The State Opera, a body corporate established pursuant to subsection 5(1) of the State Opera of South Australia Act 1976, promotes the art of the opera and related theatrical arts by presenting performances; commissioning the scoring and writing of operas; training people concerned in operatic presentations; and establishing and conducting educational programs.
The State Opera Ring Corporation was established pursuant to the Public Corporations Act 1993, as a subsidiary of the State Opera. Its primary functions were to produce and stage in Adelaide during November and December 1998, four major Wagner operas comprising Der Ring des Nibelungen (The Ring) and to market and promote The Ring within and outside the State.
The structure of the State Opera is:
A decision to wind up the State Opera Ring Corporation (SORC), established by regulation under the Public Corporations Act 1993, was made on 31 May 2000 and it was subsequently agreed to distribute the remaining surplus of $22 000 to the State Opera. The process of legally winding up SORC is the responsibility of the Department for Transport, Urban Planning and the Arts and is expected to be finalised during 2000-01.
The result on operations was a deficit of $263 000 (operating surplus of $46 000).
Net assets decreased to $14 000 ($277 000).
Subsection 23(3) of the State Opera of South Australia Act 1976 provides for the Auditor-General to audit the accounts of the State Opera in respect of each financial year. The authority for the Auditor-General to audit the State Opera Ring Corporation is provided by subclause 13(3) of the Schedule to the Public Corporations Act 1993 which relates to subsidiaries.
The audit program covered all major financial systems and was directed primarily towards obtaining sufficient evidence to enable an audit opinion to be formed with respect to the financial statements and internal control.
During 1999-2000 specific areas of audit attention included:
expenditure systems, including accounts payable and salaries and wages
general ledger
management reporting and budgetary control
plant and equipment, including the adequacy of asset register maintenance
revenue, including box office sales, donations and grants
investments
computer information systems environment (CIS).
The State Opera Ring Corporation was largely dormant during 1999-2000, with the exception of the distribution of its surplus.
During the year a management letter communicating issues arising from the audit was forwarded to the General Director. The main issues related to the exercise of expenditure delegations surrounding the purchases of goods and services, the documentation of computing environment controls relating to financial systems and the need to document policies and procedures with respect to the major financial systems in accordance with the Financial Management Framework. A satisfactory response was received. Further details relating to these issues are contained in ‘Audit Findings and Comments’ hereunder.
The overall assessment of the State Opera’s control structure was that it was satisfactory. This took into account certain aberrations from the prescribed elements of the Financial Management Framework, notwithstanding that 1999-2000 represented the second year of its operation.
As with many other agencies, the requirement to formulate policies and procedures manuals is often neglected or lapses in the face of challenging priorities and resource constraints. Nevertheless, it is a fundamental management responsibility to display commitment to and compliance with the principles and practices embodied within the Financial Management Framework.
The audit revealed that policies, procedures and a description of the controls environment for the major financial systems were not completely documented.
Management responded that it would provide to Audit documented policies and procedures for major financial systems to ensure compliance with the Framework.
Audit noted instances where various officers had approved purchases without appropriate authority from the Board. It also noted that, while State Opera had contractual obligations with certain suppliers and performers, certain purchases were not supported by evidence that competitive quotes had been obtained, including accommodation arrangements for performers.
Management responded that the Board had agreed to revised Purchasing Authorities, so as to include various officers, who previously were not authorised to enter into purchases or approve payments within their areas of responsibility.
Further, Audit was advised that a system of analysis would be implemented by August 2000 and that purchasing officers would in future ensure that records are maintained, where appropriate, to evidence fair and competitive procurement.
Audit followed up its review of the CIS environment undertaken during 1998-99 and found that management had implemented the majority of Audit recommendations. Improvements yet to be implemented related to the development of a contingency plan should existing systems or equipment fail and the documentation of systems operator and back-up procedures.
Management advised that it would address these matters by December 2000 and had been limited by time constraints, notably arising from the implementation of new business systems software and the need to implement arrangements for the GST.
As required by subsection 36(1)(a)(iii) of the Public Finance and Audit Act 1987, the audit of the State Opera of South Australia (including the State Opera Ring Corporation) included an assessment of the controls exercised in relation to the receipt, expenditure and investment of money, the acquisition and disposal of property and the incurring of liabilities. The assessment also considered whether those controls were consistent with the prescribed elements of the Financial Management Framework as required by Treasurer’s Instruction 2 ‘Financial Management Policies’.
Audit formed the opinion that the controls exercised by the State Opera of South Australia in relation to the receipt, expenditure and investment of money; the acquisition and disposal of property; and the incurring of liabilities, were sufficient to provide reasonable assurance that the financial transactions of the organisation were conducted properly and in accordance with the law.
With the dormant nature of the State Opera Ring Corporation (ie the Controlled Entity) throughout 1999-2000, the financial operations and position of the Chief Entity did not differ materially from that of the Economic Entity. Accordingly, Audit commentary is directed to a consideration of the Economic Entity.
The operating deficit was $263 000 compared with a surplus of $46 000 in the previous year.
Commonwealth and State Government grants (net of payments to the Adelaide Symphony Orchestra) decreased to $1.5 million ($3.4 million).
The decrease reflects, in part, the last year of funding for the State Opera Ring Corporation during 1998-99. It also reflects the financial effect of prior period adjustments, included in the financial report for the financial year ending 30 June 1999. The latter was the subject of a ‘Qualified Audit Opinion’ issued in respect of both the Economic Entity and the Controlled Entity for that year.
The effect of this was to recognise $825 000 in contributions and $75 000 in interest earned as operating revenues, and $751 000 in operation expenses in the financial report for the year ended 30 June 1999, but which related to the prior financial year.
Notwithstanding the decline in overall grants, these revenues increased in terms of their proportion to other revenues and represented 44 percent of total net operating revenues (39 percent).
This serves to highlight the extent of the economic dependency of the State Opera on the maintenance of these grants. State Government grants for operating purposes are provided in accordance with section 25 of the State Opera of South Australia Act 1976. The operating budget of the State Opera must be approved by the Minister for the Arts on an annual basis and expenditure can only be incurred in accordance with the approved budget.
Correspondingly, production costs decreased to $3 million ($8.1 million) primarily reflecting the wind down of the State Opera Ring Corporation and the financial effect of the prior period adjustment, referred to herein. The number of major productions and performances however increased in terms of the State Opera, when considered in isolation (refer ‘Further Commentary on Operations’).
As at 30 June 2000 the State Opera had net assets of $14 000 ($277 000), after taking into account reserves of $95 000 ($95 000).
Statistical details on major productions for the last four years, as provided by the State Opera, are presented in the following table:
1999-2000 |
1998-99 |
1997-98 |
1996-97 |
|
Number of major productions |
5 |
1 |
2 |
3 |
Number of performances |
23 |
5 |
11 |
17 |
Total seat capacity |
42 000 |
9 100 |
20 100 |
25 000 |
Number of seats sold* |
33 300 |
5 100 |
14 900 |
19 300 |
Average number of seats sold per performance |
14 050 |
1 020 |
1 350 |
1 140 |
|
|
|
|
|
|
$ |
$ |
$ |
$ |
Direct production costs per seat sold |
105 |
142 |
106 |
110 |
Box office revenue per seat sold |
57 |
55 |
49 |
58 |
State Government grants and other revenue per seat sold |
58 |
87 |
57 |
52 |
|
|
|
|
|
* Seats sold exclude complimentary tickets.