LEGAL SERVICES COMMISSION

FUNCTIONAL RESPONSIBILITY AND STRUCTURE

Establishment

The Legal Services Commission (the Commission) is a Body Corporate established pursuant to subsection 6(1) of the Legal Services Commission Act 1977 (the LSC Act). Subsection 6(3) of the LSC Act specifies that the Commission is not an instrumentality of the Crown and is independent of the Government.

Functions

The LSC Act provides for the Commission to undertake a variety of functions concerning legal assistance including:

· provide, or arrange for legal assistance and determine the criteria under which that assistance is to be granted;

· co-operate and make reciprocal arrangements with persons administering schemes of legal assistance in other States and Territories of the Commonwealth or elsewhere;

· initiate and carry out educational programmes to promote an understanding by the public of their rights, powers, privileges and duties under the laws of the Commonwealth or the State;

· perform other functions as the Attorney-General may direct.

Structure

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

Audit and Risk Management Committee

The Commission has an Audit and Risk Management Committee which comprises three Commissioners including the Director and reports to the Board of Commissioners. The Committee’s primary function is to monitor and oversee audit and risk management and associated policies and procedures. Representatives of the Auditor-General’s Department attend meetings of the Committee as observers.

AUDIT MANDATE AND COVERAGE

Audit Authority

Audit of the Financial Report

Section 25 of the LSC Act and subsection 31(1)(b) of the PFAA provide for the Auditor-General to audit the accounts of the Commission in respect of each financial year.

Assessment of Controls

Subsection 36(1)(a)(iii) of the PFAA provides for the Auditor-General to assess the controls exercised by the Commission 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 FMF as required by TI 2.

Scope of Audit

The audit program covered major financial systems and was directed primarily to obtaining sufficient evidence to enable an opinion to be formed on the financial statements and internal controls.

During 2006-07, specific areas of audit attention included:

· payroll

· legal expenditure

· other expenditure

· revenue

· receipting and banking

· cash at bank

· fixed assets.

AUDIT FINDINGS AND COMMENTS

Auditor’s Report on the Financial Report

In my opinion, the financial report presents fairly, in all material respects, the financial position of the Legal Services Commission as at 30 June 2007, and its financial performance and its cash flows for the year then ended in accordance with the Treasurer’s Instructions promulgated under the provisions of the Public Finance and Audit Act 1987 and Australian Accounting Standards (including the Australian Accounting Interpretations).

Assessment of Controls

In my opinion, the controls exercised by the Legal Services Commission 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 Commission have been conducted properly and in accordance with law.

Communication of Audit Matters

Matters arising during the course of the audit were detailed in a management letter to the Director of the Commission. These matters principally related to the need to update a delegation instrument and for independent review of general ledger journals. The Commission’s response was satisfactory indicating they would address the audit matters.

INTERPRETATION AND ANALYSIS OF THE FINANCIAL REPORT

Highlights of the Financial Report

	2007	2006	Percentage
	$’million	$’million	Change
*EXPENSES*
Employee expenses	13.0	11.9	9
Legal expenses	15.2	13.5	13
Other expenses	3.5	3.2	9
Total Expenses	31.7	28.6	11
*INCOME*
Legal Practitioners Act revenue	4.3	2.9	48
Other income	2.6	2.3	13
Total Income	6.9	5.2	33
Net Cost of Providing Services	24.8	23.4	6

	2007	2006	Percentage
	$’million	$’million	Change
*REVENUES FROM GOVERNMENT*
Commonwealth Government grants	13.4	13.2	2
State Government grants	12.0	12.4	(3)
Net Result	0.6	2.2	(73)

*NET CASH FLOWS FROM OPERATING ACTIVITIES*	1.0	2.4	(58)
*ASSETS*
Current assets	15.2	14.3	6
Non-current assets	4.8	4.8	-
Total Assets	20.0	19.1	5
*LIABILITIES*
Current liabilities	2.8	2.7	4
Non-current liabilities	2.2	2.0	10
Total Liabilities	5.0	4.7	6
*EQUITY*	15.0	14.4	4

Income Statement

Income

Commonwealth Government Grants

Legal assistance is provided within South Australia for matters arising under Commonwealth law. The matters are predominantly in the area of family law and to a lesser extent criminal and specific civil matters. In meeting the cost of providing this legal aid, the Commission receives funding from the Commonwealth Government in accordance with an agreement between the Commonwealth and State Governments. Grants received are expended in accordance with the agreement. The current agreement covers a period 1 July 2004 to 31 December 2008.

General grants from the Commonwealth Government, (excluding specific Commonwealth grants) totalled $12.4 million ($12.2 million) and comprised 39 percent (40 percent) of total Revenues of the Commission. Further information as to the nature of Commonwealth Government Grants is disclosed in Note 11 of the Commission’s financial report.

State Government Grants

The funding provided by the State is determined through the budgetary process of the South Australian Government. The State grants received by the Commission are expended on state law matters and these are predominantly criminal cases, and community advice and education.

General grants from the State Government 2006-07 totalled $11.5 million ($11.3 million) and comprised 36 percent (37 percent) of total revenues of the Commission. This amount excludes specific State grants for expensive cases of $460 000 ($1.1 million).

* Excluding expensive case grants

The foregoing chart illustrates, for the past five years, the amounts of State and Commonwealth general grant funding provided (not including expensive case funding). It also illustrates the number of cases that have been assigned that relate to Commonwealth and State grant funding. The chart indicates that grants received from the Commonwealth and related cases have remained relatively consistent over the last three years. In contrast in 2007 there was a 9 percent increase in the number of State assigned cases to 9898 from 9071, while State Government funding increased by 2 percent to $11.5 million from $11.3 million.

Legal Practitioners Act Revenue

Revenue received from the Law Society of South Australia in accordance with the Legal Practitioners Act 1981 increased by 47 percent to $4.3 million. This revenue varies from year to year as it is dependent on the amount of interest earned on trust monies held by legal practitioners in South Australia and the Law Society of South Australia. The increase related predominantly to revenue from the Legal Practitioners Guarantee Fund and to increased statutory interest revenue. Monies received from the Legal Practitioners Guarantee Fund requires the approval of the Attorney-General. The amount received in 2007 was the first significant receipt since 2003. For further information, reference should be made to Note 8 of the Commission’s financial report.

Operating Expenses

A structural analysis of the main expense items for the Commission is shown in the following chart. The chart illustrates that, with the exception expensive case legal expenses, the Commission’s expenses have gradually increased over the five years.

Referrals to Private and In-house Practitioners

Referrals to private practitioners for the year totalled 8363 cases (7518) representing a 11 percent increase. Referrals to private practitioners are 64 percent (62 percent) of assigned cases. Fees to private legal practitioners for these cases (legal expenses) amounted to $14.8 million ($12.5 million) and comprised 47 percent (44 percent) of total Expenses. Applications assigned to the in house practitioners totalled 4620 cases (4620) or 36 percent (38 percent) of assigned cases.

The following chart shows the trend in referrals to private practitioners and assignment to in-house practitioners over the past five years.

Net Result

The Income Statement for the year ended 30 June 2007 reports total revenues of $32.3 million ($30.9 million) and total Expenses of $31.7 million ($28.7 million), giving a Net Result of $574 000 ($2.2 million).

The Commission has consistently achieved a surplus in each of the last five years. In 2007 increases in legal and employee expenses together with relatively consistent Commonwealth and State grants have lead to a reduced surplus position. In contrast cash balances have remained high, which reflect higher Commonwealth funding over the last three years.

Cash Flow Statement

The following table summarises the net cash flows for the four years to 2007.

	2007	2006	2005	2004
	$’million	$’million	$’million	$’million
Net Cash Flows

Operations	1.0	2.4	2.9	1.4
Investing	(0.2)	(0.6)	(0.3)	(0.3)
Change in Cash	0.8	1.8	2.6	1.1
Cash at 30 June	13.5	12.7	10.9	8.3

The analysis of cash flows shows a gradual increase in cash at the end of each reporting period primarily as a result of a build up in Commonwealth Government funding yet to be expended. As discussed previously under ‘Commonwealth Government Grants’, revenues received from the Commonwealth Government can only be expended on Commonwealth law matters in accordance with an agreement.