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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

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:

  1. the financial asset is held in order to collect the contractual cash flows; and
  2. 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 appropriation1,2

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 appropriation1,2

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 appropriation1,2

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