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Notes to and forming part of the financial statements

Overview

1. Financial Performance

1.1 Expenses

1.2 Own-Source Revenue and Gains

2. Income and Expenses Administered on Behalf of Government

2.1 Administered – Expenses

2.2 Administered – Income

3. Departmental Financial Position

3.1 Financial Assets

3.2 Non-Financial Assets

3.3 Payables

3.4 Interest Bearing Liabilities

3.5 Other Provisions

4. Assets and Liabilities Administered on Behalf of Government

4.1 Administered – Financial Assets

4.2 Administered – Payables

4.3 Administered – Other Provisions

5. Funding

5.1 Appropriations

5.2 Administered Special Accounts

5.3 Net Cash Appropriation Arrangements

6. People

6.1 Employee Provisions

6.2 Key Management Personnel Remuneration

6.3 Related Party Disclosures

7. Managing Uncertainties

7.1 Contingent Assets and Liabilities

7.2 Financial Instruments

7.3 Administered – Financial Instruments

8. Other Information

8.1 Aggregate Assets and Liabilities

8.2 Restructuring

8.3 Breach of Section 83 of the Constitution

8.4 Explanations of Major Variances to Budget

Overview

Objectives of the department

The department is an Australian Government controlled, not-for-profit entity. The mission of the department is to improve the wellbeing of individuals and families in Australian communities. The purpose of the department is to work in partnership with government and non-government organisations to achieve our mission through the effective development, management and delivery, of payments, policies, programs and services.

Our purpose reflects four outcomes in which we seek to assist people: Social Security; Families and Communities; Disability and Carers; and Housing.

The Basis of Preparation

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

The financial statements have been prepared in accordance with:

  • 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 that apply for the reporting period.

The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention, except for certain assets and liabilities that are reported 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.

Comparative Figures Amendment for 2019 Financial Year

Certain comparative amounts have been reclassified to conform with the 2020 financial year’s reporting presentation. Further details are provided in the relevant note disclosures.

In accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, paragraph 29, the department made a voluntary accounting policy change in relation to the presentation of the annual credit to the Social and Community Services Pay Equity Special Account which is disclosed separately from other special appropriations.

As the special account is increased by a legislated amount, this is considered to be a statutory credit. The new presentation ensures the annual credit is clearly identifiable and traceable between the notes in which it is disclosed. The credit to the special account is separately disclosed in the Administered Reconciliation Schedule and Note 5.2 Administered Special Accounts, and no longer shown in Note 5.1C Special Appropriations. The change has been applied retrospectively with the 2019 financial year amended to reflect a consistent disclosure.

Taxation

The department is exempt from all forms of taxation except Fringe Benefits Tax and GST.

Reporting of Administered Activities

Administered revenues, expenses, assets, liabilities and cash flows are disclosed in the administered schedules and related notes. Except where otherwise stated, administered items are accounted for on the same basis and using the same policies as for departmental items, including the application of Australian Accounting Standards.

Income Compliance Program

The Income Compliance Program commenced operation on 1 July 2015. During the 2020 financial year, the Australian Government accepted that averaged employment income data from the Australian Taxation Office (ATO) was not, of itself, a sufficient basis at law on which to determine debts. The Government announced that debts determined as part of the Income Compliance Program that were wholly or partially determined on the basis of averaged employment income data from the ATO will not be recovered, and that payments made against such debts will be refunded.

Personal Benefits Receivable and Personal Benefits Impairment Allowance

At 30 June 2020, debts of $1.013 billion had been identified to be zeroed and are recorded in the personal benefits receivable balance with an equal personal benefits impairment allowance (Note 4.1B). As the debts were already partly impaired, the 2020 impairment expense of $0.550 billion is lower than the full impairment allowance (Note 2.1D).

Personal Benefits Payable

The refund of repayments received on the debts of $0.742 billion is included in the personal benefits expense (Note 2.1C) and payable balance (Note 4.2A). This is higher than the initial estimate of $0.721 billion through the processing of final payments. Refer also to Events after the Reporting Period.

Contingency for other income averaged debt

The Australian Government has acknowledged that averaged employment income data from the ATO is not, of itself, a sufficient basis on which to determine a debt. Any debt determined on this basis before 1 July 2015 (the commencement of the Income Compliance Program) will be reviewed and reassessed on a case by case basis if requested by the affected individual. Refer to Note 7.1.

The 30 June 2020 closing balance is summarised below:

Financial Statement

$’000

Note 4.1B: Personal Benefits Receivable

1,012,888

Note 4.1B: Personal Benefits Impairment Loss Allowance

(1,012,888)

Note 2.1D: Write down and impairment of Other Assets

550,000

Note 2.1C: Personal Benefits Expense

741,588

Note 4.2A: Personal Benefits Payable

741,588

Impacts from the COVID-19 pandemic

On 11 March 2020, the World Health Organisation declared a global pandemic as a result of the outbreak and spread of COVID-19. As a consequence, the Australian Government introduced a number of measures to support people who are materially affected by either the COVID-19 disease itself or are affected financially by restrictions put in place to minimise the transmission and impact of COVID-19. Measures administered by the department include the coronavirus supplement, the first of two economic support payments and a range of related initiatives, increasing the level of personal benefits paid during the 2020 financial year.

Risk and Assurance

To accelerate the speed at which income support was provided, a range of normal payment eligibility requirements were either expanded, relaxed or waived. To further support the rapid implementation of the COVID-19 payments, streamlined application measures were implemented. In addition, to cope with the additional demand, several thousand staff were brought in to assist Services Australia with processing tasks arising from the unprecedented demand.

While these actions have been essential to ensure timely delivery of support by Services Australia, there is potentially increased risk around the validity and accuracy of payments made through the introduction of streamlined and abridged processes as reflected in administered personal benefit expenses (Note 2.1C). To mitigate this risk, any material changes to the assurance control framework for administered payments as a result of COVID-19 have been subject to appropriate governance through change management and readiness assessments. Assurance activity is conducted by Services Australia to minimise the likelihood of processing and system errors and includes having an appropriate risk management plan for each program, assessing the sufficiency of controls in place and that they are operating effectively and that payment testing is undertaken.

Estimation Uncertainty

The outbreak of COVID-19, and associated health responses, has significantly impacted economic conditions. Given the speed of change, and the uncertainty over timeframes and long-term consequences of COVID-19, it is difficult to estimate the full financial implications.

The department has assessed the impact of COVID-19 on the departmental balance sheet with particular focus on valuation of its property leases, employee provisions and receivable balances and has determined that there is no material impact.

The department has assessed that COVID-19 has impacted the administered receivables (Note 4.1B) and administered provisions (Note 4.3A). The department uses actuarial assessments to determine the value of receivables and provisions, and the impact of COVID-19 has been factored into those valuations. There are a number of sources of uncertainty that have impacted on the estimation of receivables including, but not limited to, the pausing of debt recovery activity until 3 October 2020 as a policy response to COVID-19, and the challenging repayment environment resulting from the economic conditions caused by COVID-19.

Some sources of uncertainty are expected to resolve themselves in the 2021 financial year as compliance and other measures are reintroduced however given the economic and fiscal outlook remains uncertain it is likely other sources of uncertainty will remain beyond the 2021 reporting period.

Events After the Reporting Period

Information Linkages and Capacity Building Program

During the 2021 financial year, the administrative and policy responsibility of the Information Linkages and Capacity Building Program will be transitioned from the National Disability Insurance Agency to the department.

Economic Stimulus

The department paid the Australian Government’s second household support payment in the order of $4 billion during July 2020 and continues to provide income support for individuals in response to the COVID-19 pandemic. The Australian Government’s economic stimulus payments will continue to evolve in line with the impacts of COVID-19.

Income Compliance Program

All debts raised through income averaging in the Income Compliance program were fully impaired at 30 June 2020. After balance date, a substituted administrative decision was or will be made that the debt values should be reduced to zero.

New and Future Australian Accounting Standards

AASB 15 Revenue from Contracts with Customers and AASB 1058 Income of Not-For-Profit Entities

AASB 15 and AASB 1058 became effective 1 July 2019. AASB 15 establishes a comprehensive framework for determining whether; how much; and when revenue is recognised. It replaces existing revenue recognition guidance, including AASB 118 Revenue, AASB 111 Construction Contracts and Interpretation 13 Customer Loyalty Programmes. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

AASB 1058 is relevant in circumstances where AASB 15 does not apply. AASB 1058 replaces most of the not-for-profit (NFP) provisions of AASB 1004 Contributions and applies to transactions where the consideration to acquire an asset is significantly less than fair value principally to enable the entity to further its objectives, and where volunteer services are received.

There are no material impacts to the financial statements as a result of the application of AASB 15 and AASB 1058.

AASB 16 Leases

AASB 16 became effective on 1 July 2019. This new standard has replaced AASB 117 Leases, Interpretation 4 Determining whether an Arrangement contains a Lease, Interpretation 115 Operating Leases – Incentives and Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

AASB 16 provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, together with options to exclude leases where the lease term is 12 months or less, or where the underlying asset is of low value. The details of the changes in accounting policies, transitional provisions and adjustments are disclosed below and in the relevant notes to the financial statements.

Application of AASB 16 Leases

The department has adopted AASB 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 1 July 2019. Accordingly, the comparative information presented for 2019 is not restated and it is presented as previously reported under AASB 117 and related interpretations.

The department elected to apply the practical expedient on transition to base its lease classification on whether or not a contract was, or contains, a lease on its determination under AASB 117. That is, contracts entered into before the transition date that were not identified as leases under AASB 117, were not reassessed. The definition of a lease under AASB 16 was applied only to contracts entered into, or changed on or after, 1 July 2019.

The department applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

  • Relied on previous assessments on whether leases are onerous as opposed to preparing an impairment review under AASB 136 Impairment of Assets as at the date of initial application; and
  • Applied the exemption not to recognise right-of-use assets and liabilities for leases with less than 12 months of lease term remaining as of the date of initial application.

As a lessee, the department previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards of ownership.

On adoption of AASB 16, the department recognised right-of-use assets and lease liabilities in relation to leases of office accommodation and motor vehicles, which had previously been classified as operating leases.

The lease liabilities were measured at the present value of the remaining lease payments, discounted using the department’s incremental borrowing rate as at 1 July 2019. The department’s incremental borrowing rate is the rate at which a similar borrowing could be obtained from an independent creditor under comparable terms and conditions. The weighted-average rate applied was 1.5 per cent.

The right-of-use assets were measured as follows:

  • Office accommodation: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or onerous amounts.
  • Motor vehicles: measured at an amount equal to the lease liability.

Impact on transition

On transition to AASB 16, the department recognised additional right-of-use assets and additional lease liabilities, recognising the difference in retained earnings.

For additional lease disclosure, refer to accompanying Notes 1.1B, 1.1C, 1.2C, 3.2A, 3.3B and 3.4A.

The impact on transition is summarised below:

Impact on Transition to AASB16

Departmental

1 July 2019

$'000

Right-of-use assets - leasehold improvements

576,985

Right-of-use assets - property, plant and equipment

293

Lease liabilities

576,303

Retained earnings

36,203

The following table reconciles the Departmental minimum lease commitments disclosed in the department's 30 June 2019 annual financial statements to the amount of lease liabilities recognised on
1 July 2019:

1 July 2019

$'000

Minimum operating lease commitment at 30 June 2019

369,937

Less: GST commitment receivable

(33,630)

Less: short-term leases not recognised under AASB 16

(886)

Less: low value leases not recognised under AASB 16

(1,127)

Plus: effect of extension options reasonable certain to be exercised

355,132

Undiscounted lease payments

689,426

Less: effect of discounting using the incremental borrowing rate as at the date of initial application

(113,123)

Lease liabilities recognised at 1 July 2019

576,303

1. Financial Performance

1.1 Expenses

2020

2019

$'000

$'000

Note 1.1A: Employee Benefits

Wages and salaries

199,304

190,651

Leave and other entitlements

41,840

51,556

Superannuation:

Defined benefit plans

23,787

23,450

Defined contribution plans

20,617

19,440

Separation and redundancies

2,938

2,738

Total employee benefits

288,486

287,835

Accounting Policy

Accounting policies for employee related expenses are contained in Section 6: People.

Note 1.1B: Suppliers

Goods and services supplied or rendered

Consultants and contractors

83,253

76,607

IT and communications1

28,960

45,566

Building expenses

6,645

6,966

Travel and accommodation

3,781

5,341

Training

3,092

3,345

Recruitment

1,404

1,872

Motor vehicle expenses

201

659

Other

15,260

12,060

Total goods and services supplied or rendered

142,596

152,416

Goods supplied

2,647

3,615

Services rendered

139,949

148,801

Total goods and services supplied or rendered

142,596

152,416

Other suppliers

Operating lease rentals

-

34,760

Short-term leases

2,194

-

Low value leases

188

-

Workers' compensation expenses

1,365

1,187

Total other suppliers

3,747

35,947

Total suppliers

146,343

188,363

The department has short-term lease commitments of $1.139 million as at 30 June 2020.

  1. The department transferred corporate Information Technology (IT) services to Services Australia. Refer to Note 8.2A.

Accounting Policy

Short-term leases and leases of low-value assets

The department has elected not to recognise right-of-use assets and lease liabilities for short-term leases of assets that have a lease term of 12 months or less and leases of low-value assets (less than $10,000). The department recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

2020

2019

$'000

$'000

Note 1.1C: Finance Costs

Unwinding of discount

3

17

Interest on lease liabilities

8,484

-

Total finance costs

8,487

17

Accounting Policy

All borrowing costs are expensed as incurred.

1.2 Own-Source Revenue and Gains

Own-Source Revenue

Note 1.2A: Revenue from Contracts with Customers

Rendering of services

49,598

56,570

Disaggregation of revenue from contracts with customers

Type of customer:

Australian Government entities (related parties)

48,938

56,265

Non-government entities

660

305

49,598

56,570

Accounting Policy

Under the new income recognition model the department first determines whether an enforceable agreement exists and whether the promises to transfer goods or services to the customer are ‘sufficiently specific’. If an enforceable agreement exists and the promises are ‘sufficiently specific’ (to a transaction or part of a transaction), the department applies the general AASB 15 principles to determine the appropriate revenue recognition. If these criteria are not met, the department will consider whether AASB 1058 applies.

The department receives services revenue from the provision of IT services, including software development, and grants shared services to other Australian Government entities. These arrangements consist of both Memoranda of Understanding (MoU) and other contractual agreements. There are two main types of agreements for IT services, being MoUs for IT service management and service proposals for work that falls outside the standard support and maintenance provided in the agreement. The arrangements generally fall within the category of performance obligations satisfied over time and are recognised as services are delivered. The IT service function transferred to Services Australia during the 2020 financial year.

Grants shared services, provided through the Grants Hub, operate in accordance with partnership agreements that are provided on the basis of a package and revenue is recognised as services are delivered over time. Receivables for services, which have 30 day terms, are recognised at the nominal amounts due less any impairment allowance. Collectability of debts is reviewed at the end of the reporting period. An allowance is made when collectability of the debt is no longer probable.

Note 1.2B: Resources Received Free of Charge

Aged Care Gateway IT systems application development services1

-

17,106

Remuneration of auditors

1,470

1,470

Other

142

-

Total resources received free of charge

1,612

18,576

  1. In the 2019 financial year, revenue of $17.106 million was reported as part of resources received free of charge. In the 2020 financial year, the Aged Care Gateway asset transferred to the Department of Health. Refer to Note 8.2A.

Accounting Policy

Resources Received Free of Charge

Resources received free of charge are recognised as revenue 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.

2020

2019

$'000

$'000

Note 1.2C: Rental Income

Operating lease

Contingent rentals

-

1,948

Subleasing right-of-use assets

2,198

-

Total rental income

2,198

1,948

The department, in its capacity as lessor, has one sub-lease arrangement (2019: one arrangement) and fixed memorandum of understanding agreements with Commonwealth agencies in three tenancies (2019: two tenancies).

Maturity analysis of operating lease income receivables:

Within one year

424

884

One to two years

145

368

Two to three years

146

4

More than three years

418

9

Total undiscounted lease payments receivable

1,133

1,265

Gains

Note 1.2D: Gains from Sale of Assets

Property, plant and equipment:

Proceeds from sale

3

299

Carrying value of assets sold

(1)

(127)

Net gain from sale of assets

2

172

Accounting Policy

Sale of Assets

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

Note 1.2E: Other Gains

Reversal of makegood

481

449

Assets recognised

4

45

Other

212

17

Total other gains

697

511

Accounting Policy

Contributions of Assets at No Cost

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 Australian Government entity as a consequence of a restructuring of administrative arrangements (refer to Note 8.2A).

Revenue from Government

Amounts appropriated for departmental appropriations for the financial year (adjusted for any formal additions and reductions) are recognised as Revenue from Government when the department gains control of the appropriation. Appropriations receivable are recognised at nominal amounts (refer to Note 3.1A).

2. Income and Expenses Administered on Behalf of Government

2.1 Administered – Expenses

2020

2019

$'000

$'000

Note 2.1A: Suppliers

Goods and services supplied or rendered

Settlement services

-

103,545

Consultants and contractors

49,225

40,404

Research services

41,757

26,190

Disability employment services

18,633

17,007

Advertising, legal and marketing costs

8,126

8,041

Other

10,415

34,232

Total goods and services supplied or rendered

128,156

229,419

Goods supplied

1,079

25,275

Services rendered

127,077

204,144

Total goods and services supplied or rendered

128,156

229,419

Total suppliers

128,156

229,419

Note 2.1B: Grants

Public sector:

Australian Government entities

323,164

169,935

Local Governments

5,865

7,627

Private sector:

Non-profit organisations

1,768,797

1,824,781

External parties

625,688

423,463

Total grants

2,723,514

2,425,806

Accounting Policy

Grants and Subsidies

The department administers grant and subsidy schemes on behalf of the Australian Government. These schemes include grants to local governments, non-government, not-for-profit organisations and other recipients for activities associated with community development and supporting individuals.

Note 2.1C: Personal Benefits

Direct:

Income Support for Seniors

50,103,637

46,513,719

Working Age Payments

26,680,586

15,822,443

Family Tax Benefit

18,397,991

18,081,480

Income Support for People with Disability

17,781,052

16,740,242

Income Support for Carers

9,374,381

8,676,067

Student Payments

3,567,455

2,323,878

Paid Parental Leave

2,399,420

2,316,636

Allowances and Concessions for Seniors

378,767

92,558

National Redress Scheme

253,567

-

Income Support for Vulnerable People

150,685

102,553

Child Payments

105,601

103,820

Other

37,521

30,326

Indirect

2,350

680

Total personal benefits

129,233,013

110,804,402

Accounting Policy

Personal Benefits

The department administers personal benefit payments that provide income support, family assistance and other entitlements to individuals on behalf of the Australian Government. Payments to recipients are determined in accordance with provisions under social security law and other legislation, including:

  • Social Security (Administration) Act 1999;
  • A New Tax System (Family Assistance) (Administration) Act 1999;
  • Student Assistance Act 1973;
  • Paid Parental Leave Act 2010; and
  • National Redress Scheme for Institutional Child Sexual Abuse Act 2018.

Payments made under social security law and other legislation are assessed, determined and paid by Services Australia and the Department of Veterans’ Affairs under delegation from the department. The department reports payments made by Services Australia and the Department of Veterans’ Affairs on behalf of the department.

The Social Security (Administration) Act 1999 and the A New Tax System (Family Assistance) (Administration) Act 1999 impose an obligation on recipients to disclose to Services Australia and the Department of Veterans’ Affairs information about financial and personal circumstances that affect entitlement to payment. This is a necessary part of Services Australia and the Department of Veterans’ Affairs administration, which acknowledges that, at the time certain information is required, only the recipient is in a position to provide that information.

Unreported changes in circumstances can lead to incorrect payment, even if no deliberate fraud is intended. Risks associated with relying on voluntary disclosure by recipients are mitigated by a comprehensive portfolio risk management plan, underpinned by compliance strategies, which have been built up over many years. The compliance framework has been designed to meet the requirements of social security legislation.

The compliance framework does not rely solely on information provided by recipients to determine their entitlement. A comprehensive risk management strategy minimises the potential for incorrect payment by subjecting recipients to a variety of review processes. If debts are identified, Services Australia seeks recovery in a lump sum or by instalments. While the risk management strategy is principally directed at minimising debts, the detection of underpayments will also result in an adjustment to their level of entitlement.

Personal benefits recoveries for overpayments made during the year are offset against personal benefit expenses.

2020

2019

$'000

$'000

Note 2.1D: Write-Down and Impairment of Other Assets

Impairment of personal benefits receivable

447,080

239,698

Other

22

2,057

Total write-down and impairment of other assets

447,102

241,755

Note 2.1E: Other Expenses

Other special accounts expense

7,390

5,000

Other

1,156

1,377

Total other expenses

8,546

6,377

2.2 Administered – Income

2020

2019

$'000

$'000

Revenue

Non-Taxation Revenue

Note 2.2A: Recoveries

National Redress Scheme

197,597

-

Personal benefits recoveries

8,789

37,744

Other

20,022

16,451

Total recoveries

226,408

54,195

Gains

Note 2.2B: Write Back of Impairment Allowance

Family Tax Benefit

-

304,800

Other

58

-

Total write back of impairment allowance

58

304,800

Note 2.2C: Fair Value Gains

Loans

220,612

74,146

Total fair value gains

220,612

74,146

Accounting Policy

Revenue

All administered revenues are revenues relating to 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.

National Redress Scheme

The department is appropriated to make payments under the National Redress Scheme for Institutional Child Sexual Abuse Act 2018 and then recovers these payments from the responsible participating institution.

Personal Benefits Recoveries

Personal benefits recoveries mainly relate to fees on the recovery of personal benefit payments, and are recognised on an accrual basis.

Interest

Interest revenue is recognised using the effective interest method.

Competitive neutrality revenue

Australian Hearing provides services on a for-profit basis and is subject to the Australian Government's competitive neutrality policy. Under competitive neutrality arrangements, Australian Hearing is required to make payroll tax and income tax equivalent payments to the Australian Government. These amounts are recognised in the administered financial statements and have been paid or are payable to the official public account.

Dividend revenue

The Australian Government owns 100 per cent of the issued share capital of Australian Hearing. Dividends from Australian Hearing are recognised in the administered financial statements and have been paid or are payable to the official public account.

3. Departmental Financial Position

3.1 Financial Assets

2020

2019

$'000

$'000

Note 3.1A: Trade and Other Receivables

Goods and services receivables

4,285

5,858

Appropriations receivables:

For ordinary annual appropriation

77,059

74,927

For equity injection

1,409

2,539

For departmental capital budget

1,424

2,336

Total appropriations receivables

79,892

79,802

Other receivables:

GST receivable from the Australian Taxation Office

1,374

3,342

Other

85

1,244

Total other receivables

1,459

4,586

Total trade and other receivables (gross)

85,636

90,246

Less impairment loss allowance

-

(21)

Total trade and other receivables (net)

85,636

90,225

During the 2020 financial year, credit terms for goods and services were within 30 days (2019: 30 days).

Accounting Policy

Cash and cash equivalents

Cash is recognised at its nominal amount. Cash and cash equivalents includes cash on hand and cash in special accounts.

Financial assets

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

3.2 Non-Financial Assets

Note 3.2A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangibles

Leasehold improvements

Property, plant & equipment

Computer software internally developed

Computer software purchased

Total

$'000

$'000

$'000

$'000

$'000

As at 1 July 2019

Gross book value

52,378

28,153

258,566

44,713

383,810

Accumulated depreciation, amortisation and impairment

(113)

(392)

(146,868)

(32,431)

(179,804)

Net book value as at 1 July 2019

52,265

27,761

111,698

12,282

204,006

Recognition of right of use asset on initial application of AASB 16

576,985

293

-

-

577,278

Adjusted total as at 1 July 2019

629,250

28,054

111,698

12,282

781,284

Additions:

By purchase or internally developed

323

1,301

10,750

-

12,374

By purchase or internally developed - right-of-use

634

226

-

-

860

By recognition

-

4

-

-

4

Restructuring activities

(127)

(19,215)

(102,061)

(8,451)

(129,854)

Restructuring activities right-of-use assets

(7,339)

(7)

-

-

(7,346)

Impairments recognised in net cost of services

-

-

(765)

(174)

(939)

Depreciation and amortisation

(7,188)

(8,533)

(19,411)

(3,799)

(38,931)

Depreciation on right-of-use assets

(34,088)

(206)

-

-

(34,294)

Other movements of right-of-use assets

(106)

(1)

-

-

(107)

Reclassification

-

-

(167)

167

-

Disposals:

Disposals with proceeds

-

(1)

-

-

(1)

Disposals without proceeds

-

(137)

-

(7)

(144)

Net book value as at 30 June 2020

581,359

1,485

44

18

582,906

Net book value as at 30 June 2020 represented by:

Gross book value

620,630

1,805

809

86

623,330

Accumulated depreciation, amortisation and impairment

(39,271)

(320)

(765)

(68)

(40,424)

Net book value as at 30 June 2020

581,359

1,485

44

18

582,906

Carrying amount of right-of-use assets

536,086

305

-

-

536,391

In the 2020 financial year:

  • no leasehold improvements were identified as impaired and written-down (2019: $0.547 million);
  • no property, plant and equipment were identified as impaired and written-down (2019: $1.283 million);
  • intangibles with a carrying amount of $0.939 million (2019: $0.007 million) was identified as impaired and written-down; and
  • property, plant and equipment with a carrying amount of $0.001 million (2019: $0.127 million) was sold via independent contract auction houses Pickles and Allbids.

No property, plant and equipment is expected to be sold within the next 12 months (2019: $0.050 million).

2020

2019

$'000

$'000

Contractual commitments for the acquisition of property, plant and equipment are payable as follows (GST inclusive):

Within one year

69

55

Total property, plant and equipment commitments

69

55

Accounting Policy

Acquisition of Assets

Assets are recorded at cost on acquisition except as otherwise 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 amount at which these items 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 purchases of less than $2,000, which are expensed in the financial year of acquisition (other than where these assets 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 makegood provisions in office accommodation leases reported by the department where an obligation to restore the property to its original or an agreed condition exists. These costs are included in the value of the department’s leasehold improvements with a corresponding provision for the makegood recognised. Leasehold improvement assets have a recognition threshold of $10,000.

The department’s intangibles comprise purchased and internally developed software for internal use. Intangibles are capitalised when their gross values are greater than $50,000 for externally acquired software and $200,000 for internally developed software. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Lease Right of Use (ROU) Assets

Lease ROU assets are capitalised at the commencement date of the lease and comprise of the initial lease liability amount, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for as separate asset classes in the department’s financial information management system. However, the lease ROU assets are included in the same non-financial asset category where the corresponding underlying assets would be presented if they were owned.

On initial adoption of AASB 16, the department has adjusted the ROU assets at the date of initial application by the amount of any provision for onerous leases recognised immediately before the date of initial application. Following initial application, an impairment review is undertaken for any right of use lease asset that shows indicators of impairment and an impairment loss is recognised against any right of use lease asset that is impaired. Lease ROU assets continue to be measured at cost after initial recognition.

Revaluations

The department did not measure any non-financial assets at fair value on a non-recurring basis as at
30 June 2020.

Following initial recognition at cost, property, plant and equipment (excluding ROU assets) are carried at fair value (or an amount not materially different from fair value) less subsequent accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure 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.

Revaluation adjustments are made on a class by class basis. Any revaluation increment is credited to equity in the asset revaluation reserve except to the extent it reversed a previous revaluation decrement of the same asset class previously recognised in the surplus/deficit. Revaluation decrements for a class of assets are recognised directly in the surplus/deficit except to the extent these amounts reverse a previous revaluation increment for the 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.

Valuation Processes

The department engaged the services of Jones Lang LaSalle Public Sector Valuations to conduct a materiality assessment of all tangible non-financial assets at 30 June 2020, excluding lease ROU assets. This annual assessment is undertaken to determine whether the carrying amount of the assets is materially different from their fair value. Intangible non-financial assets are carried at cost. Comprehensive valuations are carried out at least once every three years, with the last full detailed revaluation performed at 30 June 2019. Jones Lang LaSalle Public Sector Valuations has provided written assurance to the department that the models developed are in compliance with AASB 13 Fair Value Measurement.

The methods used to determine and substantiate the unobservable inputs are derived and evaluated as follows:

  • Physical depreciation and obsolescence - assets that do not transact with enough frequency or transparency to develop objective opinions of value from observable market evidence have been measured utilising the cost approach. Under the cost approach the estimated cost to replace the asset is calculated and adjusted to take into account physical depreciation and obsolescence. Physical depreciation and obsolescence is determined on the basis of professional judgement regarding physical, economic and external obsolescence factors relevant to the asset under consideration.
  • Leasehold improvement assets - the consumed economic benefit/asset obsolescence deduction is determined on the basis of the associated lease term.

Depreciation

Depreciable property, plant and equipment assets are written-off to their estimated residual values over their estimated useful lives using, in all cases, the straight-line method of depreciation.

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

Depreciation rates applying to each class of depreciable asset, excluding ROU assets, are based on the following estimated useful lives:

2020

2019

Leasehold improvements

Lesser of 10 years or
lease term

Lesser of 10 years or
lease term

Plant and equipment

3 to 10 years

3 to 10 years

Artwork

1 to 50 years

1 to 50 years

Software

2 to 8 years

2 to 8 years

The depreciation rates for ROU assets are based on the commencement date to the earlier of the end of the useful life of the ROU asset or the end of the lease term.

Impairment

All non-financial assets were assessed by the department for impairment as at 30 June 2020. 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.

The recoverable amount of an asset is the higher of its fair value less costs to sell 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 department were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Derecognition

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

Transfers

The department transfers assets between categories to ensure the nature and useful lives of assets are disclosed in accordance with departmental asset policy.

3.3 Payables

2020

2019

$'000

$'000

Note 3.3A: Suppliers

Trade creditors and accruals

20,406

23,707

Total suppliers

20,406

23,707

During the 2020 financial year, settlement was usually made within 20 days. In response to COVID-19, from mid-April 2020, settlement was usually made within 7 days to assist the cash flow for Australian businesses (2019: 30 days).

Note 3.3B: Other Payables

Lease incentive

-

27,199

Operating leases straight-lining

-

9,022

Salaries and wages

3,082

1,652

Unearned income

88

1,118

Separations and redundancies

-

1,082

Superannuation

789

314

Other

3,296

5,187

Total other payables

7,255

45,574

3.4 Interest Bearing Liabilities

Note 3.4A: Leases

Lease liabilities

548,847

-

Total cash outflow for leases for the year ended 30 June 2020 was $29.272 million.

Accounting Policy

Refer to the Overview section for accounting policy on leases.

3.5 Other Provisions

Note 3.5A: Other Provisions

Provision for restoration

$'000

Carrying amount as at 1 July 2019

743

Change in provisions held

(478)

Revaluation

8

Closing balance as at 30 June 2020

273

The department has one agreement (2019: two agreements) which has a provision requiring restoration of the premises to the original or an agreed condition at the conclusion of the lease. The department has made a provision to reflect the present value of this obligation.

Accounting Judgements and Estimates

Makegood Provision

The fair value of makegood for leasehold improvements is based on estimated costs per square metre on a site by site basis and is included as a provision for makegood. The value of the provision for a property will depend on the rate and assessed cost of the makegood obligation applied to the premises. The department’s property management advisor has determined that not all property leases have a makegood obligation.

4. Assets and Liabilities Administered on Behalf of Government

4.1 Administered – Financial Assets

2020

2019

$'000

$'000

Note 4.1A: Cash and Cash Equivalents

Cash in special accounts1

507,155

402,363

Cash at bank

11,373

10,120

Total cash and cash equivalents

518,528

412,483

Note 4.1B: Receivables

Personal benefits:

Working Age Payments

2,112,660

2,259,163

Family Tax Benefit

1,990,316

1,697,897

Student Payments

430,664

443,397

Income Support for People with Disability

342,750

349,977

Income Support for Carers

252,613

249,476

Income Support for Seniors

226,947

217,052

Other

19,649

23,807

Total personal benefits

5,375,599

5,240,769

Advances and loans:

Advance payments for personal benefits

396,324

417,196

Student Financial Supplement Scheme

436,900

424,500

Student Start-up Loan

566,500

239,401

Pension Loan Scheme

41,788

26,194

Total advances and loans

1,441,512

1,107,291

Other receivables:

National Redress Scheme

144,588

-

GST receivable from the Australian Taxation Office

16,781

13,453

Rendering of services

9,341

-

Other receivables

1,373

24,929

Total other receivables (gross)

172,083

38,382

Total receivables

6,989,194

6,386,442

Less impairment loss allowance:

Personal benefits

(2,281,998)

(1,834,918)

Other

(850)

(908)

Total impairment loss allowance

(2,282,848)

(1,835,826)

Total receivables (net)

4,706,346

4,550,616

1. Special account cash balance details are disclosed in Note 5.2.

Significant Accounting Judgements and Estimates

Personal benefit payments

At any point in time, there are a number of benefit recipients who have received a benefit in excess of their entitlement and owe money to the Commonwealth. The Australian Government Actuary (AGA) has provided advice on the likely level of debt recovery. In providing this advice, the AGA gives consideration to past economic, policy and process changes that have impacted on repayments to date, the pausing of debt recovery activity as a policy response to COVID-19, and any potential changes that may impact on future repayment prospects. Each of these changes requires separate and collective consideration of the impact of the advice provided.

Family Tax Benefit

At any point in time, there are a number of eligible recipients who have received a benefit in excess of their entitlement and owe money to the Commonwealth. The AGA has provided advice on the likely level of debt recovery, including the estimated impact of COVID-19. The deteriorating repayment prospects of recipients from economic impacts of COVID-19 is a source of estimation uncertainty in relation to the recovery of the Family Tax Benefit receivable.

The AGA also calculates the impairment allowance associated with the Family Tax Benefit receivable noting there are a number of uncertainties in the estimation process including, for the current financial period, the impacts of COVID-19. The allowance relies on periodic analysis of longitudinal unit record data to estimate the proportion of the outstanding non-lodger debt, which might be considered receivable, and the doubtful debt associated with each category of debt.

Student Financial Supplement Scheme

The Student Financial Supplement Scheme was a voluntary loan scheme for tertiary students to help cover their expenses while they studied. The Student Financial Supplement Scheme closed on 31 December 2003 and no new loans have been issued since this date. Existing Student Financial Supplement Scheme debts are collected through the tax system and voluntary repayments can also be made.

For the 2020 financial year, the department engaged the AGA to provide the fair value estimate of the Student Financial Supplement Scheme receivable as at 30 June 2020.

The methodology used by the AGA was changed in the 2020 financial year due to legislation changes effective 1 July 2019 regarding student loan repayment rules. The development of a new model accessed student Higher Education Loan Program (HELP) debt information from the Department of Education, Skills and Employment, which was granted during the 2020 financial year. The new model generates individual cash flow profiles for all those who have an outstanding debt at the valuation date. The individual income projections are based on analysis of data provided by the ATO on the historical income distributions of those who have completed their study in the past and the Department of Education, Skills and Employment for Higher Education Loan Program (HELP) debt data.

The AGA have modelled individual cash flows by projecting forward expected future incomes for each individual and their associated compulsory repayment by year. The table of compulsory repayment thresholds was also projected, considering assumptions as to future Consumer Price Index (CPI) growth. As a result of COVID-19, key assumptions were amended including reducing debtor incomes and CPI growth rates. The resultant fair value decrease of the receivable of $12 million reflects $82 million due to movements in assumptions and an increase of $94 million due to a change in methodology.

Pension Loan Scheme

The Pension Loan Scheme is a voluntary reverse equity mortgage that offers older Australians an income stream to supplement their retirement. Older Australians can choose to increase the amount of their fortnightly pension by using their assets as security.

Information for new loan amounts, loan repayments and interest receipts for the Pension Loan Scheme is provided by Services Australia from their Debt Management Information System. To estimate the fair value of the receivable balance, the department adjusts the receivable to recognise the time value of the associated cash flows discounted by the average market interest rate for this type of loan.

Student Start-up Loan

The Student Start-up Loan is a voluntary loan that is available to full time students in receipt of Youth Allowance, Austudy or ABSTUDY. The scheme commenced on 1 January 2016 with students potentially eligible to take out two loans a year. The loan is only repaid once any HELP debts have been fully extinguished.

For the 2020 financial year, the department engaged the AGA to provide a fair value estimate for the Student Start-up Loan receivable as at 30 June 2020.

The methodology used by the AGA was changed in the 2020 financial year due to legislation changes on 1 July 2019 regarding student loan repayment rules. The development of a new model accessed student Higher Education Loan Program (HELP) debt information from the Department of Education, Skills and Employment, which was granted during the 2020 financial year. The new model generates individual cash flow profiles for all those who have an outstanding debt at the valuation date. The individual income projections are based on analysis of data provided by the ATO on the historical income distributions of those who have completed their study in the past and the Department of Education, Skills and Employment for Higher Education Loan Program (HELP) debt data.

The AGA have modelled individual cash flows by projecting forward expected future incomes for each individual and their associated compulsory repayment by year. The table of compulsory repayment thresholds was also projected, considering assumptions as to future CPI growth.

The repayment cash flows were aggregated across all individuals to arrive at total repayments to determine the fair value of the receivable. As a result of COVID-19, key assumptions were amended including wage and CPI growth rates. The net increase of the receivable of $327 million reflects increases in new debt of $275 million and a change in methodology of $122 million, and a fair value decrease of $70 million from interest and deferral rates.

The resultant fair value of the receivable is derived by discounting the nominal value of projected cash flows using the yield curve for Commonwealth Government securities as at 30 June 2020 to arrive at a net value.

Personal benefits impairment loss allowance

The AGA changed their approach to estimating the Personal Benefits Doubtful Debt provision from previous years, undertaking an approach of modelling repayments directly, rather than outstanding balances, write-off’s and waivers. This change allowed direct incorporation of the impact of adjustments, including those relating to decisions to freeze the raising of debt, introduction of interest charges, increased receipts from the Broadening Debt Repayment Measure and low and middle income tax offsets. The AGA also considered the time value of money and policy and process changes, and in particular, the impact of COVID-19 and the 2019-20 summer bushfires on the timing of future repayments and ultimate recoverability of debts.

The net increase of the personal benefits impairment loss allowance of $447 million reflects an increase in impairment for family tax benefit of $227 million and income compliance program debt impairment of $550 million, offset by the reduction in personal benefits doubtful debt provision by $366 million, which includes a change in methodology in the order of $80 million.

2020

2019

$'000

$'000

Note 4.1C: Investments

National Disability Insurance Agency1

1,088,470

2,531,071

Hearing Australia1

83,662

-

Total investments in Commonwealth entities

1,172,132

2,531,071

Other interests:

Unison Housing Limited2

1,395

1,395

Total other interests

1,395

1,395

Total investments

1,173,527

2,532,466

1. The Commonwealth has 100 per cent of the equity interest in the National Disability Insurance Agency and Hearing Australia.

2. The Commonwealth has an interest in a property occupied by Unison Housing Limited located in Melbourne. The principal activity of the entity is the provision of community housing facilities. The Commonwealth owns 31 per cent of the unimproved market value of the land and its investment in Unison Housing Limited is limited to an equity contribution of grant funding. The Commonwealth’s interest is not expected to be sold or fully realised within the next 12 months. For the 2019 financial year, Unison Housing Limited was revalued independently in accordance with AASB 13 Fair Value Measurement.

Accounting Policy

Administered Investments

Administered investments in subsidiaries, joint ventures and associates are not consolidated because their consolidation is relevant only at the whole of government level.

Administered investments other than those held for sale are classified as fair value through other comprehensive income and are measured at their fair value as at 30 June 2020. Fair value has been taken to be the Australian Government's proportional interest in the net assets of the entities as at the end of the reporting period.

4.2 Administered – Payables

2020

2019

$'000

$'000

Note 4.2A: Personal Benefits

Working Age Payments

1,646,202

377,778

Income Support for Seniors

980,460

910,609

Income Support for People with Disability

401,565

338,330

Family Tax Benefit

307,334

324,408

Student Payments

203,798

64,931

Income Support for Carers

279,959

182,072

Paid Parental Leave

44,919

58,956

National Redress Scheme

12,992

-

Other

9,595

5,645

Total personal benefits

3,886,824

2,262,729

Note 4.2B: Grants

Private sector:

Non-profit organisations

31,292

22,468

Other grants

21,882

21,781

Total grants

53,174

44,249

During the 2020 financial year, settlement of supplier payables was usually made within 20 days. In response to COVID-19, from mid-April 2020, settlement was usually made within 7 days to assist the cash flow for Australian businesses (2019: 30 days). Settlement of grants payables was made according to the terms and conditions of each grant and usually within 30 days of performance or eligibility (2019: 30 days).

Accounting Policy

Administered payables are measured at fair value where possible. The carrying amounts of administered liabilities not measured at fair value are considered to be a reasonable approximation of their fair value.

Grants

Grant liabilities are recognised to the extent that required services have been performed or the eligibility criteria have been satisfied by the grantee, but payments due have not been made. Grant commitments are when the Australian Government enters into an agreement to make grant payments, but services have not yet been performed or criteria satisfied.

4.3 Administered – Other Provisions

Note 4.3A: Personal Benefits and Other Provisions

Family Tax Benefit

Claims in Progress

Pension Bonus Scheme

National Redress Scheme

Other1

Total

$'000

$'000

$'000

$'000

$'000

$'000

Carrying amount as at 1 July 2019

3,752,300

120,293

155,000

-

22,660

4,050,253

Provisions made

3,477,862

137,785

-

37,624

8,579

3,661,850

Provisions expired or settled

(3,408,700)

(114,762)

(34,000)

-

(16,779)

(3,574,241)

Changes in provision

491,000

-

104,000

-

(80)

594,920

Closing balance as at 30 June 2020

4,312,462

143,316

225,000

37,624

14,380

4,732,782

1. Single Income Family Supplement and Schoolkids Bonus are disclosed in Other provisions.

Significant Accounting Judgements and Estimates

During the 2020 financial year, the department engaged the AGA to estimate the following provisions:

Family Tax Benefit

At any point in time, there are eligible recipients, entitled to receive the Family Tax Benefit, who have not yet received their full entitlement from Services Australia. The provision calculates the current financial year and earlier financial years’ liability for claims that have yet to be realised. The methodology considers the likely lodgement profiles associated with reconciliation top-ups, lump sum claims and supplement payments, including new measures.

Pension Bonus Scheme

The Pension Bonus Scheme provides a tax free lump sum payment to those who continue in employment and defer receiving the Age Pension. The future Pension Bonus Scheme liability relates to those who are currently registered and have not yet received a bonus payment or exited for some other reason.

The assumptions used by the AGA are based on historical experience and other factors which are considered reasonable, including actual average payments, claim rates and the period over which claims are expected to be made. These factors have been reviewed for the 2020 financial year, based on the behaviour of recipients up to 31 December 2019, and projected over the estimated remaining life of the scheme. The AGA has adopted the zero coupon bond rate as at 30 June 2020 (2020: 0.66 per cent, 2019: 1.01 per cent) as the discount rate to determine the present value of this long term provision.

As a result of COVID-19 key assumptions were amended including significantly higher claim rates, increase in the rates of customers applying for an age pension and lower rate of increase to average Pension Bonus Scheme payment.

During the 2020 financial year, the department made an estimate for the following provisions:

Claims in progress

During the 2020 financial year the department engaged the AGA to review the department’s methodology for estimating claims in progress. At any point in time, there are claims for personal benefits payments that have been submitted and are in the process of being assessed. While some of these claims are granted, others are determined not to be eligible for payment. Under current legislation, individuals may be eligible for payment from the date their claim was submitted (the date of effect). The provision calculates the estimated liability for claims as at balance date that have not been fully assessed as at that date. The methodology considers average payment amounts and the proportion of claims expected to be eligible for payment.

National Redress Scheme

The Commonwealth Government administers the National Redress Scheme and in this capacity makes monetary payments to survivors of child sexual abuse in accordance with the National Redress Scheme for Institutional Child Sexual Abuse Act 2018. As the National Redress Scheme operates on the basis that the responsible entity pays, the funds paid to the survivor are recovered from the responsible institution.

The provision represents the total monetary payment that is offered to survivors under the scheme that has not been accepted at the reporting date.

5. Funding

5.1 Appropriations

Note 5.1A: Annual appropriations ('recoverable GST exclusive')

Annual Appropriations for 2020

Annual Appropriation

Adjustments to appropriation1

Total appropriation

Appropriation applied in 2020 (current and prior years)

Variance2

$'000

$'000

$'000

$'000

$'000

Departmental

Ordinary annual services

433,881

48,642

482,523

(473,813)

8,710

Capital Budget3

17,085

(14,421)

2,664

(3,576)

(912)

Other services

Equity Injections

10,845

(5,081)

5,764

(6,894)

(1,130)

Total departmental

461,811

29,140

490,951

(484,283)

6,668

Administered

Ordinary annual services

Administered items

9,729,619

(83,335)

9,646,284

(9,523,826)

122,458

Payments to corporate Commonwealth entities

1,413,257

-

1,413,257

(1,413,257)

-

Total administered

11,142,876

(83,335)

11,059,541

(10,937,083)

122,458

  1. Departmental adjustments are current year section 75 transfers of $41.438 million, including $14.421 million of departmental capital appropriation and $5.081 million of equity appropriation, which relates to the transfer of functions with the Department of Home Affairs and Services Australia and $70.578 million of section 74 receipts. The administered adjustments are section 75 transfers of $86.401 million which relates to the transfer of functions with the Department of Home Affairs and section 74 receipts of $3.066 million.
  2. The departmental variance relates to the movement in cash and appropriation receivable between the current and prior financial year. The administered variance consists of
    $232.509 million for the payment of prior year expense accruals during the 2020 financial year offset by $354.967 million that represents unspent available appropriations for administered items.
  3. Departmental Capital Budgets are appropriated through Appropriation Acts (No.1, 3, 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts.

Note 5.1A: Annual appropriations ('recoverable GST exclusive') (continued)

Annual Appropriations for 2019

Annual Appropriation

Adjustments to appropriation1

Total appropriation

Appropriation applied in 2019 (current and prior years)

Variance2

$'000

$'000

$'000

$'000

$'000

Departmental

Ordinary annual services

382,665

105,631

488,296

(477,098)

11,198

Capital Budget3

16,549

514

17,063

(14,727)

2,336

Other services

Equity Injections

21,469

-

21,469

(24,021)

(2,552)

Total departmental

420,683

106,145

526,828

(515,846)

10,982

Administered

Ordinary annual services

Administered items

8,251,410

1,403

8,252,813

(6,113,732)

2,139,081

Payments to corporate Commonwealth entities

1,477,674

-

1,477,674

(1,477,674)

-

Total administered

9,729,084

1,403

9,730,487

(7,591,406)

2,139,081

  1. Departmental adjustments are current year section 75 transfers of $39.155 million, including $0.514 million of departmental capital appropriation, which relates to the transfer of functions with the Department of Health, the former Department of Education, the Department of the Prime Minister and Cabinet and the NDIS Quality and Safeguards Commission and $66.990 million of section 74 receipts. The administered adjustments are section 75 transfers of $0.126 million which relates to the transfer of the National Office for Child Safety functions to the Department of the Prime Minister and Cabinet and section 74 receipts of $1.529 million.
  2. The departmental variance relates to the movement in cash and appropriation receivable between the current and prior financial year. The administered variance consists of
    $206.030 million for the payment of prior year expense accruals during the 2019 financial year offset by $2,345.111 million that represents unspent available appropriations for administered items.
  3. Departmental Capital Budgets are appropriated through Appropriation Acts (No.1, 3, 5). They form part of ordinary annual services, and are not separately identified in the Appropriation Acts.

Note 5.1B: Unspent annual appropriations ('recoverable GST exclusive')

2020

2019

$'000

$'000

Departmental

Appropriation Act (No. 1) 2018-19

-

69,635

Appropriation Act (No. 3) 2018-191

784

6,076

Appropriation Act (No. 1) 2019-20

43,051

-

Appropriation Act (No. 3) 2019-20

9,182

-

Supply Act (No. 1) 2019-20

24,825

-

Appropriation Act (No. 1) 2018-19 - Capital Budget (DCB) - Non Operating

-

2,336

Appropriation Act (No. 1) 2019-20 - Capital Budget (DCB) - Non Operating

1,424

-

Appropriation Act (No. 2) 2017-18- Non Operating - Equity Injection

-

194

Appropriation Act (No. 6) 2017-18- Non Operating - Equity Injection

-

280

Appropriation Act (No. 2) 2018-19- Non Operating - Equity Injection

-

2,065

Appropriation Act (No. 2) 2019-20 Non Operating - Equity Injection

1,273

-

Supply Act (No. 2) 2019-20- Non Operating - Equity Injection

136

-

Cash and cash equivalents

5,334

9,313

Total departmental

86,009

89,899

Administered

Appropriation Act (No. 1) 2016-173

-

224,555

Supply Act (No. 1) 2016-173

-

178

Appropriation Act (No. 1) 2017-182

698,882

727,904

Appropriation Act (No. 3) 2017-18

-

11,827

Appropriation Act (No. 1) 2018-19

1,998,890

2,231,088

Appropriation Act (No. 3) 2018-19

90,232

114,023

Appropriation Act (No. 1) 2019-20

97,986

-

Appropriation Act (No. 3) 2019-20

142,578

-

Appropriation Act (No. 5) 2019-20

59,949

-

Supply Act (No. 1) 2019-20

54,454

-

Total administered

3,142,971

3,309,575

  1. The departmental ordinary annual services item includes a quarantine under section 51 of the PGPA Act of $0.784 million which was repealed on 1 July 2020.
  2. The administered ordinary annual services item includes a quarantine under section 51 of the PGPA Act of $451.746 million which was repealed on 1 July 2020.
  3. The 2016-17 Appropriation Acts automatically repealed on 1 July 2019.

Note 5.1C: Special Appropriations ('Recoverable GST exclusive')

Authority

Type

Purpose

Appropriation applied

2020

2019

$'000

$'000

Social Security (Administration) Act 1999, Administered1, 2

Unlimited Amount

To enable the payment of income support payments. Most of the amount relates to payments for Age Pension and Disability Support Pension.

106,241,123

90,774,884

A New Tax System (Family Assistance) (Administration) Act 1999, Administered1, 2

Unlimited Amount

To enable the payment of family income support payments. Most of the amount relates to payments for Family Tax Benefit and Schoolkids Bonus.

18,055,843

17,631,905

Paid Parental Leave Act 2010, Administered2

Unlimited Amount

To enable payments to working parents to enhance maternal and child health and shared caring responsibilities.

2,414,060

2,335,090

Student Assistance Act 1973 - Section 55A (Administered)2

Unlimited Amount

To enable payment of student assistance benefits for Isolated Children and the Aboriginal Study Assistance Scheme.

420,016

350,525

National Redress Scheme for Institutional Child Sexual Abuse Act 2018

Unlimited Amount

An Act to establish the National Redress Scheme for Institutional Child Sexual Abuse, to provide redress for survivors of past institutional sexual abuse.

205,307

18,032

Business Services Wage Assessment Tool Payment Scheme Act 2015 -- Section 99, Administered

Limited Amount

An Act to establish the Business Services Wage Assessment Tool payment scheme for making payments in relation to the use of the Business Services Wage Assessment Tool.

-

29,856

Public Governance, Performance and Accountability Act 2013 - Section 77, Administered

Refund

To provide an appropriation where an Act or other law requires or permits the repayment of an amount received by the Commonwealth and apart from this section there is no specific appropriation for the repayment.

119

137

Data-matching Program (Assistance and Tax) Act 1990

Unlimited Amount

An Act to provide for the matching of data in relation to certain assistance and tax and to amend the Privacy Act 1988.

-

-

Social Security and Other Legislation Amendment (Economic Security Strategy) Act 2008

Unlimited Amount

An Act to amend laws in order to provide economic security strategy payments, and for related purposes.

-

-

Authority

Type

Purpose

Appropriation applied

2020

2019

$'000

$'000

Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments to Increase Assistance for Older Australians and Carers and Other Measures) Act 2006

Unlimited Amount

An Act to amend the law relating to social security and veterans’ affairs, and for other purposes.

-

-

Social Security and Veterans' Affairs Legislation Amendment (One-off Payments and Other 2007 Budget Measures) Act 2007

Unlimited Amount

An Act to amend the law relating to social security and veterans’ affairs, and for other purposes.

-

-

Social Security and Veterans' Entitlements Legislation Amendment (One-off Payments and Other Budget Measures) Act 2008

Unlimited Amount

An Act to amend the law relating to social security and veterans’ entitlements, and for other purposes.

-

-

Clean Energy (Household Assistance Amendments) Act 2011

Unlimited Amount

An Act to amend the law relating to social security, family assistance, veterans’ entitlements, military rehabilitation and compensation, farm household support and aged care, and for related purposes.

-

-

Household Stimulus Package Act (No.2) 2009

Unlimited Amount

An Act to amend laws in order to provide payments relating to the household stimulus package, and for other purposes.

-

-

Total special appropriations applied

127,336,468

111,140,4293

  1. The Department of Veterans’ Affairs spent money from the Consolidated Revenue Fund on behalf of the department against the special appropriations for Social Security (Administration) Act 1999, Administered; and A New Tax System (Family Assistance) (Administration) Act 1999, Administered.
  2. The department received PGPA Act section 74 cash receipts from Services Australia for recovery of personal benefit overpayments. These amounts are included against the relevant special appropriation.
  3. Amounts credited to the special account as a direct budget appropriation adjustment are not disclosed in Note 5.1C Special Appropriations applied. The department made a voluntary accounting policy change in accordance with AASB 108.29 in relation to the presentation of the annual credit to the Social and Community Services Pay Equity Special Account with the annual credit disclosed separately from other special appropriations. The change is applied retrospectively.

Note 5.1D: Disclosure by Agent in Relation to Annual and Special Appropriations ('Recoverable GST exclusive')

Departmental Disclosure by Agent

Attorney-General's Department1

Department of Home Affairs2

2020

$'000

$'000

Total receipts

250

426

Total payments

(250)

(426)

1. The department has third party drawing rights for the Courts and Legal Services program.

2. The department has third party drawing rights for the Department of Home Affairs annual appropriation for the National Security and Criminal Justice program.

Administered Disclosure by Agent

Attorney-General's Department1

Department of Veterans' Affairs2

Department of Home Affairs3

Department of the Prime Minister and Cabinet4

2020

$'000

$'000

$'000

$'000

Total receipts

219,584

15,356

190,495

-

Total payments

(227,149)

(15,356)

(190,694)

-

Attorney-General's Department

Department of Veterans' Affairs

Department of Home Affairs

Department of the Prime Minister and Cabinet

2019

$'000

$'000

$'000

$'000

Total receipts

184,091

9,880

5,772

365

Total payments

(184,091)

(9,880)

(5,772)

(365)

1. The department has third party drawing rights for the Attorney-General's Department annual appropriation for the Family Relationship Services, Justice Services and Indigenous Law and Justice programs.

2. The department has third party drawing rights for the Department of Veterans' Affairs annual appropriation for the Veterans' Community Care and Support, Commemorative Activities, Veterans' Counselling and Other Health Services and Assistance and Other Compensation for Veterans and Dependants programs.

3. The department has third party drawing rights for the Department of Home Affairs annual appropriation for the National Security and Criminal Justice, Multicultural Affairs and Citizenship and Refugee, Humanitarian, Settlement and Migrant Services programs. The department receipted wage supplementation recoveries made by the Department of Home Affairs related to the Social and Community Services Pay Equity Special Account.

4. The department receipted wage supplementation recoveries initially paid by the Department of the Prime Minister and Cabinet for the Social and Community Services Pay Equity Special Account.

5.2 Administered Special Accounts

Social and Community Services Pay Equity Special Account4

Services for Other Entities and Trust Moneys Special Account5

National Disability Research Special Account 20166

2020

2019

2020

2019

2020

2019

$'000

$'000

$'000

$'000

$'000

$'000

Balance brought forward from previous period

400,407

329,095

397

7,265

1,559

2,561

Increases:

s6 Social and Community Services Pay Equity Special Account Act 20121, 2

509,900

447,168

-

-

-

-

Other

1,250

827

10,444

6,711

-

-

Total increase

511,150

447,995

10,444

6,711

-

-

Available for payments

911,557

777,090

10,841

13,976

1,559

2,561

Decreases:

Administered

Payments made

(410,537)

(376,683)

(5,689)

(13,579)

(576)

(1,002)

Total administered

(410,537)

(376,683)

(5,689)

(13,579)

(576)

(1,002)

Total decreases

(410,537)

(376,683)

(5,689)

(13,579)

(576)

(1,002)

Total balance carried to the next period3

501,020

400,407

5,152

397

983

1,559

  1. Amounts credited to the special account as a direct budget appropriation adjustment are not disclosed in Note 5.1C Special Appropriations applied.
  2. The department made a voluntary accounting policy change in accordance with AASB 108.29 in relation to the presentation of the annual credit to the Social and Community Services Pay Equity Special Account with the annual credit disclosed separately from other special appropriations. The change is applied retrospectively.
  3. The total balance carried to the next period is represented by cash held in the Official Public Account.
  4. Social and Community Services Pay Equity Special Account

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

Establishing Instrument: Social and Community Services Pay Equity Special Account Act 2012; section 5

Purpose: To distribute the Commonwealth's contribution of its share of the equal remuneration order pay increases for social and community service sector workers in Commonwealth-funded programs.

This account was established on 8 November 2012 in accordance with the Social and Community Services Pay Equity Special Account Act 2012.

This account is non-interest bearing and the balance is held in the Official Public Account.

Services for Other Entities and Trust Moneys Special Account

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

Establishing Instrument: Financial Management and Accountability Determination 2010/14

Purpose: For the disbursement of amounts held on trust or otherwise for the benefit of a person other than the Commonwealth and for services relating to other governments and bodies that are not PGPA Act Agencies.

This account is non-interest bearing and the balance is held in the Official Public Account.

This Special Account consists of the following sub-accounts:

  • National Framework
  • National Campaign - Violence Against Women
  • National Centre of Excellence

National Disability Research Special Account 2016

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

Establishing Instrument: PGPA Act Determination (National Disability Research Special Account 2016) – Establishment

Purpose: For expenditure on projects that relate to the National Disability Research Special Account 2016.

The National Disability Research Special Account was established on 23 August 2016. It replaced the National Disability Special Account which ceased on 1 October 2016. This account is non-interest bearing and the balance is held in the Official Public Account.

5.3 Net Cash Appropriation Arrangements

2020

2019

$'000

$'000

Total comprehensive loss attributable to the department

(56,713)

(72,837)

Plus: depreciation/amortisation expenses previously funded through revenue appropriation

38,931

95,906

Plus: depreciation right-of-use assets

34,294

-

Less: principal repayments - leased assets

(20,788)

-

Total comprehensive loss plus depreciation/amortisation expenses previously funded through revenue appropriations

(4,276)

23,069

Changes in asset revaluation reserve

8

(3,221)

Operating deficit attributable to the department

(4,268)

19,848

From the 2011 financial year, the Australian Government introduced net cash appropriation arrangements where revenue appropriations for depreciation/amortisation expenses ceased. Entities now receive a separate capital budget provided through equity appropriations. Capital budgets are appropriated in the period when cash payment for capital expenditure is required.

From the 2020 financial year, the inclusion of depreciation expenses related to right-of-use leased assets and the lease liability principal repayment amount reflects the cash impact from the implementation of AASB 16 Leases. There is no change in appropriation arrangements.

6. People

6.1 Employee Provisions

2020

2019

$'000

$'000

Note 6.1A: Employee Provisions

Leave and other entitlements

91,691

96,172

Total employee provisions

91,691

96,172

Accounting Policy

Employee Benefits

Liabilities for ‘short-term employee benefits’ (as defined in AASB 119 Employee Benefits) and termination benefits due within 12 months of the end of the reporting period are measured at their nominal amounts. The nominal amount is calculated with regard to the rates expected to be paid on settlement of the liability.

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.

Leave

The liability for employee benefits includes provision for annual leave and long service 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 the leave is likely to be taken during service rather than paid out on termination.

As at 30 June 2020, the liability for long service leave and annual leave expected to be settled beyond 12 months of the balance date has been determined by reference to the work of the AGA. The estimate of the present value of the liability takes into account employee attrition rates, inflation, increases in salary through promotion and estimated salary increases.

Separation and Redundancy

Provisions are made for employee separation and redundancy benefit payments. The department recognises a provision for separation and redundancies when it has developed a detailed formal plan and has informed those employees affected that it will carry out the plan.

Superannuation

Staff of the department are members of the Commonwealth Superannuation Scheme, the Public Sector Superannuation Scheme, the Public Sector Superannuation accumulation plan or other superannuation funds.

The Commonwealth Superannuation Scheme and Public Sector Superannuation Scheme are defined benefit schemes for the Australian Government. The Public Sector Superannuation accumulation plan is a defined contribution scheme.

The liability for defined benefits is recognised in the financial statements of the Australian Government and will be settled by the Australian Government in due course. This liability is reported in the Department of Finance’s administered schedules and disclosure notes.

The department makes employer contributions to each employee’s superannuation scheme at rates determined by an actuary and are deemed sufficient to meet the current cost to the Australian Government. The department accounts for the contributions as if these payments were contributions to defined contribution plans.

The liability for superannuation recognised at 30 June 2020 represents outstanding employer contributions for the financial year.

6.2 Key Management Personnel Remuneration

Key management personnel are those individuals having authority and responsibility for planning, directing and controlling the activities of the department, directly or indirectly. The department has determined the key management personnel to be the members of the Executive Management Group, which generally comprises the Secretary and Deputy Secretaries. The note includes anyone acting in a key management personnel position who has demonstrated authority and responsibility over planning, directing and controlling the activities of the department, including both departmental and administered funded activities.

Key management personnel remuneration is:

2020

2019

$

$

Short-term employee benefits

2,421,752

2,369,614

Post-employment benefits

364,041

360,160

Other long-term employee benefits

62,599

54,723

Termination benefits

369,408

-

Total key management personnel remuneration expenses

3,217,800

2,784,497

The total number of key management personnel (KMP) included in the above table is eight, being three substantive officers who held the position for the full year; three substantive officers who held the position for part of the year and two officers acting in a KMP position for part of the year (2019: 10 KMP, being three full year, five part-year and two acting).

There were no termination benefits paid in 2019.

The above key management personnel remuneration excludes the remuneration and other benefits of the Cabinet Ministers, Portfolio Ministers, Assistant Ministers and Presiding Officers. The Ministers' remuneration and other benefits are set by the Remuneration Tribunal and are not paid by the department.

6.3 Related Party Disclosures

Related party relationships

The department is an Australian Government controlled entity. Related parties to this entity are key management personnel, including the Cabinet Ministers, Portfolio Ministers, Assistant Ministers and Presiding Officers, as well as other Australian Government entities.

Transactions with related parties

Given the breadth of Australian Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens. These transactions have not been separately disclosed in this note.

Giving consideration to relationships with related entities, and transactions entered into during the reporting period, the department has determined there are no related party transactions that require separate disclosure.

7. Managing Uncertainties

7.1 Contingent Assets and Liabilities

Departmental Contingencies

Guarantees

2020

2019

$'000

$'000

Contingent assets

Balance from previous period

150

1,198

Asset reversed

(150)

-

Expired

-

(1,048)

Total contingent assets

-

150

As at 30 June 2019, the department had a quantifiable contingent asset of $0.150 million in relation to one bank guarantee for the provision of logistics and letter services. As at 30 June 2020, the asset has been reversed as the likelihood of occurrence has been assessed as remote.

There are no quantifiable liabilities or unquantifiable contingent assets or liabilities (2019: nil).

Administered Contingencies

Indemnities

National Redress Scheme

2020

2019

2020

2019

$'000

$'000

$'000

$'000

Contingent assets

New contingent assets recognised

-

-

59,690

-

Total contingent assets

-

-

59,690

-

Contingent liabilities

Balance from previous period

5,000

-

-

-

New contingent liabilities recognised

-

5,000

59,690

-

Liability reversed

(5,000)

-

-

-

Total contingent liabilities

-

5,000

59,690

-

Quantifiable Contingencies

As at 30 June 2019, the department had an administered quantifiable contingent liability of $5.000 million in relation to one contract with an indemnity clause associated with the Cashless Debit Card Trial. As at 30 June 2020, this liability has been reversed as the likelihood of occurrence has been assessed as remote.

The National Redress Scheme for Institutional Child Sexual Abuse Act 2018 helps people who have experienced institutional child sexual abuse from participating institutions gain access to counselling and psychological services, a direct personal response from the responsible institution, and a monetary payment. To facilitate the timely provision of the payment and services to survivors, the department administers the scheme. In this capacity, the department makes the monetary payment to the survivor and then recovers the costs from the institution determined to be responsible for the abuse.

As at 30 June 2020, the department has an administered quantifiable contingent liability of $59.690 million in relation to applications made under the National Redress Scheme that have been referred to an independent decision maker for assessment. The amount is based on the number of applications and estimated payment values.

As at 30 June 2020, the department has a related administered quantifiable contingent asset of $59.690 million in relation to the probable recovery from responsible institutions of monetary payments that may be made to survivors under the National Redress Scheme.

Unquantifiable Contingencies

During the 2020 financial year, the department was involved in a number of cases before the Administrative Appeals Tribunal. These cases relate to appeals regarding income support payments under the social security legislation. It was not possible to estimate the amounts of any eventual payments that may be required in relation to these claims.

The department has considered the potential impact on the financial statements of debts raised on the basis of averaged ATO employment income data prior to the introduction of the Income Compliance Program. Different processes were used to raise debts prior to the Income Compliance Program. The department is unable to reliably estimate any amounts that may be due to individuals in relation to these debts following any future reassessment of the debts and has not included any provisioning in the financial statements beyond that normally provided for debt review (refer Note 4.1B Receivables). The department has assessed that it is unlikely to have a material exposure, but individuals may request a review of any debt, including debts relating to earned income that were raised prior to 2015, through multiple avenues including their Centrelink online account through MyGov.

There are no quantifiable or unquantifiable contingent assets (2019: nil).

Accounting Policy

Contingent Assets and Contingent Liabilities

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

7.2 Financial Instruments

2020

2019

$'000

$'000

Note 7.2A: Categories of Financial Instruments

Financial Assets

Financial assets measured at amortised cost

Cash and cash equivalents

5,334

9,313

Trade and other receivables

4,285

5,858

Total financial assets measured at amortised cost

9,619

15,171

Total financial assets

9,619

15,171

Financial Liabilities

Financial liabilities measured at amortised cost

Trade creditors

17,436

23,619

Total financial liabilities measured at amortised cost

17,436

23,619

Total financial liabilities

17,436

23,619

Accounting Policy

Financial assets

With the implementation of AASB 9 Financial Instruments for the first time in the 2019 financial year, the department classifies its financial assets in the following categories:

a) financial assets at fair value through profit or loss;

b) financial assets at fair value through other comprehensive income; and

c) financial assets measured at amortised cost.

The classification depends on both the department's business model for managing the financial assets and contractual cash flow characteristics at the time of initial recognition.

Financial assets are recognised when the department becomes a party to the contract and, as a consequence, has a legal right to receive or a legal obligation to pay cash and are derecognised when the contractual rights to the cash flows from the financial asset expire or are transferred upon trade date.

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 (SPPI) on the principal outstanding amount.

Amortised cost is determined using the effective interest method.

Effective Interest Method

Income is recognised on an effective interest rate basis for financial assets that are recognised at amortised cost.

Financial Assets at Fair Value Through Other Comprehensive Income (FVOCI)

Financial assets measured at fair value through other comprehensive income are held with the objective of both collecting contractual cash flows and selling the financial assets and the cash flows meet the SPPI test.

Any gains or losses as a result of fair value measurement or the recognition of an impairment loss allowance is recognised in other comprehensive income.

Financial Assets at Fair Value Through Profit or Loss (FVTPL)

Financial assets are classified as financial assets at fair value through profit or loss where the financial assets either does not meet the criteria of financial assets held at amortised cost or at FVOCI (i.e. mandatorily held at FVTPL) or may be designated.

Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest earned on the financial asset.

Impairment of Financial Assets

Financial assets are assessed for impairment at the end of each reporting period based on expected credit losses, using the general approach which measures the loss allowance based on an amount equal to lifetime expected credit losses where risk has significantly increased, or an amount equal to 12‐month expected credit losses if risk has not increased.

The simplified approach for trade, contract and lease receivables is used. This approach always measures the loss allowance as the amount equal to the lifetime expected credit losses.

An asset write-off constitutes a derecognition event where the write-off directly reduces the gross carrying amount of the financial asset.

Financial liabilities

Financial liabilities are classified as either financial liabilities ‘at fair value through profit or loss’ or other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Financial Liabilities at Fair Value Through Profit or Loss

Financial liabilities at fair value through profit or loss are initially measured at fair value. Subsequent fair value adjustments are recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability.

Financial Liabilities at Amortised Cost

Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. These liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective interest basis.

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

7.3 Administered – Financial Instruments

2020

2019

$'000

$'000

Note 7.3A: Categories of Financial Instruments

Financial Assets

Financial assets at amortised cost

Cash and cash equivalents

518,528

412,483

Other receivables

8,744

24,021

Total financial assets at amortised cost

527,272

436,504

Financial assets at fair value through other comprehensive income

Investments in Commonwealth entities and other interests

1,173,527

2,532,466

Total financial assets at fair value through other comprehensive income

1,173,527

2,532,466

Financial assets at fair value through profit or loss (designated)

Student Financial Supplement Scheme

436,900

424,500

Student Start-up Loan

566,500

239,401

Pension Loan Scheme

41,788

26,194

Total financial assets at fair value through profit or loss (designated)

1,045,188

690,095

Total financial assets

2,745,987

3,659,065

Financial Liabilities

Financial liabilities measured at amortised cost

Suppliers

98,706

185,120

Grants and subsidies

141,795

130,761

Total financial liabilities measured at amortised cost

240,501

315,881

Total financial liabilities

240,501

315,881

Note 7.3B: Net Gains or Losses on Financial Assets

Financial assets at amortised cost

Impairment

58

16

Net gains financial assets at amortised cost

58

16

Financial assets at fair value through profit or loss (designated)

Change in fair value

212,310

74,146

Net gains on financial assets at fair value through profit or loss (designated)

212,310

74,146

Net gains on financial assets

212,368

74,162

8. Other Information

8.1 Aggregate Assets and Liabilities

2020

2019

$'000

$'000

Note 8.1A: Departmental - Aggregate Assets and Liabilities

Assets expected to be recovered in:

No more than 12 months

91,963

121,015

More than 12 months

582,955

208,348

Total assets

674,918

329,363

Liabilities expected to be settled in:

No more than 12 months

80,967

61,220

More than 12 months

587,505

104,976

Total liabilities

668,472

166,196

Note 8.1B: Administered - Aggregate Assets and Liabilities

Assets expected to be recovered in:

No more than 12 months

4,217,083

4,315,005

More than 12 months

2,181,318

3,180,560

Total assets

6,398,401

7,495,565

Liabilities expected to be settled in:

No more than 12 months

8,467,806

6,334,643

More than 12 months

398,301

297,915

Total liabilities

8,866,107

6,632,558

8.2 Restructuring

Note 8.2A: Departmental Restructuring

2020

2019

Aged Care Gateway Information Technology Systems

Settlement Services

Information Technology Group

National Redress Scheme

Department of Health1

Department of Home Affairs2

Services Australia3

Services Australia4

Total5

$'000

$'000

$'000

$'000

$'000

FUNCTIONS ASSUMED

Assets recognised

Appropriation receivable

-

-

-

1,313

7,633

Total assets recognised

-

-

-

1,313

7,633

Liabilities recognised

Suppliers

-

-

-

(1,753)

-

Employee provisions

-

-

-

(1,448)

(7,650)

Total liabilities recognised

-

-

-

(3,201)

(7,650)

Net assets/(liabilities) recognised6

-

-

-

(1,888)

(17)

FUNCTIONS RELINQUISHED

Assets relinquished

Appropriation receivable

-

(3,574)

(8,297)

-

(2,871)

Trade and other receivables

-

(4)

(5,515)

-

Land and buildings

-

-

(7,347)

-

(5,700)

Property, plant and equipment

-

-

(19,341)

-

(448)

Intangibles

(35,278)

-

(75,234)

-

-

Prepayments

-

-

(11,343)

-

(109)

Total assets relinquished

(35,278)

(3,578)

(127,077)

-

(9,128)

Liabilities relinquished

Suppliers

-

468

-

-

709

Other payables

-

-

-

-

1,778

Employee provisions

-

3,204

8,367

-

1,211

Lease liabilities

-

-

7,421

-

-

Revenue received in advance

-

-

3,722

-

-

Other provisions

-

-

-

-

330

Total liabilities relinquished

-

3,672

19,510

-

4,028

Net (assets)/liabilities relinquished

(35,278)

94

(107,567)

-

(5,100)

  1. The department transferred the Aged Care Gateway Information Technology systems application and development services to the Department of Health as a result of the 21 November 2019 agreement from the Minister for Finance to formally designate the transfer as a ‘Contribution by Owners’.
  2. The Settlement Services function was relinquished by the department to the Department of Home Affairs as a result of the Administrative Arrangements Order issued on 29 May 2019.
  3. The department transferred corporate IT services and their associated assets to Services Australia as a result of the Administrative Arrangements Order issued on 5 December 2019.
  4. The National Redress Scheme function was assumed by the department from Services Australia as a result of the Administrative Arrangements Order issued on 5 December 2019. Expenses recognised by the department in the 2020 financial year were $14.704 million while expenses recognised by the losing entity were $19.528 million. Income recognised by the department in the 2020 financial year were $12.945 million while income recognised by the losing entity were $17.913 million.
  5. The 2019 comparative is a combination of the following functions:
    • The Budget Based Funded Programs were assumed by the department from the former Department of Education (2019: total assets recognised $0.104 million, total liabilities recognised $0.104 million).
    • The Grants Administration Transition function was assumed by the department from the Department of Health for participation in the Community Grants Hub (2019: total assets recognised $7.529 million, total liabilities recognised $7.546 million).
    • The National Office for Child Safety function was relinquished by the department to the Department of the Prime Minister and Cabinet (2019: total assets relinquished $0.361 million, total liabilities relinquished $0.361 million).
    • The establishment of the National Disability Insurance Scheme Quality and Safeguards Commission occurred during the 2019 financial year (2019: total assets relinquished $8.767 million, total liabilities relinquished $3.667 million).
  6. In respect of functions assumed and relinquished, the net book values of assets and liabilities (with the exception of leave liability provision amounts) were transferred to the department for no consideration.

Note 8.2B: Administered Restructuring

2020

2019

Settlement Services

Hearing Australia Investment

Department of Home Affairs1

Services Australia2

Total

$'000

$'000

$'000

FUNCTIONS ASSUMED

Assets recognised

Other investments

-

78,989

-

Total assets recognised

-

78,989

-

Net assets assumed3

-

78,989

-

FUNCTIONS RELINQUISHED

Assets relinquished

Receivables

(1)

-

-

Total assets relinquished

(1)

-

-

Liabilities relinquished

Suppliers payables

2,079

-

-

Grants payables

74

-

-

Other payables

2,963

-

-

Total liabilities relinquished

5,116

-

-

Net liabilities relinquished

5,115

-

-

  1. The Settlement Services function was relinquished by the department to the Department of Home Affairs during the 2020 financial year as a result of the Administrative Arrangements Order issued on 29 May 2019.
  2. The net asset value of Hearing Australia transferred from Services Australia to the department following the Administrative Arrangement Orders of 5 December 2019. The transfer value reflects the administered investment in Hearing Australia, being the net assets of the entity for the Administered Investment value as at 30 June 2019. For the Administered Investment value as at 30 June 2020, refer to Note 4.1C.
  3. In respect of functions assumed, the net book values of assets and liabilities were transferred to the department for no consideration.

8.3 Breach of Section 83 of the Constitution

Compliance with Statutory Conditions for Payments from the Consolidated Revenue Fund

Section 83 of the Commonwealth of Australia Constitution Act 1900 (“the Constitution”) provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation by law.

In the 2020 financial year, the department identified payments that did not meet the statutory conditions for payment under Section 83, for payments made under the Student Assistance Act 1973 and 14 instances of adjustments from administered to departmental appropriation within Appropriation Act (No.1) 2019-20 to the value of $0.007 million.

The identified breaches under the Student Assistance Act 1973 relate to payments of benefits under the ABSTUDY scheme and Assistance for Isolated Children scheme to persons who have not provided their tax file numbers. Payments were made to applicants who had not provided their tax file number as required by section 44A of the Student Assistance Act 1973. The value of these payments was $209.068 million for the 2020 financial year. No debts have been raised. Amendments to the Student Assistance Act 1973 to address the Section 83 breaches are expected to be introduced before Parliament in the 2021 financial year.

As disclosed in Note 5.1C Special Appropriations, the department administers a significant volume of special appropriation payments, with the majority of these processed by Services Australia on its behalf. While payments are subject to rigorous review and compliance checking on an ongoing basis, a breach of Section 83 of the Constitution could occur. A debt is raised to recover overpayments to recipients, however not all overpayments will constitute a breach. For the purposes of comprehensive disclosure, all new debts raised for payments under legislation, where it has been assessed that there could be a breach, are disclosed as potential breaches. In the 2020 financial year, the department raised debts to recover overpayments and within this, there may be amounts that relate to potential breaches, as follows: A New Tax System (Family Assistance) (Administration) Act 1999, $1,352.339 million; Paid Parental Leave Act 2010, $0.085 million; Social Security (Administration) Act 1999, $746.161 million; and Student Assistance Act 1973, $7.215 million.

8.4 Explanations of Major Variances to Budget

The following major variance explanations between the Original Budget as presented in the 2019-20 Portfolio Budget Statements and the 2020 financial statements are presented in accordance with Australian Accounting Standards. The 2019-20 Portfolio Budget Statements contain the original financial statements’ budget estimates presented to Parliament in respect of the 2020 financial year. The information presented below should be read in the context of the following:

  • The original 2019-20 Social Services Portfolio Budget Statements were prepared before the 2019 final outcome was known. As a consequence, the Statement of Financial Position and Statement of Changes in Equity opening balances were estimated and, in some cases, variances between the 2019 final outcome and Original Budget estimates (Budget) are a result of unanticipated movement in the prior financial year actual amounts;
  • Variances attributable to factors which would not reasonably have been identifiable at the time of the Budget preparation, such as impairment of assets or impacts of Australian Government bond rate changes have not been included in the explanations;
  • Major variances are those deemed relevant to an analysis of the department's performance and are not focused merely on numerical differences between the Budget and actual amounts;
  • Variances relating to cash flows are a result of the factors explained for net cost of services, assets or liabilities variations. Unless otherwise individually significant, no additional commentary has been included; and
  • The Budget is not audited.

Note 8.4A: Departmental Major Budget Variances for 2020

Explanations of major variances

Affected line items

Total net cost of services was $43.990 million lower than the Budget as a result of:

  • a reduction in operating lease expense due to the introduction of AASB 16 Leases;
  • the transfer of the Aged Care Gateway IT systems to the Department of Health and machinery of government transfer of corporate IT services to Services Australia that have as a result decreased depreciation and amortisation; and
  • Offset by the department providing additional corporate services to other departments beyond the original estimate that resulted in higher revenue.

Total assets were $420.902 million higher than the Budget as a result of an increase in right-of-use lease assets due to the introduction of AASB 16 Leases. This was offset by a decrease in non-financial assets through the machinery of government transfer of corporate IT services to Services Australia.

Total liabilities were $514.503 million higher than the Budget as a result of an increase in lease liabilities due to the introduction of AASB 16 Leases, offset by:

  • variability that surrounds the estimates for the timing of payments to suppliers;
  • a reduction in lease incentive payables and operating leases straight-lining; and
  • a decrease in unearned income and leases through the machinery of government transfer of corporate IT services to Services Australia.

Total equity was $93.601 million lower than the Budget as a result of key items that were not known at the time of the Original Budget preparation that have had a material impact on the 30 June 2020 balances, including AASB 16 Leases implementation and machinery of government changes.

Suppliers

Depreciation and amortisation

Total own-source revenue

Leasehold improvements

Property, plant and equipment, Intangibles and prepayments

Leases

Supplier payables

Other payables

Other payables and Leases

Total equity

Note 8.4B: Administered Major Budget Variances for 2020

Explanations of major variances

Affected line items

Total administered expenses were $14.694 billion higher than the original budget estimate (Budget) and this variance is mainly due to the following key drivers:

  • Personal benefit expenses were higher than the Budget and mainly reflects the first payment of the $750 one-off Economic Stimulus Package and the $550 fortnightly coronavirus supplement payments, an increase in recipient numbers and an increase in average payment rates relating to the COVID-19 impact on the economy.
  • Grants expenses were higher than Budget reflecting higher than expected demand in grant payments, including for the Disability Employment Services program and payments made under the COVID-19 Community Support Package, and the increase in additional grants provided in relation to the bushfires which occurred during the 2020 financial year.

Administered income was $0.202 billion lower than the Budget mainly as a result of lower than expected National Redress Scheme revenue partially offset by the increase in fair value gains on the student loans.

Administered assets were $0.234 billion lower than the Budget mainly due to the decrease in the National Disability Insurance Scheme investment value. This is partially offset by greater than expected student loan balances reflecting the increase in fair value gain.

Administered liabilities were $2.074 billion higher than the Budget and this variance is mainly due to the following key drivers:

  • Greater than expected personal benefit payables reflecting the recognition of Income Compliance program refunds and increased recipient numbers relating to COVID-19; and
  • Key assumptions have been amended to account for COVID-19 in actuarial assessments in the personal benefits and other provisions including higher claim rates.

Personal benefit expenses

Grants

Gains

Investments and Receivables

Personal benefit payables

Personal benefit and other provisions