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Department of Defence Annual Report 2019-20

Financial statements
















		Department of Defence



		Financial Statements


		For the period ended 30 June 2020

CONTENTS

CERTIFICATION

PRIMARY FINANCIAL STATEMENTS
	Statement of Comprehensive Income
	Statement of Financial Position
	Statement of Changes in Equity
	Cash Flow Statement
	Administered Schedule of Comprehensive Income
	Administered Schedule of Assets and Liabilities
	Administered Reconciliation Schedule
	Administered Cash Flow Statement

OVERVIEW

NOTES TO THE FINANCIAL STATEMENTS
	1. Financial Performance
	1.1 Expenses
	1.2 Own-Source Revenue and Gains

	2. Income and Expenses Administered on Behalf of Government
	2.1 Administered - Expenses
	2.2 Administered - Income

	3. Financial Position
	3.1 Financial Assets
	3.2 Non-Financial Assets
	3.3 Payables
	3.4 Interest Bearing Liabilities
	3.5 Provisions

	4. Assets and Liabilities Administered on Behalf of Government
	4.1 Administered - Financial Assets
	4.2 Administered - Non-Financial Assets
	4.3 Administered - Payables
	4.4 Administered - Provisions
	4.5 Administered - Defined Benefit Plans

	5. Funding
	5.1 Appropriations
	5.2 Special Accounts

	6. People and relationships
	6.1 Key Management Personnel Remuneration
	6.2 Related Party Disclosures

	7. Managing uncertainties
	7.1 Contingent Assets and Liabilities
	7.2 Financial Instruments
	7.3 Administered - Financial Instruments
	7.4 Fair Value Measurements
	7.5 Administered - Fair Value Measurements

	8. Other information
	8.1 Assets Held in Trust
	8.2 Compliance with Statutory Conditions for Payments from the Consolidated Revenue Fund
	8.3 Restructuring
	8.4 Aggregate Assets and Liabilities

Statement of Comprehensive Income

Department of Defence
STATEMENT OF COMPREHENSIVE INCOME				Restated²	Original
For the period ended 30 June 2020			2020	2019	Budget¹
			$'000	$'000	$'000
NET COST OF SERVICES
		Notes
EXPENSES
Employee benefits		1.1A	12,342,127	11,921,994	12,341,903
Suppliers expenses		1.1B	15,527,765	14,033,327	15,616,851
Grants		1.1C	164,683	149,376	143,623
Depreciation and amortisation		3.2A	6,258,164	6,063,549	5,474,719
Finance costs		1.1D	125,638	111,272	158,451
Impairment loss allowance on financial instruments			2,706	5,079	-
Write-down and impairment of assets²		1.1E	705,960	1,250,969	944,053
Net foreign exchange losses		1.1F	43,921	36,665	-
Losses from asset sales			-	39,754	-
Other expenses		1.1G	223,287	241,200	15,158
*Total expenses*			35,394,251	33,853,185	34,694,759

LESS:
OWN-SOURCE INCOME
Own-source revenue
Revenue from contracts with customers²		1.2A	322,735	310,483	557,611
Rental income²		1.2B	251,282	235,715	4,690
Other revenue		1.2C	66,054	24,561	41,365
*Total own-source revenue*			640,071	570,759	603,667

Gains
Gains from asset sales			100,647	-	4,604
Reversals of previous asset write-downs and impairment²		1.2D	380,363	516,483	202,990
Other gains		1.2E	232,978	355,276	5,188
*Total gains*			713,988	871,759	212,782
*Total own-source income*			1,354,059	1,442,518	816,449

*Net cost of services*			34,040,192	32,410,667	33,878,310

Revenue from Government		1.2F	34,290,209	32,525,834	33,878,310
Surplus attributable to the Australian Government			250,017	115,167	-

OTHER COMPREHENSIVE INCOME
Items not subject to subsequent reclassification
	to net cost of services
Changes in asset revaluation reserves		3.2A	105,836	1,150,214	-
Total other comprehensive income			105,836	1,150,214	-

*Total comprehensive income attributable to the*
	*Australian Government*		355,853	1,265,381	-

The above statement should be read in conjunction with the accompanying notes

¹ Defence's original budgeted financial statement that was first presented to Parliament in respect of the reporting period (i.e. from Defence's 2019-20 Portfolio Budget Statements). The budget is not audited.

² Prior period balances have been restated. Refer to Note 8.4 for further details.

Statement of Financial Position

Department of Defence
STATEMENT OF FINANCIAL POSITION			Restated ²	Original
as at 30 June 2020		2020	2019	Budget ¹
		$'000	$'000	$'000
	Notes
ASSETS
Financial assets
Cash and cash equivalents ²	3.1A	427,418	286,961	72,241
Trade and other receivables	3.1B	1,120,443	849,635	385,010
Total financial assets		1,547,861	1,136,596	457,251

Non-financial assets
Land and buildings ^2,3	3.2A	19,965,134	19,472,846	20,003,073
Specialist military equipment ²	3.2A	71,753,855	66,547,789	69,492,116
Infrastructure ²	3.2A	6,452,925	6,343,885	6,702,992
Plant and equipment ^2,3	3.2A	1,770,450	1,336,330	1,719,138
Heritage and cultural assets ²	3.2A	474,107	474,037	440,444
Intangibles ²	3.2A	899,284	870,782	702,787
Inventories ²	3.2B	7,369,485	7,036,627	6,256,396
Prepayments	3.2C	1,825,942	2,497,354	1,541,124
Total non-financial assets		110,511,182	104,579,650	106,858,069

Assets held for sale	3.2D	215,822	151,376	47,432
Total assets	8.3A	112,274,865	105,867,622	107,362,752

LIABILITIES
Payables
Suppliers payables	3.3A	2,719,992	2,511,261	2,221,784
Employee payables	3.3B	145,977	87,122	73,580
Other payables ²	3.3C	558,926	570,409	97,576
Total payables		3,424,895	3,168,792	2,392,939

Interest bearing liabilities
Leases	3.4A	2,884,524	1,485,329	1,443,160
Total interest bearing liabilities		2,884,524	1,485,329	1,443,160

Provisions
Employee provisions	3.5A	3,412,595	3,041,254	3,045,842
Restoration, decontamination and decommissioning	3.5B	1,414,034	1,303,571	1,319,253
Other provisions	3.5C	332,561	432,341	312,565
Total provisions		5,159,190	4,777,166	4,677,660

Total liabilities	8.3A	11,468,609	9,431,287	8,513,760

NET ASSETS		100,806,256	96,436,335	98,848,992

EQUITY
Contributed equity		35,794,975	31,781,123	35,575,342
Reserves		27,983,805	27,877,969	26,727,755
Retained surpluses ²		37,027,476	36,777,243	36,545,895
Total equity		100,806,256	96,436,335	98,848,992

² Prior period balances have been restated. Refer to Note 8.4 for further details.

³ 2019-20 reported balances include right-of-use assets associated with Defence leases. Refer to 'New Accounting Standards' in Overview section for further details on the application of AASB 16.

Statement of Changes in Equity

Department of Defence
STATEMENT OF CHANGES IN EQUITY			Restated ²	Original
For the period ended 30 June 2020		2020	2019	Budget ¹
		$'000	$'000	$'000
	Notes
CONTRIBUTED EQUITY
Opening balance
Balance carried forward from previous period		31,781,123	28,450,361	31,628,697

Transactions with owners
Distribution to owners
Returns of capital - lapsed Appropriations (Operating)		(87)	(18,493)	-
Returns of capital - lapsed Appropriations (Equity)		-	(407,411)	-
Restructuring	8.2A	-	(202,208)	-
Transfers to other entities		(1,090)	(4,608)	-
Contribution by owners
Equity injection - Appropriations (current year)	5.1A	4,015,029	3,343,482	3,946,645
Equity injection - Appropriations (prior year)	5.1A	-	620,000	-
Total transactions with owners		4,013,852	3,330,762	3,946,645

Closing balance as at 30 June		35,794,975	31,781,123	35,575,342

RETAINED EARNINGS
Opening balance
Balance carried forward from previous period ²		36,777,243	36,577,430	36,545,895
Adjustment on initial application of AASB 16		216	-	-
Adjustment for errors		-	84,646	-
Adjusted opening balance		36,777,459	36,662,076	36,545,895

Comprehensive income
Surplus for the period ²		250,017	115,167	-
Total comprehensive income		250,017	115,167	-

Closing balance as at 30 June		37,027,476	36,777,243	36,545,895

ASSET REVALUATION RESERVE
Opening balance
Balance carried forward from previous period		27,877,969	26,727,755	26,727,755

Comprehensive income
Other comprehensive income	3.2A	105,836	1,150,214	-
Total comprehensive income		105,836	1,150,214	-

Closing balance as at 30 June		27,983,805	27,877,969	26,727,755

The above statement should be read in conjunction with the accompanying notes

² Prior period balances have been restated. Refer to Note 8.4 for further details.

Department of Defence
STATEMENT OF CHANGES IN EQUITY (continued)			Restated ²	Original
For the period ended 30 June 2020		2020	2019	Budget ¹
		$'000	$'000	$'000
	Notes
TOTAL EQUITY
Opening balance
Balance carried forward from previous period ²		96,436,335	91,755,546	94,902,348
Adjustment on initial application of AASB 16		216	-	-
Adjustment for errors		-	84,646	-
Adjusted opening balance		96,436,551	91,840,192	94,902,348

Comprehensive income
Surplus for the period ²		250,017	115,167	-
Other comprehensive income		105,836	1,150,214	-
Total comprehensive income		355,853	1,265,381	-

Transactions with owners
Distribution to owners
Returns of capital - lapsed Appropriations (Operating)		(87)	(18,493)	-
Returns of capital - lapsed Appropriations (Equity)		-	(407,411)	-
Restructuring		-	(202,208)	-
Transfers to other entities		(1,090)	(4,608)	-
Contribution by owners
Equity injection - Appropriation (current year)		4,015,029	3,343,482	3,946,645
Equity injection - Appropriation (prior year)		-	620,000	-
Total transactions with owners		4,013,852	3,330,762	3,946,645

Closing balance as at 30 June		100,806,256	96,436,335	98,848,992

The above statement should be read in conjunction with the accompanying notes

² Prior period balances have been restated. Refer to Note 8.4 for further details.

Accounting Policy

(a) Equity Injections

Amounts appropriated which are designated as ‘equity injections’ (less any formal reductions) are recognised directly in contributed equity in that year.

(b) Restructuring of Administrative Arrangements

Net assets/liabilities received from or relinquished to another Australian Government agency or authority under a restructuring of administrative arrangements are recognised as contributions or distributions of equity respectively, at their net book value.

(c) Other Distributions to Owners including Repayments of Appropriations

The Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) requires that distributions to owners be debited to contributed equity unless it is a dividend. Repayments and reductions of equity appropriations are recognised as a reduction of contributed equity.

Cash Flow Statement

Department of Defence
CASH FLOW STATEMENT			Restated ²	Original
For the period ended 30 June 2020		2020	2019	Budget ¹
		$'000	$'000	$'000
	Notes
OPERATING ACTIVITIES
Cash received
Appropriations (current year)		34,084,318	32,407,283	33,878,310
Appropriations (prior year)		41,715	-	-
Section 74 receipts from OPA ²		1,191,013	935,219	-
Goods and services (including cost recovery)		558,697	642,419	557,504
Interest received		11,607	11,856	-
GST received		2,081,767	1,855,282	2,106,010
Other ³		183,744	395,692	46,055
Total cash received		38,152,861	36,247,751	36,587,880

Cash used
Employees		(11,972,383)	(11,687,174)	(12,285,376)
Suppliers		(14,777,443)	(12,281,051)	(13,501,224)
GST paid		(2,046,281)	(1,897,105)	(2,106,010)
Grants		(166,141)	(147,888)	(143,623)
Interest payments on lease liabilities		(23,350)	-	-
Section 74 receipts transferred to OPA ²		(1,191,013)	(935,219)	-
Cash returned to OPA		(13,637)	(14,914)	-
Other ³		(179,498)	(228,872)	(15,158)
Total cash used		(30,369,746)	(27,192,223)	(28,051,392)

Net cash from operating activities		7,783,115	9,055,528	8,536,488

INVESTING ACTIVITIES
Cash received
Proceeds from sales of land and buildings		66,473	16,965	104,729
Proceeds from sales of specialist military equipment		144,523	28,269	7,549
Proceeds from sales of plant and equipment		12,848	22,849	20,987
Other		844	2,748	-
Total cash received		224,688	70,831	133,265

Cash used
Purchase of land and buildings		(804,995)	(1,001,210)	(1,139,083)
Purchase of specialist military equipment		(7,703,468)	(8,999,149)	(8,421,945)
Purchase of infrastructure		(674,945)	(665,593)	(909,309)
Purchase of plant and equipment		(328,973)	(263,498)	(150,324)
Purchase of heritage and cultural assets		-	(200)	-
Purchase of intangibles		(194,155)	(84,230)	(130,197)
Purchase of inventory		(1,803,661)	(1,693,173)	(1,715,279)
Selling costs on sale of assets		(20,495)	(16,139)	(13,324)
Finance costs		(91,924)	(100,045)	(95,125)
Total cash used		(11,622,616)	(12,823,237)	(12,574,586)

Net cash used by investing activities		(11,397,928)	(12,752,406)	(12,441,321)

The above statement should be read in conjunction with the accompanying notes

² Section 74 receipts transferred to and drawn down from the OPA reflect receipts retained by Defence under Section 74 of the Public Governance Performance and Accountability Act 2013. These predominantly relate to goods and services receipts (including cost recovery), proceeds from sales of assets, claims for damages or other compensation and cash received in relation to procurement arrangements.

³ Prior period balances have been restated. Refer to Note 8.4 for further details

Department of Defence
CASH FLOW STATEMENT (continued)				Restated ²	Original
For the period ended 30 June 2020			2020	2019	Budget ¹
			$'000	$'000	$'000
		Notes
FINANCING ACTIVITIES
Cash received
Contributed equity (current year)			4,015,029	3,343,482	3,946,645
Contributed equity (prior year)			-	620,000	-
Total cash received			4,015,029	3,963,482	3,946,645

Cash used
Principal payments of lease liabilities			(259,927)	(93,333)	(41,812)
Total cash used			(259,927)	(93,333)	(41,812)

Net cash from financing activities			3,755,102	3,870,149	3,904,833

Net increase in cash held²			140,289	173,271	-

Cash and cash equivalents at the beginning of the
	reporting period ²		286,961	111,067	72,241
Effect of exchange rate movements on cash and cash
	equivalents at the beginning of the reporting period		168	2,623	-
Cash and cash equivalents at the end of the
	reporting period²	3.1A	427,418	286,961	72,241

The above statement should be read in conjunction with the accompanying notes

² Prior period balances have been restated. Refer to Note 8.4 for further details.

Budget Variance Commentary

Department of Defence

BUDGET VARIANCE COMMENTARY

For the period ended 30 June 2020

The following provides an explanation of variances between the original budget as presented in the 2019-20 Portfolio Budget

Statements (PBS) and 2019-20 final actual result. The budget is not audited. The budget figures as published in the PBS

have been restated to align with the presentation and classification adopted in the financial statements.

Explanations are provided for major budget variances only. Variances are treated as major when it is considered important for

reader's understanding or it is relevant to an assessment of the discharge of accountability and for analysis of the Department's

performance.

A number of variances are impacted by the timing of the Commonwealth's budget process. This includes:

Publishing estimated actual outcomes in the 2019-20 PBS before he closing 2018-19 and opening 2019-20 Statement of Financial Position was known; and

Amendments to the original budget as presented in the 2019-20 PBS by the Government throughout the year. The Department's budget for 2019-20 was updated as part of the 2019-20 Mid-Year Economic and Fiscal Outlook (MYEFO), and the 2019-20 Portfolio Additional Estimates Statements (PAES).

A number of significant items within the Department's Statement of Comprehensive Income are subject to factors outside the

Department's control and do not necessarily follow historical trends. These items include write-down and impairment of assets,

other expenses, reversals of previous asset write-downs and impairment, other revenue and other gains. These items are

difficult to establish budget estimates for.

The variance commentary below will make mention of these factors where applicable.

Departmental Statement of Comprehensive Income

Departmental expenses

The total variance between departmental expenses and the original budget is an increase of $699 million (or 2%). The major

variances to Budget are outlined below:

Depreciation and amortisation expenses which were $783 million (or 14%) higher than the Original Budget primarily due to the timing of the preparation of the Original Budget. Asset revaluation activities, and depreciation relating to Right of Use (ROU) assets as a result of the adoption of AASB 16 ($289 million) were not finalised at the time the Original Budget.

Other expenses which were $208 million higher than the Original Budget due to revisions in estimates for restoration, decontamination, decommissioning and other provisions recorded in 2019-20. These provisions are re-estimated based on the most recent information that is available at the end of the reporting period. Due to the nature of these provisions other expenses do not follow historic trends and are expected to vary from Budget.

Write-down and impairment of assets which were $238 million (or 25%) lower than the Original Budget, primarily due to lower impairment expenses recorded for explosive ordnance inventory than was anticipated in the original budget.

Finance costs which were $33 million (or 21%) lower than the Original Budget, due to lower interest costs associated with the unwinding of provisions than was anticipated in the Original Budget. This is largely as a result of lower interest rates at 30 June 2020 than was anticipated in the Budget.

Department of Defence

BUDGET VARIANCE COMMENTARY (continued)

For the period ended 30 June 2020

Departmental income

The total variance between departmental income and the Original Budget is an increase of $538 million (or 66%).

Increases in income can be largely attributed to:

Reversals of previous asset write-downs and impairment which were $177 million (or 87%) higher than the Original Budget due to asset remediation activities during the year. This primarily relates to reversals of previous asset write-downs and impairment of Specialist Military Equipment. Due to the nature of these adjustments, historic trends are not useful in predicting actuals and actuals are expected to vary from budget.

Other gains which were $228 million higher than the Original Budget. This variance is predominantly due to:

Revisions in estimates for restoration, decontamination, decommissioning and other provisions recorded in 2019-20 ($100 million). Decreases in provisions primarily relate to significant changes in parameters such as inflation rates reflecting the current economic conditions, which have been recognised through other gains in the current period. Due to the nature of these provisions, other gains do not follow historic trends and are expected to vary from budget.

Recognition of other gains for assets received by Defence in relation to the Australia Singapore Military Training Initiative (ASMTI) agreement ($133 million). Funding for these assets is received from Singapore to pay for training facilities in Australia to which they will have access for part of each year over the life of the agreement.

Gains from sale of assets which were $96 million higher than the Original Budget. Given the unpredictability of asset sales, variations to budget are expected.

Rental income which were $247 million higher than the Original Budget. This is primarily due to a reclassification from revenue from contracts with customers to rental income in 2019-20. Refer to Note 8.4 for further details.

Revenue from contracts with customers which were $235 million (or 42%) lower than the Original Budget. This is primarily due to a reclassification from revenue from contracts with customers to rental income in 2019-20. Refer to Note 8.4 for further details.

Other comprehensive income

The total variance between other comprehensive income and the Original Budget is an increase of $106 million, driven by the

revaluation of assets, predominantly increases within Specialist Military Equipment ($990 million) offset by decreases within

Land ($462 million) and Buildings ($307 million). Due to the uncertainty of the movement in the market for these assets, these

amounts are not budgeted.

Departmental Statement of Financial Position

Departmental assets

The total variance between departmental assets and the Original Budget is an increase of $4,912 million (or 5%). Increases

in assets can be largely attributed to:

Differences in the opening actuals balance in July 2019 and the Original Budget set in 2019 of $2,759 million across all asset classes.

The implementation of AASB 16 during 2019-20 which increased the Right of Use asset base by $1,426 million of which $1,160 million relates to Buildings and $266 million relates to Plant and Equipment, which was not included in the Original Budget.

Revaluation increases recorded through other comprehensive income of $106 million which are not budgeted.

Higher than budgeted non-financial assets as a result of Government decisions to increase investment in military capabilities. This impacts property, plant and equipment in addition to inventory (which supports military capabilities) and prepayments (which are primarily capital in nature).

Department of Defence

BUDGET VARIANCE COMMENTARY (continued)

For the period ended 30 June 2020

Departmental liabilities

The total variance between departmental liabilities and the Original Budget is an increase of $2,955 million (or 35%). Increases

in liabilities can be largely attributed to:

Lease liabilities which were $1,441 million or 100% higher than the Original Budget, primarily attributable to the adoption of AASB 16 during 2019-20 ($1,426 million), which was not included in the Original Budget.

Suppliers payable which were $498 million or 22% higher than the Original Budget. Of this amount, $502 million relates to the difference in the opening actuals balance compared to the Original Budget.

Recognition of Foreign Government Activities cash and associated liabilities of $149 million. For further details refer to Note 8.4.

Employee provisions which were $367 million (or 12%) higher than Original Budget, primarily attributable to decreases in bond rates over the 2019-20 financial period, which were not factored into the Original Budget (2019-20: 0.87%, budget: 1.32%). Bond rates are used to discount employee provisions to present value and consequently, decreases in bond rates result in an increase in the provision.

Departmental equity

The total variance between departmental equity and the Original Budget is an increase of $1,957 million (or 2%). Of this amount,

$1,534 million relates to the difference in the opening actuals balance in July 2019 compared to the Original Budget. The

remaining increases in equity can be largely attributed to:

Surplus for the period which was $250 million higher than Original Budget. Refer to Departmental Statement of Comprehensive Income for further details.

Other comprehensive income which was $106 million higher than Original Budget, relating to revaluation adjustments across asset classes

Departmental Cash Flow Statement

Departmental net cash from operating activities

The total variance between departmental net cash from operating activities and the Original Budget is a decrease of $753 million.

This is primarily driven by cash used for suppliers which is $1,276 million (or 9%) higher than Original Budget, offset by cash

used for employees which is $313 million lower than Original Budget. This variance is largely a result of changes in operating

cash used during the year. This was reflected within subsequent budget updates, whereby the PAES Budget was updated to

adjust for revised operating activity spend, in particular supplier cash used of $14,245 million.

The resulting variance between PAES and June actuals net cash from operating activities is a $497 million overspend of which

primarily relates to increased supplier cash used (variance to budget of $533 million). The overspend primarily relates to a

sustainment overspend (variance of $148 million) due to increases in facilities and infrastructure and ICT operating expenditure.

Further contributing to the variance were unplanned legal settlement payments relating to Per-and polyfluorinated alkyl

substances (PFAS) claims totalling $213 million.

Departmental net cash used by investing activities

The total variance between departmental net cash used by investing activities and the Original Budget is a decrease of

$1,043 million (or 8%). This is primarily driven by cash used for purchase of specialist military equipment ($718 million or 9%)

and cash used for purchase of land and buildings ($334 million or 29%) lower than Original Budget. The variance is largely a

result of changes in capital expenditure used during the year, some of which was attributable to impacts of the COVID-19

pandemic.

Departmental net cash from financing activities

The total variance between departmental net cash from financing activities and the Original Budget is a decrease of $150 million

(or 4%). This is primarily driven by the adoption of AASB 16 and associated principal payments of lease liabilities during 2019-20

which was not included within the Original Budget. In subsequent budgetary updates, impacts of AASB 16 will be included.

Administered Schedule of Comprehensive Income

Department of Defence
ADMINISTERED SCHEDULE OF COMPREHENSIVE INCOME				Original
For the period ended 30 June 2020		2020	2019	Budget ¹
		$'000	$'000	$'000

NET COST OF SERVICES
	Notes
EXPENSES
Employee benefits	2.1A	9,817,966	8,408,602	6,821,605
Subsidies	2.1B	110,648	120,325	122,256
Impairment loss allowance on financial instruments	2.1C	-	2	-
Total expenses		9,928,614	8,528,929	6,943,861

LESS:
INCOME
Revenue
Non taxation revenue
Fees and fines	2.2A	17,384	16,968	16,852
Interest	2.2B	20,809	24,506	23,335
Dividends	2.2C	25,604	24,545	41,705
Military superannuation contributions	2.2D	1,351,453	1,388,079	1,244,386
Other revenue	2.2E	54,809	56,897	33,263
Foreign exchange gains	2.2F	103	300	-
Total non-taxation revenue		1,470,162	1,511,295	1,359,541
Total revenue		1,470,162	1,511,295	1,359,541

Net cost of services		8,458,452	7,017,634	5,584,320
Deficit attributable to the Australian Government		(8,458,452)	(7,017,634)	(5,584,320)

OTHER COMPREHENSIVE INCOME
Items not subject to subsequent reclassification to net cost of services
Changes in asset revaluation surplus		(177,521)	91,171	-
Actuarial gains/(losses) on defined benefits plans		802,500	(46,023,300)	-
Total other comprehensive income/(loss)		624,979	(45,932,129)	-

Total comprehensive (loss)/income		(7,833,473)	(52,949,763)	(5,584,320)

The above statement should be read in conjunction with the accompanying notes

Administered Schedule of Assets and Liabilities

Department of Defence
ADMINISTERED SCHEDULE OF ASSETS AND LIABILITIES					Original
as at 30 June 2020			2020	2019	Budget ¹
			$'000	$'000	$'000
		Notes
ASSETS
Financial assets
Cash and cash equivalents		4.1A	146,014	114,576	145,174
Trade and other receivables		4.1B	570,992	547,912	592,078
Equity accounted investments		4.1C	2,711,504	2,889,025	2,776,987
*Total financial assets*			3,428,510	3,551,513	3,514,239

Non-financial assets
Prepayments		4.2A	250,157	249,655	278,335
*Total non-financial assets*			250,157	249,655	278,335

TOTAL ASSETS ADMINISTERED ON BEHALF
	OF GOVERNMENT		3,678,667	3,801,168	3,792,574

LIABILITIES
Payables
Other payables		4.3A	154,574	121,628	154,143
*Total payables*			154,574	121,628	154,143

Provisions
Employee provisions		4.4A	188,151,200	182,018,200	93,128,763
*Total provisions*			188,151,200	182,018,200	93,128,763

TOTAL LIABILITIES ADMINISTERED ON BEHALF
	OF GOVERNMENT		188,305,774	182,139,828	93,282,905

NET LIABILITIES			(184,627,107)	(178,338,660)	(89,490,331)

The above schedule should be read in conjunction with the accompanying notes

Administered Reconciliation Schedule

Department of Defence
ADMINISTERED RECONCILIATION SCHEDULE
as at 30 June 2020			2020	2019
			$'000	$'000
		Notes
Opening assets less liabilities
	as at 1 July		(178,338,660)	(126,712,136)

Net (cost of)/contribution by services
Income		2.2A to F2.2A to F	1,470,162	1,511,295
Expenses
Payments to entities other than corporate
Payments to entities other than corporate Commonwealth entities	Commonwealth entities	2.1A to C2.1A to C	(9,928,614)	(8,528,929)

Other comprehensive income:
Revaluations taken to/(from) reserves:
– Defence Housing Australia (DHA)		4.1C	(178,794)	85,578
– Small portfolio entities		4.1C	1,273	5,593
Actuarial gains/(losses)		4.5	802,500	(46,023,300)

Transfers (to)/from Australian Government:
Appropriation transfers from Official Public Account:
Special appropriations (limited)
	Payments to entities other than corporate
	Commonwealth entities	5.1C	207	337
Special appropriations (unlimited)
	Payments to entities other than corporate
	Commonwealth entities	5.1C	2,980,604	2,784,304
Transfers to Official Public Account			(1,615,447)	(1,660,197)
Funded benefit payments to the members, not drawn
	down from Special Appropriations		179,662	198,795
Closing assets less liabilities
	as at 30 June		(184,627,107)	(178,338,660)

The above schedule should be read in conjunction with the accompanying notes

Accounting Policy

Cash Transfers to and from the Official Public Account

Revenue collected by Defence for use by the Government rather than Defence is administered revenue. Collections are transferred to the Official Public Account (OPA) maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriations on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by Defence on behalf of the Government and reported as such in the schedule of administered cash flows and in the administered reconciliation schedule.

Administered Cash Flow Statement

Department of Defence
ADMINISTERED CASH FLOW STATEMENT
For the period ended 30 June 2020			2020	2019
			$'000	$'000
		Notes
OPERATING ACTIVITIES
Cash received
Fees			17,454	18,867
Interest			20,809	24,506
Superannuation contributions			1,498,429	1,530,626
Other			54,210	59,643
Total cash received			1,590,902	1,633,642

Cash used
Subsidies			(109,140)	(122,236)
Employees			(2,871,671)	(2,662,350)
Section 77 payments			-	(55)
Total cash used			(2,980,811)	(2,784,641)
Net cash used by operating activities			(1,389,909)	(1,150,999)

INVESTING ACTIVITIES
Cash received
Dividends			24,545	26,555
Total cash received			24,545	26,555
Net cash flows investing activities			24,545	26,555

Net decrease in cash held			(1,365,364)	(1,124,444)

Cash from the Official Public Account for:
Appropriations			2,980,811	2,784,641
Special Accounts			237,892	275,321
Total cash from the Official Public Account			3,218,703	3,059,962

Cash to the Official Public Account for:
Appropriations			(1,615,447)	(1,660,197)
Special Accounts			(206,454)	(270,717)
Total cash to the Official Public Account			(1,821,901)	(1,930,914)

Cash and cash equivalents at the end of
	the reporting period	4.1A	146,014	114,576

The above statement should be read in conjunction with the accompanying notes

Administered Budget Variance Commentary

Department of Defence
BUDGET VARIANCE COMMENTARY
For the period ended 30 June 2020


Administered Schedule of Comprehensive Income

Administered expenses

The total variance from the Original Budget is an increase of $2,985 million (or 43%). This is largely attributed to an increase
in service costs of $3,070 million (or 49%). Service costs relate to the cost of accruing superannuation benefits for serving
members, lower interest rates compared to rates assumed in the budget result in higher contribution rates which increase the
service costs.

Administered income

The total variance between administered income and the Original Budget of $111 million (or 8%) is due to changes in the
membership profile of the superannuation schemes over the course of the financial period that were not factored into the Original
Budget. This is impacted by a number of factors including service length, contribution rates and member commencement date.


Administered other comprehensive income

The total variance between administered other comprehensive income and the Original Budget is an increase of $625 million,
due to actuarial gains on defined benefit plans of $803 million, offset by decreases to the value of equity accounted
investments of $178 million. Due to the uncertainty in the movement of these balances, these amounts are not budgeted.

Administered Schedule of Assets and Liabilities

Administered assets

The total variance between administered assets and the original budget is a decrease of $114 million (or 3%). The major variances
are:

Equity accounted investments which were $65 million (or 2%) lower than the Original Budget. The variance is due to differences in the revaluation of investments accounted for using the equity method compared to the Original Budget. Variances are expected given the uncertainty of the movement in the fair value of these assets.

Prepayments which were $28 million (or 10%) lower than Original Budget. This balance relates to retention benefits paid to eligible Military Superannuation and Benefits Scheme members who have completed at least 15 years of continuous eligible service. The movement compared to budget is largely due to fewer members accessing the allowance, than was anticipated in the Original Budget.

Administered liabilities

The total variance between administered liabilities and the Original Budget is an increase of $95,022 million (or 102%). This is
largely attributed to employee provisions which were $95,023 million (or 102%) higher than the Original Budget. The Original
Budget was developed using a discount rate of 6%, based on information that was available at the time of preparation, however
the 2019-20 balance is based on short term discount rates (between 1.0% and 1.7%), in accordance with AASB 119.

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Department of Defence Annual Report 2019-20

Financial statements

Contents

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Equity

Cash Flow Statement

Budget Variance Commentary

Administered Schedule of Comprehensive Income

Administered Schedule of Assets and Liabilities

Administered Reconciliation Schedule

Administered Cash Flow Statement

Administered Budget Variance Commentary

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