Standards and other mandatory professional reporting requirements in Australia, the financial position of the University of Adelaide and the consolidated entity as at 31 December 2005, the results of their operations and their cash flows for the year then ended.

 

Assessment of Controls

 

In my opinion, the controls exercised by the University of Adelaide 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 Corporate Governance, Procurement and Accounts Payable, Payroll, Accounting Polices and Procedures and PeopleSoft Computer Processing Environment as outlined under ‘Audit Communications to Management’, are sufficient to provide reasonable assurance that the financial transactions of the University of Adelaide have been conducted properly and in accordance with law.

 

Audit Communications to Management

 

Matters arising during the course of the audit were detailed in management letters to the Vice-Chancellor.  The responses to the management letters were satisfactory.  Major matters raised with the University and the related responses are considered herein.

 

Corporate Governance

 

A review of the University’s governance arrangements identified the need to formalise processes and reporting arrangements in a number of areas including:

 

·                     arrangements for explaining variances between budgets and forecasts at the Faculty and School level;

·                     establishing systematic performance reporting to the University’s governing bodies for controlled entities;

·                     establishing, approving and promulgating formal Treasury Management Policies and Procedures;

·                     developing a formal, systematic and robust legal compliance framework.

 

The University has accepted the issues raised by Audit and has either already implemented or agreed to implement the audit recommendations.

Procurement and Accounts Payable

 

The audit review identifies areas for improvement in the Universities’ procurement practices and the accounts payable control environment including:

 

·                     the University has not implemented formal policies and procedures for procurement practices by Faculties and Divisions creating the potential for inconsistent and ineffective procurement practices to be adopted;

·                     formal guidance is not provided to Faculties and Divisions regarding the use of purchase orders;

·                     expenditure transactions less than $10 000 are not checked by Finance staff to confirm payments are valid, appropriately approved and accurately recorded;

·                     the University has not implemented a comprehensive central record of all contracts entered on behalf of the University or arrangements for monitoring contracts at either the University, Faculty or Divisional levels.

 

In its response the University advised the:

·                     University’s Financial Services division will undertake a review of the University’s procurement framework and activities in 2006.  Once this review has been finalised and approved, the relevant governance and policy and procedure framework will be developed and promulgated to staff;

·                     Financial Services division has commenced a review of the ‘use of purchase orders’ and will update its purchasing policies and procedures accordingly;

·                     University will develop and implement test check procedures for transactions under $10 000;

·                     Prudential Services division will develop and implement an approved contract management process.

 

Payroll

 

Audit’s review of the University’s payroll processing function identified a number of areas in which controls were considered to be ineffective or were not consistently applied across the University throughout the year.  The more significant findings relate to:

 

·                     the University has not documented policies and procedures describing the nature and extent of checking of the payroll reports which are distributed across the University and action to be taken if anomalies are identified;

·                     the management reports on payroll costs are derived from the general ledger and not the payroll system;

·                     the report detailing leave taken should be distributed on a more frequent basis to enable a more effective review;

·                     all casual staff who are  appointed for an extended period of time should be established on the payroll system prior to commencing payment to these employees.

 

In its response the University advised:

 

·                     policies and procedures will be developed and promulgated to staff in relation to the review of fortnightly payroll reports, which will include the requirement for regular sign off of bona fide employees and salary payments.  The University will investigate the development of a salary costing report directly from the Human Resource system to assist in this review;

·                     access and training has been provided to the relevant staff to run the ‘leave taken reports’ on an ad hoc basis to allow for a more effective review;

·                     The University was investigating options to strengthen controls over authorisation of payments to casual staff.

 

Accounting Policies and Procedures

 

The University has prepared an updated draft accounting policies and procedures manual, however, the policies and procedures have not been approved nor have they been promulgated to relevant staff.

 

The University has indicated that the policies and procedures are being given a high priority and will be promulgated to relevant personnel in 2006.

PeopleSoft Computer Processing Environment

 

The 2004-05 Report provided a summary of the findings and corrective action being taken by the University in respect of matters that resulted from an audit of the University’s main financial system, the PeopleSoft System, and related computer processing environment.

 

The audit in 2004 identified a number of matters requiring attention, including security access to the system, control of systems operations and maintenance, and backup and recovery.

 

During the year a follow-up audit of the status of the  action taken by the University was performed. The audit identified that many issues had been adequately addressed.  Notwithstanding there still remains certain matters to be fully actioned by the University relating to:

 

·                     improvements to security policy and related procedures regarding system access controls;

·                     formalisation of procedures for testing of backup tapes to ensure their effective application in any system and data restoration situation;

·                     formalisation of certain quality assurance and change control activities to ensure the integrity of changes made to the system and its overall operation;

·                     implementation of required infrastructure to support logging of activities at the network, operating system and database levels to enable the detection of unusual activity.

 

The University formally advised that these matters would be completed in the early part of 2007.  The outstanding matters will be further reviewed in 2006-07.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT (CONSOLIDATED)

 

The data in relation to the interpretation and analysis of the Income Statement activity has been sourced from Note 38 as this has been prepared in accordance with the DEST reporting guidelines and provides consistency and comparability with the other Universities.

 

Highlights of Financial Report

 

	2005	2004	Percentage
	$’million	$’million	Change
REVENUE FROM CONTINUING OPERATIONS
Commonwealth Government financial assistance	261	232	13
HECS - Student contributions	10	8	25
Fees and charges	79	68	16
Other	125	115	9
Total Revenue from Continuing Operations	475	423	12
EXPENSES FROM CONTINUING OPERATIONS
Employment benefits	238	218	9
Other expenses	200	180	11
Total Expenses from Continuing Operations	438	398	10
Operating Result from Continuing Operations	37	25	48
Cash Generated from Operations	50	48	4
ASSETS
Current assets	130	113	15
Non-current assets	756	702	8
Total Assets	886	815	9
LIABILITIES
Current liabilities	61	56	9
Non-current liabilities	76	67	13
Total Liabilities	137	123	11
EQUITY	749	692	8

Income Statement

 

Revenue from Continuing Operations

 

Revenue from continuing operations increased by $52.8 million to $475.4 million mainly as a result of an increase in:

·                     Commonwealth Government financial assistance of $28.4 million of which $11.8 million relates to a change in the timing of the payment of the Commonwealth base operating grant funding by DEST. Refer Note 3(d);

·                     Fees and Charges of $11.2 million.  This increase is mainly attributable to an increase in student fee income of $10 million of which $9 million relates to fees from international fee paying students;

·                     Investment income of $4.4 million.  This increase reflects the increase in investment funds held by the University and was mainly attributable to the investment of this year’s surplus of $37.3 million and the increased rates of return on investments held during the year.

 

A structural analysis of operating revenues for the University in the four years to 2005 is presented in the following chart.

 

The following chart highlights the general upward trend in the revenue received from international fee paying students.

 

Expenses from Continuing Operations

 

Expenditure from continuing operations increased by $40.3 million to $438.1 million and is attributed mainly to an increase in:

 

·                     employee benefits expenses of $20.5 million.  Increases resulting from enterprise bargaining and additional research activities were the major reasons for the increased cost of employee benefits;

 

·                     other expenses of $9.1 million.  Factors contributing to the increase include an increase in the use of consultants and specialist services, increased travel, accommodation and entertainment expenses;

 

·                     building and grounds expenditure of $4.7 million.  The increase is attributable to increased lease accommodation costs including the Student Village accommodation which was opened in July 2005.

 

For the four years to 2005, a structural analysis of the main operating expense items for the University is shown in the following chart.

 

 

The following chart shows the proportion of academic to non-academic employee benefits over the last four years.

 

 

Operating Result from Continuing Operations

 

The consolidated operating result for the year was a surplus of $37.3 million ($24.8 million), an increase of $12.5 million.  The result reflects an increase in Revenue from Continuing Operations of $52.8 million compared to an increase of $40.3 million in Expenses from Continuing Operations.

 

The following chart shows the operating revenues, operating expenses and operating result for the four years to 2005.

 

 

Balance Sheet

 

A structural analysis of assets and liabilities for the four years to 2005  is shown in the following chart.

 

 

The consolidated net assets of the University at 31 December 2005 totalled $748.9 million ($692.3 million), an increase of $56.6 million.

 

Current Assets

 

The increase in the value of the University’s current assets of $17.4 million is mainly attributable to an increase of $11.8 million in cash held at 31 December 2005.

 

Non-Current Assets

 

The value of the University’s non-current assets increased by $53.4 million to $755.4 million.  The increase is mainly attributable to the value of:

 

·                     the Composite Fund increased by $11.5 million to $76.5 million.  Notes 3(j) and 9 to the Financial Statements provide details of the Composite Fund;

 

·                     property, plant and equipment increased by $39.7 million to $601.8 million.  The University’s property, plant and equipment was revalued during the year resulting in a revaluation increment of $19 million.

 

Cash Flow Statement

 

The following table summarises the net cash flows for the four years to 2005.

 

	2005	2004	2003	2002
	$’million	$’million	$’million	$’million
Net Cash Flows
Operations	49.6	48.3	46.8	23.1
Investing	(37.7)	(27.2)	(17.0)	(18.8)
Financing	(.1)	(0.2)	(0.2)	(20.2)
Change in Cash	11.7	20.9	29.6	(15.9)
Cash at 31 December	86.6	74.7	53.8	24.2

 

The increase in cash held at 31 December 2005 is due principally to the net cash generated by the operating activities of the University.