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Part 4: Financial statements

Part 4.1: Financial Statements Performance and Process

Financial Performance

Administered
From 1 July 2017, the Australian Government established the Medicare Guarantee Fund (MGF) which guarantees ongoing funding of the Medical Benefits Schedule (MBS) and the Pharmaceutical Benefits Scheme (PBS) into the future.

Credits to the MGF, funded from the Medicare levy and a portion of personal income tax receipts sufficient to cover the estimated costs of essential health care provided under the MBS and PBS, are included in the Department’s administered income and at $34.8 billion form the bulk of the special accounts revenue disclosed in the Administered Schedule of Comprehensive Income.
The Department also recovered on behalf of the Government amounts which relate to:

  • cost sharing arrangements with pharmaceutical companies for PBS listed drugs;
  • services provided under the National Disability Insurance Scheme and for young people in residential care; and
  • the MBS, PBS and Health Rebate Scheme after settlement of personal injury claims.

Administered expenses for 2017-18 totalled $65.6 billion, an increase of $2.2 billion over the previous year.

  • Personal benefits expenses, including amounts related to MBS and PBS and in 2017-18 funded from the MGF increased by $2.0 billion from 2016-17.
  • Subsidy expenses, largely related to residential, aged and community care programs, decreased by $0.3 billion from 2016-17 to $11.8 billion.
  • Grants expenses amounted to $7.7 billion, up $0.2 billion from 2016-17, were paid to a range of for‑profit and not-for-profit entities in the private sector, as well as a number of Government entities.
  • The Department transferred appropriations to corporate entities such as the Australian Sports Commission, the Australian Digital Health Agency, the Australian Institute of Health and Welfare, and Food Standards Australia New Zealand. The total appropriation transfer for 2017-18 was $0.5 billion, up from $0.4 billion in 2016-17.
  • Supplier expenses were $1.0 billion, up from $0.8 billion in 2016-17.

Total administered assets were $3.2 billion, including $1.3 billion accrued revenue for PBS drug recoveries and $0.6 billion credits held in the MGF special account. Other assets included loans and receivables of $0.8 billion, consisting of loans to support aged care facilities, and the Government’s investments of $0.5 billion in Health portfolio entities and the Biomedical Translation Fund.

Total administered liabilities were $3.0 billion which includes amounts payable under the
administered programs, as well as $1.5 billion estimated for claims not yet submitted under MBS,
PBS and medical indemnity schemes.

Departmental

The Department recorded a consolidated operating surplus for 2017-18 of $30.2 million, prior to
unfunded depreciation. This represented a significant improvement from the operating deficit in 2016-17.

Additional revenues in the form of inspections, applications, conformity assessment and evaluations in the Therapeutic Goods Administration (TGA) and higher revenue from new chemicals assessments in the National Industrial Chemicals Notification and Assessment Scheme (NICNAS) made a significant contribution to this surplus. Revenues from Government remained reasonably consistent with the prior year.

Significant expense controls were further enhanced in 2017-18. More stringent application of controls around engagement of contractors, services under contract or others and other expenses have all led to a reduction in supplier expenses. In addition, maintaining workforce levels to reflect available funding has been a key priority for the Department

The surplus has assisted in improving the net asset position of the Department at 30 June 2018.

Financial Statements Process

The Department is required to prepare annual financial statements to comply with the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The statements must comply with the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 and Australian Accounting Standards. Additional guidance is provided by the Department of Finance through Resource Management Guide No. 125.

In preparing the 2017-18 financial statements, the Department applied professional judgement to ensure that the financial statements fairly present the financial position, financial performance and cash flows.

The Department has continued its practice of additional disclosures where, in the opinion of the Chief Financial Officer, these disclosures add value for the reader. In 2017-18, this includes a note specific to the TGA special account and detailed descriptions supporting the note disclosures.

The Department’s quality assurance framework applied to the financial statements includes independent advice from the Audit and Risk Committee to the Secretary on the preparation and review of the financial statements.

The financial statements are audited by the Australian National Audit Office.
Readers of the financial statements will be assisted by the colour coding incorporated in the statements, notes and narrative. Grey shaded items are items that the Department administers on behalf of the Government, unshaded items are departmental in nature and accounting policy has a blue background.

Part 4.2: 2017-18 Financial Statements

Statement by the Secretary and Chief Financial Officer

In our opinion, the attached financial statements for the year ended 30 June 2018 comply with subsection 42(2) of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), and are based on properly maintained financial records as per subsection 41(2) of the PGPA Act.

In our opinion, at the date of this statement, there are reasonable grounds to believe that the Department of Health will be able to pay its debts as and when they fall due.

Signed………………………..…

Signed………………………..…

Glenys Beauchamp

Craig Boyd

Secretary

Chief Financial Officer

Department of Health

Department of Health

August 2018

August 2018

Overview

1. Objectives of the Department of Health

The Department of Health (the Department) is a not-for-profit Australian Government controlled entity. The objective of the Department is to lead and shape Australia’s health system and sporting outcomes through evidence based policy, well targeted programs and best practice regulation. In 2018 the Department was structured to meet the following six outcomes:

Outcome 1:

Health System Policy, Design and Innovation

Outcome 2:

Health Access and Support Services

Outcome 3:

Sport and Recreation

Outcome 4:

Individual Health Benefits

Outcome 5:

Regulation, Safety and Protection

Outcome 6:

Ageing and Aged Care

The continued existence of the Department in its present form and with its present programs is dependent on Government policy and on continued funding by Parliament for the Department’s administration and programs.

The Department’s activities contributing toward these outcomes are classified as either departmental or administered. Departmental activities involve the use of assets, liabilities, income and expenses controlled or incurred by the Department in its own right. Administered activities involve the management or oversight by the Department, on behalf of the Government, of items controlled or incurred by the Government.

The Department is responsible for the following administered activities on behalf of the Government:

· payment of subsidies for residential, aged care and community programs;

· payment of personal benefits for Medicare and pharmaceutical services as well as for affordability and choice of health care initiatives; and

· payment of grants, with the majority of these made to non-profit organisations.

2. Basis of Preparation of the Financial Statements

The financial statements are general purpose financial statements and are required by section 42 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

The financial statements and notes have been prepared in accordance with:

· the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 for reporting periods ending on or after 1 July 2017; and

· Australian Accounting Standards and Interpretations – Reduced Disclosure Requirements issued by the Australian Accounting Standards Board (AASB) that apply for the reporting period.

The financial statements and notes have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets held at fair value. Except where stated, no allowance is made for the effect of changing prices on the results or the financial position. The financial statements are presented in Australian dollars.

Administered revenues, expenses, assets, liabilities and cash flows reported in the administered schedules and related notes are accounted for on the same basis and using the same policies as for Departmental items, except as otherwise stated.

Items of a similar nature together with disclosure of the relevant accounting policy are grouped together in the notes to the financial statements. The accounting policy disclosures have been shaded blue to distinguish them from other commentary.

The Department’s financial statements include the financial statements of the Department of Health and three departmental special accounts, the Therapeutic Goods Administration (TGA), the Office of the Gene Technology Regulator (OGTR) and the National Industrial Chemicals Notification and Assessment Scheme (NICNAS).

All transactions between the Department and the three departmental special accounts have been eliminated from the departmental financial statements.

Comparative figures

Comparative figures have been adjusted, where required, to conform to changes in presentation of the financial statements.

3. New Australian Accounting Standards

Adoption of new Australian Accounting Standard requirements

The Department adopted all new, revised and amending standards and interpretations that were issued by the AASB prior to the sign-off date and are applicable to the current reporting period. The adoption of these standards and interpretations did not have a material effect, and are not expected to have a future material effect on the Department’s financial statements.

Future accounting standard requirements

The following new, revised and amending standards and interpretations were issued by the AASB prior to the signing of the statement by the Secretary and Chief Financial Officer, for which the Department is still assessing the potential impact on the financial statements:

  • AASB 9 Financial Instruments;
  • AASB 15 Revenue from Contracts with Customers;
  • AASB 16 Leases; and
  • AASB 1058 Income of Not-for-Profit Entities.

All other new, revised, and amending standards or interpretations that have been issued by the AASB prior to sign‑off date that are applicable to the future reporting period(s) are not expected to have a future material financial impact on the Department’s financial statements.

4. Significant Accounting Judgements and Estimates

Except where specifically identified and disclosed, the Department has determined that no accounting assumptions and estimates have a significant risk of causing a material adjustment to carrying amounts of assets and liabilities within the next accounting period.

5. Transactions with the Australian Government as Owner

Equity injections

Amounts appropriated which are designated as ‘equity injections’ for a year (less any formal reductions) and Departmental Capital Budgets (DCBs) are recognised directly in contributed equity in that year.

Restructuring of administrative arrangements

Net assets received from or relinquished to another Government entity under a restructuring of administrative arrangements are adjusted at their book value directly against contributed equity.

During the reporting period Departmental staff transferred to the Department of Social Services (DSS) to participate in the Community Services Grants Hub. As the transfers were made under section 26 of the Public Service Act 1999, they are not considered to have moved under a restructure arrangement.

6. Taxation

The Department is exempt from all forms of taxation except Fringe Benefits Tax (FBT) and the Goods and Services Tax (GST).

Revenues, expenses, assets and liabilities are recognised net of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office.

7. Events after the reporting period

TGA special account annual charges 2017-18

Sponsors of certain products on the Australian Register of Therapeutic Goods during the 2017-18 year have until 15 September 2018 to apply for exemption from the annual charges for the year. An estimate of the value of the exemptions has been incorporated in 2017-18 revenues.

Aged Care Quality and Safety Commission

From 1 January 2019, the Government will establish an independent Aged Care Quality and Safety Commission. The Commission will combine the functions of the Australian Aged Care Quality Agency, the Aged Care Complaints Commissioner, and from 1 January 2020, the aged care regulatory functions of the Department.

Grants hub transfer

In addition to the staff transfer within 2017-18 to support the Community Services Grants Hub in DSS, a further staff transfer will be undertaken during 2018-19.

My Aged Care systems asset transfer

The Department and DSS are in the process of confirming arrangements to transfer responsibility for the Aged Care Gateway IT systems application platform from DSS, scheduled to occur in the 2019 financial year.

Administered Inventory

$1.7m of administered inventory held in the National Medical Stockpile will pass its expiry date during the period July to October 2018 (2017: $0.8m). Another $3.3m worth of inventory passed its expiry date at the end of July 2017, but consideration of an extension of useful life for these items is ongoing.

Statement of Comprehensive Income

for the period ended 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

NET COST OF SERVICES

EXPENSES

Employee benefits

4A

511,041

565,546

522,171

(11,130)

Suppliers

7A

294,478

316,434

287,923

6,555

Depreciation and amortisation

11

30,474

26,548

28,302

2,172

Other expenses

7B

4,253

2,978

4,000

253

Total expenses

840,246

911,507

842,396

(2,150)

OWN-SOURCE INCOME

Revenue

8A

185,436

172,247

177,672

7,764

Gains

8B

955

1,975

870

85

Total own-source income

186,391

174,222

178,542

7,849

Net cost of services

653,855

737,284

663,854

(9,999)

Revenue from Government

9A

658,441

655,162

639,683

18,758

Surplus/(deficit) attributable to the Australian Government

4,586

(82,122)

(24,171)

28,757

OTHER COMPREHENSIVE INCOME

Items not subject to subsequent reclassification to net cost of services

Changes in asset revaluation surplus

2,541

4,770

-

2,541

Total other comprehensive income

2,541

4,770

-

2,541

Total comprehensive surplus/(loss) attributable to the Australian Government

7,127

(77,353)

(24,171)

31,298

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

Departmental Statement of Financial Position

as at 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

ASSETS

Financial assets

Cash and cash equivalents

10A

100,591

95,722

64,997

35,594

Appropriations receivable

9B

54,868

31,286

44,066

10,802

Trade and other receivables

8C

16,896

12,977

26,185

(9,289)

Accrued revenue

5,431

7,392

10,565

(5,134)

Total financial assets

177,786

147,378

145,813

31,973

Non-financial assets

Land and buildings

11

55,067

54,923

46,245

8,822

Property, plant and equipment

11

6,210

5,378

6,034

176

Intangibles

11

117,899

119,147

120,847

(2,948)

Prepayments

15,474

13,149

15,283

191

Lease incentives

9,338

13,823

-

9,338

Total non-financial assets

203,988

206,420

188,409

15,579

Total assets

381,774

353,798

334,222

47,552

LIABILITIES

Payables

Supplier payables

73,498

59,416

42,596

30,902

Employee payables

4B

5,413

4,593

19,937

(14,524)

Other payables

7D

44,088

51,503

14,694

29,394

Total payables

122,999

115,511

77,227

45,772

Provisions

Employee provisions

4C

148,101

153,207

169,551

(21,450)

Other provisions

7E

30,347

30,398

28,446

1,901

Total provisions

178,448

183,605

197,997

(19,549)

Total liabilities

301,447

299,116

275,224

26,223

Net assets

80,327

54,682

58,998

21,329

EQUITY

Contributed equity

271,086

252,569

262,821

8,265

Asset revaluation reserve

37,747

35,206

30,436

7,311

Accumulated deficit

(228,506)

(233,092)

(234,259)

5,753

Total equity

80,327

54,682

58,998

21,329

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

​Departmental Statement of Changes in Equity

for the period ended 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

ACCUMULATED DEFICIT

Opening balance

Balance carried forward from previous period

(233,092)

(150,970)

(210,088)

(23,004)

Comprehensive gain/(loss) for the period

4,586

(82,122)

(24,171)

28,757

Closing balance as at 30 June

(228,506)

(233,092)

(234,259)

5,753

ASSET REVALUATION RESERVE

Opening balance

Balance carried forward from previous period

35,206

30,436

30,436

4,770

Other comprehensive income

2,541

4,770

-

2,541

Closing balance as at 30 June

37,747

35,206

30,436

7,311

CONTRIBUTED EQUITY

Balance carried forward from previous period

252,569

246,925

252,649

(80)

Transactions with owners

Equity injection - appropriations

7,422

6,571

2,366

5,056

Return of capital

- reduction in equity appropriations

1

-

(10,755)

-

-

Departmental Capital Budget

11,095

9,828

7,806

3,289

Total transactions with owners

18,517

5,644

10,172

8,345

Closing balance as at 30 June

271,086

252,569

262,821

8,265

TOTAL EQUITY

Opening balance

Balance carried forward from previous period

54,682

126,391

72,997

(18,315)

Comprehensive gain/(loss) for the period

7,127

(77,353)

(24,171)

31,298

Transactions with owners

18,517

5,644

10,172

8,345

Closing balance as at 30 June

80,327

54,682

58,998

21,329

1 The detail for the reduction in equity appropriation can be found in the 2016-17 Portfolio Additional Estimates Statements.

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

Departmental Cash Flow Statement

for the period ended 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

OPERATING ACTIVITIES

Cash received

Appropriations

746,701

844,086

638,786

107,915

Sale of goods and rendering of services

181,068

181,537

218,016

(36,948)

Net GST received

25,797

28,858

24,010

1,787

Other

-

-

1,380

(1,380)

Total cash received

953,566

1,054,481

882,192

71,374

Cash used

Employees

(515,999)

(553,374)

(431,848)

(84,151)

Suppliers

(307,395)

(360,130)

(374,237)

66,842

Net GST paid

-

-

(4,355)

4,355

Section 74 receipts transferred to the Official Public Account

(107,463)

(114,459)

(64,980)

(42,483)

Other

(1,123)

(526)

(1,905)

782

Total cash used

(931,980)

(1,028,489)

(877,325)

(54,655)

Net cash from operating activities

3

21,586

25,993

4,867

16,719

INVESTING ACTIVITIES

Cash received

Proceeds from sales of property, plant and equipment

1

81

-

1

Total cash received

1

81

-

1

Cash used

Purchase of property, plant, equipment and intangibles

(30,856)

(36,488)

(28,672)

(2,184)

Total cash used

(30,856)

(36,488)

(28,672)

(2,184)

Net cash used by investing activities

(30,855)

(36,407)

(28,672)

(2,183)

FINANCING ACTIVITIES

Cash received

Appropriations - Equity injection

3,146

5,321

2,366

780

Appropriations - Departmental capital budget

10,992

10,143

7,806

3,186

Total cash received

14,138

15,465

10,172

3,966

Net cash received from financing activities

14,138

15,465

10,172

3,966

Net increase/(decrease) in cash held

4,869

5,050

(13,633)

18,502

Cash and cash equivalents at the

- beginning of the reporting period

95,722

90,672

78,630

17,092

- end of the reporting period

10A

100,591

95,722

64,997

35,594

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

Note 1: Departmental operating result reconciliation

The Government funds the Department on a net cash appropriation basis, where appropriation revenue is not provided for depreciation and amortisation expenses. Depreciation and amortisation is included in the Department’s cost recovered operations to the extent that it relates to those activities.

The Department’s accountability for its operating result is at its result net of unfunded depreciation and amortisation.

2018

2017

$'000

$'000

Total comprehensive gain/(loss)

7,127

(77,353)

Unfunded depreciation and amortisation

Total depreciation

30,474

26,548

Less cost recovered depreciation

NICNAS

(508)

(433)

TGA

(6,846)

(4,286)

Net unfunded depreciation

23,120

21,829

Comprehensive surplus/(loss) net of unfunded

depreciation and amortisation

30,247

(55,524)

The total comprehensive surplus includes the impact of:

  • the application of prevailing bond rates to the Department's employee provisions which reduced 2017-18 expenses by $0.18m; and
  • revaluation of Departmental assets, which resulted in a change of $2.54m to the asset revaluation surplus.
Note 2: Departmental explanation of budget variances

General Commentary

AASB 1055 Budgetary Reporting requires explanations of major variances between the original budget as presented in the 2017-18 Portfolio Budget Statements (PBS) and the final 2018 outcome. The information presented below should be read in the context of the following:

  • the original budget was prepared before the 2017 final outcome could be known. As a consequence, the opening balance of the statement of financial position was estimated and in some cases variances between the 2018 final outcome and budget estimates can in part be attributed to unanticipated movement in the prior year period figures;
  • the 2017 final outcome was a Departmental operating loss so the Department’s executive implemented a financial management plan to increase cash reserves and improve financial sustainability. A key element of the plan was to target a modest operating surplus in 2018;
  • variances attributable to factors which would not reasonably have been identifiable at the time of the budget preparation, such as revaluation or impairment of assets or reclassifications of asset reporting categories have not been included as part of this analysis;
  • the Department considers that major variances are those greater than 10% of the estimate. Variances below this threshold are not included unless considered significant by their nature;
  • variances relating to cash flows are a result of the factors detailed under expenses, own source income, assets or liabilities. Unless otherwise individually significant or unusual, no additional commentary has been included;
  • the departmental budget was prepared under the Commonwealth budgeting framework where revenue is not appropriated for depreciation and amortisation expenses, except as funded through cost recovered activity; and
  • the Budget is not audited.

Net cost of services

The Department’s total expenses for 2017-18 were $2.15m less than budget, leading to achievement of the targeted surplus. A significant factor in this result was achieved through effective staffing controls leading to lower than originally budgeted employee benefits.

Own source revenue was $7.85m greater than budget.

The Government provided additional revenue through the Budget and Additional Estimates process largely for the Department to:

  • modernise the health and aged care payment systems;
  • continue the Medicare Benefits Schedule review;
  • continue the Medical Services Advisory Committee;
  • finalise the transition arrangements for the NDIS;
  • improve compliance over Pathology Approved Collection Centres;
  • support continued investment in medical research through the Medical Research Future Fund; and
  • make private health insurance simpler and more affordable.

Financial assets

Total financial assets are $31.97m higher than the budgeted amount. The cash and cash equivalents is higher than the budget estimate as special account balances are reported as cash and the TGA special account balance is higher than anticipated after a higher than anticipated opening balance and returning an operating surplus of $6.97m against an approved loss of $3.60m.

The budgeted appropriation receivable position was overstated due to an assumption at the time of the budget for a significantly smaller 2017 operating loss.

Non-financial assets

The Department, as a lessee, entered into arrangements that included lease incentives after the preparation of the 2017-18 budget.

Liabilities

Total provisions and payables are $26.22m greater than budget with supplier payables and lease liabilities higher than budget and employee provisions less than budget. The greater than anticipated supplier payables relates to timing of end of year supplier payments. The lease arrangements giving rise to incentive liabilities were entered into after the 2017-18 Budget was finalised. Recruitment controls meant that fewer staff were employed by the Department at 30 June 2018 than was anticipated when the budget was prepared resulting in lower than expected employee provisions.

Departmental cash flows

The Department makes payments when due and obtains funds from the Official Public Account in a just-in-time manner to make these payments as they fall due. The timing of payments, particularly for suppliers, will be dependent on the receipt of the goods and services and their related invoices and so can vary between reporting periods.

The cash flows from investing activities essentially relate to outflows associated with the purchase of non-financial assets being property, plant and equipment and intangibles. These outflows are funded through capital appropriation and equity injections from Government and through funds received through the sale of regulatory services. Investment in capital projects may extend across multiple reporting periods.

Note 3: Departmental cash flow reconciliation

2018

2017

$'000

$'000

Reconciliation of cash and cash equivalents as per Statement of Financial Position to Cash Flow Statement

Report cash and cash equivalents as per

Cash Flow Statement

100,591

95,722

Statement of Financial Position

100,591

95,722

Discrepancy

-

-

Reconciliation of net cost of services to net cash from operating activities

Net cost of services

(653,855)

(737,284)

Add revenue from Government

658,441

655,162

Adjustment for non-cash items

Gain on sale of assets

(1)

(1,975)

Depreciation/amortisation

30,474

26,548

Net write-down of non-financial assets

2,443

1,445

Movements in assets and liabilities

Assets

Decrease/(increase) in net receivables

(17,890)

77,857

Decrease/(increase) in other financial assets

(3,271)

6,489

Decrease/(increase) in other non-financial assets

2,160

(15,243)

Liabilities

Increase/(decrease) in employee provisions/payables

(4,286)

4,321

Increase/(decrease) in supplier payables

14,528

(2,431)

Increase/(decrease) in other payables

(7,188)

9,267

Increase in other provisions

31

1,838

Net cash from operating activities

21,586

25,993

Note 4: Employees

2018

2017

$'000

$'000

Note 4A: Employee benefits

Wages and salaries

355,128

384,038

Superannuation:

Defined contribution plans

33,940

35,183

Defined benefit plans

40,635

45,106

Leave and other entitlements

75,811

78,491

Separation and redundancies

5,527

22,728

Total employee benefits

511,041

565,546

Note 4B: Employee payables

Wages and salaries

4,207

3,977

Superannuation

241

302

Separations and redundancies

965

314

Total employee payables

5,413

4,593

All employee payables are expected to be settled within 12 months of the balance date.

Note 4C: Employee provisions

Leave

147,615

149,382

Separations and redundancies

486

3,825

Total employee provisions

148,101

153,207

Accounting policy

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of the end of reporting period are measured at their nominal amounts.

Other long-term employee benefits are measured as the net total of the present value of the defined benefit obligation at the end of the reporting period minus the fair value at the end of the reporting period of plan assets (if any) out of which the obligations are to be settled directly.

The liability for employee benefits includes provisions for annual leave and long service leave. No provision has been made for sick leave as all sick leave is non-vesting and the average sick leave taken in future years by employees of the Department is estimated to be less than the annual entitlement for sick leave.

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the Department’s employer superannuation contribution rates to the extent that leave is likely to be taken during service rather than paid out on termination. The liability for long service leave and annual leave expected to be settled outside of 12 months of the balance date has been determined by reference to the work of an actuary as at June 2016. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

The Department recognises a payable for separation and redundancy where an employee has accepted an offer of a redundancy benefit and agreed a termination date. A provision for separation and redundancy is recorded when the Department has a detailed formal plan for the payment of redundancy benefits. The provision is based on the discounted anticipated costs for identified employees engaged in the redundancy program.

Under the Superannuation Legislation Amendment (Choice of Funds) Act 2004, employees of the Department are able to become a member of any complying superannuation fund. A complying superannuation fund is one that meets the requirements under the Income Tax Assessment Act (1997) and the Superannuation Industry (Supervision) Act 1993.

The Department’s staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) or other compliant superannuation funds with the rates of contribution being set by the Department of Finance on an annual basis.

The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap and other compliant superannuation funds are defined contribution schemes. The liability for defined benefits is recognised in the financial statements of the Australian Government and is settled by the Australian Government in due course. This liability is reported in the Department of Finance’s administered schedules and notes.

The Department makes employer contributions to the employee superannuation schemes at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Department accounts for the contributions as if they were contributions to defined contribution plans.

The liability for superannuation recognised as at 30 June represents outstanding contributions for the number of days between the last pay period in the financial year and 30 June.

Note 5: Key management personnel remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly. The Department has determined the key management personnel to be the Secretary, the Chief Medical Officer (CMO) and all Deputy Secretaries. Key management personnel also include officers who have acted as the CMO or a Deputy Secretary and have exercised significant authority in planning, directing and controlling the activities of the Department.

Key management personnel remuneration is reported in the table below:

2018

2017

$'000

$'000

Key management personnel remuneration

Short-term employee benefits

3,520

3,713

Post-employment benefits

593

551

Other long-term employee benefits

312

348

Total key management personnel remuneration expenses 1

4,425

4,612


The total number of key management personnel that are included in the above table is 14 (2017: 14).
Remuneration information for executives and other highly paid officials, published in accordance with the Executive Remuneration Reporting Guidelines issued by the Department of Prime Minister and Cabinet, is available on the Department’s website2.


1 The above key management personnel remuneration excludes the remuneration and other benefits of the Portfolio Minister. The Portfolio Minister's remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the Department.
2 Available at: www.health.gov.au/internet/main/publishing.nsf/Content/executive-remuner.... Executive remuneration tables are not audited.

Note 6: Related party transactions

Related party relationships

The entity is an Australian Government controlled entity. Related parties to this entity are key management personnel including the Portfolio Minister and Executive Government, and other Australian Government entities.

Transactions with related parties

Given the breadth of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. Such transactions include receipt of a Medicare rebate, Medicare bulk billing provider payments, pharmaceutical benefits or a zero real interest loan for aged care providers. These transactions have not been separately disclosed in this note.

Significant transactions with related parties can include:

  • the payments of grants or loans;
  • purchases of goods and services;
  • asset purchases, sales transfers or leases;
  • debts forgiven; and
  • guarantees.

Giving consideration to relationships with related entities and transactions entered into during the reporting period by the entity, it has been determined that there are no related party transactions to be separately disclosed.

Note 7: Departmental suppliers, other expenses and payables

2018

2017

$'000

$'000

Note 7A: Suppliers

Goods and services supplied or rendered

Contractors and consultants

53,776

63,668

Information technology costs

91,538

87,335

Services delivered under contract or others

38,852

44,615

Property

15,551

16,963

Travel

9,523

11,077

Training and other staff related expenses

5,327

5,095

Legal

3,011

2,308

Committees

4,208

3,632

Other

15,187

23,674

Total goods and services supplied or rendered

236,973

258,367

Other suppliers

Operating lease rentals

52,235

52,381

Workers compensation premiums

5,270

5,686

Total other suppliers

57,505

58,067

Total suppliers

294,478

316,434

Note 7B: Other expenses

Write-down and impairment of assets

Impairment of financial instruments

689

1,007

Impairment of land and buildings

1

69

Impairment of property, plant and equipment

33

87

Impairment on intangibles

2,408

1,289

Payments made on behalf of Portfolio entities

1

1,121

525

Act of Grace payments

1

1

Total other expenses

4,253

2,978

1 Payments made on behalf of Portfolio entities are recovered in full, refer Note 8A.

2018

2017

$'000

$'000

Note 7C: Commitments

Lease commitments

Operating leases

1

345,704

424,041

Total commitments

345,704

424,041

Minimum lease payments expected to be settled

Within 1 year

42,329

56,366

Between 1-5 years

216,381

227,894

More than 5 years

86,994

139,781

Total leases

345,704

424,041

1 The operating lease commitments mainly relate to property lease payments.

Note: Commitments are not reported in the Statement of Financial Position.

Accounting policy

A distinction is made between finance leases and operating leases. Finance leases effectively transfer from the lessor to the lessee substantially all the risks and benefits incidental to ownership of leased assets. An operating lease is a lease that is not a finance lease. In operating leases, the lessor effectively retains substantially all such risks and benefits.

Operating lease payments are expensed on a straight-line basis which is representative of the pattern of benefits derived from the leased assets.

2018

2017

$'000

$'000

Note 7D: Other payables

Lease incentive

25,333

29,900

Unearned income

18,755

21,375

Other

-

227

Total other payables

44,088

51,503

Note 7E: Other provisions

Provision for surplus lease space

526

47

Provision for restoration

1,840

3,002

Provision for lease straightlining

27,981

27,349

Total other provisions

30,347

30,398

Accounting policy

Lease Incentives

Lease incentives taking the form of ‘free’ leasehold improvements and rent holidays are recognised as liabilities. These liabilities are reduced on a straight-line basis by allocating lease payments between rental expense and reduction of the lease incentive liability.

Provision for Restoration Obligation

Where the Department has a contractual obligation to undertake remedial work upon vacating leased properties, the estimated cost of that work is recognised as a liability. An equal value asset is created at the same time and amortised over the life of the lease of the underlying leasehold property.

Note 7F: Reconciliation of movement in other provisions

Provision for surplus lease space

Provision for restoration

1

Provision for lease straightlining

2

Total

$'000

$'000

$'000

$'000

As at 1 July 2017

47

3,002

27,349

30,398

Additional provisions made

526

-

633

1,159

Amounts used

(47)

(156)

-

(204)

Amounts reversed

-

(1,006)

-

(1,006)

Total as at 30 June 2018

526

1,840

27,981

30,347

1 The Department currently has six (2017: six) agreements for the leasing of premises which have provisions requiring the entity to restore the premises to their original condition at the conclusion of the lease. The Department has made a provision to reflect the present value of this obligation.

2 The Department holds a provision for lease straight lining on ten leases.

Note 8: Departmental income and receivables

2018

2017

$'000

$'000

Note 8A: Revenue

Sale of goods and rendering of services

Sale of goods

1,274

591

Rendering of services

181,487

170,126

Recoveries received from Portfolio entities

1,121

525

Financial statement audit services

860

850

Other revenue

694

155

Total own-source revenue

185,436

172,247

Financial statement audit services were provided free of charge to the Department by the Australian National Audit Office (ANAO) and are recorded at the fair value of resources received. No other services were provided by the auditors of the financial statements.

Note 8B: Gains

Gains from sale of assets

Infrastructure, plant and equipment

Proceeds from sale

1

10

Less: Carrying value of assets sold

-

(8)

Resources received free of charge

-

1,801

Other gains

954

172

Total gains

955

1,975

Accounting policy

Revenue

Revenue from the sale of goods is recognised when:

  • the risks and rewards of ownership have been transferred to the buyer;
  • the Department retains no managerial involvement or effective control over the goods;
  • the revenue and transaction costs incurred can be reliably measured; and
  • it is probable that the economic benefits associated with the transaction will flow to the Department.

Revenue from rendering of services is recognised by reference to the stage of completion of contracts at the reporting date. The revenue is recognised when the:

  • amount of revenue, stage of completion and transaction costs incurred can be reliably measured; and
  • probable economic benefits associated with the transaction will flow to the Department.

Receivables for goods and services, which have 30 day terms or other terms in accordance with the Therapeutic Goods Regulations 1990, are recognised at the nominal amounts due less any impairment allowance account. Collectability of the debts is reviewed at end of the reporting period. Allowances are made when collectability of the debt is no longer probable.

On 1 July 2015 the TGA introduced the annual charges exemption scheme to provide relief from annual charges until a product on the Australian Register of Therapeutic Goods commences generating turnover. Under this scheme, which is detailed in the regulations covering therapeutic goods, some of the charges in respect of 2017‑18 may not be known until the end of the declaration period on 15 September 2018. While there is some uncertainty in the revenue calculation for the financial year, the uncertainty is reducing as the scheme progresses and annual data is accumulated.

Gains

Gains from disposal of non-current assets are recognised when control of the asset has passed to the buyer.

Resources received free of charge are recognised as gains when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been donated. Use of those resources is recognised as an expense. Resources received free of charge are recorded as either revenue or gains depending on their nature.

Contributions of assets at no cost of acquisition or for nominal consideration are recognised as gains at their fair value when the asset qualifies for recognition, unless received from another Government entity as a consequence of a restructuring of administrative arrangements.

2018

2017

$'000

$'000

Note 8C: Receivables

Trade and other receivables

Goods and services receivable

15,152

10,923

GST receivable from the Australian Taxation Office

2,744

3,013

Total trade and other receivables (gross)

17,896

13,936

Less impairment allowance

1

(1,000)

(958)

Total trade and other receivables (net)

16,896

12,977

1 The impairment allowance relates to receivables for goods and services.

Credit terms for goods and services were within: the Department 30 days (2017: 30 days), TGA 28 days (2017: 28 days).

Reconciliation of the impairment allowance

Reconciliation of the impairment allowance

2018

2017

$'000

$'000

Opening balance

(958)

(668)

Amounts written off

343

137

Amounts recovered and reversed

275

367

Increase recognised in net surplus/loss

(660)

(794)

Closing balance

(1,000)

(958)

Note 9: Departmental appropriation income and receivable

2018

2017

$'000

$'000

Note 9A: Revenue from Government

Appropriations

Departmental appropriations

658,441

655,162

Total revenue from Government

658,441

655,162

Note 9B: Appropriations receivable

Existing programs

47,813

28,611

Undrawn equity injection

6,952

2,675

Departmental Capital Budget

103

-

Total appropriations receivable

54,868

31,286

Appropriations receivable undrawn are appropriations controlled by the Department but held in the Official Public Account under the Government's just-in-time drawdown arrangement.

Accounting policy

Revenue from Government

Amounts appropriated for Departmental appropriations for the year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the Department gains control of the appropriation, except for certain amounts that relate to activities that are reciprocal in nature, in which case revenue is recognised only when it has been earned. Appropriations receivable are recognised at their nominal amounts.

Note 10: Departmental cash and other financial instruments

2018

2017

$'000

$'000

Note 10A: Cash and cash equivalents

Cash and cash equivalents

Cash in special accounts

99,136

88,918

Cash on hand or on deposit

1,455

6,804

Total cash and cash equivalents

100,591

95,722

Note 10B: Financial instruments (assets)

Goods and services receivable

15,152

10,923

Less: Impairment allowance

(1,000)

(958)

Total financial instruments (assets)

14,152

9,964

Net gains or losses on financial assets

Loans and receivables

Impairment

689

1,007

Net gains or losses on financial assets

689

1,007

Note 10C: Financial instruments (liabilities)

All trade creditors are measured at their amortised cost and represent the total financial instruments (liabilities).

Accounting policy

Cash and equivalents

Cash and cash equivalents are:

  • cash in special accounts, which includes amounts that are banked in the Australian Government’s Official Public Account or held in a bank account; and
  • cash on hand or on deposit, which is the amounts held in the departmental bank accounts.

Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Financial assets are initially measured at their fair value plus transaction costs where appropriate. Loans and receivables are measured at amortised cost using the effective interest method less impairment. Interest is recognised by applying the effective interest rate.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period.

Loans and receivables

If there is objective evidence that an impairment loss has been incurred for loans and receivables, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. The carrying amount is reduced by way of an allowance account. The loss is recognised in the Statement of Comprehensive Income.

Note 11: Departmental property, plant and equipment and intangibles

Reconciliation of the opening and closing balances for 2018

Land and buildings

Property, plant and equipment

Computer software - internally developed

Computer software - purchased

Total intangibles

Total

Non-financial

assets

$'000

$'000

$'000

$'000

$'000

$'000

As at 1 July 2017

Gross book value

54,923

9,221

231,147

5,412

236,559

300,703

Accumulated depreciation/amortisation and impairment

-

(3,843)

(113,155)

(4,256)

(117,411)

(121,254)

Total as at 1 July 2017

54,923

5,378

117,991

1,156

119,147

179,448

Additions

Purchase or internally developed

7,176

1,868

21,140

-

21,140

30,184

Revaluations recognised in other comprehensive income

1,816

646

-

-

-

2,462

Depreciation and amortisation

(8,812)

(1,720)

(19,604)

(339)

(19,943)

(30,474)

Reclassification

(34)

71

(173)

136

(37)

-

Impairment

(2)

(33)

(2,408)

-

(2,408)

(2,443)

Total as at 30 June 2018

55,067

6,210

116,947

953

117,899

179,177

Total as at 30 June 2018 represented by

Work in progress

3,200

-

30,168

-

30,168

33,368

Gross book value

52,968

6,426

215,332

4,496

219,828

279,221

Accumulated depreciation/amortisation and impairment

(1,100)

(216)

(128,553)

(3,543)

(132,096)

(133,413)

Total as at 30 June 2018

55,067

6,210

116,947

953

117,899

179,177

Note: The Department expects to increase its Computer software – internally developed in 2019 as the My Aged Care asset balances are taken up.

Reconciliation of the opening and closing balances for 2017

Land and buildings

Property, plant and equipment

Computer software - internally developed

Computer software - purchased

Total

intangibles

Total Non-financial

assets

$'000

$'000

$'000

$'000

$'000

$'000

As at 1 July 2016

Gross book value

60,676

8,564

221,220

4,652

225,872

295,112

Accumulated depreciation/amortisation and impairment

(7,398)

(2,248)

(115,350)

(4,376)

(119,726)

(129,372)

Total as at 1 July 2016

53,278

6,316

105,870

276

106,146

165,740

Additions

Purchase or internally developed

3,939

1,242

31,562

199

31,761

36,942

Revaluations recognised in other comprehensive income

4,770

-

-

-

-

4,770

Depreciation and amortisation

(7,107)

(1,971)

(17,114)

(357)

(17,471)

(26,548)

Reclassification

112

(112)

(1,066)

1,066

-

-

Disposals

(69)

(97)

-

-

-

(166)

Impairment

-

-

(1,261)

(28)

(1,289)

(1,289)

Total as at 30 June 2017

54,923

5,378

117,991

1,156

119,147

179,448

Total at 30 June 2017 represented by

Work in progress

747

-

35,833

-

35,833

36,579

Gross book value

54,176

9,221

195,314

5,412

200,726

264,123

Accumulated depreciation/amortisation and impairment

-

(3,843)

(113,155)

(4,256)

(117,411)

(121,254)

Total as at 30 June 2017

54,923

5,378

117,991

1,156

119,147

179,448

Accounting policy

Acquisition of assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken.

Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor’s accounts immediately prior to the restructuring.

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for information technology equipment purchases costing less than $500 (TGA $2,000), leasehold improvements costing less than $50,000 (TGA $10,000), and all other purchases costing less than $2,000, which are expensed in the year of acquisition (other than when they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions in property leases taken up by the Department where there exists an obligation to restore the property to prescribed conditions. These costs are included in the value of the Department’s leasehold improvements with a corresponding provision for the ‘make good’ recognised.

Revaluations

Following initial recognition at cost, property, plant and equipment are carried at latest value less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying amounts of assets do not differ materially from the assets’ fair values as at the reporting date. The regularity of independent valuations depends upon the volatility of movements in market values for the relevant assets.

An independent valuation of all property, plant and equipment was carried out by JLL as at 31 May 2018. Revaluation adjustments are made on a class basis. Any revaluation increment was credited to equity under the heading of Asset Revaluation Reserve except to the extent that it reversed a previous revaluation decrement of the same class that was previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent that they reversed a previous revaluation increment for that class.

Any accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the asset is restated to the revalued amount.

Assets held for sale

Property plant and equipment owned by the Department to provide computing services to the TGA is at, or nearing, end-of-life. The Department will sell to its IT service provider, dispose or retain the items but given the uncertainty around the treatment for individual assets, in accordance with AASB 5 Non‑current Assets Held for Sale and Discontinued Operations, the assets are recorded as being in use as at 30 June 2018.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives to the Department using, in all cases, the straight-line method of depreciation. Leasehold improvements are depreciated on a straight-line basis over the lesser of the estimated useful life of the improvements or the unexpired period of the lease, including any applicable lease options available.

Depreciation rates (useful lives), residual values and methods are reviewed at each reporting date and necessary adjustments are made in the current, or current and future reporting periods, as appropriate.

Depreciation rates applying to each class of depreciable asset are based on the following useful lives:

  • buildings on freehold land: 20 to 25 years;
  • leasehold improvements: The lower of the lease term or the estimated useful life; and
  • plant and equipment: 3 to 20 years.

Impairment

All assets were assessed for impairment as at 30 June 2018. Where indications of impairment exist, the asset’s recoverable amount is estimated and an impairment adjustment made if the asset’s recoverable amount is less than its carrying amount.

De-recognition

An item of property, plant and equipment is de-recognised upon disposal or when no further future economic benefits are expected from its use or disposal.

Intangibles

The Department’s intangibles comprise internally developed software for internal use and purchased software. These assets are carried at cost less accumulated amortisation and accumulated impairment losses. The Department recognises internally developed software costing more than $100,000 and purchased software costing more than $500 (TGA $100,000).

Software is amortised on a straight-line basis over its anticipated useful life.

The useful lives of the Department’s software are:

  • internally developed software two to ten years; and
  • purchased software two to seven years.

All software assets were assessed for indications of impairment as at 30 June 2018.

Note 12: Fair value measurement

Accounting policy

The Department’s assets are held for operational purposes, not for the purposes of deriving a profit. As allowed for by AASB 13 Fair Value Measurement, quantitative information on significant unobservable inputs used in determining fair value is not disclosed.

Assets held at fair value include leasehold improvements and property, plant and equipment but exclude assets under construction. Assets not held at fair value include intangibles and assets under construction.

The Department reviews its valuation model each year via a desktop exercise with a formal revaluation undertaken every three years: the last revaluation was undertaken in 2018. If the valuation indicators of a particular asset class change materially, that class is subject to specific valuation in the reporting period. The valuation modelling was undertaken by JLL.

The categories of fair value measurement are:

Level 1: quoted prices (unadjusted) in active markets for identical assets that the entity can access at measurement date.

Level 2: inputs other than quoted prices included within level 1 that are observable for the asset, either directly or indirectly.

Level 3: unobservable inputs.

Departmental assets are held at fair value and are measured at category levels 2 or 3 with no fair values measured at category level 1.

Leasehold improvements are predominately measured at category level 3 and the valuation methodology used is Depreciated Replacement Cost (DRC). Under DRC the estimated cost to replace the asset is calculated, with reference to new replacement price per square metre, and then adjusted to take into account its consumed economic benefit (accumulated depreciation). The consumed economic benefit has been determined based on the professional judgement of JLL with regard to physical, economic and external obsolescence factors. For all leasehold improvement assets, the consumed economic benefit is determined based on the term of the associated lease.

Property, plant and equipment is measured at either category level 2 or 3. The valuation methodology is either market approach or DRC, based on replacement cost for a new equivalent asset. The significant unobservable inputs used in the fair value measurement of PPE assets are the market demand and JLL professional judgement.

Note 13: Departmental contingent assets and liabilities

Guarantees

Claims for damages or costs

Total

2018

2017

2018

2017

2018

2017

$'000

$'000

$'000

$'000

$'000

$'000

Contingent assets

Balance from previous period

-

-

150

19

150

19

New contingent assets recognised

-

-

-

142

-

142

Re-measurement

-

-

-

-

-

-

Rights expired

-

-

(150)

(11)

(150)

(11)

Total contingent assets

-

-

-

150

-

150

Contingent liabilities

Balance from previous period

5,000

5,000

645

5,010

5,645

10,010

New

-

-

-

195

-

195

Re-measurement

-

-

-

(4,000)

-

(4,000)

Obligations expired

-

-

(645)

(560)

(645)

(560)

Total contingent liabilities

5,000

5,000

-

645

5,000

5,645

Net contingent liabilities

(5,000)

(5,000)

-

(495)

(5,000)

(5,495)

Accounting Policy

Contingent liabilities and contingent assets are not recognised in the statement of financial position but are reported in the relevant notes. They may arise from uncertainty as to the existence of a liability or asset, or represent an asset or liability in respect of which the amount cannot be reliably measured. Contingent assets are disclosed when settlement is probable but not certain, and contingent liabilities are disclosed when settlement is greater than remote.

The Department applies Accounting Standard AASB 137 Provisions, Contingent Liabilities and Contingent Assets in determining disclosure of contingent assets and liabilities.

Quantifiable contingencies

Quantifiable contingent assets

The Department had no quantifiable contingent assets as at 30 June 2018 (2017: $0.150m).

Quantifiable contingent liabilities

Claims for damages and costs

The schedule of contingencies reports no contingent liabilities in respect of claims for damages/costs as at 30 June 2018 (2017: $0.65m).

Guarantees

The schedule of contingencies shows a contingent liability in respect of claims for payments for Price Disclosure services of $5.000m (2017: $5.000m). This represents the maximum exposure to the Commonwealth in the event that the current contractor is unable to deliver.

Unquantifiable contingencies

Unquantifiable contingent assets and liabilities

At 30 June 2018 the Department was involved in a number of litigation cases before the courts. The Department has been advised by its solicitors that it is not possible to quantify amounts relating to these cases and the information is not disclosed on the grounds that it might seriously prejudice the outcomes of these cases.

The Department has provided indemnities to its transactional bankers in relation to any claims made against the bank resulting from errors in the Department’s payment files. There were no claims made during the year.

Significant remote contingencies

The Department did not have any significant remote contingencies in either reporting year.

Note 14: Departmental appropriations

Table A: Annual and Unspent Appropriation (“Recoverable GST exclusive”)

2018

2017

$'000

$'000

DEPARTMENTAL

Ordinary Annual Services

Annual appropriation

1,2,3

659,018

654,627

Capital budget

4

11,095

9,828

Receipts retained under PGPA Act - Section 74

107,463

114,459

Total appropriation

777,576

778,914

Appropriation applied (current and prior years)

(763,044)

(849,284)

Variance

5

14,532

(70,370)

Unspent appropriations

Own unspent appropriation balance

49,371

34,838

Closing unspent appropriation balance

49,371

34,838

Balance comprises appropriations as follows:

Supply Act (No. 1) 2016-2017

-

1

Appropriation Act (No. 1) 2016-2017 - Cash at bank

6

-

6,804

Appropriation Act (No. 3) 2016-2017

-

28,033

Appropriation Act (No. 1) 2017-2018

47,813

-

Appropriation Act (No. 1) 2017-2018 - Cash at bank

6

1,455

-

Appropriation Act (No. 3) 2017-2018 - Departmental Capital Budget (DCB)

103

-

Total unspent appropriation - ordinary annual services

49,371

34,838

1 There were no amounts temporarily quarantined from 2018 or 2017 departmental ordinary annual services appropriations.

2 There were no amounts withheld under section 51 of the PGPA Act from 2018 or 2017 departmental ordinary annual services appropriations.

3 An amount of $577,000 was recognised in appropriation revenue during 2017, as reflected in Note 9, but was legally appropriated during the 2018 Budget process and was included in the 2018 Appropriation Acts.

4 Departmental Capital Budgets are appropriated through Appropriation Acts (No. 1,3) and Supply Acts (No. 1,3). They form part of ordinary annual services and are not separately identified in the Appropriation Acts.

5 The variance of $14,532,000 for departmental ordinary annual services primarily represents the timing difference of payments to suppliers or employees.

6 Cash at bank mainly relates to deposits made on 30 June, subject to Section 74 of the PGPA Act (annotated Appropriation Act No. 1).

2018

2017

$'000

$'000

Other Services - Equity

Annual appropriation

1,2

7,422

18,349

Total appropriation

7,422

18,349

Appropriation applied (current and prior years)

(3,146)

(5,321)

Variance

3

4,276

13,028

Unspent appropriations

Own unspent appropriation balance

6,952

2,675

Closing unspent appropriation balance

4

6,952

2,675

Balance comprises appropriations as follows:

Appropriation Act (No. 4) 2015-2016

2

-

1,425

Appropriation Act (No. 2) 2016-2017

2

600

1,250

Appropriation Act (No. 2) 2017-2018

1,296

-

Appropriation Act (No. 4) 2017-2018

4,560

-

Appropriation Act (No. 6) 2017-2018

496

-

Total unspent appropriation - other services - equity

6,952

2,675

1 There were no amounts temporarily quarantined from 2018 or 2017 departmental other services - equity appropriations.

2 In 2017 departmental other services – equity appropriations $6,871,000 of the Appropriation Act (No. 2) 2016-2017 and $4,907,000 of the Supply Act (No. 2) 2016-2017 were permanently quarantined under section 51 of the PGPA Act. In 2016 departmental other services – equity appropriations $556,000 of the Appropriation Act (No. 2) 2015-2016 and $10,199,000 of the Appropriation Act (No. 4) 2015-2016 were permanently quarantined under section 51 of the PGPA Act. This represents a loss of control of the appropriations and therefore these amounts were not reported as available above.

3 The variance of $4,276,000 for departmental equity primarily relates to delayed commencement of projects funded in 2017‑18 Additional Estimates.

4 This balance is net of $22,533,000 which is permanently quarantined under section 51 of the PGPA Act. These amounts are detailed in footnotes to the respective Act. The total unspent appropriations gross of quarantined amounts under section 51 of the PGPA Act is $29,485,000.

Note 15: Therapeutic Goods Administration

overview

The Therapeutic Goods Administration (TGA) contributes to Outcome 5: Regulation, Safety and Protection. The TGA recovers the cost of all activities undertaken within the scope of the Therapeutic Goods Act 1989 from industry through fees and charges.

Included below is financial information for the TGA special account. The balance of the special account represents a standing appropriation from which payments are made for the purposes of the special account. The TGA special account is reported in Note 27: Special accounts.

Therapeutic goods are regulated to ensure that medicinal products and medical devices in Australia meet standards of safety, quality and efficacy at least equal to that of comparable countries. These products and devices should be made available in a timely manner and the regulatory impact on business kept to a minimum. This is achieved through a risk management approach to pre-market evaluation and approval of therapeutic products intended for supply in Australia, licensing of manufacturers and post market surveillance.

TGA receives payment for evaluation services in advance of service delivery, which can extend across financial years. TGA estimates the stage of service completion and recognises the matching revenue. Revenue reported for 2017-18 includes an estimate for annual charges.

2018

2017

$'000

$'000

Note 15B: TGA Comprehensive income

Expenses

Employee benefits

75,802

78,781

Consultants and contractors

18,474

17,670

Corporate Services

36,142

36,488

Other

8,221

7,528

Depreciation and amortisation

6,846

4,286

Write-down and impairment of assets

2,895

1,961

Total expenses

148,380

146,715

Revenues

Sale of goods and rendering of services

152,905

139,037

Other revenue and gains

1

12

Total own-source revenue

152,906

139,049

Revenue from Government

2,439

2,574

Surplus/(loss) on continuing operations

6,965

(5,092)

2018

2017

$'000

$'000

Note 15C: TGA Financial Position

Assets

Financial assets

1

82,082

71,725

Non-financial assets

34,607

34,850

Total assets

116,690

106,575

Liabilities

Payables

33,368

32,522

Provisions

21,601

20,468

Total liabilities

54,970

52,990

Equity

Contributed equity

2,029

2,029

Asset revaluation reserve

9,138

7,968

Retained surplus

50,554

43,589

Total Equity

61,720

53,585

1 Includes cash balance of $73.326m which is disclosed in Note 27: Special accounts.

Administered Schedule of Assets and Liabilities

as at 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

ASSETS

Financial assets

Cash and cash equivalents

22A

559,100

146,809

171,578

387,522

Accrued recoveries revenue

21B

1,368,959

928,986

748,121

620,838

Loans and other receivables

21C

755,494

671,594

727,319

28,175

Investments

20B

482,642

454,972

714,050

(231,408)

Total financial assets

3,166,195

2,202,361

2,361,068

805,127

Non-financial assets

Inventories held for distribution

23B

115,765

115,262

110,361

5,404

Total non-financial assets

115,765

115,262

110,361

5,404

Total assets administered on behalf of Government

3,281,960

2,317,623

2,471,429

810,531

LIABILITIES

Payables

Suppliers

19A

(35,635)

(22,841)

(9,685)

(25,950)

Subsidies

18C

(105,740)

(51,296)

(13,726)

(92,014)

Personal benefits

18B

(1,027,893)

(975,974)

(1,358,912)

331,019

Grants

18A

(312,088)

(317,461)

(346,689)

34,601

Total payables

(1,481,356)

(1,367,572)

(1,729,012)

247,656

Provisions

Subsidies

18C

(441,000)

(450,000)

(464,268)

23,268

Personal benefits

18B

(1,074,260)

(1,057,773)

(1,280,045)

205,785

Total provisions

(1,515,260)

(1,507,773)

(1,744,313)

229,053

Total liabilities administered on behalf of Government

(2,996,616)

(2,875,345)

(3,473,325)

476,709

Net assets/(liabilities)

285,344

(557,722)

(1,001,896)

1,287,240

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

For budgetary reporting information refer to Note 16. The original budget is the budget published in the 2017‑18 Portfolio Budget Statements. The budget statement information has been reclassified and presented on a consistent basis with the corresponding financial statement.

Administered Schedule of Comprehensive Income

for the period ended 30 June 2018

ACTUAL

BUDGET ESTIMATE

Original

Variance

Notes

2018

2017

2018

2018

$'000

$'000

$'000

$'000

NET COST OF SERVICES

Expenses

Grants

18A

7,721,904

7,468,532

8,201,849

(479,945)

Personal benefits

18B

44,599,704

42,555,967

43,975,150

624,554

Subsidies

18C

11,762,424

12,102,130

12,023,300

(260,876)

Suppliers

19A

999,016

807,335

607,110

391,906

Payments to corporate Commonwealth entities

20A

510,005

405,074

560,425

(50,420)

Depreciation and amortisation

23A

-

1,355

-

-

Other expenses

19B

39,156

60,222

29,926

9,230

Total expenses

65,632,209

63,400,615

65,397,760

234,449

Income

Special accounts revenue

21A

34,779,233

64,870

121,565

34,657,668

Recoveries

21B

2,943,418

3,725,543

2,577,235

366,183

Other revenue

21C

214,966

190,333

24,565

190,401

Total income

37,937,617

3,980,746

2,723,365

35,214,252

Net cost of services

27,694,592

59,419,869

62,674,395

(34,979,803)

Deficit

(27,694,592)

(59,419,869)

(62,674,395)

34,979,803

OTHER COMPREHENSIVE INCOME

Items not subject to subsequent reclassification to net cost of services

Changes in asset revaluation reserves

-

(13,958)

-

-

Changes in administered investment reserves

(42,272)

57,697

-

(42,272)

Total other comprehensive income/(loss)

(42,272)

43,739

-

(42,272)

Total comprehensive loss

(27,736,864)

(59,376,130)

(62,674,395)

34,937,531

null

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

Administered Reconciliation Schedule

2018

2017

$'000

$'000

Opening assets less liabilities as at 1 July

(557,722)

(1,005,668)

Adjusted opening assets less liabilities

(557,722)

(1,005,668)

Net cost of services

Income

37,937,617

3,980,746

Expenses

Payments to entities other than corporate Commonwealth entities

(65,122,204)

(62,995,541)

Payments to corporate Commonwealth entities

(510,005)

(405,074)

Other comprehensive income

Revaluations transferred to/(from) reserves

(42,272)

43,739

Transfers (to)/from Australian Government

Appropriation transfers from the Official Public Account (OPA)

Administered assets and liabilities appropriations

Payments to entities other than corporate Commonwealth entities

44,893

35,244

Payments to corporate Commonwealth entities

54,533

10,589

Appropriations for ordinary annual services

Payments to entities other than corporate Commonwealth entities

8,549,464

8,253,833

Payments to corporate Commonwealth entities

510,429

405,074

Special appropriations (unlimited)

Payments to entities other than corporate Commonwealth entities

22,093,488

55,037,751

Special appropriations (limited)

Refund of receipts (section 77 of the PGPA Act)

583

576

Net GST appropriations

(6,220)

(12,748)

Appropriation transfers to OPA

Transfers to OPA

(2,667,240)

(3,857,420)

Restructuring

-

(48,823)

Closing assets less liabilities as at 30 June

285,344

(557,722)

Administered Cash Flow Statement

for the period ended 30 June 2018

Administered Cash flow statement

Notes

2018

2017

$'000

$'000

OPERATING ACTIVITIES

Cash received

Recoveries

2,538,031

3,766,815

Net GST received

577,889

562,908

Special accounts receipts

34,779,233

64,870

Other

109,595

62,503

Total cash received

38,004,748

4,457,096

Cash used

Grants

(8,285,896)

(8,045,959)

Subsidies

(11,712,886)

(12,234,931)

Personal benefits

(44,585,662)

(42,820,809)

Suppliers

(1,011,194)

(819,757)

Payments to corporate Commonwealth entities

(510,005)

(405,074)

Total cash used

(66,105,643)

(64,326,530)

Net cash used by operating activities

17

(28,100,895)

(59,869,434)

INVESTING ACTIVITIES

Cash received

Repayments of advances and loans

32,649

28,102

Total cash received

32,649

28,102

Cash used

Advances and loans made

(29,451)

(39,180)

Equity injections to corporate Commonwealth entities

(54,533)

(10,589)

Purchase of investments

(15,409)

(6,568)

Total cash used

(99,393)

(56,337)

Net cash used by investing activities

(66,744)

(28,235)

Net decrease in cash held

(28,167,639)

(59,897,669)

Cash and cash equivalents at the beginning of the reporting period

146,809

171,579

Cash from Official Public Account

Appropriations

31,153,964

63,697,234

Special Accounts

12,524

8,613

Capital appropriations

99,426

45,833

Administered GST appropriations

567,504

544,762

Total cash from Official Public Account

31,833,418

64,296,442

Cash to Official Public Account

Special Accounts

(12,524)

(8,613)

Return of GST appropriations to the Official Public Account

(573,724)

(557,510)

Other

(2,667,240)

(3,857,420)

Total cash to Official Public Account

(3,253,488)

(4,423,543)

Cash and cash equivalents at the end of the reporting period

22A

559,100

146,809

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

Accounting policy

Revenue collected by the Department for use by the Government rather than the Department is administered revenue. Collections are transferred to the OPA maintained by the Department of Finance. Conversely, cash is drawn from the OPA to make payments under Parliamentary appropriation on behalf of Government. These transfers to and from the OPA are adjustments to the administered cash held by the Department on behalf of the Government and are reported as such in the Administered Cash Flow Statement and in the Administered Reconciliation Schedule.

Note 16: Administered explanation of budget variances

Administered expenses

Total administered expenses for 2017-18 were approximately $234m (0.4%) higher than the original budget. This variance was largely driven by significant overspends in personal benefits ($625m) and suppliers ($392m). This was partially offset by underspends against grants ($480m) and subsidies ($261m).

Personal benefits expenses relate to a range of program groups, most of which are funded through appropriations relating to demand. The major factor in the overspend was higher than anticipated demand for a range of PBS‑listed pharmaceuticals, including but not limited to hepatitis C drugs, with increases to the estimates recorded during the year.

The overspend in suppliers was largely attributable to the aged care programs ($206m) and the Health Innovation and Technology Program ($43m), which were originally budgeted as grants. Therefore, the full value of 2017-18 expenditure was reported as a variance against both suppliers (overspend) and grants (underspend).

The variance against subsidies was largely due to the residential and flexible care program ($228m) which underspent against original budget because of the demand-driven nature and inherent volatility of the program.

Most grants programs finished 2017-18 underspent against budget. The factors that led to this result included savings delivered, new measures implemented and grant programs reduced or terminated post budget.

Administered revenues

The key driver of the variance in administered revenue was the Medicare Guarantee Fund (MGF) special account, announced during 2017-18 Budget as a new arrangement for funding medical benefits and pharmaceutical benefits payments. The MGF special account became operational in July 2017, replacing the previous special appropriations, and the entire value of 2017-18 funding allocations has been recognised as special account revenue in 2017-18. As this development was not reflected in the original budget, the entire value of MGF special account receipts was reported as a variance. There was no matching expense variance as the programs were previously funded by Special Appropriations, refer note 25 table B.

The PBS drug recoveries arising from cost sharing agreements between the Commonwealth and pharmaceutical companies were higher than originally anticipated. These recoveries fluctuate without a predictable pattern depending on individual agreements and population demand for pharmaceuticals.

Administered assets

The total value of assets administered on behalf of the Commonwealth at 30 June 2018 was $810m (32.8%) higher than the original budget. The highest contributor to this variance was accrued recoveries revenue ($621m above budget), relating to the PBS drug recoveries. Due to the nature of these recoveries, the value of accrued revenue can fluctuate with no predictable pattern from one year to another. Higher accrued revenue was also contributed to by slower invoicing in the later part of the year due to delayed data availability, and was therefore mitigated by lower invoiced revenue.

Cash and cash equivalents as at 30 June 2018 were also significantly higher than the original budget ($388m variance), attributable largely to the unspent portion of the 2017-18 funding allocation remaining in the MGF special account.

These variances were partially offset by the lower value of investments at 30 June 2018 ($232m below the budget). The original budget included $250m worth of investments in the Biomedical Translation Fund (BTF), which represents the full funding allocation for this program of $250m over 2 years. The variance to the budget is driven by the timing of the investments.

Administered liabilities

Total liabilities administered on behalf of the Commonwealth at 30 June 2018 were $477m (14%) lower than the original budget estimate. This was largely attributable to the lower personal benefits liabilities ($537m below the budget), across payables and provisions, with medical benefits and pharmaceutical benefits being key contributors. These high-value liabilities fluctuate with demand and payment cycles, resulting in their estimation involving a high degree of uncertainty and an element of professional judgement.

Note 17: Administered cash flow reconciliation

2018

2017

$'000

$'000

Reconciliation of cash and cash equivalents as per Administered Schedule of Assets and Liabilities to Administered Cash Flow Statement

Cash and cash equivalents as per:

Administered Cash Flow Statement

559,100

146,809

Administered Schedule of Assets and Liabilities

559,100

146,809

Discrepancy

-

-

Reconciliation of net cost of services to net cash used by operating activities

Net cost of services

(27,694,592)

(59,419,869)

Adjustment for non-cash items

Depreciation and amortisation

-

1,355

Net write-down of assets

26,564

33,572

Net loss on sale of assets

-

17,884

Inventory adjustments

13

16

Concessional loans discount and unwinding

(6,942)

16,112

Movements in assets and liabilities

Assets

Decrease/(increase) in net receivables

(522,292)

(113,401)

Decrease/(increase) in inventories

(24,917)

(25,487)

Liabilities

Increase/(decrease) in suppliers payable

12,794

12,958

Increase/(decrease) in subsidies payable

54,444

(212,242)

Increase/(decrease) in personal benefits payable

51,919

77,549

Increase/(decrease) in grants payable

(5,373)

(60,609)

Increase/(decrease) in subsidies provision

(9,000)

25,000

Increase/(decrease) in personal benefits provision

16,487

(222,272)

Net cash used by operating activities

(28,100,895)

(59,869,434)

Note 18: Administered transfer payments

2018

2017

$'000

$'000

Note 18A: Grants

Grants paid

Public sector

Australian Government entities (related entities)

749,636

684,991

Private sector

Profit and non-profit organisations

6,957,205

6,771,706

Overseas

15,063

11,835

Total grants paid

7,721,904

7,468,532

Grants payable

Public sector

Australian Government entities (related entities)

17,781

8,609

Private sector

Profit and non-profit organisations

294,307

308,852

Total grants payable

312,088

317,461

Accounting policy

The Department administers a number of grant schemes on behalf of the Government. Grant liabilities are recognised to the extent that (i) the services required to be performed by the grantee have been performed or (ii) the grant eligibility criteria have been satisfied, but payments due have not been made. Settlement is made according to the terms and conditions of each grant. This is usually within 30 days of performance or eligibility. All grants liabilities are expected to be settled within 12 months of the balance date.

2018

2017

$'000

$'000

Note 18B: Personal Benefits

Personal benefits paid

Direct personal benefits paid

Private health insurance

6,010,185

5,994,087

Total direct personal benefits paid

6,010,185

5,994,087

Indirect personal benefits paid

Medical services

23,609,384

22,481,669

Pharmaceuticals and pharmaceutical services

11,794,308

12,162,451

Primary care practice incentives

342,852

341,699

Hearing services

514,330

497,825

Targeted assistance

146,043

143,886

Home support and care

2,122,271

886,627

Other

60,331

47,723

Total indirect personal benefits paid

38,589,519

36,561,880

Total personal benefits paid

44,599,704

42,555,967

Personal benefits payable

Direct personal benefits payable

Private health insurance

470,693

478,309

Total direct personal benefits payable

470,693

478,309

Indirect personal benefits payable

Medical services

409,441

323,773

Pharmaceuticals and pharmaceutical services

3,094

22,430

Home support and care

77,272

85,189

Other

67,393

66,273

Total indirect personal benefits payable

557,200

497,665

Total personal benefits payable

1,027,893

975,974

Personal benefits provisions

Outstanding claims

Medical services

738,455

740,223

Pharmaceuticals and pharmaceutical services

335,805

317,550

Total personal benefits provisions

1,074,260

1,057,773

Accounting policy

Personal benefits are the current transfers for the benefit of individuals or households, directly or indirectly, that do not require any economic benefit to flow back to Government. The Department administers a number of personal benefits programs on behalf of the Government that provide a range of health care entitlements to individuals. These include, but are not limited to:

  • pharmaceutical benefits (the primary means through which the Australian Government ensures Australians have timely access to pharmaceuticals);
  • medical benefits (provide high quality and clinically relevant medical and associated services through Medicare);
  • private health insurance rebate (helps make private health insurance more affordable, provides greater choice and accessibility to private health care options, and reduces pressure on the public hospital system);
  • primary care practice incentives (support activities that encourage continuing improvements, increase quality of care, enhance capacity, and improve access and health outcomes for patients);
  • targeted assistance (support the provision of relevant pharmaceuticals, aids and appliances);
  • hearing services (reduce the incidence and consequences of avoidable hearing loss in the community by providing access to high quality hearing services and devices); and
  • home support and care (providing coordinated home support and care packages tailored to meet individuals’ specific care needs).

Personal benefits are assessed, determined and paid by the Department of Human Services (DHS) in accordance with provisions of the relevant legislation under delegation from the Department. All personal benefits liabilities are expected to be settled within 12 months of the balance date. In the majority of cases the above payments are initially based on the information provided by customers and providers. Both the Department and DHS have established review mechanisms to identify overpayments made under various schemes. The recognition of receivables and recovery actions take place once the overpayments are identified.

Significant accounting judgements and estimates

Medicare payments processed by DHS on behalf of the Department are either reimbursements to patients, made after medical services have been received from a doctor, or payments made directly to doctors through the bulk billing system. At any point in time, there are thousands of cases where a medical service has been rendered, but the Medicare payment has not yet been made. The DHS has been using the ‘Winters’ methodology to estimate the value of these outstanding claims.

Under the Winters methodology, a number of models are used to estimate the outstanding Medicare claims liabilities. The model preferred by the industry, and consistently applied in past financial statements of the Department, is Model 5. Model 5 comprises two major components: chain ladder modelling and time series modelling.

Under Model 5, user defined parameters are applied to smooth the time series observations and make predictions about future payment values. As the parameters are user defined it is reasonable to assume that different users of the model may make different choices, and therefore arrive at different estimates of the outstanding liability. In order to validate the parameters used, actual payment data has been compared to previous estimates using various parameters to predict the liability. The model weights recent payment experience more heavily and is therefore self-adjusting for emerging trends.

2018

2017

$'000

$'000

Note 18C: Subsidies

Subsidies paid

Subsidies in connection with

Aged care

11,673,223

12,002,391

Medical indemnity

79,306

91,301

Other

9,895

8,438

Total subsidies paid

11,762,424

12,102,130

Subsidies payable

Subsidies in connection with

Aged care

99,722

51,296

Medical indemnity

6,018

-

Total subsidies payable

105,740

51,296

Accounting policy

The Department administers a number of subsidy schemes on behalf of the Government. Subsidies liabilities are recognised to the extent that (i) the services required to be performed by the recipient have been performed or (ii) the eligibility criteria have been satisfied, but payments due have not been made. All subsidies liabilities are expected to be settled within 12 months of the balance date.

At 30 June 2018 aged care subsidies payable included an amount in relation to the means testing adjustment. This amount was based on the number of required adjustments and the average payment amount derived from a sample of cases. Due to inherent variability in the actual payments, the resulting estimate involves a relatively high level of estimation uncertainty.

Subsidies provisions

Balance as at

30 June 2017

Claims paid

Administered Schedule of Comprehensive Income Impact

Balance as at

30 June 2018

$'000

$'000

$'000

$'000

Medical Indemnity Liabilities

Incurred But Not Reported Scheme

26,000

(719)

719

26,000

High Cost Claims Scheme

334,000

(58,589)

47,589

323,000

Run-Off Cover Scheme

90,000

(6,908)

8,908

92,000

Total

450,000

(66,216)

57,216

441,000

Accounting policy

Medical Indemnity schemes are administered by the Department under the Medical Indemnity Act 2002 and the Midwife Professional Indemnity (Commonwealth Contribution) Scheme Act 2010. The Department administers the following medical indemnity schemes:

  • Incurred But Not Reported Scheme (IBNRS);
  • High Cost Claims Scheme (HCCS);
  • Exceptional Claims Scheme (ECS);
  • Run-Off Cover Scheme (ROCS);
  • Premium Support Scheme (PSS);
  • Midwife Professional Indemnity (Commonwealth Contribution) Scheme (MPIS); and
  • Midwife Professional Indemnity Run-off Cover Scheme (MPIRCS).

The payments for medical indemnity are managed by the DHS, the service delivery entity, on behalf of the Department through its Medicare program.

The Australian Government Actuary (AGA) estimated the provision for future payments for the medical indemnity schemes administered by the Department. At the reporting date, provision for future payment was recognised for IBNRS, HCCS, and ROCS. No provision was recognised for ECS, MPIS or MPIRCS as, to date, no payment has been made against these schemes, they could not be reliably measured and are reported as a contingent liability in Note 24. No provision was recognised for the PSS as the nature and timing of payments associated with this scheme are based on a relatively predictable pattern of annual payments that must be settled within 12 months of the end of a premium period.

The methods used by the AGA to estimate the liability under the different schemes are as follows:

General

The AGA has relied on projections that have been prepared by the appointed actuaries to the five medical indemnity insurers (MIIs) and provided to the Commonwealth under the relevant provisions of the Medical Indemnity Act 2002 and the Midwife Professional Indemnity (Commonwealth Contribution) Scheme Act 2010. Payment information from the Medicare program complemented the projection. Where appropriate, adjustments have been made to those projections as described below.

The methods used by the AGA to estimate the liability under the different schemes are as follows:

IBNRS

The IBNRS provides for payments to Avant Mutual Group for claims made in relation to its IBNR liability at 30 June 2002. Some claims that will be payable under the IBNRS may also be eligible for payment under the HCCS.

The AGA has carried out chain ladder modelling using the payments data. The results of this analysis have been compared to the projections prepared by the industry actuaries. The results closely match and, as a result, the AGA has largely relied on industry projections to estimate the liability.

ROCS

ROCS provides free run-off cover for specific groups of medical practitioners including those retired and over 65, on maternity leave, retired for more than three years, retired due to permanent disability or the estates of those that have died. This scheme is funded through the collection of support payments imposed as a tax on MIIs.

The AGA has developed an independent ROCS actuarial model which estimates the total annual accruing ROCS cost to the Australian Government. The model output is used to check against industry actuaries’ projections. For the estimate of the outstanding ROCS liability as at 30 June 2018, the AGA has relied on the projections from the actuary of each of the MIIs, but has adjusted the IBNRS component on comparison with the projections from its own ROCS internal model. Given that the majority of the claims anticipated under this scheme have not yet been made, the AGA noted a relatively high level of uncertainty in the estimate.

HCCS

Under HCCS, the Government pays 50% of the cost of claims made to all MIIs that exceed a specified threshold, up to the limit of the practitioner’s insurance. The threshold to be applied depends on the date of notification of the claim, as follows:

  • from 1 January 2003 to 21 October 2003 - $2m;
  • from 22 October 2003 to 31 December 2003 - $0.500m; and
  • on or after 1 January 2004 - $0.300m.

The AGA has relied on the projections of the industry actuaries but has made adjustments in respect of claims which are also eligible for the IBNRS and/or ROCS to ensure overall consistency of the estimates.

Significant accounting judgements and estimates

The nature of the medical indemnity liability estimates is inherently, and unavoidably, uncertain. The uncertainty arises for the following reasons:

  • it is not possible to precisely model the claim process, and random variation both in past and future claims have or will have adverse consequences on the model;
  • there can be a long delay between incident occurrences, to notification and to settlement, making the projection of timing very uncertain;
  • the nature and cause of injury is difficult to determine and prove;
  • the claims experience can be very sensitive to the surrounding factors such as technology, legislation, attitudes and the economy; and
  • in general, these schemes have a small number of large claims which account for a substantial part of the overall cost. This is associated with large expected random variation. It follows that a wide range of results can be obtained with equal statistical significance which differs materially in the context of a schedule of assets and liabilities. This is a common situation with liabilities of this nature.

The experience of the medical indemnity claims cycle indicates that claims and subsequent payments can take a number of years to mature and settle. The Department has used a 2.3% per annum discount rate in the calculation of the estimate for the current year. This discount rate was derived from the Commonwealth bonds yield curve based on the revised average observed liability duration of five years for the medical indemnity payments. This discount rate is deemed to be more appropriate than the ten year bond yield at 30 June 2018, which was 2.6%. A discount rate of 2.2% was used last year, which was derived using the same method.

A sensitivity analysis was undertaken by moving the discount rate either up or down to the nearest full percentage point. Increasing the discount rate to 3% would result in a discounted liability estimate which is about 4.8% ($21m) less than the base estimate. On the other hand, decreasing the discount rate to 2% would result in a discounted liability estimate which is about 0.7% ($3m) higher than base estimate.

2017-18

2016-17

discounted

discounted

discounted

discounted

2%

2.3%

1

3%

2.2%

$m

$m

$m

$m

Incurred But Not Reported

27

26

26

26

High Cost Claims Scheme

317

323

306

334

Run-Off Cover Scheme

94

92

88

90

Total

438

441

420

450

1 2.2% was used as the basis of estimation in 2016-17.

Note 19: Administered suppliers and other expenses and payables

2018

2017

$'000

$'000

Note 19A: Suppliers

Services rendered

Consultants

26,493

20,415

Contract for services

897,373

725,253

Travel

1,417

772

Communications and publications

36,610

25,945

Committee related expenses

3,988

3,890

Other

33,135

31,060

Total services rendered

999,016

807,335

Suppliers payable

Trade creditors and accruals

35,635

22,841

Total suppliers payable

35,635

22,841

Note 19B: Other Expenses

Other expenses

Write-down and impairment of assets

Impairment on financial instruments

2,163

12,098

Write-off of inventories

24,401

21,474

Net loss on sale of land and buildings

-

17,884

Payments to Special Accounts

12,524

8,613

Other

68

153

Total other expenses

39,156

60,222

Note 20: Administered Corporate Commonwealth Entities

2018

2017

$'000

$'000

Note 20A: Appropriations

Appropriations transferred to corporate entities

Australian Institute of Health and Welfare

28,078

26,918

Food Standards Australia New Zealand

16,961

17,184

Australian Sports Commission

267,904

250,669

Australian Digital Health Agency

197,062

110,303

Total appropriations transferred to corporate entities

510,005

405,074

Note 20B: Investments

Investments in portfolio entities

Equity interest - Australian Institute of Health and Welfare

(i)

30,323

30,930

Equity interest - Food Standards Australia New Zealand

(ii)

7,900

7,808

Equity interest

- Australian Commission on Safety and Quality in Health Care

(iii)

2,838

2,715

Equity interest - Australian Sports Commission

(iv)

289,345

302,209

Equity interest - Australian Sports Foundation Ltd

(v)

4,625

3,847

Equity interest - Independent Hospital Pricing Authority

(vi)

12,737

8,577

Equity interest - Australian Digital Health Agency

(vii)

112,577

92,318

Total investments in portfolio entities

460,345

448,404

Other investments

Biomedical Translation Fund - Brandon Capital Partners

8,420

-

Biomedical Translation Fund - OneVentures Management

4,491

-

Biomedical Translation Fund - BioScience Managers

9,386

6,568

Total other investments

22,297

6,568

Total investments

482,642

454,972

Accounting policy

Payments to corporate Commonwealth entities from amounts appropriated for that purpose are classified as administered expenses, equity injections or loans to the relevant portfolio entity. The appropriation to the Department is disclosed in Table A of Note 25.

(i) The Australian Institute of Health and Welfare informs community discussion and decision making through national leadership and collaboration in developing and providing health and welfare statistics and information.

(ii) The Food Standards Australia New Zealand protects and informs consumers through the development of effective food standards, in a way that helps stimulate and support growth and innovation in the food industry.

(iii) The Australian Commission on Safety and Quality in Health Care works to lead and coordinate national improvements in safety and quality in health care across Australia.

(iv) The Australian Sports Commission manages, develops and invests in sport at all levels. It works closely with a range of national sporting organisations, state and local governments, schools and community organisations to ensure sport is well run and accessible.

(v) The Australian Sports Foundation Ltd assists sporting, community, educational and other government organisations to raise funds for the development of sports infrastructure.

(vi) The Independent Hospital Pricing Authority determines a national efficient price for public hospital services where the services are funded on an activity basis. It also determines the efficient cost for health care services provided by public hospitals where the services are block funded.

(vii) The Australian Digital Health Agency has responsibility for the strategic management and governance for the national digital health strategy and the design, delivery and operations of the national digital healthcare system.

Other investments

The Biomedical Translation Fund (BTF) is an equity co-investment venture capital program announced in the National Innovation and Science Agenda to support the development of biomedical ventures in Australia. The BTF Program will help translate biomedical discoveries into high growth potential companies that are improving long term health benefits and national economic outcomes. It is delivered by the Department of Industry, Innovation and Science (AusIndustry) on behalf of the Department through licensed private sector venture capital fund managers.

Accounting policy

Administered investments represent corporate Commonwealth entities within the Health portfolio. Administered investments in subsidiaries, joint ventures and associates are not consolidated because their consolidation is only relevant at the whole-of-Government level.

Administered investments other than those held for sale are classified as available-for-sale and are measured at their fair value as at 30 June 2018. Fair value has been taken to be the Australian Government’s proportional interest in the value of net assets of each licensed investment fund, based on the latest available audited trust accounts and increased by the value of new investments acquired during the reporting period.

None of the investments are expected to be recovered within 12 months.

Note 21: Administered income, debtors and loans

2018

2017

$'000

$'000

Note 21A: Special Accounts

Special accounts revenue

Medicare Guarantee Fund (Health) special account

34,774,894

-

Medical Research Future Fund special account

-

60,876

Other special accounts

4,339

3,994

Total special accounts revenue

34,779,233

64,870

Note 21B: Recoveries

Recoveries received

Medical and pharmaceutical benefits and health rebate schemes

99,694

61,278

PBS drug recoveries

2,358,863

3,267,515

Aged care recoveries, cross-billings and budget neutrality adjustments

484,209

396,182

Other recoveries

652

568

Total recoveries received

2,943,418

3,725,543

Accrued recoveries revenue

Personal benefits

Pharmaceutical benefits

1,297,766

856,998

Home support and care

14,971

9,746

Medicare benefits

25,241

28,142

Other personal benefits

418

474

Subsidies

Medical indemnity

2

6,494

Aged care

30,512

27,083

Other

49

49

Total accrued recoveries revenue

1,368,959

928,986

Accounting policy

All administered revenues are revenues relating to the course of ordinary activities performed by the Department on behalf of the Australian Government. As such, administered appropriations are not revenues of the individual entity that oversees distribution or expenditure of the funds as directed. Special accounts revenue is recognised when the Department gains control of the relevant amounts. Recoveries are recognised on an accrual basis and relate to:

  • recoveries under the medical benefits, pharmaceutical benefits and health rebate schemes after settlement of personal injury claims;
  • recoveries for services provided under the National Disability Insurance Scheme and for young people in residential care;
  • rebates associated with PBS drug recoveries; and
  • recoveries from the DHS Recovery of Compensation for Health Care and Other Services Special Account.

All accrued recoveries revenue is expected to be recovered within 12 months.

2018

2017

$'000

$'000

Note 21C: Other Revenue, Receivables and Loans

Other revenue

Levies and taxes

20,202

18,932

Interest from loans

13,035

12,343

Other

181,729

159,058

Total other revenue received

214,966

190,333

Other receivables

Trade and other miscellaneous receivables

465,286

373,903

GST receivable from the Australian Taxation Office

33,469

43,854

Total other receivables

498,755

417,757

Advances and loans

Aged care facilities

Nominal value

314,577

317,774

Less: Unexpired discount

(44,515)

(51,456)

Total advances and loans

270,062

266,318

Accounting policy

Loans were made to approved providers under the Aged Care Act 1997 for an estimated period of 12 years. No security is generally required. Interest rates are linked to the Consumer Price Index. Interest payments are due on the 21st day of each calendar month.

Total loans and other receivables (gross)

768,817

684,075

Aged as follows

Not overdue

678,375

588,431

Overdue by:

0 to 30 days

35,698

4,148

31 to 60 days

1,848

6,624

61 to 90 days

1,097

8,794

More than 90 days

51,799

76,078

Total overdue

90,442

95,644

Total loans and other receivables (gross)

768,817

684,075

Less impairment allowance

(13,323)

(12,481)

Total loans and other receivables (net)

755,494

671,594

Loans and other receivables - past due but not impaired

77,119

83,163

Accounting Policy

Credit terms for goods and services were 30 days (2017: 30 days).

Reconciliation of the Impairment Allowance

2018

2017

$'000

$'000

Opening balance

(12,481)

(7,637)

Amounts written off

222

4,348

Amounts recovered and reversed

1,110

2,127

Increase recognised in net cost of services

(2,174)

(11,319)

Closing balance

(13,323)

(12,481)

Accounting Policy

The entire impairment allowance relates to debts aged more than 90 days.

Note 22: Administered cash and other financial instruments

2018

2017

$'000

$'000

Note 22A: Financial Assets

Cash and cash equivalents

Cash on hand or on deposit

5,212

91,310

Cash in special accounts

553,888

55,499

Total cash and cash equivalents

559,100

146,809

Loans and receivables

Accrued recoveries revenue

1,296,326

855,485

Other receivables

451,963

361,422

Advances and loans

270,062

266,318

Total loans and receivables

2,018,351

1,483,225

Available-for-sale financial assets

Investments in portfolio agencies

460,345

448,404

Other investments

22,297

6,568

Total available-for-sale financial assets

482,642

454,972

Total financial assets

3,060,093

2,085,006

Net gains or losses on financial assets

Loans and receivables

Interest revenue

13,035

12,343

Impairment

(2,163)

(12,098)

Net gains or losses on loans and receivables

10,872

245

Net gains or losses on financial assets

10,872

245

Note 22B: Financial Liabilities

Financial liabilities measured at amortised cost

Trade creditors

35,635

22,841

Grants payable

312,088

317,461

Total financial liabilities measured at amortised cost

347,723

340,302

Total financial liabilities

347,723

340,302

The Department’s administered accounts incurred no gains or losses on the exchange of financial liabilities.

Note 23: Administered non-financial assets

Note 23A: Property, Plant and Equipment and Intangibles

Accounting policy and relevant background details

Land and buildings were transferred to the Tasmanian Government for a total consideration of $1, effective 1 July 2017. The expected loss on sale was recognised as at 30 June 2017, and land and buildings were designated as assets held for sale. The total value of assets held for sale was $1 as at 30 June 2017, therefore no additional disclosures associated with assets held for sale could be made.

2018

2017

$'000

$'000

Note 23B: Inventory

National Medical Stockpile

Opening balance

115,262

111,265

Add purchases

24,925

25,536

Less deployment

(13)

(16)

Less impairment

(24,401)

(21,474)

Add stocktake adjustments

(8)

(49)

Closing balance

115,765

115,262

Accounting policy

The Department’s inventories relate to the National Medical Stockpile (the Stockpile). The Stockpile is a strategic reserve of medicines, vaccines, antidotes and protective equipment available for use as part of the national response to a public health emergency. It is intended to augment State and Territory Government reserves of key medical items in a health emergency, which could arise from terrorist activities or natural causes.

Inventories held for distribution are valued at cost, adjusted for any loss of service potential. Not all inventories are expected to be distributed in the next 12 months.

Costs incurred in bringing each item of the Stockpile to its present location and condition include purchase cost plus other reasonably attributable costs, such as overseas shipping and handling and import duties, less any bulk order discounts and rebates received from suppliers.

Note 24: Administered contingent assets and liabilities

Indemnities

Claims for costs

Aged Care Accommodation Bond Guarantee Scheme

Total

2018

2017

2018

2017

2018

2017

2018

2017

$'000

$'000

$'000

$'000

$'000

$'000

$'000

$'000

Contingent assets

Balance from previous period

-

-

20,000

-

-

-

20,000

-

New contingent assets recognised

-

-

6,200

20,000

-

-

6,200

20,000

Assets recognised

-

-

(10,000)

-

-

-

(10,000)

-

Total contingent assets

-

-

16,200

20,000

-

-

16,200

20,000

Contingent liabilities

Balance from previous period

73,000

60,000

20,245

90

-

208

93,245

60,298

New contingent liabilities recognised

-

-

6,218

20,245

-

-

6,218

20,245

Re-measurement

(28,000)

13,000

-

-

-

-

(28,000)

13,000

Liabilities recognised

-

-

(2)

(8)

-

(136)

(2)

(144)

Obligations expired

-

-

(10,017)

(82)

-

(72)

(10,017)

(154)

Total contingent liabilities

45,000

73,000

16,444

20,245

-

-

61,444

93,245

Net contingent liabilities

(45,000)

(73,000)

(244)

(245)

-

-

(45,244)

(73,245)

Quantifiable Contingent Assets

Claims for costs

The Schedule of contingencies reports contingent assets in respect of claims for costs of $16.2m (2017: $20m).

Quantifiable Contingent Liabilities

Indemnities

The table on the previous page reports a contingent liability in respect of medical indemnity payments under the High Cost Claims Scheme of up to $45m (2017: $73m).

Claims for Costs

The table also reports a contingent liability in respect of claims for costs of up to $16.444m (2017: $20.245m).

Aged Care Accommodation Bond Guarantee Scheme

The Department is not currently aware of the potential for the accommodation bond scheme to be activated (2017: NIL).

Unquantifiable Contingent Assets

Compensation from Sanofi

The Department has initiated legal action against Sanofi to recover significant lost savings it claims were denied to it because interim injunctions granted to Sanofi in unsuccessful patent litigation delayed a generic version of clopidogrel being listed on the Pharmaceutical Benefits Scheme and thereby delayed statutory price reductions for brands of clopidogrel.

Compensation from Wyeth

The Department has initiated legal action against Wyeth to recover significant lost savings it claims were denied to it because interim injunctions granted to Wyeth in unsuccessful patent litigation delayed a generic version of venlafaxine being listed on the Pharmaceutical Benefits Scheme and thereby delayed statutory price reductions for brands of venlafaxine.

Compensation from Otuska

The Department has initiated legal action against Otuska to recover significant lost savings it claims were denied to it because interim injunctions granted to Otuska in unsuccessful patent litigation delayed a generic version of aripiprazole being listed on the Pharmaceutical Benefits Scheme and thereby delayed statutory price reductions for brands of aripiprazole.

Unquantifiable Contingent Liabilities

Aged Care Accommodation Bond Guarantee Scheme

A Guarantee Scheme has been established through the Aged Care (Accommodation Payment Security) Act 2006 and Aged Care (Accommodation Payment Security) Levy Act 2006. Under the Guarantee Scheme, if a provider becomes insolvent or bankrupt and is unable to repay outstanding bond balances to aged care residents, the Australian Government will step in and repay the bond balances owing to each resident. In return, the residents' rights to pursue the defaulting provider to recover the accommodation bond money transfer to the Government. In the event the Government cannot recover the full amount from the defaulting provider, it may levy all providers holding accommodation bonds to recoup the shortfall. It is not possible to quantify the Australian Government's contingent liability in the event that the Guarantee Scheme is activated. The Department has implemented risk mitigation strategies which should reduce the risk of default and thereby activation of the Guarantee Scheme.

From the latest available information, the maximum contingent liability, in the unlikely event that all providers defaulted, is $25 billion. Since the scheme was introduced it has been activated eleven times requiring payment of $43.57m. It is difficult to predict if the past patterns of payments are indicative of future payments. The scheme was not activated during the period ended 30 June 2018, but interest of $0.083m was paid as the interest component of refund payment owed from the previous year.

Diagnostic Products Agreement

The Australian Government has provided an indemnity to a review of certain matters in relation to the Diagnostics Products Agreement. The indemnity provides certain specified members of the review the same level of indemnity as Australian Government officers for the purpose of the review. For the period ended 30 June 2018 no claims have been made (2017: Nil).

Medical Indemnity

DHS delivers the Exceptional Claims Scheme (ECS) on behalf of the Australian Government. Under this scheme, the Australian Government will be liable for the cost of medical indemnity claims that exceed certain thresholds. The Consolidated Revenue Fund is appropriated to make payments under this Scheme. To be covered by the ECS, practitioners must have medical indemnity insurance cover to at least a threshold of $15m for claims arising from incidents notified between 1 January to 30 June 2003 and $20m for claims notified from 1 July 2003. At 30 June 2018, the Department had received no notification of any incidents that would give rise to claims under this scheme. However, the nature of these claims is such that there is usually an extended period between the date of the medical incident and notification to the insurer. For the period ended 30 June 2018 no claims have been made or notified (2017: Nil).

CSL Ltd

Under existing agreements, the Australian Government has indemnified CSL Ltd for certain existing and potential claims made for personal injury, loss or damage suffered through therapeutic and diagnostic use of certain products manufactured by CSL Ltd. For the period ended 30 June 2018 no claims have been made (2017: Nil).

The Australian Government has indemnified CSL Ltd for a specific range of events that occurred during the Plasma Fractionation Agreement from 1 January 1994 to 31 December 2004, where alternative cover was not arranged by CSL Ltd. For the period ended 30 June 2018 no claims have been made (2017: Nil).

Australian Red Cross Blood Service

Under certain conditions the Australian Government, States and Territories jointly provide indemnity for the Australian Red Cross Blood Service through a cost sharing arrangement for claims, both current and potential, regarding personal injury and loss of life. Under a Memorandum of Understanding between governments and the Blood Service, the blood and blood products liability cover for the Blood Service remains in force until all parties agree to terminate the arrangements from an agreed date.

The existing Deed of Agreement between the Commonwealth and the Australian Red Cross Society (ARCS), in relation to the operations of the Australian Red Cross Blood Service (ARCBS), includes certain indemnities and limited liability in favour of ARCS. For the period ended 30 June 2018 no claims have been made (2017: Nil).

Vaccines

Under certain conditions the Australian Government has provided an indemnity for the supply of certain vaccines to the suppliers of the vaccines. The contracts under which contingent liability is recognised will expire in October 2020 and June 2025 respectively. However, until replacement stock is sourced the contingent liability for use of the vaccine currently held remains with the Commonwealth. For the period ended 30 June 2018 no claims have been made (2017: Nil).

Human Pituitary Hormone Program

Under certain conditions the Australian Government has provided indemnity for the supply of growth hormones manufactured from human pituitary glands and human pituitary gonadotropin manufactured before 31 December 1985. For the period ended 30 June 2018 no claims have been made (2017: Nil).

The Australian Medical Association

This is an agreement between the Australian Medical Association Ltd (AMA), the Commonwealth, Australian Private Hospitals Association Ltd and Private Healthcare Australia for participation in and support of the Private Mental Health Alliance. In respect of identified information collected, held or exchanged by the parties in connection with the National Model for the Collection and Analysis of a Minimum Data Set with Outcome Measures in Private, Hospital-based Psychiatric Services each party has agreed to indemnify each other in respect of any loss, liability, cost, claim or expense, misuse of Confidential Information or breach of the Privacy Act 1988. The AMA's liability to indemnify the other parties will be reduced proportionally to the extent that any unlawful or negligent act or omission of the other parties or their employees or agents contributed to the loss or damage. For the period ended 30 June 2018 no claims have been made (2017: Nil).

Significant Remote Contingencies

The Department did not have any significant remote contingencies this year or prior year.

Note 25: Administered appropriations

Table A: Annual and Unspent Appropriations ('Recoverable GST exclusive')

2018

2017

$'000

$'000

ADMINISTERED

Ordinary Annual Services - Administered items

Annual appropriation

1,2

8,977,100

8,576,410

Receipts retained under PGPA Act - Section 74

16,935

43,413

Total appropriation

8,994,035

8,619,823

Appropriation applied (current and prior years)

4

(8,566,399)

(8,298,244)

Variance

3

427,636

321,579

Unspent appropriations

Own unspent appropriation balance

826,361

493,857

Prior year section 75 transfers

-

215,882

Closing unspent appropriation balance

5

826,361

709,739

Balance comprises appropriations as follows:

Appropriation Act (No. 1) 2012-2013

6

-

3,323

Appropriation Act (No. 1) 2013-2014

6

-

26,391

Appropriation Act (No. 1) 2014-2015

7

-

213,993

Appropriation Act (No. 5) 2014-2015

7

-

46,689

Appropriation Act (No. 1) 2015-2016

8

67,448

67,448

Supply Act (No. 1) 2016-2017

-

39,359

Appropriation Act (No. 1) 2016-2017

67,527

235,776

Appropriation Act (No. 3) 2016-2017

24,910

76,760

Appropriation Act (No. 1) 2017-2018

562,978

-

Appropriation Act (No. 3) 2017-2018

84,019

-

Appropriation Act (No. 5) 2017-2018

19,479

-

Total unspent appropriation - ordinary annual services - administered items

826,361

709,739

1 There were no amounts temporarily quarantined from 2018 or 2017 administered ordinary annual services appropriations.

2 In 2018 administered ordinary annual services appropriations $21,617,000 of the Appropriation Act (No. 1) 2017-2018 was permanently quarantined under section 51 of the PGPA Act. In 2017 administered ordinary annual services appropriations $135,447,039 of the Appropriation Act (No. 1) 2016-2017 and $25,561,444 of the Supply Act (No. 1) 2016-2017 were permanently quarantined under section 51 of the PGPA Act. This represents a loss of control of the appropriations and therefore these amounts were not reported as available above.

3 The administered ordinary annual services items variance of $427,636,000 relates to the utilisation of retained funding from 2017 during 2018 (the former section 11 of the Appropriation Acts).

4 DHS spent money from the CRF on behalf of the Department under a payment authority. The money spent has been included in the table above.

5 This balance is net of $727,572,139 which is permanently quarantined under section 51 of the PGPA Act, of which $21,617,000 relates to 2018 appropriations, $161,008,483 to 2017 appropriations and $544,946,656 to 2016 appropriations. The total unspent appropriations gross of quarantined amounts under section 51 of the PGPA Act is $1,553,933,139.

6 These balances were repealed by the Appropriation Act (No. 4) 2017-2018 on 29 March 2018.

7 These balances lapsed on 1 July 2017 in accordance with the repeal date of the underlying Appropriation Acts.

8 This balance includes a temporarily quarantined amount of $25,253,000. This does not represent a loss of control of the appropriation and therefore this amount was reported as available in the table above. The entire balance will lapse on 1 July 2018 when the underlying Appropriation Act is repealed.

2018

2017

$'000

$'000

Ordinary Annual Services - Payments to corporate Commonwealth entities

Annual appropriation

510,429

405,074

Total appropriation

510,429

405,074

Appropriation applied (current and prior years)

(510,429)

(405,074)

Variance

-

-

Other services - Administered assets and liabilities

Annual appropriation

25,000

150,537

Total appropriation

25,000

150,537

Appropriation applied (current and prior years)

(44,893)

(35,244)

Variance

1

(19,893)

115,293

Unspent appropriations

Own unspent appropriation balance

222,421

257,381

Closing unspent appropriation balance

222,421

257,381

Balance comprises appropriations as follows:

Appropriation Act (No. 2) 2013-2014

2

-

14,226

Appropriation Act (No. 2) 2014-2015

3

-

840

Appropriation Act (No. 4) 2015-2016

4

95,133

115,263

Supply Act (No. 2) 2016-2017

52,083

53,907

Appropriation Act (No. 2) 2016-2017

72,917

73,145

Appropriation Act (No. 2) 2017-2018

2,288

-

Total unspent appropriation - other services - administered assets and liabilities

222,421

257,381

1 The administered other services assets and liabilities variance of $19,893,000 relates largely to the utilisation of prior year funding for the investment in the Biomedical Translation Fund.

2 This balance was repealed by the Appropriation Act (No. 4) 2017-2018 on 29 March 2018.

3 This balance lapsed on 1 July 2017 in accordance with the repeal date of the underlying Appropriation Acts.

4 This balance will lapse on 1 July 2018 when the underlying Appropriation Act is repealed.

Other Services - Payments to corporate Commonwealth entities

Annual appropriation

54,533

10,589

Total appropriation

54,533

10,589

Appropriation applied (current and prior years)

(54,533)

(10,589)

Variance

-

-

Table B: Special Appropriations Applied ('Recoverable GST exclusive')

Appropriation applied

2018

2017

Authority

$'000

$'000

Aged Care (Accommodation Payment Security) Act 2006

83

720

Aged Care Act 1997

13,678,701

12,948,343

Health Insurance Act 1973

309,229

22,039,801

National Health Act 1953

1,760,120

13,754,186

Medical Indemnity Act 2002

75,838

61,952

Private Health Insurance Act 2007

6,017,801

5,992,179

Dental Benefits Act 2008

333,993

319,304

Health and Other Services (Compensation) Act 1995

-

-

Medical Indemnity Agreement (Financial Assistance - Binding Commonwealth Obligations) Act 2002

-

-

Midwife Professional Indemnity (Commonwealth Contribution) Scheme Act 2010

-

-

Public Governance, Performance and Accountability Act 2013 s.77

583

576

Total special appropriations applied

22,176,348

55,117,061

DHS drew money from the CRF on behalf of the Department against the following special appropriations:

Aged Care Act 1997;

Health Insurance Act 1973;

National Health Act 1953;

Medical Indemnity Act 2002;

Dental Benefits Act 2008; and

Private Health Insurance Act 2007.

Table C: Disclosure by Agent in Relation to Annual and Special Appropriations ('Recoverable GST exclusive')

2018

2017

$'000

$'000

Department of Social Services

Total receipts

36,839

31,507

Total payments

(36,839)

(31,507)

The Department made wage supplementation payments from the Social and Community Services Pay Equity Special Account administered by the Department of Social Services to eligible social and community services workers during 2018 and 2017.

Note 26: Compliance with statutory requirement for payments from the Consolidated Revenue Fund

Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law.

The Department has primary responsibility for administering legislation related to health care. Payments totalling about $56 billion in 2017-18 were authorised against Special Appropriations, including special accounts, by the Department in accordance with a range of frequently complex legislation. Most of the payments are administered by DHS under the Medicare program on behalf of the Department. In the vast majority of cases DHS relies on information or estimates provided by customers and medical providers to calculate and pay entitlements. If an overpayment occurs a breach of section 83 could result despite future payments being adjusted to recover the overpayment. In addition, simple administrative errors can lead to breaches of section 83.

Due to the number of payments made, the reliance that must be placed on external control frameworks and the complexities of the legislation governing these payments, the risk of a section 83 breach cannot be fully mitigated. However, the reported section 83 breaches represent only a very small portion of payments, both in number and in value, and the Department is committed to implementing measures to ensure that the risk of unintentional breaches of section 83 is as low as possible.

The Department has developed an approach for assessing the alignment of payment processes with legislation. During 2017-18, the Department:

  • included consideration of processes to minimise the risk of section 83 breaches as part of any review of legislation or administrative processes;
  • received assurance from DHS that action has been undertaken to detect and prevent any potential breaches of section 83;
  • continued its ongoing reviews of special accounts by internal audit as part of its rolling compliance program;
  • obtained legal advice, as appropriate, to resolve questions of potential non-compliance; and
  • identified legislative/procedural changes to reduce the risk of non-compliance in the future.

Special Appropriations

The Department administers 11 pieces of legislation, as disclosed in Note 25 Table B, with Special Appropriations for statutory payments. Some payments under the following legislation have been identified as having either actual or potential breaches of section 83:

Health Insurance Act 1973

DHS have advised that during 2017-18, 171 instances have been identified with a total value of $29,289 where the payment made was not authorised by section 125(1) of the Act for the Medicare Easyclaim Program.

DHS have also advised that during 2017-18 there have been two payment errors under the Stoma Appliance: Paraplegic and Quadriplegic Program which constitute an error rate of less than 0.03% of payments. DHS have put in place remedial actions with reviews of the program’s conformance assessment and risk plans.

Special Accounts

Currently the Department has nine Special Accounts, detailed in Note 27. Seven are assessed as low risk one is assessed as medium risk and one is assessed as medium to high risk for non-compliance with section 83.

Continued Focus

The Department will continue to review legislation, new policy proposals, business rules and payment processes to assess the risk of breaches of section 83. In addition, it will continue ongoing reviews of special accounts by the Department’s Integrity Branch as part of its rolling compliance program.

Note 27: Special accounts

Services for Other Entities and Trust Moneys Account

1

Australian Immunisation Register Account

2

Human Pituitary Hormones Account

3

2018

2017

2018

2017

2018

2017

$'000

$'000

$'000

$'000

$'000

$'000

Balance brought forward from previous period

19,135

18,773

4,616

3,876

2,371

2,570

Timing adjustments related to prior years

(119)

(270)

-

-

-

-

Increases

Appropriation credited to special account

12,447

10,226

3,222

6,971

-

-

Other increases

7,674

8,470

4,014

3,724

-

-

Total increases

20,121

18,696

7,236

10,695

-

-

Available for payments

39,137

37,199

11,852

14,571

2,371

2,570

Decreases

Administered

-

-

9,895

9,955

115

199

Total administered decreases

-

-

9,895

9,955

115

199

Relevant Money

21,761

18,064

-

-

-

-

Total relevant money decreases

21,761

18,064

-

-

-

-

Total decreases

21,761

18,064

9,895

9,955

115

199

Total balance carried to the next period

17,376

19,135

1,957

4,616

2,256

2,371

1 Establishing Instrument: Public Governance, Performance and Accountability Act 2013; section 78

Appropriation: Public Governance, Performance and Accountability Act 2013; section 78

Purpose: to disburse amounts held on trust or otherwise for the benefit of a person other than the Commonwealth; disburse amounts in connection with services performed on behalf of other government bodies that are not non-corporate Commonwealth entities; to repay amounts where an Act or other law requires or permits the repayment of an amount received; to reduce the balance of the special account (and, therefore the available appropriation for the special account) without making a real or notional payment.

2 Establishing Instrument: Public Governance, Performance and Accountability Act 2013; section 78

Appropriation: Public Governance, Performance and Accountability Act 2013; section 78

Purpose: for expenditure relating to the operations of the Australian Childhood Immunisation Register, including payments to providers for the provision of information. The Australian Childhood Immunisation Register Special Account ceased on 1 October 2016 under Part 6 (sunsetting) of the Legislative Instruments Act 2003. A new special account was established to replace it. The new special account is the Australian Immunisation Register 2016.

3 Establishing Instrument: Public Governance, Performance and Accountability Act 2013; section 78

Appropriation: Public Governance, Performance and Accountability Act 2013; section 78

Purpose: for expenditure through grants and other payments for:

  • counselling and support services to recipients of pituitary-derived hormones and their families;
  • medical and other care to people treated with pituitary-derived hormones should they contract Creutzfeldt-Jakob disease as a result of the treatment;
  • one-off payments for recipients of pituitary-serviced hormones who can demonstrate that they have suffered a psychiatric illness prior to 1 January 1998 due to their having been informed that they are at a greater risk of contracting Creutzfeldt-Jakob disease; and
  • one-off payments for the children of recipients of pituitary-derived hormones who can demonstrate that they have suffered a psychiatric illness as a consequence of the death of their parent from Creutzfeldt-Jakob disease.

Sport and Recreation Account

4

Therapeutic Goods Administration Account

5

Gene Technology Account

6

2018

2017

2018

2017

2018

2017

$'000

$'000

$'000

$'000

$'000

$'000

Balance brought forward from previous period

596

624

62,604

66,039

8,259

7,872

Timing adjustments related to prior years

-

-

-

-

-

60

Increases

Appropriation credited to special account

-

2,439

2,574

7,544

7,641

Other increases

325

270

150,563

143,647

143

139

Total increases

325

270

153,002

146,221

7,687

7,780

Available for payments

921

894

215,606

212,260

15,946

15,712

Decreases

Departmental

-

-

142,280

149,656

7,534

7,453

Total departmental decreases

-

-

142,280

149,656

7,534

7,453

Administered

404

298

-

-

-

-

Total administered decreases

404

298

-

-

-

-

Total decreases

404

298

142,280

149,656

7,534

7,453

Total balance carried to the next period

517

596

73,326

62,604

8,412

8,259

4 Establishing Instrument: Public Governance, Performance and Accountability Act 2013; section 78

Appropriation: Public Governance, Performance and Accountability Act 2013; section 78

Purpose: to undertake sport and recreation related projects of common interest to the Sport and Recreation Ministers' Council, its successor or subordinate bodies, and that benefit all or a majority of members.

The Sport and Recreation Special Account ceased on 1 October 2016 under Part 6 (sunsetting) of the Legislative Instruments Act 2003. A new special account was established to replace it.

5 Establishing Instrument: Therapeutic Goods Act 1989

Appropriation: Public Governance, Performance and Accountability Act 2013; section 80

Purpose: The purpose has been set out in section 45 of the Therapeutic Goods Act 1989 and are:

  • to make payments to further the objects of the Act; and
  • to enable the Commonwealth to participate in the international harmonisation of regulatory controls on therapeutic goods and other related activities.

6 Establishing Instrument: Gene Technology Act 2000

Appropriation: Public Governance, Performance and Accountability Act 2013; section 80

Purpose: for the receipt of all moneys and payment of all expenditures and disbursements related to all operations of the Gene Technology Regulator.

Industrial Chemicals Account

7

Medical Research Future Fund Account

8

Medicare Guarantee Fund

9

2018

2017

2018

2017

2018

2017

$'000

$'000

$'000

$'000

$'000

$'000

Balance brought forward from previous period

18,055

14,806

47,916

-

-

-

Timing adjustments related to prior years

-

(85)

-

-

-

-

Increases

Appropriation credited to special account

322

3,762

-

60,876

34,774,894

-

Other increases

16,928

17,764

-

-

-

-

Total increases

17,250

21,526

-

60,876

34,774,894

-

Available for payments

35,305

36,247

47,916

60,876

34,774,894

-

Decreases

Departmental

17,907

18,192

-

-

-

-

Total departmental decreases

17,907

18,192

-

-

-

-

Administered

-

-

31,322

12,960

34,242,330

-

Total administered decreases

-

-

31,322

12,960

34,242,330

-

Total decreases

17,907

18,192

31,322

12,960

34,242,330

-

Total balance carried to the next period

17,398

18,055

16,594

47,916

532,564

-

7 Establishing Instrument: Industrial Chemicals (Notification and Assessment) Act 1989

Appropriation: Public Governance, Performance and Accountability Act 2013; section 80

Purpose: for the receipt of all moneys and payment of all expenditures and disbursements related to all operations of the National Industrial Chemicals Notification and Assessment Scheme.

8 Establishing Instrument: Medical Research and Future Fund Act 2015

Appropriation: Public Governance, Performance and Accountability Act 2013; section 80

Purpose: to provide grants of financial assistance to support medical research and medical innovation.

The Medical Research Future Fund Health Special Account was established on 26 August 2015.

9Medicare Guarantee Fund (Health) Special Account

Establishing Instrument: Medicare Guarantee Act 2017

Appropriation: Public Governance, Performance and Accountability Act 2013; section 80

Purpose: to secure the ongoing funding of the Medicare Benefits Schedule and the Pharmaceutical Benefits Scheme.

The Medicare Guarantee Fund (Health) Special Account was established on 26 June 2017. No financial activity occurred in the 2017 financial year.

Note 28: Regulatory charging summary

2018

2017

$'000

$'000

Amounts applied

Departmental

Annual appropriations

28,262

31,471

Own source revenue

158,861

164,973

Administered

Annual appropriations

2,562

3,860

Total amounts applied

189,685

200,304

Expenses

Departmental

195,024

195,788

Administered

776

3,889

Total expenses

195,800

199,677

Revenue

Departmental

176,704

162,032

Administered

16,659

14,157

Total external revenue

193,363

176,189

Amounts written off

Departmental

79

200

Administered

-

-

Total amounts written-off

79

200

Regulatory charging activities:

The Therapeutic Goods Administration funds are used to undertake activities to evaluate the safety, quality and efficacy of medicines, medical devices and biologicals available for supply in, or export from Australia.

National Industrial Chemicals Notification and Assessment Scheme charges are levied for registration or assessment of chemicals across Australia.

The Prostheses Listing arrangements refer to the activities involved in listing prostheses and their benefits for the purposes of private health insurance reimbursement.

The National Joint Replacement Registry facilitates the collection of data that provides a prospective case series on all joint replacement surgery undertaken in Australia.

Administered revenue only is recorded for the Private Health Insurance Ombudsman Levy.

Listing of medicines on the Pharmaceutical Benefits Scheme and designated vaccines on the National Immunisation Program are subject to regulatory charges.

Medicinal cannabis: Licence and permit applications for the cultivation and manufacture of Australian produced medicinal cannabis products.

Documentation for the above activities is available at:

www.tga.gov.au/cost-recovery-implementation-statement

www.nicnas.gov.au/about-us/how-we-work/cost-recovery-implementation-statement-201718

www.health.gov.au/internet/main/publishing.nsf/Content/EE9D7DA6EA42BDE0CA257BF00020623C/$File/Cost%20Recovery%20Implementation%20Statement%20-%20Administration%20of%20the%20Prostheses%20List.pdf

www.health.gov.au/internet/main/publishing.nsf/Content/phib-njrr

www.pbs.gov.au/info/news/2017/09/cris-2017-2018

www.odc.gov.au/publications/cost-recovery-implementation-statement-regulation-medicinal-cannabis