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Department of Health Annual Report 2018–19

Part 4.2: 2018-19 Financial Statements

Independent Auditor’s Report
Statement by the Secretary and Chief Financial Officer
Overview
Departmental Statement of Comprehensive Income
Departmental Statement of Financial Position
Departmental Statement of Changes in Equity
Departmental Cash Flow Statement
Note 1: Departmental operating result reconciliation
Note 2: Departmental explanation of budget variances
Note 3: Departmental cash flow reconciliation
Note 4: Employees
Note 5: Key management personnel remuneration
Note 6: Related party transactions
Note 7: Departmental suppliers, other expenses and payables
Note 8: Departmental income and receivables
Note 9: Departmental appropriation income and receivable
Note 10: Departmental cash and financial instruments
Note 11: Departmental property, plant and equipment and intangibles
Note 12: Fair value measurement
Note 13: Departmental aggregate assets and liabilities
Note 14: Departmental contingent assets and liabilities
Note 15: Departmental appropriations
Note 16: Therapeutic Goods Administration
Note 17: Restructuring
Administered Schedule of Comprehensive Income
Administered Schedule of Assets and Liabilities
Administered Reconciliation Schedule
Administered Cash Flow Statement
Note 18: Administered explanation of budget variances
Note 19: Administered cash flow reconciliation
Note 20: Administered transfer payments
Note 21: Administered suppliers and other expenses and payables
Note 22: Administered Corporate Commonwealth Entities
Note 23: Administered income, debtors and loans
Note 24: Administered cash and financial instruments
Note 25: Administered non-financial assets
Note 26: Administered aggregate assets and liabilities
Note 27: Administered contingent assets and liabilities
Note 28: Administered appropriations
Note 29: Compliance with statutory requirement for payments from the Consolidated Revenue Fund
Note 30: Special accounts
Note 31: Regulatory charging summary

Independent Auditor’s Report

Statement by the Secretary and Chief Financial Officer; Overview; Departmental Statement of Comprehensive Income; Departmental Statement of Financial Position; Departmental Statement of Changes in Equity; Departmental Cash Flow Statement; Administered Schedule of Comprehensive Income; Administered Schedule of Assets and Liabilities; Administered Reconciliation Schedule; Administered Cash Flow Statement; and Notes to and forming part of the financial statements, comprising significant accounting policies and other explanatory information. Basis for opinion. I conducted my audit in accordance with the Australian National Audit Office Auditing Standards, which incorporate the Australian Auditing Standards. My responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of Financial Statements section of my report. I am independent of the Entity in accordance with the relevant ethical requirements for financial statement audits conducted by the Auditor-General and his delegates. These include the relevant independence requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) to the extent that they are not in conflict with the Auditor-General Act 1997. I have also fulfilled my other responsibilities in accordance with the Code. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion. Key audit matters Key audit matters are those matters that, in my professional judgement, were of most significance in my audit of the financial statements of the current period. These matters were addressed in the context of my audit of the financial statements as a whole, and in forming my opinion thereon, and I do not provide a separate opinion on these matters.

Calculated by multiple, complex information technology systems; Based on the information provided by the payment recipients and may be significantly impacted by delays in recipients providing correct or updated information and/or provision of misleading information in order to obtain financial gain; and Significant to the financial statements. During 2018-19 financial year, the Department of Health recognised personal benefits expenses of $46,174,150,000 and $12,566,487,000 of aged care subsidies expenses. How the audit addressed the matter. I applied the following audit procedures to address this key audit matter: tested the key business processes, controls and information technology (IT) systems related to the calculation and processing of payments; assessed the design and operating effectiveness of internal controls related to the accreditation and registration of medical providers, pharmacies and aged care providers; and for a sample of payments, tested that the transaction was accurately calculated and recorded, and assessed the eligibility of recipients. Key audit matter. Valuation of personal benefits provisions and subsidies provisions. Refer to Note 20B ‘Personal benefits provisions’ and Note 20C ‘Subsidies provisions’. I considered this area a key audit matter due to the significant actuarial based assumptions and judgements involved in estimating the personal benefits and subsidies provisions. The complicated judgements relate to the amount and timing of future cash flows, estimating the period over which these provisions are expected to be settled by the Department of Health and use of an appropriate discount rate. These judgements rely on the completeness and accuracy of the underlying historical data used in the estimation process. As at 30 June 2019, the personal benefits provisions were $898,879,000 and subsidies provisions were $430,000,000. How the audit addressed the matter. I applied the following audit procedures to address this key audit matter: tested the Department of Health’s review and approval process of actuarial assumptions used in the estimation of provisions; assessed the appropriateness of significant assumptions and judgements made during the estimation process including the timing and amount of future cash flows and appropriateness of the discount rate used; and assessed the data used in the estimation process for accuracy and completeness.

identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Entity’s internal control; evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Accountable Authority; conclude on the appropriateness of the Accountable Authority’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity’s ability to continue as a going concern. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the Entity to cease to continue as a going concern; and evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. I communicate with the Accountable Authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

From the matters communicated with the Accountable Authority, I determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. I describe these matters in my auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, I determine that a matter should not be communicated in my report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Australian National Audit Office Sean Benfield Executive Director Delegate of the Auditor‐General Canberra 26 August 2019.

Statement by the Secretary and Chief Financial Officer

In our opinion, the attached financial statements for the year ended 30 June 2019 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. Glenys Beauchamp PSM, Secretary, Department of Health, 23 August 2019 David Hicks CPA, Acting Chief Financial Officer, Department of Health, 23 August 2019

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 2019 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; 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 records of the 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 departmental ledgers 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.

During the period, the Department adopted AASB 9 Financial Instruments which did not materially change the disclosure of financial assets and liabilities.

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:

New standard	Expected impact
AASB 15 Revenue from Contracts with Customers	No material change to revenue recognised during a reporting period. Significant increase to carrying values of unearned revenue related to contracts in progress.
AASB 1058 Income of Not-for-Profit Entities	No material impact anticipated.
AASB 16 Leases	An overall increase in expenses related to lease agreements in reporting periods following adoption with progressive decrease in expenses toward the end of the lease agreements. Leases identified are limited to leases for property and motor vehicles.

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.

The Government established the independent Aged Care Quality and Safety Commission, effective 1 January 2019. The agency incorporated the functions of the Aged Care Complaints Commissioner, formerly part of the Department.

The financial impact of the restructuring arrangements is reported in detail at Note 17: Restructuring.

No administered functions were transferred to or from the Department under restructure arrangements during the financial year.

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 2018-19

Sponsors of certain products on the Australian Register of Therapeutic Goods during the 2018-19 year have until 15 September 2019 to apply for exemption from the annual charges for the year. An estimate of the value of the exemptions has been incorporated in 2018-19 revenues.

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 2020 financial year.

Administered Inventory

$11.1m of administered inventory held in the National Medical Stockpile will pass its expiry date during the period July to October 2019 (2018: $1.7m).

Departmental Statement of Comprehensive Income

for the period ending 30 June 2019

	Notes	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000
NET COST OF SERVICES
EXPENSES
Employee benefits	4A	533,383	511,041	544,486
Suppliers	7A	334,256	294,478	308,861
Depreciation and amortisation	11	34,240	30,474	34,090
Grants		24,931	-	-
Other expenses	7B	2,253	4,253	2,500
Total expenses		929,062	840,246	889,937

OWN-SOURCE INCOME
Revenue	8A	194,778	185,436	193,799
Gains	8B	412	955	870
Total own-source income		195,190	186,391	194,669
Net cost of services		733,873	653,855	695,268

Revenue from Government	9A	705,401	658,441	670,975
(Deficit)/surplus attributable to the Australian Government		(28,471)	4,586	(24,293)

OTHER COMPREHENSIVE INCOME
Items not subject to subsequent reclassification to net cost of services
Changes in asset revaluation surplus		-	2,541	-
Total other comprehensive income		-	2,541	-

Total comprehensive (loss)/income attributable to the Australian Government	1	(28,471)	7,127	(24,293)

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

Departmental Statement of Financial Position

as at 30 June 2019

	Notes	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000
ASSETS
Financial assets
Cash and cash equivalents	10A	104,373	100,591	99,452
Appropriations receivable	9B	65,850	54,868	-
Trade and other receivables	8C	16,258	16,896	20,139
Receivable from Government		24,931	-	-
Accrued revenue		9,851	5,431	2,160
Total financial assets		221,263	177,786	121,751

Non-financial assets
Land and buildings	11	49,597	55,067	47,186
Property, plant and equipment	11	6,096	6,210	5,859
Intangibles	11	120,160	117,899	131,104
Prepayments		13,305	15,474	27,477
Lease incentives		8,530	9,338	-
Total non-financial assets		197,689	203,988	211,626
Total assets		418,951	381,774	333,377

LIABILITIES
Payables
Supplier payables	10C	90,788	73,498	56,787
Employee payables	4B	10,560	5,413	4,616
Other payables	7D	41,384	44,088	49,055
Total payables		142,732	122,998	110,458

Provisions
Employee provisions	4C	160,344	148,101	142,712
Other provisions	7E	32,309	30,347	30,179
Total provisions		192,653	178,448	172,891
Total liabilities		335,386	301,447	283,349

Net assets		83,566	80,327	50,028

EQUITY
Contributed equity		302,795	271,086	299,010
Asset revaluation reserve		37,746	37,747	35,206
Accumulated deficit		(256,976)	(228,506)	(284,188)
Total equity		83,566	80,327	50,028

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

Departmental Statement of Changes in Equity

as at 30 June 2019

	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000
ACCUMULATED DEFICIT
Opening balance
Balance carried forward from previous period	(228,506)	(233,092)	(259,895)
(Deficit)/surplus attributable to the Australian Government	(28,471)	4,586	(24,293)
Closing balance as at 30 June	(256,978)	(228,506)	(284,188)

ASSET REVALUATION RESERVE
Opening balance
Balance carried forward from previous period	37,748	35,206	35,206
Other comprehensive income	-	2,541	-
Closing balance as at 30 June	37,748	37,748	35,206

CONTRIBUTED EQUITY
Balance carried forward from previous period	271,086	252,569	271,086
Transactions with owners
Equity injection - appropriations	19,246	7,422	19,017
Departmental Capital Budget	12,708	11,095	8,907
Restructuring¹	(245)	-	-
Total transactions with owners	31,709	18,517	27,924
Closing balance as at 30 June	302,795	271,086	299,010

TOTAL EQUITY
Opening balance
Balance carried forward from previous period	80,328	54,682	46,397
Comprehensive (loss)/gain for the period	(28,471)	7,127	(24,293)
Transactions with owners	31,709	18,517	27,924
Closing balance as at 30 June	83,566	80,327	50,028

¹ Refer to Note 17 – Restructuring for details

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

Departmental Cash Flow Statement

for the period ending 30 June 2019

	Notes	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000
OPERATING ACTIVITIES
Cash received
Appropriations		804,138	746,701	745,323
Sale of goods and rendering of services		195,788	181,068	191,882
Net GST received		30,920	25,797	20,570
Other		-	-	1,635
Total cash received		1,030,845	953,566	959,410

Cash used
Employees		(517,472)	(515,999)	(548,966)
Suppliers		(348,663)	(307,395)	(307,488)
Net GST paid		-	-	(20,570)
Section 74 receipts transferred to the Official Public Account		(125,387)	(107,463)	(64,192)
Grants		(24,931)	-	-
Other		(595)	(1,123)	(8,097)
Total cash used		(1,017,048)	(931,980)	(949,313)
Net cash from operating activities	3	13,797	21,586	10,097

INVESTING ACTIVITIES
Cash received
Proceeds from sales of property, plant and equipment		-	1	-
Total cash received		-	1	-

Cash used
Purchase of property, plant, equipment and intangibles		(32,463)	(30,856)	(35,301)
Total cash used		(32,463)	(30,856)	(35,301)
Net cash (used by) investing activities		(32,463)	(30,855)	(35,301)

FINANCING ACTIVITIES
Cash received
Appropriations - Equity injection		11,479	3,146	19,017
Appropriations - Departmental capital budget		10,969	10,992	8,907
Total cash received		22,448	14,138	27,924
Net cash from financing activities		22,448	14,138	27,924

Net increase in cash held		3,782	4,869	2,720

Cash and cash equivalents at the
- beginning of the reporting period		100,591	95,722	96,732
- end of the reporting period	10A	104,373	100,591	99,452

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.

	2019 $'000	2018 $'000
Total comprehensive (loss)/gain	(28,471)	7,127
Unfunded depreciation and amortisation
Total depreciation	34,240	30,474
Less cost recovered depreciation
NICNAS	(645)	(508)
TGA	(7,518)	(6,846)
Net unfunded depreciation	26,077	23,120
Comprehensive (loss)/surplus net of unfunded depreciation and amortisation	(2,395)	30,247

The total comprehensive loss includes the impact of the accounting adjustment for the application of prevailing bond rates to the Department's employee entitlements which increased 2018-19 expenses by $14.26m.

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 2018-19 Portfolio Budget Statements (PBS) and the final 2019 outcome. The information presented below should be read in the context of the following:

the original budget was prepared before the 2018 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 2019 final outcome and budget estimates can in part be attributed to unanticipated movement in the prior year period balances;

the Department’s executive maintained its long term financial management plan to increase cash reserves and improve financial sustainability. A key element of the plan is to target a modest operating surplus net of end of year accounting adjustments and unfunded depreciation and amortisation;

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 2018-19 were higher than budgeted. The Department incurred non-budgeted expenses for grants and higher levels of expenses for suppliers largely as a result of a change in the delivery arrangements for the My Aged Care gateway system. These increases were in part offset by a reduction in employee expenses through a combination of resource transfers within the Commonwealth and the effective management of staffing levels for compliance with the Government’s staffing strategies.

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

provide Health portfolio input to the Royal Commission into Aged Care Quality and Safety;
address pressures on medicinal cannabis license assessment and compliance activities driven by higher than expected demand; and
implement three mandatory quality indicators in residential aged care.

The other significant variations to the Department’s appropriation revenue in 2018-19 were:

the reclassification of administered expenses to departmental with regards to the My Aged Care IT system; and

the transfer of resources to the newly established Aged Care Quality and Safety Commission for the aged care complaints function and to the Department of Social Services Community Grants Hub for grants administration.

Financial assets

The Department’s year-end financial asset position was higher than budgeted primarily due to higher than anticipated opening balances for the year. Appropriation receivable and cash and cash equivalents also increased during the year largely related to the operating result, which was a surplus prior to year-end non-cash accounting adjustments, these include adjustments to employee provisions and lease straight line adjustments. Higher than budgeted supplier liabilities has also impacted the department’s year-end financial asset position. The Department has recorded a $24.9m receivable from Government in respect of non-budgeted expenses for grants.

Non-financial assets

The Department estimated higher levels of acquisition of non-financial assets than were achieved during the year.

Liabilities

Total provisions and payables are higher than budget with supplier and employee payables both higher than budget offset in part by lower other payables. The greater than anticipated supplier payables relates to timing of end of year supplier payments.

The Department experienced a significant increase in employee provisions in 2018-19 largely as a result of the application of actuarial adjustments and the impact of lower than anticipated bond rates.

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

	2019 $'000	2018 $'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	104,373	100,591
Statement of Financial Position	104,373	100,591
Discrepancy	-	-

Reconciliation of net cost of services to net cash from operating activities
Net cost of services	(733,873)	(653,855)
Add revenue from Government	705,401	658,441
Adjustment for non-cash items
Gain on sale of assets	-	(1)
Depreciation/amortisation	34,240	30,474
Net write-down of non-financial assets	1,547	2,443
Movements in assets and liabilities
Assets
Decrease/(increase) in net receivables	(25,768)	(17,890)
Decrease/(increase) in other financial assets	(4,419)	(3,271)
Decrease/(increase) in other non-financial assets	2,977	2,160
Liabilities
Increase/(decrease) in employee provisions/payables	17,146	(4,286)
Increase/(decrease) in supplier payables	18,114	14,528
Increase/(decrease) in other payables	(3,531)	(7,188)
Increase/(decrease) in other provisions	1,963	31
Net cash from operating activities	13,797	21,586

Note 4: Employees

	2019 $'000	2018 $'000
Note 4A: Employee benefits
Wages and salaries	356,060	355,128
Superannuation:
Defined contribution plans	39,634	33,940
Defined benefit plans	38,276	40,635
Leave and other entitlements	91,812	75,811
Separation and redundancies	7,601	5,527
Total employee benefits	533,383	511,041

Note 4B: Employee payables
Wages and salaries	3,915	4,207
Superannuation	4,932	241
Separations and redundancies	1,713	965
Total employee payables	10,560	5,413

Note 4C: Employee provisions
Leave	159,802	147,615
Separations and redundancies	542	486
Total employee provisions	160,344	148,101

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 May 2018. 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:

	2019 $'000	2018 $'000
Key management personnel remuneration
Short-term employee benefits	3,416	3,520
Post-employment benefits	555	593
Other long-term employee benefits	329	312
Total key management personnel remuneration expenses ¹	4,300	4,425

The total number of key management personnel that are included in the above table is 12 (2018: 14).

Remuneration information for executives and other highly paid officials is included in the Annual Report in Part 3.2: People.

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

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

	2019 $'000	2018 $'000
Note 7A: Suppliers
Goods and services supplied or rendered
Contractors and consultants	80,140	53,776
Information technology costs	106,208	91,538
Services delivered under contract or others	32,231	38,852
Property	16,132	15,551
Travel	11,107	9,523
Training and other staff related expenses	6,072	5,327
Legal	8,264	3,011
Committees	3,581	4,208
Other	15,061	15,187
Total goods and services supplied or rendered	278,797	236,973
Other suppliers
Operating lease rentals	51,580	52,235
Workers compensation premiums	3,879	5,270
Total other suppliers	55,459	57,505
Total suppliers	334,256	294,478

Note 7B: Other expenses
Write-down and impairment of assets
Impairment of financial instruments	111	689
Impairment of land and buildings	-	1
Impairment of property, plant and equipment	211	33
Impairment on intangibles	1,335	2,408
Payments made on behalf of Portfolio entities ¹	595	1,121
Act of Grace payments	-	1
Total other expenses	2,253	4,253

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

	2019 $'000	2018 $'000
Note 7C: Commitments
Lease commitments
Operating leases¹	618,195	345,704
Total commitments	618,195	345,704

Minimum lease payments expected to be settled
Within 1 year	51,420	42,329
Between 1-5 years	179,804	216,381
More than 5 years	386,971	86,994
Total leases	618,195	345,704

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.

	2019 $'000	2018 $'000
Note 7D: Other payables
Lease incentive	19,825	25,333
Unearned income	20,732	18,755
Other	827	-
Total other payables	41,384	44,088

Note 7E: Other provisions
Provision for surplus lease space	-	526
Provision for restoration	1,683	1,840
Provision for lease straightlining	30,627	27,981
Total other provisions	32,309	30,347

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 restoration¹	Provision for lease straightlining²	Total
	$'000	$'000	$'000	$'000
As at 1 July 2018	526	1,840	27,981	30,347
Additional provisions made	-	-	3,424	3,424
Amounts used	(239)	(81)	(779)	(1,099)
Amounts reversed	(287)	(77)	-	(364)
Total as at 30 June 2019	-	1,683	30,627	32,309

¹ The Department currently has four (2018: 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

	2019 $'000	2018 $'000
Note 8A: Revenue
Sale of goods and rendering of services
Sale of goods	2,818	1,274
Rendering of services	189,341	181,487
Recoveries received from Portfolio entities	595	1,121
Financial statement audit services	880	860
Other revenue	1,144	694
Total own-source revenue	194,778	185,436

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
Other gains	412	954
Total gains	412	955

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.

Trade receivables, loans and other receivables that are held for the purpose of collecting the contractual cash flows where the cash flows are solely payments of principal and interest, that are not provided at below-market interest rates, are subsequently measured at amortised cost using the effective interest method adjusted for any loss.

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 2018‑19 may not be known until the end of the declaration period on 15 September 2019. 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.

	2019 $'000	2018 $'000
Note 8C: Receivables
Trade and other receivables
Goods and services receivable	13,267	15,152
GST receivable from the Australian Taxation Office	3,850	2,744
Total trade and other receivables (gross)	17,117	17,896

Less impairment allowance ¹	(859)	(1,000)
Total trade and other receivables (net)	16,258	16,896

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

Credit terms for goods and services were within: the Department 30 days (2018: 30 days), TGA 28 days (2018: 28 days).

Note 9: Departmental appropriation income and receivable

	2019 $'000	2018 $'000
Note 9A: Revenue from Government
Appropriations
Departmental appropriations	705,401	658,441
Total revenue from Government	705,401	658,441

Note 9B: Appropriations receivable
Existing programs	49,289	47,813
Undrawn equity injection	14,719	6,952
Departmental Capital Budget	1,842	103
Total appropriations receivable	65,850	54,868

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 financial instruments

	2019	2018
	$'000	$'000
Note 10A: Cash and cash equivalents
Cash and cash equivalents
Cash in special accounts	103,329	99,136
Cash on hand or on deposit	1,044	1,455
Total cash and cash equivalents	104,373	100,591

Note 10B: Financial instruments
Financial assets under AASB 139
Loans and receivables
Goods and services receivable		15,152
Less: Impairment allowance		(1,000)
Total loans and receivables		14,152

Financial assets under AASB 9
Financial assets at amortised cost
Receivables	13,267
Less: Impairment allowance	(859)
Total assets at amortised cost	12,408

Net gains or losses on financial assets
Financial assets at amortised cost
Impairment	(111)	(689)
Net gains or (losses) on financial assets at amortised cost	(111)	(689)

Note 10C: Financial liabilities

Financial liabilities measured at amortised cost
Trade creditors	90,788	73,498
Total financial liabilities measured at amortised cost	90,788	73,498

Note 10D: Classification of financial instruments
Financial asset class	Note	AASB 139 original classification	AASB 9 new classification	AASB 139 carrying amount at 1 July 2018 $'000	AASB 9 carrying amount at 1 July 2018 $'000

Cash and cash equivalents
Cash in special accounts	10A	Held to maturity	Amortised cost	99,136	99,136
Cash on hand or on deposit	10A	Held to maturity	Amortised cost	1,455	1,455
Trade receivables	10B	Loans and receivables	Amortised cost	14,152	14,152
Total financial assets				114,743	114,743

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.

Financial assets

With the implementation of AASB 9 Financial Instruments for the first time in 2019 the department classifies its departmental financial assets, which are trade receivables, as financial assets measured at amortised cost. Financial assets are recognised when the department becomes a party to the contract and has a legal right to receive cash.

Comparatives have not been restated on initial application.

Financial assets at amortised cost

Financial assets included in this category need to meet two criteria:

the financial asset is held in order to collect the contractual cash flows; and
the cash flows are solely payments of principal and interest on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Supplier and other payables are recognised at amortised cost and are recognised to the extent that the goods or services have been received and irrespective of having been invoiced.

Impairment of Financial Assets

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

Financial assets held at amortised cost - if there is objective evidence that an impairment loss has been incurred for items held at amortised cost, 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 2019
	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 2018
Gross book value	56,168	6,426	245,500	4,496	249,996	312,589
Accumulated depreciation/ amortisation and impairment	(1,100)	(216)	(128,553)	(3,543)	(132,096)	(133,413)
Total as at 1 July 2018	55,067	6,210	116,947	953	117,899	179,177
Additions
Purchase or internally developed	4,763	1,517	26,183	-	26,183	32,463
Depreciation and amortisation	(10,233)	(1,419)	(22,264)	(324)	(22,587)	(34,240)
Impairments recognised in net cost of services	-	(211)	(1,335)	-	(1,335)	(1,547)
Total as at 30 June 2019	49,597	6,096	119,531	629	120,160	175,853

Total as at 30 June 2019 represented by
Work in progress	4,685	-	26,808	-	26,808	31,493
Gross book value	56,246	7,647	243,440	4,496	247,935	311,828
Accumulated depreciation/ amortisation and impairment	(11,333)	(1,551)	(150,717)	(3,867)	(154,584)	(167,469)
Total as at 30 June 2019	49,597	6,096	119,531	629	120,160	175,852

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. Financial assets are initially measured at their fair value plus transaction costs where appropriate.

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 and a desktop review to assess fair value was conducted as at 30 June 2019. 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 2019.

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.

The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the entity were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Impairment

All assets were assessed for impairment as at 30 June 2019. 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 2019.

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 comprehensive revaluation was undertaken in 2018. If during the conduct of the desktop valuation, indicators of a particular asset class change materially, that class is subject to specific valuation in the reporting period. Both the comprehensive revaluation and the desktop review were 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 aggregate assets and liabilities

	2019 $'000	2018 $'000
Assets expected to be recovered in
No more than 12 months	234,567	179,607
More than 12 months	184,384	202,167
Total assets	418,951	381,774

Liabilities expected to be settled in
No more than 12 months	185,815	165,928
More than 12 months	149,571	135,519
Total liabilities	335,386	301,447

Note 14: Departmental contingent assets and liabilities

	Guarantees		Claims for damages or costs		Total
	2019	2018	2019	2018	2019	2018
	$'000	$'000	$'000	$'000	$'000	$'000
Contingent assets
Balance from previous period	-	-	-	150	-	150
Rights expired	-	-	-	(150)	-	(150)
Total contingent assets	-	-	-	-	-	-

Contingent liabilities
Balance from previous period	5,000	5,000	-	645	5,000	5,645
Obligations expired	(5,000)	-	-	(645)	(5,000)	(645)
Total contingent liabilities	-	5,000	-	-	-	5,000
Net contingent (liabilities)	-	(5,000)	-	-	-	(5,000)

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 2019 (2018: $NIL).

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 2019 (2018: $NIL).

Guarantees

The schedule of contingencies reports no contingent liabilities in respect of claims for payments as at 30 June 2019 (2018: $5.000m).

Unquantifiable contingencies

Unquantifiable contingent assets and liabilities

At 30 June 2019 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 15: Departmental appropriations

Table A: Annual and Unspent Appropriations ('Recoverable GST exclusive')
	2019 $'000	2018 $'000
DEPARTMENTAL
Ordinary Annual Services
Annual appropriation^1,2	726,804	659,018
Capital budget³	13,376	11,095
Receipts retained under PGPA Act - Section 74	125,388	107,463
Transfers of appropriations under PGPA Act - Section 75 - annual appropriation	(50,286)	-
Transfers of appropriations under PGPA Act - Section 75 - capital budget	(668)	-
Total appropriation	814,614	777,576
Appropriation applied (current and prior years)	(803,340)	(763,044)
Variance⁴	11,274	14,532

Unspent appropriations
Own unspent appropriation balance	48,223	49,371
Closing unspent appropriation balance	48,223	49,371

Balance comprises appropriations as follows:
Appropriation Act (No. 1) 2017-2018	-	47,813
Appropriation Act (No. 1) 2017-2018 - Cash at bank⁵	-	1,455
Appropriation Act (No. 3) 2017-2018 - Departmental Capital Budget (DCB)	-	103
Appropriation Act (No. 1) 2018-2019	42,030	-
Appropriation Act (No. 1) 2018-2019 - Cash at bank⁵	1,044	-
Appropriation Act (No. 3) 2018-2019	3,307	-
Appropriation Act (No. 3) 2018-2019 - Departmental Capital Budget (DCB)	1,842	-
Total unspent appropriation - ordinary annual services	48,223	49,371

¹ There were no amounts temporarily quarantined from 2019 or 2018 departmental ordinary annual services appropriations.

² There were no amounts withheld under section 51 of the PGPA Act from 2019 or 2018 departmental ordinary annual services appropriations.

³ 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.

⁴ The variance of $11,274,000 for departmental ordinary annual services primarily represents the timing difference of payments to suppliers and employees.

⁵ Cash at bank mainly relates to deposits made on 30 June, subject to Section 74 of the PGPA Act (annotated Appropriation Act No. 1).

	2019 $'000	2018 $'000
Other Services - Equity
Annual appropriation^1,2	19,246	7,422
Total appropriation	19,246	7,422
Appropriation applied (current and prior years)	(11,479)	(3,146)
Variance³	7,767	4,276

Unspent appropriations
Own unspent appropriation balance	14,719	6,952
Closing unspent appropriation balance⁴	14,719	6,952

Balance comprises appropriations as follows:
Appropriation Act (No. 2) 2016-2017	-	600
Appropriation Act (No. 2) 2017-2018	-	1,296
Appropriation Act (No. 4) 2017-2018	2,447	4,560
Appropriation Act (No. 6) 2017-2018	-	496
Appropriation Act (No. 2) 2018-2019	12,043	-
Appropriation Act (No. 4) 2018-2019	229	-
Total unspent appropriation - other services - equity	14,719	6,952

¹ There were no amounts temporarily quarantined from 2019 or 2018 departmental other services - equity appropriations.

² There were no amounts withheld under section 51 of the PGPA Act from 2019 or 2018 departmental other services – equity appropriations.

³ The variance of $7,767,000 for departmental equity primarily relates to delayed commencement of projects funded in 2018‑19 Additional Estimates.

⁴ This balance is net of $11,778,000 which is permanently quarantined under section 51 of the PGPA Act. The total unspent appropriations gross of quarantined amounts under section 51 of the PGPA Act is $26,497,000.

Note 16: Therapeutic Goods Administration

Note 16A: 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 30: 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 2018-19 includes an estimate for annual charges.

	2019 $'000	2018 $'000
Note 16B: TGA Comprehensive income
Expenses
Employee benefits	93,618	75,802
Consultants and contractors	13,108	18,474
Corporate Services	36,044	36,142
Other	8,405	8,221
Depreciation and amortisation	7,518	6,846
Write-down and impairment of assets	1,448	2,895
Total expenses	160,141	148,380

Revenues
Sale of goods and rendering of services	159,000	152,905
Other revenue and gains	48	1
Total own-source revenue	159,048	152,906
Revenue from Government	2,257	2,439
Surplus on continuing operations	1,164	6,965

	2019 $'000	2018 $'000
Note 16C: TGA Financial Position
Assets
Financial assets¹	86,616	82,082
Non-financial assets	30,021	34,607
Total assets	116,637	116,690
Liabilities
Payables	28,433	33,368
Provisions	25,320	21,601
Total liabilities	53,753	54,970
Equity
Contributed equity	2,029	2,029
Asset revaluation reserve	9,138	9,138
Retained surplus	51,717	50,554
Total Equity	62,884	61,720

¹ Includes cash balance of $76.501m which is disclosed in Note 30: Special accounts.

Note 17: Restructuring

	2019 $'000	2019 $'000

Functions in relation to:	Grants management function, Department of Social Services¹	Aged Care Complaints Commissioner, Aged Care Quality and Safety Commission²

Assets relinquished
Appropriation receivable	7,529	4,893
Total assets relinquished	7,529	4,893

Liabilities relinquished
Employee provisions	7,546	4,923
Total liabilities relinquished	7,546	4,923

Net (liabilities) relinquished	(17)	(30)

¹ To support the Community Services Grants Hub within the Department of Social Services, staff and related assets and liabilities were transferred from the Department during 2018-19.

² From 1 January 2019, the Government established an independent Aged Care Quality and Safety Commission combining the functions of the former Australian Aged Care Quality Agency and the Department’s Aged Care Complaints Commissioner. Staff and related assets and liabilities were transferred during 2018-19.

Administered Schedule of Comprehensive Income

for the period ended 30 June 2019

	Notes	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000
NET COST OF SERVICES
Expenses
Grants	20A	9,181,314	7,721,904	9,176,365
Personal benefits	20B	46,174,150	44,599,704	45,631,261
Subsidies	20C	12,659,007	11,762,424	12,644,690
Suppliers	21A	1,020,337	999,016	698,858
Payments to corporate Commonwealth entities	22A	644,096	510,005	582,970
Other expenses	21B	31,669	39,156	30,749
Total expenses		69,710,573	65,632,209	68,764,893

Income
Special accounts revenue	23A	36,442,177	34,779,233	35,482,104
Recoveries	23B	2,640,141	2,943,418	2,816,034
Other revenue	23C	418,836	214,966	98,559
Total income		39,501,154	37,937,617	38,396,697
Net cost of services		30,209,419	27,694,592	30,368,196

Deficit		(30,209,419)	(27,694,592)	(30,368,196)

OTHER COMPREHENSIVE INCOME
Items not subject to subsequent reclassification to net cost of services
Changes in administered investment reserves		(61,239)	(42,272)	-
Total other comprehensive income/(loss)		(61,239)	(42,272)	-

Total comprehensive loss		(30,270,658)	(27,736,864)	(30,368,196)

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

For budgetary reporting information refer to Note 18. The original budget is the budget published in the 2018‑19 Portfolio Budget Statements. The budget statement information has been reclassified and presented on a consistent basis with the corresponding financial statement.

Administered Schedule of Assets and Liabilities

as at 30 June 2019

	Notes	ACTUAL 2019 $'000	ACTUAL 2018 $'000	BUDGET 2019 $'000

ASSETS
Financial assets
Cash and cash equivalents	24A	794,505	559,100	119,932
Accrued recoveries revenue	23B	1,080,356	1,368,959	801,896
Loans and other receivables	23C	983,193	755,494	561,766
Investments	22B	496,222	482,642	542,558
Total financial assets		3,354,276	3,166,195	2,026,152

Non-financial assets
Inventories held for distribution	25	117,139	115,765	117,238
Total non-financial assets		117,139	115,765	117,238
Total assets administered on behalf of Government		3,471,415	3,281,960	2,143,390

LIABILITIES
Payables
Suppliers	21A	(27,976)	(35,635)	(22,765)
Subsidies	20C	(111,919)	(105,740)	(37,590)
Personal benefits	20B	(1,082,711)	(1,027,893)	(998,562)
Grants	20A	(423,909)	(312,088)	(308,460)
Total payables		(1,646,515)	(1,481,356)	(1,367,377)

Provisions
Subsidies	20C	(430,000)	(441,000)	(450,000)
Personal benefits	20B	(898,879)	(1,074,260)	(1,057,773)
Total provisions		(1,328,879)	(1,515,260)	(1,507,773)
Total liabilities administered on behalf of Government		(2,975,394)	(2,996,616)	(2,875,150)

Net assets/(liabilities)		496,021	285,344	(731,760)

The above schedule should be read in conjunction with the accompanying notes.
For budgetary reporting information refer to Note 18. The original budget is the budget published in the 2018‑19 Portfolio Budget Statements. The budget statement information has been reclassified and presented on a consistent basis with the corresponding financial statement.

Administered Reconciliation Schedule

	2019 $'000	2018 $'000

Opening assets less liabilities as at 1 July	285,344	(557,722)
Adjusted opening assets less liabilities	285,344	(557,722)

Net cost of services
Income	39,501,154	37,937,617
Expenses
Payments to entities other than corporate Commonwealth entities	(69,066,477)	(65,122,204)
Payments to corporate Commonwealth entities	(644,096)	(510,005)
Other comprehensive income
Revaluations transferred to/(from) reserves	(61,239)	(42,272)

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	63,948	44,893
Payments to corporate Commonwealth entities	37,453	54,533
Appropriations for ordinary annual services
Payments to entities other than corporate Commonwealth entities	9,757,198	8,549,464
Payments to corporate Commonwealth entities	643,837	510,429
Special appropriations (unlimited)
Payments to entities other than corporate Commonwealth entities	23,100,753	22,093,488
Special appropriations (limited)
Refund of receipts (section 77 of the PGPA Act)	18,105	583
Net GST appropriations	26,114	(6,220)
Appropriation transfers to OPA
Transfers to OPA	(3,166,073)	(2,667,240)
Closing assets less liabilities as at 30 June	496,021	285,344

Administered Cash Flow Statement

for the period

	Notes	2019 $'000	2018 $'000
OPERATING ACTIVITIES
Cash received
Recoveries		2,741,568	2,538,031
Net GST received		609,189	577,889
Special accounts receipts		36,442,177	34,779,233
Other		402,947	109,595
Total cash received		40,195,881	38,004,748

Cash used
Grants		(9,712,541)	(8,285,896)
Subsidies		(12,660,510)	(11,712,886)
Personal benefits		(46,321,044)	(44,585,662)
Suppliers		(1,054,915)	(1,011,194)
Payments to corporate Commonwealth entities		(643,837)	(510,005)
Total cash used		(70,392,847)	(66,105,643)
Net cash used by operating activities	19	(30,196,966)	(28,100,895)

INVESTING ACTIVITIES
Cash received
Repayments of advances and loans		30,924	32,649
Total cash received		30,924	32,649

Cash used
Advances and loans made		(6,638)	(29,451)
Equity injections to corporate Commonwealth entities		(37,453)	(54,533)
Purchase of investments		(35,798)	(15,409)
Total cash used		(79,889)	(99,393)
Net cash used by investing activities		(48,965)	(66,744)
Net decrease in cash held		(30,245,931)	(28,167,639)

Cash and cash equivalents at the beginning of the reporting period		559,100	146,809

Cash from Official Public Account
Appropriations		33,519,893	31,153,964
Special Accounts		5,607	12,524
Capital appropriations		101,402	99,426
Administered GST appropriations		626,462	567,504
Total cash from Official Public Account		34,253,364	31,833,418

Cash to Official Public Account
Special Accounts		(5,607)	(12,524)
Return of GST appropriations to the Official Public Account		(600,348)	(573,724)
Other		(3,166,073)	(2,667,240)
Total cash to Official Public Account		(3,772,028)	(3,253,488)
Cash and cash equivalents at the end of the reporting period	24A	794,505	559,100

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 18: Administered explanation of budget variances

Administered expenses

Total administered expenses for 2018-19 were significantly higher than the original budget, driven largely by the increase in personal benefits and supplier expenses. Personal benefits expenses relate to a range of program groups, most of which are funded through appropriations relating to demand. Growth in personal benefits expenditure is consistent with the revised budget included in the Portfolio Additional Estimates, and is attributable to the ongoing Government commitment to guaranteeing Medicare and improving access to medicines, including increasing new or amended PBS listings as well as adding new MBS items.

Significantly higher supplier expenses against the original budget related to aged care programs, which were initially budgeted against grants, with the resulting underspend against grants masked by other programs overspending against the original grants budget. This issue was corrected in the revised budget included in the Portfolio Additional Estimates.

Administered revenues

The key driver of the variance in administered revenue in 2018-19 was the Medicare Guarantee Fund (MGF) special account. The original budget represents the initial annual funding allocation for this special account, however a second tranche of funding was transferred into the MGF special account late in the year based on PBS and MBS growth and variations in funding requirements. The Medical Research Future Fund (MRFF) special account also received a substantial funding allocation in 2018-19, reflecting an accelerated rate of grant activity in the funded programs.

Other revenue was also higher than the original budget. Other revenue represents revenue transactions that are not standard or predictable in nature, such as acquittals of prior year grants and returns of overpaid benefits, and are difficult to budget for effectively, as past performance is not indicative of future patterns.

The PBS drug recoveries arising from cost sharing agreements between the Commonwealth and pharmaceutical companies were lower than originally anticipated due to the changing pattern of use, particularly reducing demand for the high value Hepatitis C drugs.

Administered assets

The total value of assets administered on behalf of the Commonwealth at 30 June 2019 was significantly higher than the original budget. The key driver of this variance was cash and cash equivalents, relating to the unspent portion of the 2018-19 funding allocation remaining in the MGF special account, which varies based on the timing and quantum of payments in the last week of the financial year. This remaining funding was utilised in the first week of 2019-20.

Accrued PBS drug recoveries and other receivables have also contributed to the increase. Due to the nature of these items, the value of accruals and debtors at the end of the year fluctuates with no predictable pattern based on the timing of invoicing and billing cycles and past performance.

Administered liabilities

The total value of liabilities administered on behalf of the Commonwealth at 30 June 2019 was in excess of the budget. This increase was largely driven by higher grants and suppliers liabilities, as funding and procurement activities were impacted by the timing of the caretaker period associated with the federal election in the last quarter of 2018-19.

This was partially mitigated by lower personal benefits liabilities due to the reduction in the payment lag for claims submitted via PBS Online from 9-16 days to 2-9 days which was implemented in March 2019.

Note 19: Administered cash flow reconciliation

	2019 $'000	2018 $'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	794,505	559,100
Administered Schedule of Assets and Liabilities	794,505	559,100
Discrepancy	-	-

Reconciliation of net cost of services to net cash used by operating activities
Net cost of services	(30,209,419)	(27,694,592)

Adjustment for non-cash items
Net write-down of assets	25,850	26,564
Inventory adjustments	35	13
Concessional loans discount and unwinding	(4,831)	(6,942)

Movements in assets and liabilities
Assets
Decrease/(increase) in net receivables	60,430	(522,292)
Decrease/(increase) in inventories	(24,917)	(24,917)
Liabilities
Increase/(decrease) in suppliers payable	(9,228)	12,794
Increase/(decrease) in subsidies payable	6,179	54,444
Increase/(decrease) in personal benefits payable	54,818	51,919
Increase/(decrease) in grants payable	90,498	(5,373)
Increase/(decrease) in subsidies provision	(11,000)	(9,000)
Increase/(decrease) in personal benefits provision	(175,381)	16,487
Net cash used by operating activities	(30,196,966)	(28,100,895)

Note 20: Administered transfer payments

	2019 $'000	2018 $'000
Note 20A: Grants

Grants paid
Public sector
Australian Government entities (related entities)	787,639	749,636
Private sector
Profit and non-profit organisations	8,377,839	6,957,205
Overseas	15,836	15,063
Total grants paid	9,181,314	7,721,904

Grants payable
Public sector
Australian Government entities (related entities)	15,183	17,781
Private sector
Profit and non-profit organisations	408,726	294,307
Total grants payable	423,909	312,088

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.

	2019 $'000	2018 $'000
Note 20B: Personal Benefits

Personal benefits paid
Direct personal benefits paid
Private health insurance	6,061,728	6,010,185
Total direct personal benefits paid	6,061,728	6,010,185
Indirect personal benefits paid
Medical services	24,512,427	23,609,384
Pharmaceuticals and pharmaceutical services	11,942,377	11,794,308
Primary care practice incentives	339,931	342,852
Hearing services	538,443	514,330
Targeted assistance	149,760	146,043
Aged care	2,559,322	2,122,271
Other	70,162	60,331
Total indirect personal benefits paid	40,112,422	38,589,519
Total personal benefits paid	46,174,150	44,599,704

Personal benefits payable
Direct personal benefits payable
Private health insurance	466,829	470,693
Total direct personal benefits payable	466,829	470,693
Indirect personal benefits payable
Medical services	472,014	409,441
Pharmaceuticals and pharmaceutical services	13,654	3,094
Aged care	65,275	77,272
Other	64,939	67,393
Total indirect personal benefits payable	615,882	557,200
Total personal benefits payable	1,082,711	1,027,893

Personal benefits provisions
Outstanding claims
Medical services	753,316	738,455
Pharmaceuticals and pharmaceutical services	145,563	335,805
Total personal benefits provisions	898,879	1,074,260

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 Services Australia 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 Services Australia 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 Services Australia 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. Services Australia 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.

	2019 $'000	2018 $'000
Note 20C: Subsidies

Subsidies paid
Subsidies in connection with
Aged care	12,566,487	11,673,223
Medical indemnity	83,021	79,306
Other	9,499	9,895
Total subsidies paid	12,659,007	11,762,424

Subsidies payable
Subsidies in connection with
Aged care	105,373	99,722
Medical indemnity	6,543	6,018
Other	3	-
Total subsidies payable	111,919	105,740

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.

Subsidies provisions
	Balance as at 30 June 2018	Claims paid	Administered Schedule of Comprehensive Income Impact	Balance as at 30 June 2019
	$'000	$'000	$'000	$'000
Medical Indemnity Liabilities
Incurred But Not Reported Scheme	26,000	(6,239)	(7,761)	12,000
High Cost Claims Scheme	323,000	(70,368)	62,368	315,000
Run-Off Cover Scheme	92,000	(8,225)	19,225	103,000
Total	441,000	(84,832)	73,832	430,000

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 Services Australia, 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 27. 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 2019, 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 1% 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 2019, which was 1.3%. A discount rate of 2.3% 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 2% would result in a discounted liability estimate which is about 4.9% ($21m) less than the base estimate. On the other hand, decreasing the discount rate to 0% would result in a liability estimate which is about 5.8% ($25m) higher than base estimate.

	2018-19			2017-18
	discounted	discounted	discounted	discounted
	0%	1%¹	2%	2.3%
	$m	$m	$m	$m
Incurred But Not Reported	13	12	12	26
High Cost Claims Scheme	330	315	302	323
Run-Off Cover Scheme	112	103	95	92
Total	455	430	409	441

¹ 1% was used as the basis of estimation in 2018-19.

Note 21: Administered suppliers and other expenses and payables

	2019 $'000	2018 $'000
Note 21A: Suppliers

Services rendered
Consultants	27,207	26,493
Contract for services	935,663	897,373
Travel	1,146	1,417
Communications and publications	15,763	36,610
Committee related expenses	3,661	3,988
Other	36,897	33,135
Total services rendered	1,020,337	999,016

Suppliers payable
Trade creditors and accruals	27,976	35,635
Total suppliers payable	27,976	35,635

Note 21B: Other Expenses

Other expenses
Write-down and impairment of assets
Impairment on financial instruments	2,342	2,163
Write-off of inventories	23,508	24,401
Payments to Special Accounts	5,607	12,524
Other	212	68
Total other expenses	31,669	39,156

Note 22: Administered Corporate Commonwealth Entities

		2019 $'000	2018 $'000

Note 22A: Appropriations

Appropriations transferred to corporate entities
Australian Institute of Health and Welfare		33,322	28,078
Food Standards Australia New Zealand		17,158	16,961
Australian Sports Commission		374,346	267,904
Australian Digital Health Agency		219,270	197,062
Total appropriations transferred to corporate entities		644,096	510,005

Note 22B: Investments

Investments in portfolio entities
Equity interest - Australian Institute of Health and Welfare	(i)	73,748	30,323
Equity interest - Food Standards Australia New Zealand	(ii)	7,683	7,900
Equity interest - Australian Commission on Safety and Quality in Health Care	(iii)	3,719	2,838
Equity interest - Australian Sports Commission	(iv)	222,935	289,345
Equity interest - Australian Sports Foundation Ltd	(v)	6,335	4,625
Equity interest - Independent Hospital Pricing Authority	(vi)	12,768	12,737
Equity interest - Australian Digital Health Agency	(vii)	110,033	112,577
Total investments in portfolio entities		437,221	460,345

Other investments
Biomedical Translation Fund - Brandon Capital Partners		18,946	8,420
Biomedical Translation Fund - OneVentures Management		21,669	4,491
Biomedical Translation Fund - BioScience Managers		18,386	9,386
Total other investments		59,001	22,297
Total investments		496,222	482,642

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 28.

(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 was established on 1 July 2014 to contribute to significant reforms to improve Australian public hospitals. A major component of these reforms is the implementation of national Activity Based Funding (ABF) for Australian public hospitals. The implementation of ABF provides incentives for efficiency and increases transparency in the delivery and funding of public hospital services across Australia.
(vii) The Australian Digital Health Agency was established on 1 July 2016 to improve health outcomes for Australians through the delivery of digital healthcare systems and the national digital health strategy for Australia.
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 trading are classified as fair value – other comprehensive income equity instruments and are measured at their fair value as at 30 June 2019. 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 23: Administered income, debtors and loans

	2019 $'000	2018 $'000
Note 23A: Special Accounts

Special accounts revenue
Medicare Guarantee Fund (Health) special account	36,233,451	34,774,894
Medical Research Future Fund special account	204,863	-
Other special accounts	3,863	4,339
Total special accounts revenue	36,442,177	34,779,233

Note 23B: Recoveries

Recoveries received
Medical and pharmaceutical benefits and health rebate schemes	4,670	99,694
PBS drug recoveries	2,241,955	2,358,863
Aged care recoveries, cross-billings and budget neutrality adjustments	393,018	484,209
Other recoveries	498	652
Total recoveries received	2,640,141	2,943,418

Accrued recoveries revenue
Personal benefits
Pharmaceutical benefits	1,031,543	1,297,766
Aged care	12,595	14,971
Medicare benefits	8,444	25,241
Other personal benefits	529	418
Subsidies
Medical indemnity	2,352	2
Aged care	24,844	30,512
Other	49	49
Total accrued recoveries revenue	1,080,356	1,368,959

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 Services Australia Recovery of Compensation for Health Care and Other Services Special Account.

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

	2019 $'000	2018 $'000
Note 23C: Other Revenue, Receivables and Loans

Other revenue
Levies and taxes	21,285	20,202
Interest from loans	13,662	13,035
Other	383,889	181,729
Total other revenue received	418,836	214,966

Other receivables
Trade and other miscellaneous receivables	674,756	465,286
GST receivable from the Australian Taxation Office	50,742	33,469
Total other receivables	725,498	498,755

Advances and loans
Aged care facilities
Nominal value	311,615	314,577
Less: Unexpired discount	(39,685)	(44,515)
Total advances and loans	271,930	270,062

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)	997,428	768,817
Aged as follows
Not overdue	822,863	678,375
Overdue by:
0 to 30 days	28,943	35,698
31 to 60 days	4,769	1,848
61 to 90 days	2,681	1,097
More than 90 days	138,172	51,799
Total overdue	174,565	90,442
Total loans and other receivables (gross)	997,428	768,817

Less impairment allowance	(14,235)	(13,323)
Total loans and other receivables (net)	983,193	755,494

Loans and other receivables - past due but not impaired	160,330	77,119

Accounting Policy

Credit terms for goods and services were 30 days (2018: 30 days).

Reconciliation of the Impairment Allowance
	2019	2018
	$'000	$'000
Opening balance	(13,323)	(12,481)
Amounts written off	71	222
Amounts recovered and reversed	1,853	1,110
Increase recognised in net cost of services	(2,836)	(2,174)
Closing balance	(14,235)	(13,323)

Accounting Policy

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

Note 24: Administered cash and financial instruments

	2019 $'000	2018 $'000
Note 24A: Financial Assets

Cash and cash equivalents
Cash on hand or on deposit	38,931	5,212
Cash in special accounts	755,574	553,888
Total cash and cash equivalents	794,505	559,100

Financial assets under AASB 139
Loans and receivables
Accrued recoveries revenue		1,296,326
Other receivables		451,963
Advances and loans		270,062
Total loans and receivables		2,018,351

Available-for-sale financial assets
Investments in portfolio agencies		460,345
Other investments		22,297
Total available-for-sale financial assets		482,642
Total financial assets under AASB 139		2,500,993

Net gains or losses on financial assets
Loans and receivables
Interest revenue		13,035
Impairment		(2,163)
Net gains or losses on loans and receivables		10,872

Financial assets under AASB 9
Financial assets at amortised cost
Accrued recoveries revenue	1,029,687
Other receivables	660,521
Advances and loans	271,930
Total financial assets at amortised cost	1,962,138

Financial assets at fair value through other comprehensive income
Investments in portfolio agencies	437,221
Other investments	59,001
Total financial assets at fair value through other comprehensive income	496,222
Total financial assets under AASB 9	2,458,360

Net gains or losses on financial assets
Financial assets at amortised cost
Interest revenue	13,662
Impairment	(2,342)
Net gains or losses on financial assets at amortised cost	11,320

	2019 $'000	2018 $'000
Note 24B: Financial Liabilities

Financial liabilities measured at amortised cost
Trade creditors	27,976	35,635
Grants payable	423,909	312,088
Total financial liabilities measured at amortised cost	451,885	347,723
Total financial liabilities	451,885	347,723

Classification of financial assets on the date of initial application of AASB 9
Financial assets class	Notes	AASB 139 original classification	AASB 9 new classification	AASB 139 carrying amount at 1 July 2018 $'000	AASB 9 carrying amount at 1 July 2018 $'000
Accrued recoveries revenue	24A	Loans and receivables	Amortised cost	1,296,326	1,296,326
Other receivables	23C	Loans and receivables	Amortised cost	451,963	451,963
Advances and loans	23C	Loans and receivables	Amortised cost	270,062	270,062
Investments in portfolio agencies	22B	Available-for-sale equity instruments	FVOCI Equity instruments	460,345	460,345
Other investments	22B	Available-for-sale equity instruments	FVOCI Equity instruments	22,297	22,297
Total financial assets				2,500,993	2,500,993

Note 25: Administered non-financial assets

	2019 $'000	2018 $'000
Note 25: Inventory

National Medical Stockpile
Opening balance	115,765	115,262
Add purchases	24,944	24,925
Less deployment	(35)	(13)
Less impairment	(23,508)	(24,401)
Add stocktake adjustments and other movements	(27)	(8)
Closing balance	117,139	115,765

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 26: Administered aggregate assets and liabilities

	2019 $'000	2018 $'000

AGGREGATE ASSETS AND LIABILITIES
Assets expected to be recovered in
No more than 12 months	2,626,864	2,467,985
More than 12 months	844,551	813,975
Total assets	3,471,415	3,281,960

Liabilities expected to be settled in
No more than 12 months	(2,618,389)	(2,640,448)
More than 12 months	(357,005)	(356,168)
Total liabilities	(2,975,394)	(2,996,616)

Note 27: Administered contingent assets and liabilities

	Indemnities		Claims for costs		Aged Care Accommodation Bond Guarantee Scheme		Total
	2019 $'000	2018 $'000	2019 $'000	2018 $'000	2019 $'000	2018 $'000	2019 $'000	2018 $'000
Contingent assets
Balance from previous period	-	-	16,200	20,000	-	-	16,200	20,000
New contingent assets recognised	-	-	200	6,200	-	-	200	6,200
Assets recognised	-	-	(5,800)	(10,000)	-	-	(5,800)	(10,000)
Total contingent assets	-	-	10,600	16,200	-	-	10,600	16,200
Contingent liabilities
Balance from previous period	45,000	73,000	16,444	20,245	-	-	61,444	93,245
New contingent liabilities recognised	16,300	-	200	6,218	-	-	16,500	6,218
Re-measurement	6,000	(28,000)	-	-	-	-	6,000	(28,000)
Liabilities recognised	-	-	(35)	(2)	-	-	(35)	(2)
Obligations expired	-	-	(5,965)	(10,017)	-	-	(5,965)	(10,017)
Total contingent liabilities	67,300	45,000	10,644	16,444	-	-	77,944	61,444
Net contingent liabilities	(67,300)	(45,000)	(44)	(244)	-	-	(67,344)	(45,244)

Quantifiable Contingent Assets

Claims for costs

The Schedule of contingencies reports contingent assets in respect of claims for costs of $10.6m (2018: $16.2m).

Quantifiable Contingent Liabilities

Indemnities

The table on the previous page reports contingent liabilities in respect of medical indemnity payments under the High Cost Claims Scheme of up to $51m (2018: $45m) and $16.3m (2018: $NIL) relating to indemnities granted to a service provider in respect of early termination of subcontracting arrangements.

Claims for costs

The table also reports a contingent liability in respect of claims for costs of up to $10.644m (2018: $16.444m).

Unquantifiable Contingent Assets

Legal action seeking compensation

The Department is engaged in legal action against certain pharmaceutical companies to recover savings denied to the Commonwealth because interim injunctions granted to these companies in unsuccessful patent litigation delayed generic versions of drugs being listed on the Pharmaceutical Benefits Scheme. This thereby delayed statutory and price disclosure related price reductions for these drugs.

Public Hospital Funding

The Auditor-General Report No.26 2018-19 (ANAO audit report) Australian Government Funding of Public Hospital Services — Risk Management, Data Monitoring and Reporting Arrangements identified the potential for duplicate payments for the same public hospital service through funding under the Medicare Benefits Schedule and through public hospital funding under the National Health Reform Agreement. The Department of Health has agreed to identify and prevent potential duplicate payments, including Medicare Benefits Schedule payments, by the Australian Government for public hospital services; and identify and recover past duplicate payments to the maximum extent permitted by law. At this stage any potential recoveries are unquantifiable.

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 accommodation payment balances to aged care residents, the Australian Government will repay the balances owing to each resident. In return, the residents' rights to pursue the defaulting provider for recovery of the accommodation payment funds transfers to the Government. In the event the Government cannot recover the full amount from the defaulting provider, it may levy all providers holding accommodation payment balances 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 $27.5 billion. Since the Guarantee 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 Guarantee Scheme was not activated during the period ended 30 June 2019, however the Department is aware of the potential for it to be activated in respect of one provider currently in administration. The quantum of potential refunds cannot be estimated at this stage, but the total value of accommodation bonds held by the affected provider is estimated at $130m.

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 2019 no claims have been made (2018: $NIL).

Medical Indemnity

Services Australia delivers the Exceptional Claims Scheme (ECS) on behalf of the Australian Government. Under this scheme, the Australian Government reimburses medical indemnity insurers for 100% of the cost of private practice claims that are above the limit of their medical indemnity insurance contract limit, which is typically $20m. 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 2019, the Department had received no notification of any incidents that would give rise to claims under the ECS 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 2019 no claims have been made or notified (2018: $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 2019 no claims have been made (2018: $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 2019 no claims have been made (2018: $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 Blood Service, includes certain indemnities and limited liability in favour of ARCS. For the period ended 30 June 2019 no claims have been made (2018: $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 2019 no claims have been made (2018: $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 2019 no claims have been made (2018: $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 2019 no claims have been made (2018: $NIL).

Significant Remote Contingencies

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

Note 28: Administered appropriations

Table A: Annual and Unspent Appropriations ('Recoverable GST exclusive')
	2019 $'000	2018 $'000
ADMINISTERED
Ordinary Annual Services - Administered items
Annual appropriation^1,2	10,320,073	8,977,100
Receipts retained under PGPA Act - Section 74	5,679	16,935
Total appropriation	10,325,752	8,994,035
Appropriation applied (current and prior years)⁴	(9,762,877)	(8,566,399)
Variance³	562,875	427,636

Unspent appropriations
Own unspent appropriation balance	1,321,789	826,361
Closing unspent appropriation balance⁵	1,321,789	826,361

Balance comprises appropriations as follows:
Appropriation Act (No. 1) 2015-2016⁶	-	67,448
Appropriation Act (No. 1) 2016-2017⁷	74,236	67,527
Appropriation Act (No. 3) 2016-2017⁷	8,276	24,910
Appropriation Act (No. 1) 2017-2018	329,053	562,978
Appropriation Act (No. 3) 2017-2018	66,094	84,019
Appropriation Act (No. 5) 2017-2018	14,060	19,479
Appropriation Act (No. 1) 2018-2019	364,880	-
Appropriation Act (No. 3) 2018-2019	465,190	-
Total unspent appropriation - ordinary annual services - administered items	1,321,789	826,361

¹ There were no amounts temporarily quarantined from 2019 or 2018 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. 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 $562,875,000 relates to the utilisation of retained funding from 2018 during 2019 (the former section 11 of the Appropriation Acts). ⁴ Services Australia 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 $182,625,483 which is permanently quarantined under section 51 of the PGPA Act, of which $21,617,000 relates to 2018 appropriations and $161,008,483 to 2017 appropriations. The total unspent appropriations gross of quarantined amounts under section 51 of the PGPA Act is $1,504,414,483. ⁶ This balance lapsed on 1 July 2018 in accordance with the repeal date of the underlying Appropriation Acts. ⁷ These balances will lapse on 1 July 2019 when the underlying Appropriation Acts are repealed.

	2019 $'000	2018 $'000
Ordinary Annual Services - Payments to corporate Commonwealth entities
Annual appropriation	644,096	510,429
Total appropriation	644,096	510,429
Appropriation applied (current and prior years)	(643,837)	(510,429)
Variance¹	259	-

Other services - Administered assets and liabilities
Annual appropriation	120,133	25,000
Total appropriation	120,133	25,000
Appropriation applied (current and prior years)	(63,949)	(44,893)
Variance²	56,184	(19,893)

Unspent appropriations
Own unspent appropriation balance	183,473	222,421
Closing unspent appropriation balance	183,473	222,421

Balance comprises appropriations as follows:
Appropriation Act (No. 4) 2015-2016³	-	95,133
Supply Act (No. 2) 2016-2017⁴	52,083	52,083
Appropriation Act (No. 2) 2016-2017⁴	31,839	72,917
Appropriation Act (No. 2) 2017-2018	2,097	2,288
Appropriation Act (No. 2) 2018-2019	2,321	-
Appropriation Act (No. 4) 2018-2019	95,133	-
Total unspent appropriation - other services - administered assets and liabilities	183,473	222,421

Other Services - Payments to corporate Commonwealth entities
Annual appropriation	39,023	54,533
Total appropriation	39,023	54,533
Appropriation applied (current and prior years)	(37,453)	(54,533)
Variance¹	1,570	-

¹ These variances represent the value of 2018-19 funding not transferred to the relevant CCEs before the balance date. ² The administered other services assets and liabilities variance of $56,184,000 relates largely to the utilisation of prior year funding for the investment in the Biomedical Translation Fund. ³ This balance lapsed on 1 July 2018 in accordance with the repeal date of the underlying Appropriation Acts. ⁴These balances will lapse on 1 July 2019 when the underlying Appropriation Act are repealed.

Table B: Special Appropriations Applied ('Recoverable GST exclusive')
	Appropriation applied
Authority	2019 $'000	2018 $'000
Aged Care (Accommodation Payment Security) Act 2006	-	83
Aged Care Act 1997	15,043,797	13,678,701
Health Insurance Act 1973	14,326	309,229
National Health Act 1953	1,524,249	1,760,120
Medical Indemnity Act 2002	93,495	75,838
Private Health Insurance Act 2007	6,065,591	6,017,801
Dental Benefits Act 2008	322,446	333,993
Medicare Guarantee Act 2017	-	-
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	18,105	583
Total special appropriations applied	23,082,009	22,176,348

¹ Services Australia 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')
	2019 $'000	2018 $'000
Department of Social Services
Total receipts	39,885	36,839
Total payments	(39,885)	(36,839)
The Department made wage supplementation payments from the Social and Community Services Pay Equity Special Account administered by the Department of Social Services (DSS) to eligible social and community services workers during 2019 and 2018.

Note 29: 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 $59 billion in 2018-19 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 Services Australia under the Medicare program on behalf of the Department. In the vast majority of cases Services Australia 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. Certain legislation administered by the Department contains specific or objective criteria that rely on information from recipients and provides for the recovery of overpayments which are actively managed.

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 possibility of unintentional breaches of section 83 has as low a financial risk and impact as possible.

The Department has developed an approach for assessing the alignment of payment processes with legislation. During 2019, 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 Services Australia that action has been undertaken to detect and prevent 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 12 pieces of legislation, as disclosed in Note 28 Table B, with Special Appropriations involving statutory requirements for payments. Of this legislation, some payments have been identified as having either actual or potential breaches of section 83 and the Department will continue to review these.

The legislation where actual breaches occurred in the 2018-19 year was:

Health Insurance Act 1973

Services Australia have advised that during 2018-19, 313 instances have been identified with a total value of $243,911.65 where the payment made was not authorised by section 125(1) of the Health Insurance Act 1973 for the Medicare Easyclaim Programme.

Special Accounts

Currently the Department has nine Special Accounts, as disclosed in Note 30. Seven are assessed as low risk for actual or potential non-compliance with section 83, one is assessed as medium risk and one is assessed as medium to high risk.

The Special Account where actual breaches occurred in the 2018-19 year was:

Medicare Guarantee Fund

Services Australia have advised that during 2018-19 there have been three overpayments with regards to the Remote Area Aboriginal Health Services with a total value of $110,796.85.

Continued Focus

The Department will continue to review legislation and New Policy Proposals that create or modify payment eligibility and to ensure that business rules and process are in place to minimise the risk of breaches of section 83. In addition, the Department will continue ongoing reviews of special accounts by internal audit as part of its rolling compliance program.

Note 30: Special accounts

	Services for Other Entities and Trust Moneys Account¹		Australian Immunisation Register Account²		Human Pituitary Hormones Account³
	2019 $'000	2018 $'000	2019 $'000	2018 $'000	2019 $'000	2018 $'000
Balance brought forward from previous period	17,376	19,135	1,957	4,616	2,256	2,371
Timing adjustments related to prior years	29	(119)	-	-	-	-
Increases
Appropriation credited to special account	8,564	12,447	7,161	3,222	-	-
Other increases	15,279	7,674	3,744	4,014	-	-
Total increases	23,842	20,121	10,905	7,236	-	-
Available for payments	41,247	39,137	12,862	11,852	2,256	2,371
Decreases
Administered	-	-	9,499	9,895	246	115
Total administered decreases	-	-	9,499	9,895	246	115
Relevant Money	19,207	21,761	-	-	-	-
Total relevant money decreases	19,207	21,761	-	-	-	-
Total decreases	19,207	21,761	9,499	9,895	246	115
Total balance carried to the next period	22,040	17,376	3,363	1,957	2,010	2,256
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: to make incentive payments to recognised vaccination providers who notify the Australian Immunisation Register that they have completed immunisations for children up to seven years of age, through the National Immunisation Program. 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 Account⁴		Therapeutic Goods Administration Account⁵		Gene Technology Account⁶
	2019 $'000	2018 $'000	2019 $'000	2018 $'000	2019 $'000	2018 $'000
Balance brought forward from previous period	517	596	73,326	62,604	8,412	8,259
Increases
Appropriation credited to special account	-	-	2,257	2,439	7,506	7,544
Other increases	119	325	159,480	150,563	218	143
Total increases	119	325	161,737	153,002	7,724	7,687
Available for payments	636	921	235,063	215,606	16,136	15,946
Decreases
Departmental	-	-	158,562	142,280	7,377	7,534
Total departmental decreases	-	-	158,562	142,280	7,377	7,534
Administered	352	404	-	-	-	-
Total administered decreases	352	404	-	-	-	-
Total decreases	352	404	158,562	142,280	7,377	7,534
Total balance carried to the next period	284	517	76,501	73,326	8,759	8,412
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. 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 Account⁷		Medical Research Future Fund Account⁸		Medicare Guarantee Fund⁹
	2019	2018	2019	2018	2019	2018
	$'000	$'000	$'000	$'000	$'000	$'000
Balance brought forward from previous period	17,398	18,055	16,594	47,916	532,564	-
Increases
Appropriation credited to special account	331	322	204,863	-	36,233,451	34,774,894
Other increases	17,388	16,928	-	-	-	-
Total increases	17,719	17,250	204,863	-	36,233,451	34,774,894
Available for payments	35,117	35,305	221,457	47,916	36,766,015	34,774,894
Decreases
Departmental	17,049	17,907	-	-	-	-
Total departmental decreases	17,049	17,907	-	-	-	-
Administered	-	-	207,698	31,322	36,029,857	34,242,330
Total administered decreases	-	-	207,698	31,322	36,029,857	34,242,330
Total decreases	17,049	17,907	207,698	31,322	36,029,857	34,242,330
Total balance carried to the next period	18,068	17,398	13,759	16,594	736,158	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. ⁹ Medicare 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.

Note 31: Regulatory charging summary

	2019 $'000	2018 $'000
Amounts applied
Departmental
Annual appropriations	20,229	27,519
Special appropriations (including special account)	175,089	169,413
Own source revenue	4,722	4,888
Administered
Annual appropriations	7,445	2,329
Total amounts applied	207,485	204,148
Expenses
Departmental	195,919	193,553
Administered	7,556	2,671
Total expenses	203,475	196,224
Revenue
Departmental	179,811	174,301
Administered	21,984	16,659
Total external revenue	201,795	190,960
Amounts written off
Departmental	49	79
Total amounts written-off	49	79

The department has reviewed its compliance with the requirements of the regulatory charging summary and determined that the calculation should be made on an accrual, not cash, basis. The 2018 comparative has been restated.

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.

Assessment and certification for Private Health Insurance 2nd Tier Private Hospital Default Benefits has been cost recovered for the first time, commencing 1 January 2019. All amounts included for that activity are for the period 1 January to 30 June 2019.

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/cris-implementation-statement-2018-2019

www1.health.gov.au/internet/main/publishing.nsf/Content/EE9D7DA6EA42BDE0CA257BF00020623C/$File/Prostheses%20List%20CRIS%202018-19%20and%202019-2020.pdf

www1.health.gov.au/internet/main/publishing.nsf/Content/46F584DF9B7003A3CA257BF0001CFDB3/$File/NJRR%20CRIS%202019-20%20-%20June%202019%20-%20V2.pdf

www.pbs.gov.au/info/industry/listing/elements/fees-and-charges

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

www1.health.gov.au/internet/main/publishing.nsf/Content/5854E2DDCCA1D2F8CA2583400018B8D9/$File/CRIS.pdf

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https://www.transparency.gov.au/annual-reports/department-health/reporting-year/2018-2019-31

Department of Health Annual Report 2018–19

Part 4.2: 2018-19 Financial Statements

Table of contents

Independent Auditor’s Report

Statement by the Secretary and Chief Financial Officer

Overview

Departmental Statement of Comprehensive Income

Departmental Statement of Financial Position

Departmental Statement of Changes in Equity

Departmental Cash Flow Statement

Note 1: Departmental operating result reconciliation

Note 2: Departmental explanation of budget variances

Note 3: Departmental cash flow reconciliation

Note 4: Employees

Note 5: Key management personnel remuneration

Note 6: Related party transactions

Note 7: Departmental suppliers, other expenses and payables

Note 8: Departmental income and receivables

Note 9: Departmental appropriation income and receivable

Note 10: Departmental cash and financial instruments

Note 11: Departmental property, plant and equipment and intangibles

Note 12: Fair value measurement

Note 13: Departmental aggregate assets and liabilities

Note 14: Departmental contingent assets and liabilities

Note 15: Departmental appropriations

Note 16: Therapeutic Goods Administration

Note 17: Restructuring

Administered Schedule of Comprehensive Income

Administered Schedule of Assets and Liabilities

Administered Reconciliation Schedule

Administered Cash Flow Statement

Note 18: Administered explanation of budget variances

Note 19: Administered cash flow reconciliation

Note 20: Administered transfer payments

Note 21: Administered suppliers and other expenses and payables

Note 22: Administered Corporate Commonwealth Entities

Note 23: Administered income, debtors and loans

Note 24: Administered cash and financial instruments

Note 25: Administered non-financial assets

Note 26: Administered aggregate assets and liabilities

Note 27: Administered contingent assets and liabilities

Note 28: Administered appropriations

Note 29: Compliance with statutory requirement for payments from the Consolidated Revenue Fund

Note 30: Special accounts

Note 31: Regulatory charging summary

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