Statement of Comprehensive Income for the year ended 30 June 2020

Budget Variances Commentary

Statement of Comprehensive Income

Statement of Financial Position for the year ended 30 June 2020

Budget Variances Commentary

Statement of Financial Position

Statement of Changes in Equity for the year ended 30 June 2020

Accounting Policy

Equity injections

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

Transfer to/from other entities

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

Other distributions to owners

The Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR) requires that distributions to owners be debited to contributed equity unless it is in the nature of a dividend.

Budget Variances Commentary

Statement of Changes in Equity

Major budget variances for balances contained in the Statement of Changes in Equity have been included in the budget variances commentary for the Statement of Comprehensive Income and the Statement of Financial Position.

Cash Flow Statement for the year ended 30 June 2020

Budget Variances Commentary

Cash Flow Statement

Notes to and forming part of the Financial Statements

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS

Overview

General information

The National Disability Insurance Scheme Launch Transition Agency (‘the Agency’) was established on 29 March 2013 by the National Disability Insurance Scheme Act 2013 (‘the Act’). The Agency is an Australian Government controlled not-for-profit entity.

The Scheme has operations in all states and territories of Australia with full access to the Scheme commencing progressively from 1 July 2016.

Objectives of the Agency

The objective of the Agency is to operate under the Act, and in conjunction with other legislation, to give effect to Australia’s obligations under the Convention on the Rights of Persons with Disabilities. In doing so, the Agency supports the independence, social and economic participation of people with a disability.

The Agency is structured to meet a single Government outcome (Outcome 1):

To implement a National Disability Insurance Scheme that provides individual control and choice in the delivery of reasonable and necessary supports to improve the independence, social and economic participation of eligible people with disability, their families and carers, and associated referral services and activities.

The Agency supports participants in the Scheme to exercise individual choice and control in respect to the delivery of reasonable and necessary supports. This allows people with disabilities, their families and carers to achieve improved outcomes in their lives. It also works to support the wider disability sector to promote better outcomes for people with a disability, in areas such as research and building community awareness.

The Agency makes estimates of current and future expenditure as well as identifying and managing financial risks and issues relevant to the financial sustainability of the Scheme. This is achieved by adopting an insurance-based approach, informed by actuarial analysis, to the provision and funding of support for people with a disability. The Agency also regularly reports on the sustainability of the Scheme.

The continued existence of the Agency in its present form and with its present programs is dependent on Commonwealth Government policy, continuing funding by Parliament for the Agency’s administration and programs and agreement with state and territory governments. States and territories have continued to provide funding as set out in the bilateral agreements between states and territories and the Commonwealth.

The Agency is not aware of any instances whereby the Australian Government will cease financial commitment with the 2019–20 Portfolio Additional Estimates Statements providing a clear Government commitment to fund the Scheme over the forward estimates period. In particular, the Commonwealth Treasurer as part of the July 2020 Economic and Fiscal Update noted that “payments relating to the National Disability Insurance Scheme, which are expected to increase by $2.3 billion over the two years to 2020‑21, largely reflecting higher than expected average participant costs”.

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.

The financial statements have been prepared in accordance with:

a) Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (FRR); and

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

The financial statements have been prepared on an accrual basis and in accordance with the historical cost convention, except for certain assets and liabilities, which are measured 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 and values are rounded to the nearest thousand dollars, unless otherwise specified.

New Accounting Standards

All new/revised/amending standards and/or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period, other than AASB 16 Leases, did not have a material effect on the entity’s financial statements.

Application of AASB 16 Leases

The Agency 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, that is, it is presented as previously reported under AASB 117 and related interpretations.

The Agency elected to apply the practical expedient to not reassess whether a contract is, or contains a lease at the date of initial application. 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.

AASB 16 provides for certain optional practical expedients, including those related to the initial adoption of the standard. The Agency applied the following practical expedients when applying AASB 16 to leases previously classified as operating leases under AASB 117:

  exclude initial direct costs from the measurement of right-of-use assets at the date of initial application for leases where the right-of-use asset was determined as if AASB 16 had been applied since the commencement date;

  reliance 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 Agency 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. Under AASB 16, the Agency recognises right-of-use assets and lease liabilities for most leases. However, the Agency has elected not to recognise right-of-use assets and lease liabilities for some leases of low value assets based on the value of the underlying asset for new or for short-term leases with a lease term of 12 months or less.

On adoption of AASB 16, the Agency recognised right-of-use assets and lease liabilities in relation to leases of office space 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 Agency’s incremental borrowing rate as at 1 July 2019. The Agency’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 3.1 per cent.

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

1. Office space: measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments.
2. All other leases: the carrying value that would have resulted from AASB 16 being applied from the commencement date of the leases, subject to the practical expedients noted above.

Taxation

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

Events after the reporting period

There are no known events occurring after the reporting period that could have a material impact on the financial statements.

1. Financial Performance

This section analyses the financial performance of the Agency for the year ended 30 June 2020.

1.1 Expenses

Accounting Policy

Accounting policies for employee related expenses are contained in Section 3. People and Relationships.

The Agency has short–term lease commitments of $0.018m as at 30 June 2020.

The above lease disclosures should be read in conjunction with the accompanying notes 1.1D, 1.2B, 2.2A and 2.5.

Accounting Policy

Short-term leases and leases of low-value assets

The Agency 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 Agency recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

The above lease disclosures should be read in conjunction with the accompanying notes 1.1B, 1.2B, 2.2A and 2.5.

Early Childhood Early Intervention Costs

This reflects the costs incurred by the Agency by engaging early childhood partners across the nation with the intention of providing supports to children aged between 0-6 years who have a disability or where there are concerns regarding their development.

Local Area Coordination Costs

This reflects the costs incurred in funding selected providers of local area coordination services. Arrangements with providers will differ in form and content, according to the Agency’s needs.

Local Area Coordinators are required to deliver several types of services including:

- provision of support to the community and prospective participants to engage with the Scheme, including community awareness;

- support Scheme participants with the implementation of their plans; and

- support Scheme participants with full scheme planning and plan reviews.

Accounting Policy

The costs associated with early childhood early intervention and community partnerships are recognised in accordance with contractual arrangements.

Accounting Policy

The costs associated with participant plan expenses are recognised as and when the Agency receives claims from participants and providers. Accounting policies for expenses resulting from adjustment to the participant plan provision are contained in Section 2.6 – Provisions.

Participant plan expenses

The Agency makes payments to registered providers and participants with self-managed plans for supports delivered in line with a participant’s approved plan. Registered providers and self-managing participants are able to access NDIS portals to submit payment claims for delivered supports.

Self-lodgement of claims from providers and participant with self-managed plans can lead to payments that are inconsistent with Agency guidance, even where no deliberate fraud is intended by the claimant. To mitigate this risk the Agency has a compliance and assurance program aimed at substantiating a statistically selected sample of claims lodged by providers and self-managed plan participants. Errors identified can be either critical (having a potential negative financial impact) or non-critical (having no or a potentially positive financial impact).

The results of the review conducted in 2019-20 extrapolated over the total value of provider payments made in 2019-20 assessed that the accuracy rate in payments made to providers was 93.9 per cent (2019: 96.4 per cent). The estimated overall financial impact of the provider error rates is $163.5m (1.2% of total provider payments) compared to $34.6m (0.5% of total provider payments) in 2018-19. The major factor in the increase of estimated value is an increase in average error value from $51.80 to $83.02.

The review also includes testing of participant self-managed plan payments. After extrapolating the critical errors identified in the testing over the total population of self-managed plan payments made in 2019-20 the accuracy rate in self-managed plan payments was 92.7 per cent (2019: 92.2 per cent). The estimated overall financial impact of the participant self-managed plan error rates was $17.8m (0.9% of total self-managed participant provider payments) compared to $32.5m (3.8% of total self-managed participant payments) in 2018-19.

Note, comparatives for the above payment tests have been adjusted as the rates inadvertently disclosed in 2018-19 were the estimated dollar value impacts as a percentage of total participant expense payments, rather than the error rate percentages.

All critical errors are subject to further validation, with recovery action, where required and considered to be economical, undertaken in accordance with the Agency’s Debt Management Procedures.

1.2. Own–Source Revenue and Gains

Accounting Policy

Cash contributions to the Agency from the Commonwealth, state and territory governments are recognised as revenue when they become payable to the Agency under the relevant signed agreement. These include cash contributions outlined in the bilateral agreements for the funding of the Scheme and funding provided by the Department of Social Services (DSS) for the Agency’s grant programs and work performed for DSS in relation to the Australian Disability Enterprises (ADE) clients who have transitioned to the Scheme. Cash contributions received in advance are treated as unearned revenue (refer note 2.4).

The transaction price for the Scheme contributions is the total amount of cash contributions payable by the jurisdictions to fund the Scheme under their bilateral agreements. The transaction price for grant and ADE funding is the value of actual grants and ADE services paid and payable by the Agency. The bilateral agreements and the grant and ADE funding agreements with DSS have annual performance obligations.

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

Operating Leases

During the year, the Agency has entered into an agreement with Services Australia, which allows them to occupy two properties at a commercial rate to support the Whole-of-Government response to the COVID-19 pandemic.

Through a cooperative Social Services portfolio arrangement, the NDIA entered agreements with Services Australia to occupy some of the NDIA’s properties. As part of this arrangement, there are established risk management processes and a governance structure for escalation of issues. As the sublet arrangement is Commonwealth entity to Commonwealth entity, the risk was deemed to be low and could be facilitated through the existing relationship with Services Australia.

The above lease disclosures should be read in conjunction with the accompanying notes 1.1B, 1.1D, 2.2A and 2.5.

Compensation

The Agency has powers set out in the Act and the NDIS Compensation Rules to recover compensation settlements that have been made to participants in certain circumstances. This legislation and its interaction with general compensation law is highly complex, as a result the Agency’s entitlement to and the value of compensation revenue cannot be reliably determined until the circumstances of each case are fully analysed. The legislation also provides for the Agency with the option to apply a compensation reduction amount (CRA) to participant plans in lieu of recovering the compensation in a lump sum. Where the Agency elects to apply a CRA to a participant’s plan, a lower level of supports will be provided to the participant in future periods, resulting in a reduction in future participant plan expenses, rather than the recognition of compensation revenue.

In prior years due to the small number of compensation cases that had been settled and the resultant lack of established case law covering the interaction between the Act and general compensation law, there was insufficient data available to reliably determine the value of compensation recoveries in advance of actual cash receipts. Therefore, in prior years, compensation revenue was recognised when payment was received from participants. As more cases have been settled the interaction between the Act and general compensation law has evolved and the compensation recoveries can now be reliably valued following completion of analysis of each case, including determination of the appropriate recovery method – a lump sum compensation payment by the participant or application of a CRA against their plan. From 1 July 2019 compensation revenue is therefore recognised when the delegate determines that a specified lump sum recovery is appropriate.

Further discussion on the recognition and valuation of compensation recoveries is included in Section 4 Managing Uncertainties.

Accounting Policy

Contributions in-kind from Commonwealth, state and territory governments

Contributions in-kind from Commonwealth, state and territory governments are termed volunteer services under Australian Accounting Standards as they are received free of charge. Volunteer services are recognised as own-source income when, and only when, a fair value can be reliably determined and the services would have been purchased if they had not been contributed. Use of these services is recognised as an expense. Volunteer services are recorded as either revenue or gains depending on their nature.

Prior to the commencement of the Scheme, the Commonwealth and each state and territory government had committed to provide (directly or by engaging service providers) agreed items such as disability services, health services, family support, education, employment, transport and/or housing to people with a disability. The on-going provision of these agreed services on behalf of the Agency is regarded as an in-kind contribution under Australian Accounting Standards and is accounted for as income from the contribution of services at the date when the services are provided. The fair value of these contributions is the unit cost provided by the jurisdiction which is based on what the jurisdiction has paid under its funding arrangements with the provider.

Other resources received free of charge

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

Key judgements and estimates

Contributions in-kind from Commonwealth, state and territory governments

The Agency records income in relation to non-cash or in-kind contributions from other Commonwealth entities, state and territory governments at the time when the services are provided to participants. In some cases, the Agency may not have been formally notified that the Commonwealth or a state or territory government has provided or funded a contribution to a participant. In this circumstance, the Agency makes an estimate of the amount of in-kind contributions provided to participants during the period but not yet notified to the Agency These estimates are based on the latest available evidence of in-kind supports provided to participants by the Commonwealth, state and territory governments.

Accounting Policy

Revenue from Government

Funding received from the Department of Social Services (received by the Agency as a Corporate Commonwealth entity payment item) is recognised as Revenue from Government unless the funding is in the nature of an equity injection or a loan.

Revenue from Government for 2020: $1,413.3m (2019: $1,477.7m)

2. Financial Position

This section analyses the Agency’s assets used to conduct its operations and the operating liabilities incurred as a result.

Leasehold improvements and plant and equipment are carried at fair value in accordance with AASB 13 Fair Value Measurement. The remaining assets and liabilities disclosed in the statement of financial position do not apply the fair value hierarchy.

Employee related information is disclosed in Section 4. People and Relationship.

2.1 Financial Assets

Accounting Policy

Cash is recognised at its nominal amount. This includes cash on hand and term deposits in bank accounts with an original maturity of three months or less that are readily convertible to cash and subject to insignificant risk of changes in value. Term deposits with an original maturity greater than three months are classified as other financial assets and are included in Note 2.1C.

During 2019-20 credit terms for goods and services were within 30 days (2019: 30 days).

Accounting Policy

Financial assets

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

The Agency classifies all of its financial assets according to their nature and purpose at the time of recognition. Financial assets are recognised and derecognised upon trade date.

Effective Interest Method

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

The effective interest method is a method of calculating the amortised cost of a financial instrument and allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument, or, where appropriate, a shorter period.

Impairment of financial assets

Financial assets are assessed for impairment at the end of each reporting period based on Expected Credit Losses, using the simplified approach for goods and services receivable and the general approach for pandemic plan provider receivables.

The pandemic plan provider receivables will be recovered through offsetting the receivables against future claims for payment lodged by providers. Since the outbreak of the pandemic, the Agency has not experienced a significant overall downturn in activity, therefore, decreases in the level of claims lodged by providers indicate that the providers are experiencing a downturn in activity, which increases the risk that their receivables can be recovered through offsetting against future claims. The Agency has recognised an impairment allowance for reductions in the average value of claims over the last three months compared to the three month average at the time the initial pandemic plan payment was made to a provider. Actual impairment losses over the life of the receivable will vary depending on the actual future level of claims lodged by providers.

Both the simplified and general impairment approaches always measure the loss allowance as the amount equal to the lifetime expected credit losses.

A write-off constitutes a de-recognition event where the write-off directly reduces the gross carrying amount of the financial asset.

2.2 Non-Financial Assets

All items of leasehold improvements and plant and equipment were assessed for indications of impairment as at 30 June 2020 and no indicators of impairment were found.

No leasehold improvements or plant and equipment are expected to be sold or disposed of within the next 12 months.

Leasehold improvements and plant and equipment, other than right-of-use assets, are measured at their estimated fair value in the financial statements and are classified as level 3 assets.

The Agency had leasehold improvements commitments of $7.201m as at 30 June 2020.

Accounting Policy

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

Asset recognition threshold

Purchases of leasehold improvements, plant and equipment are recognised initially at cost in the Statement of Financial Position, except for purchases costing less than $5,000 which are expensed in the year of acquisition (other than where they form part of a group of similar items which are significant in total).

The initial cost of an asset includes an estimate of the cost of dismantling and removing the item and restoring the site on which it is located. This is particularly relevant to ‘make good’ provisions in property leases taken up by the Agency where there exists an obligation to restore the property to its original condition.

Lease Right of Use (ROU) Assets

Purchases of leased ROU assets are capitalised at the commencement date of the lease and comprise the initial lease liability amount, including an estimate of any ‘make good’ provision in the lease, initial direct costs incurred when entering into the lease less any lease incentives received. These assets are accounted for by Commonwealth lessees as separate asset classes to the corresponding assets owned outright, but are included in the same column as where the corresponding underlying assets would be presented if they were owned.

On initial adoption of AASB 16 the Agency 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 in Commonwealth agency, General Government Sector and Whole of Government financial statements.

Revaluations

Following initial recognition at cost, items of leasehold improvements, plant and equipment (excluding ROU assets) are carried at fair value (or an amount not materially different from fair value) less accumulated depreciation and accumulated impairment losses. Valuations are conducted with sufficient frequency to ensure that the carrying value of items does not differ materially from their fair value at each reporting date.

The Agency’s leasehold improvements are stated at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation. The fair value measurements of the Agency’s leasehold improvements as at 30 June 2020 were reassessed by Jones Lang LaSalle (JLL), independent valuers. JLL have appropriate qualifications and experience in the fair value measurement of similar assets in the Government sector.

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

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

Depreciation

Depreciable leasehold improvements, plant and equipment assets (other than leasehold improvements under construction) are written-off to their estimated residual values over their estimated useful lives using the straight-line method of depreciation. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each reporting period, with the effect of any changes in estimates accounted for on a prospective basis. The table below outlines the depreciation rates applying to each class of depreciable asset based on the following useful lives:

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 (capped to 10 years) or the end of the lease term.

Impairment

All assets are assessed for impairment annually. 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 of disposal and its value in use. Value in use is the present value of the future cash flows expected to be derived from the asset. Where the future economic benefit of an asset is not primarily dependent on the asset’s ability to generate future cash flows, and the asset would be replaced if the Agency were deprived of the asset, its value in use is taken to be its depreciated replacement cost.

Fair Value

All leasehold improvements and plant and equipment are measured at their estimated fair value in the Statement of Financial Position. All leasehold improvements and plant and equipment, other than ROU plant and equipment, held by the Agency are categorised under Level 3 in accordance with the hierarchy listed in AASB 13.

Level 3 measurements use inputs to estimate fair value where there are no observable market prices for the assets being valued. The future economic benefits of the Agency’s leasehold improvements and plant and equipment are not primarily dependent on their ability to generate cash flows. The Agency has not disclosed quantitative information about the significant unobservable inputs for the level 3 measurements in these classes.

De-recognition

An item of buildings or plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or its disposal. Any gain or loss arising on disposal or retirement of an item of leasehold improvements or plant and equipment is determined as the difference between the sale proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.

Key judgements and estimates

The estimated fair value of leasehold improvements and plant and equipment (excluding ROU assets) is determined annually by an independent valuer using the Cost Approach and is subject to management assessment.

The Cost Approach seeks to estimate the amount required to replace the service capacity of an asset at its highest and best use and is determined as either the Replacement Cost of New Assets (RCN) or the Depreciated Replacement Cost (DRC).

Assets Under Construction are valued as RCN determined as the amount a market participant would pay to acquire or construct a new substitute asset of comparable utility and relevant to the asset’s location. Inputs including current local market prices for asset components such as materials and labour costs are utilised in determining RCN.

Leasehold improvements, plant and equipment (excluding ROU assets) are valued using DRC. Under DRC the replacement costs of new assets are adjusted for physical depreciation and obsolescence such as physical deterioration, functional or technical obsolescence and conditions of the economic environment specific to the asset. For leasehold improvements, the consumed economic benefit/asset obsolescence deduction is determined based on the term of the associated lease.

No indicators of impairment were found for other non-financial assets.

2.3 Payables

Settlement is expected to be made for suppliers within 30 days (2019: 30 days).

Accounting Policy

Financial liabilities, including supplier and other payables, 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 yield basis.

2.4 Unearned Income

Accounting Policy

Accounting policies for unearned income are contained in Note 1.2A Rendering of services.

2.5 Interest Bearing Liabilities

Total cash outflow for leases for the period ended 30 June 2020 was $37.2m.

Accounting Policy

Refer Overview section for accounting policy on leases.

2.6 Provisions

Reconciliation of provisions

Accounting Policy

The Agency makes a provision for the reasonable and necessary support provided to participants during the period but not yet notified to the Agency. The provision represents the best estimate of the amount based on available evidence in relation to rates of expenditure by participants and is informed by actuarial analysis.

Key judgements and estimates

The Agency recognises a liability for the costs of reasonable and necessary support at the time that services are provided to participants in the Scheme. Due to the administrative processes associated with receiving and processing claims at the end of an accounting period, the Agency may not have been notified of the full value of all services provided during that period. Therefore, the Agency records a provision for the reasonable and necessary support provided to participants during the period but not yet notified to the Agency based on its best estimate of the outstanding liability. Accounting standards, information on committed supports contained within participant plans, the claims received by the Agency over time relating back to committed supports and the expected utilisation of committed supports within participant plans are used as guidance. The expected utilisation rates is a significant factor in the estimation of the outstanding liability, with sensitivity analysis performed on the 30 June 2020 balance identifying that for each 0.5% increase or decrease in the utilisation the estimated liability increases or decreases by $120.8m.

As at 30 June 2020, the expected utilisation of committed support provision raised by financial years is as follows:

2013-14: 64.67% (2019: 64.66%)

2014-15: 74.68% (2019: 74.65%)

2015-16: 74.99% (2019: 74.97%)

2016-17: 67.60% (2019: 67.55%)

2017-18: 70.28% (2019: 70.24%)

2018-19: 71.56% (2019: 72.95%)

2019-20: 73.63%

Given the rapid growth of the Scheme and the changing patterns of participant payments over time, the estimates of the participant plan provision includes an allowance for uncertainty referred to as the ‘risk margin’. The risk margin is based on historical variations in payments by the Scheme and is estimated to provide a 75% (2019: 75%) probability of sufficiency. As at 30 June 2020 for each 0.5% increase or decrease in risk margin the estimated liability increases/decreases by $8.5m.

3. People and Relationships

This section describes a range of employment and post-employment benefits provided to our employees and our relationships with other key people.

3.1 Employee Provisions

Accounting Policy

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

Leave

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

The leave liabilities are calculated on the basis of employees’ remuneration at the estimated salary rates that will be applied at the time the leave is taken, including the Agency’s employer superannuation contribution rates to the extent that the leave is likely to be taken during service rather than paid out on termination. The liability for annual and long service leave has been determined by reference to the work of an actuary as at 30 June 2019 updated by the Agency to reflect any changes in parameters to 30 June 2020.

Superannuation

Agency staff are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) or other superannuation funds held outside the Australian Government. The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap is a defined contribution scheme.

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

The Agency makes employer contributions to employee superannuation schemes at rates determined by an actuary to be sufficient to meet the current cost to the Government. The Agency accounts for these contributions as if they were contributions to defined contribution plans in accordance with AASB 119 Employee Benefits.

The liability for superannuation recognised as at 30 June represents outstanding contributions.

Key Accounting judgements and estimates

The liability for long service leave has been determined by reference to the work of an actuary as at 30 June 2019 updated by the Agency to reflect any changes in parameters to 30 June 2020. The estimate of the present value of the liability for long service leave takes into account attrition rates and pay increases through promotion and inflation. The estimate of future costs requires management and independent actuarial assessment of assumed salary growth rates, future on-cost rates and the experience of employee departures. The future costs are then discounted to present value using market yields on government bonds in accordance with AASB 119.

3.2 Board and Other Key Management Personnel Remuneration

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Agency, directly or indirectly. The Agency has determined the key management personnel to be Board Members, the Chief Executive and other members of the Executive Leadership Team. Despite the formal definition of Key Management Personnel, Board members are independent of management.

Key management personnel remuneration is reported in the table below:

The total number of Board members and Key Management Personnel that are included in the above table is 25 (2019: 22). During the year a number of executives were in acting roles whilst full-time replacements were recruited leading to the increase in the number of key management personnel being higher than in 2019.

3.3 Related Party Disclosures

Related party relationships:

The Agency is an Australian Government controlled entity, which is governed by an independent Board. For reporting purposes the Agency’s related parties are the Department of Social Services (DSS), Services Australia, the Board Members and Key Management Personnel. The definition of Key Management Personnel is included in Note 3.2.

There were no loans to any Board members, Key Management Personnel or other related parties during the period (2019: Nil).

Transactions with related parties:

Given the scope of Government activities, related parties may transact with the government sector in the same capacity as ordinary citizens and/or may have family members that are participants in the Scheme. These transactions are conducted at arm’s length and have not been separately disclosed in this note. A number of Board members and Key Management Personnel fall into this category. Where the Agency has had interactions with DSS and Services Australia, the financial impact of such interactions have been disclosed in sections 1 and 2 of the financial statements.

The following cash payments were made to parties related to the Board members and KMP executive members during the financial year:

None of the above Board members or Key Management Personnel played any role in Agency decisions in relation to their related party transactions noted above.

Registered Service Providers

Participants who elect to have their plan managed by the Agency must select a registered service provider to deliver the supports in their plan. To become a registered service provider an organisation must submit an application to either the Agency or the NDIS Quality and Safeguards Commission. All applications are assessed against the criteria specified in Part 3 of National Disability Insurance Scheme (Registered Providers of Supports) Rules 2013. Directors of the Agency are not involved in any decisions to accept or reject applications to register as a service provider.

There were no other related party payments made during the period.

4. Managing Uncertainities

This section analyses how the Agency manages financial risks within its operating environment.

4.1 Contingent Assets and Liabilities

Quantifiable Contingencies

As at 30 June 2020, the Agency had no quantifiable contingent assets or liabilities (2019: $nil).

Unquantifiable Contingencies

Contingent asset – Compensation recoveries

There are provisions set out in the Act and the NDIS Compensation Rules that allow the Agency to recover amounts of compensation that have been paid to, or given up by, Scheme participants. These provisions apply to a number of Scheme participant plans, for which compensation recovery decisions have not yet been made at 30 June 2020. A number of potential compensation cases are in progress at 30 June 2020, which may result in future compensation recoveries by the Agency. Due to the unique circumstances of each case, the Agency is currently unable to estimate the amount that may be recoverable from these cases. These amounts will be recognised as income in future periods when the relevant recognition criteria are met. The accounting policy for compensation receipts is included in Note 1.2C.

Contingent liabilities

As at 30 June 2020, the Agency had no unquantifiable contingent liabilities (2019: $nil.)

Accounting Policy

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

4.2 Financial Instruments

Accounting Policy

All of the Agency’s financial assets have been classified as financial assets measured at amortised costs. Financial assets at amortised costs must be:

1. held in order to collect the contractual cash flows; and

2. their cash flows must be solely payments of principal and interest (SPPI) on the principal outstanding amount.

The accounting policy for financial assets is contained in Note 2.1B Trade and other receivables.

5. Other Information

5.1 Aggregate Assets and Liabilities