UNIVERSITY OF SOUTH AUSTRALIA

 

 

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

 

Establishment

 

The University of South Australia (the University) was established pursuant to the University of South Australia Act 1990.

 

Functions

 

The function of the University is to advance, disseminate and preserve knowledge through the provision of a teaching, learning and research environment which fosters excellence in scholarship, innovation, and social responsibility.

 

Structure

 

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

 

 

 

The University operated from five campuses during 2005:  City East, City West, Magill, Mawson Lakes and Whyalla. As part of Blueprint 2005, the Underdale campus was closed at the end of 2004. Refer to ‘Further Commentary on Operations’ for details.

 

During 2005, the following entities were controlled by the University:

 

·                     ITEK Pty Ltd — The University established ITEK Pty Ltd as trustee for the ITEK Trust and the GTA Trust to provide University business incubation and technology commercialisation services.

 

·                     University of South Australia Foundation Incorporated (the Foundation) — The main purposes of the Foundation are to generate interest in the University and to attract broadly based levels of philanthropic support for the benefit of the University. The Council resolved to restructure the Foundation, transferring its assets and functions to the University as at 30 June 2005. The restructure was a result of a review of the Foundation’s governance arrangements and its change in charity taxation status. The Foundation will continue to legally exist to accept any future donations where the Foundation is named as the beneficiary.

 

·                     Knowledge South Pty Ltd — The University established Knowledge South Pty Ltd to provide e-learning and website development services. From 30 June 2005, these services were taken over by the University and Knowledge South Pty Ltd ceased trading and the legal entity was wound up on that same date.

 

Audit and Risk Management Committee

 

The University has an Audit and Risk Management Committee which comprises three external members of the Council and an academic staff representative.  The Committee meets on at least a quarterly basis and reports to the Council.  The Committee operates within the framework of an Audit Committee Charter with the primary function of assisting Council in exercising due care, diligence and skill in discharging its oversight and monitoring responsibilities.  Representatives of the Auditor-General attend meetings of the 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 section 19 of the University of South Australia Act 1990 provides for the Auditor-General to audit the accounts of the University for each year of operation.

 

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 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 form an audit opinion on the financial report and internal controls.

 

For the year ended 31 December 2005, specific areas of audit attention included:

 

·                     payroll

·                     expenditure

·                     fixed assets (including a specific review of the capital program)

·                     revenue, receipting and banking (including student fees)

·                     procurement

·                     financial accounting.

 

In addition, a follow-up review of the University’s PeopleSoft system computer processing environment was undertaken.

 

The audit also included a review of the University’s controlled entities, the Foundation and Knowledge South Pty Ltd, whereas the audit of ITEK Pty Ltd was carried out by a private accounting firm.

 

 

AUDIT FINDINGS AND COMMENTS

 

Audit Opinions

 

Audit of the Financial Report

 

The following is an extract from the 2005 Independent Audit Report, which details the qualification to the University’s financial report.

 

Qualification

 

The University has recognised Commonwealth Grants of $18.2 million received in 2003 as revenue in 2004. In 2003, the University reported this amount as a liability representing revenue received in advance.

 

The Commonwealth Operating Grants received from the Department of Education, Science and Training (DEST) represent contributions, and in accordance with Accounting Standard AASB 1004 ‘Contributions’ and the Department of Treasury and Finance Accounting Policy Framework V ‘Income Framework’ should be recognised as income when the entity obtains control.  The University obtained control of these funds upon receipt.

 

As a result, the 2004 Australian Government Grants and the 2004 Operating Result Before Income Tax balances are both overstated by $18.2 million.

 

In 2004 DEST changed its payment arrangements whereby all recurrent payments for a given grant year will be made in that year and as such, there are no advance payments for the 2005 year.  With this change in funding arrangement all balances that were previously effected and reported in the 2004 financial report are correctly presented in 2005.

 

The University has disclosed its accounting treatment of the operating grant received from DEST in Note 1(d) to the financial statements.

 

Qualified Audit Opinion

 

In my opinion, except for the effect on the comparative figures in the financial report of the matter referred to in the qualification paragraphs, 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 Australian Accounting Standards and other mandatory professional reporting requirements, the financial position of the University of South Australia and of the economic 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 over the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities except for:

 

·                     payroll - validity and accuracy of payroll transactions

·                     expenditure -  verification of authorisations

·                     expenditure - segregation of duties

 

as outlined under ‘Audit Communications to Management’, are sufficient to provide reasonable assurance that the financial transactions of the University 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.  Responses to the management letters were generally considered to be satisfactory.  Matters raised with the University and the related responses are considered herein.

 

Payroll - Validity and Accuracy of Payroll Transactions

 

An essential control of a payroll process is a review of the disbursements made for each pay period to ensure payments are made to authorised employees for the correct amount.  Over several years the Audit review of monitoring practices indicated that there was minimal independent review of the validity and accuracy of casual employee payments.  Further, there was no requirement for staff to ensure that casual employees entered on the payroll system are valid per authorised contracts or other appropriate documentation.

 

The University responded that procedures would be implemented to ensure reports were generated and reviewed by relevant staff to ensure the validity and accuracy of casual employee payments.  Further, procedures would be implemented to ensure that the appropriate authorisations have been evidenced prior to updating the details into the payroll system. 

 

In early 2005, a payroll report was produced for review by the relevant Supervisors/Managers.  While the report provides sufficient information to perform the review, in practice the review was not being performed in a manner to ensure the validity and accuracy of casual employee payments.

 

The University responded that the process and guidelines would be reviewed.

 

Expenditure – Verification of Authorisations

 

Authorisations provided on documents (such as requisition forms and invoices) were not, in all instances, being verified against the Vice Chancellor’s Authorisations prior to purchase and/or payment.  A review of a sample of payments revealed instances where invoices were being approved by officers without any authority; and by officers where the amount was beyond their delegated limit.

 

The University is investigating an automatic workflow for purchase/invoice approval.

 

Expenditure - Segregation of Duties

 

Expenditure

 

In prior years, the segregation of duties between the processing of accounts payable transactions and the maintenance of the supplier master file was considered inadequate.  The accounts payable officers had access to create and/or amend the supplier master file details.  These officers were also responsible for the processing of accounts payable transactions.  While the University has improved the segregation of duties, the 2005 audit review revealed that the generic ‘sundry creditors’ code is still used to process payments to students and staff. All accounts payable officers can change the payment details of this code.

 

The University responded that a review of the use of sundry creditor codes will be undertaken.

 

Purchasing

 

At the individual unit level, there is no independence between purchasing, receiving goods and approving the payment for such goods.

 

The University will investigate a process to verify goods received and an automatic workflow for all approvals.

 

PeopleSoft System Computer Processing Environment

 

Last year’s Report outlined matters that were identified during a 2004 audit of the University’s PeopleSoft system and associated computer processing environment.  The Report also conveyed action being taken by the University to address those matters.  The main matters related to information security, controls over system operation and maintenance, and backup and recovery arrangements.

 

A follow-up audit during the year assessed remedial action taken by the University. The audit identified positive action taken to address the matters arising from the 2004 review.

 

Other Matters

 

Other matters raised by Audit mainly related to improving internal control procedures over the daily processing of transactions within the main financial systems.  Improving control processes in these areas will reduce the possibility of errors or unauthorised transactions.  These include:

 

·                     Payroll — accuracy and completeness of leave recording; leave management; employment arrangements in compliance with University policy; and ambiguity between the Vice Chancellor’s Authorisations and the Enterprise Agreement regarding termination payments.

·                     Revenue — receipting and banking — timeliness of the recovery of outstanding student debt; non-compliance with delegated authority; and lack of an independent review of changes to rates in the student administration system.

·                     Expenditure – independent review of vendor master file changes; and budgetary control processes.

·                     Procurement — inadequate policies and procedures for contract variations and extensions; and the absence of a central contract register as required by University policy.

·                     Financial Accounting — inadequate segregation of duties between the preparation, authorisation and processing of journals.

 

The University has responded satisfactorily to the matters raised highlighting its acceptance and/or consideration of the Audit suggestions having regard to its assessment of risk and feasibility.

 

 

INTERPRETATION AND ANALYSIS OF FINANCIAL REPORT

 

The following analysis has been prepared using the reported information and should be read in conjunction with the qualification.

 

Highlights of Financial Report (Consolidated)

 

 

	2005	2004	Percentage
	$’million	$’million	Change
INCOME
Australian Government financial assistance	145	131	11
HECS	68	63	8
Fees and charges	70	62	13
Other	92	69	33
Total Income	375	325	14
EXPENSES
Employee benefit costs	193	181	7
Other	162	131	24
Total Expenses	355	312	14
Operating Result before Income Tax	20	13	54
Net Cash Flows from Operations	45	22	-
ASSETS
Current assets	129	130	(1)
Non-current assets	749	696	8
Total Assets	878	826	6
LIABILITIES
Current liabilities	94	73	29
Non-current liabilities	311	303	3
Total Liabilities	405	376	8
EQUITY	473	450	5

 

Income Statement (Consolidated)

 

For the purposes of the following analysis, the deferred government superannuation contribution and Commonwealth supplementary funding have been excluded from the income and expenses as they have minimal effect on the operations of the University due to the income being offset by a corresponding expense.  Refer to Note 34 to the financial report for further details of the University’s superannuation plans and how they are accounted for.

 

Income

 

Income increased by $27.9 million from $301.6 million to $329.5 million.  The increase in income is due mainly to:

 

·                     funding from the University’s main revenue source, Australian Government Financial Assistance, (including the Higher Education Contribution Scheme (HECS)), increased by $20.4 million from $192.9 million to $213.3 million.  This increase mainly resulted from the following Federal Government Higher Education Reforms:

 

¾                  increase in base operating grant

¾                  25 percent increase in HECS fees for some students who commenced after 1 January 2005.

 

·                     revenue from Fees and Charges increased by $7.6 million from $62.4 million to $70 million. The increase was due to an increase in fees from overseas students by $6.4 million to $57.7 million.

A structural analysis of the University’s income for the four years to 2005 is presented in the following chart.

 

 

The chart demonstrates the success of the University in increasing the proportion of revenue from fees and charges from overseas students. This is due to an increase in both student enrolments and courses offered.

The following chart highlights the upward trend in fees from overseas students.

 

 

Expenses

 

Expenses increased by $20.5 million from $288.8 million to $309.3 million.  The main expense of the University (as for most service entities) is employee benefits.  This item increased by $11.9 million to $192.6 million.  This was due mainly to a 5 percent wage rate increase in line with the 2004 Enterprise Agreement; increases in employee related costs; appointment of new staff; and increase in the number of terminations paid during the year (termination payments increased by $1.8 million due primarily to the outsourcing of facilities management in the Services Unit).

 

Other expenses has increased by $7.3 million due mainly to an increase in external services.

 

For the four years to 2005, a structural analysis of the University’s main expenses is shown in the following chart.

The following chart shows the changes in employee benefits for academic and non-academic staff over recent years.

 

The chart highlights the steady increase in employee benefits cost since 2002 while the proportion of costs between academics and non-academics remains constant.

 

Operating Result

 

The result of operations for the year was a surplus of $20.3 million ($12.8 million), an increase of $7.4 million.  The result reflects an increase of $27.9 million in Income compared to an increase of $20.5 million in Expenses from Continuing Operations.

 

The following chart shows the movement in income, expenses and the operating result before income tax for the current and preceding three years.

 

 

 

Balance Sheet (Consolidated)

 

For the purposes of this analysis, the deferred Government superannuation contribution has been excluded from the assets and liabilities as it has minimal effect on the financial position of the University due to the asset being offset by a corresponding liability.  Refer to Note 34 to the financial report for further details of the University’s superannuation plans.

For the four years to 2005, a structural analysis of assets and liabilities is shown in the following chart.

 

 

Current Assets

 

With the exception of 2003, there has been little change in current assets. However cash held in short term deposits has experienced significant fluctuations. In 2005 cash increased by 70 percent to $78.5 million from $46.1 million. This increase was partially offset by a decrease in property held for resale of $33.7 million (the sale of the Underdale campus). Further commentary is provided under the heading ‘Cash Flow Statement’.

 

Non-Current Assets

 

Over the period of review the value of non-current assets have increased due to revaluations of property, plant and equipment and the conduct of a major capital development program.

 

The carrying value of property, plant and equipment has increased due to: