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Annual financial statements notes

Note 1: Overview

The NHFB is a Commonwealth non‑corporate entity under the PGPA Act and was established to support the obligations and responsibilities of the Administrator of the National Health Funding Pool.

The role and functions of the NHFB are set out in the National Health Reform Act 2011.

In order to achieve our objectives, our primary functions are to assist the Administrator in:

+ calculating and advising the Commonwealth Treasurer of the Commonwealth’s contribution to public hospital funding in each State and Territory

+ reconciling estimated and actual hospital services and adjusting Commonwealth payments

+ undertaking funding integrity analysis to identify public hospital services that potentially received funding through other Commonwealth programs

+ monitoring payments of Commonwealth, State and Territory public hospital funding into the Pool, including each State (and Territory) Pool Account

+ making payments from each State (and Territory) Pool Account to each Local Hospital Network

+ reporting publicly on National Health Reform Agreement funding, payments and services

+ developing and providing rolling three‑year data plans to the Commonwealth, States and Territories

1.1. Basis of preparation of the Financial Statements

The financial statements are general purpose financial statements and are required by s. 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) for reporting periods ending on or after 1 July 2017; 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 financia lstatements have been prepared on anaccrual basis and in accordance with the historical cost convention. 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.

1.2. New Australian Accounting Standards

New standards, revised standards, interpretations and amending standards that were issued prior to the sign–off date and are applicable to the current reporting period did not have a material financial impact, and are not expected to have a future material financial impact on NHFB.

1.3. Taxation

NHFB is exempt fromall forms of taxation except Fringe BenefitsTax(FBT) and Goods and Services Tax (GST).

1.4. Events After the Reporting Period

There are no events after the reporting period affecting the financial statements.

Note 2: Expenses

2018

$

2017

$

Note 2A: Employee Benefits

Wages and salaries

1,896,881

1,637,899

Superannuation

Defined contribution plans

232,113

215,526

Defined benefit plans

139,121

106,582

Leave and other entitlements

478,168

494,749

TOTAL EMPLOYEE BENEFITS

2,746,283

2,454,756

ACCOUNTiNG POLiCY

The accounting policy for employee benefits is in note 7.

Note 2B: Suppliers

GOODS AND SERVICES SUPPLIED OR RENDERED

Consumables, printing, recruitment and training

318,828

48,624

Contractors

1,619,094

1,612,555

Information technology and communications

59,643

66,490

Professional fees

206,947

126,127

Property and utilities

42,972

19,548

Travel

64,956

77,775

Other

20,113

14,500

Total goods and services supplied or rendered

2,332,553

1,965,619

OTHER SUPPLIERS

Operating lease rentals in connection with minimum lease payments

174,893

209,367

Workers compensation expenses

45,057

32,056

Total other supplier expenses

219,950

241,423

TOTAL SUPPLIER EXPENSES

2,552,503

2,207,042

LEASING COMMITMENTS

The NHFB in its capacity as sub–lessee has entered the following non–cancellable lease:

Lease for office accommodation

The NHFB has one current accommodation sub–lease in the Australian Capital Territory (ACT). The sub–lease commenced on 1 October 2016 for a period of 3 years and is for the NHFB’s present accommodation in the ACT.

There is an option to extend the lease by two additional 2 year periods and any increases in rent will be at a rate commensurate with CPI or market value.

2018

$

2017

$

Commitments for minimum lease payments in relation to non–cancellable operating leases are payable:

Within 1 year

206,189

206,189

Between 1 to 5 years

51,547

257,736

TOTAL OPERATING LEASE COMMITMENTS

257,736

463,925

ACCOUNTiNG POLiCY

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

SETTLEMENT TERMS FOR SUPPLiERS

All payables are expected to be settled within 30 days.

Note 3: Income

2018

$

2017

$

OWN–SOURCE REVENUE

Note 3A: Resources Received Free of Charge

Remuneration of auditors

90,000

90,000

TOTAL RESOURCES RECEIVED FREE OF CHARGE

90,000

90,000

ACCOUNTiNG POLiCY

Resources received free of charge

Resources received free of charge are recognised as revenue when the fair value can be reliably measured at the time of service 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.

Note 3B: Revenue from Government

Departmental appropriations

5,844,000

4,307,000

TOTAL REVENUE FROM GOVERNMENT

5,844,000

4,307,000

ACCOUNTiNG POLiCY

Revenue from Government

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

The NHFB received additional funding in 2017–18 of $1.597 million for work associated with the requirements of the Addendum to the National Health Reform Agreement.

Note 4: Financial Assets

2018

$

2017

$

Note 4A: Cash and Cash Equivalents

Cash on hand or on deposit

25,978

25,444

TOTAL CASH AND CASH EQUIVALENTS

25,978

25,444

ACCOUNTiNG POLiCY

Cash and Cash Equivalents

Cash is recognised at its nominal amount. Cash and cash equivalents includes:

a. cash on hand; and

b. demand deposits in bank accounts with original maturity of 3 months or less that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

Note 4B: Trade and Other Receivables

Good and Services receivables in connection with

Goods and services

143,473

18,249

Total good and services receivable

143,473

18,249

Appropriations receivable

For existing program

2,359,960

1,414,434

Total appropriations receivable

2,359,960

1,414,434

Other receivables

GST receivable from the Australian Taxation Office

12,868

18,658

Total other receivables

12,868

18,658

TOTAL TRADE AND OTHER RECEIVABLES (GROSS)

2,516,301

1,451,341

Less impairment allowance

Goods and services

Total impairment allowance

TOTAL TRADE AND OTHER RECEIVABLES (NET)

2,516,301

1,451,341

ACCOUNTING POLICY

Trade and Other Receivables

Trade receivables, loans and other receivables that have a fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at their nominal value less impairment. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon the transaction date.

Impairment of financial assets

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

Note 5: Non–Financial Assets

Reconciliation of the Opening and Closing Balances of Property, Plantand Equipment and Intangibles

Software

$

Total

$

As at 1 July 2017

Gross book value

167,759

167,759

Accumulated depreciation, amortisation and impairment

TOTAL AS AT 1 JULY 2017

167,759

167,759

Additions

Internally developed software — WIP at cost

155,942

155,942

TOTAL AS AT 30 JUNE 2018

323,701

323,701

Total as at 30 June 2018 represented by

Gross book value

323,701

323,701

Accumulated depreciation, amortisation and impairment

TOTAL AS AT 30 JUNE 2018

323,701

323,701

Acquisition of assets

Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate. Assets acquired

at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of

administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor’s accounts immediately prior to the restructuring.

Asset recognition threshold

Purchases of property, plant and equipment are recognised initially at cost in the statement of financial position, except for purchases costing less than $5,000 (excluding GST), 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.

Software

The NHFB’s internally developed software has a threshold of $100,000. These assets are carried at cost less accumulated amortisation and accumulated impairment losses.

Work in progress

All assets not fully constructed at 30 June 2018 are recorded as work in progress and are valued at cost. Depreciation or amortisation will not commence until the project has been completed to a stage where it can provide service to the agency.

Depreciation

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

Software and other intangible assets are amortised on a straight–line basis over the anticipated useful life. Depreciation rates, residual values and methods are reviewed at each reporting date.

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

2018

2017

Software

3-5 years

2-3 years

Note 6: Payables

2018

$

2017

$

Note 6A: Suppliers

Trade creditors and accruals

657,959

243,203

TOTAL SUPPLIER PAYABLES

657,959

243,203

Suppliers expected to be settled within 12 months:

Related entities 1

122,448

59,602

External parties 2

535,511

183,601

TOTAL

657,959

243,203

Settlement was usually made within 30 days.

Note 6B: Other Payables

Wages and salaries

9,394

15,595

Superannuation

2,958

2,582

Leave provisions

77,465

Total other payables

89,817

18,177

ACCOUNTING POLICY

Financial liabilities are recognised and derecognised upon the date they were incurred.

The NHFB’s financial liabilities are measured at nominal amounts. No fair value measurement disclosures are required.

1 For the period ended 30 June 2018 and 30 June 2017, this amount relates to payables to the Department of Health under a shared services arrangement.

2 For the period ended 30 June 2018 and 30 June 2017, this amount relates to consultants and contractors.

Note 7: Provisions

2018

$

2017

$

Employee Provisions

Leave

694,846

595,020

TOTAL EMPLOYEE PROVISIONS

694,846

595,020

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 rates expected to be paid on settlement of the liability. Other long–term employee benefits are measured as 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. 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 NHFB 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 NHFB’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 the long service leave has been determined by our best estimates based on the NHFB staff profile. The estimate of the present value of the liability takes into account attrition rates and pay increases through promotion and inflation.

Superannuation

Staff of the NHFB are members of the Commonwealth Superannuation Scheme (CSS), the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) or employee nominated superannuation funds.

The CSS and PSS are defined benefit schemes for the Australian Government. The PSSap and employee nominated superannuation funds are defined contribution schemes.

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

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

The liability for superannuation recognised as at 30 June represents outstanding contributions for the final fortnight of the year.

Note 8: Contingent Assets and Liabilities

QUANTiFiABLE CONTiNGENCiES

As at 30 June 2018, the NHFB had no quantifiable contingencies.

UNQUANTiFiABLE CONTiNGENCiES

As at 30 June 2013, the NHFB had entered into an arrangement for an indemnity with the

New South Wales Health Administration Council (HAC). No change has occurred during 2013–14, 2014–15, 2015–16, 2016–17 and remains current at 30 June 2018.

The HAC is a statutory body whose functions include entering into contracts to support the functions of the NSW Minister for Health. HAC has a banking contract for its Pool accounts with the RBA. HAC has provided the RBA with an indemnity that places obligations upon HAC to accept risks on persons not in its direct control, being the staff of the NHFB. The HAC has in turn sought a ‘back to back’ indemnity from the Commonwealth. The indemnity is limited to cover the actions of NHFB staff in their capacity as users of Pool account information.

The most probable cost of the indemnity if called upon would be over $20,000,000 (inclusive of GST).

A risk assessment has been undertaken in accordance with the Department of Finance’s Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort. The contingent liability includes risks which are assessed as being significant or non–remote.

The NHFB will make every effort to limit the risk to the Commonwealth under the arrangement through the adoption and implementation of appropriate risk management procedures.

Under the National Health Reform Agreement (NHRA), each of the States agreed to open a Reserve Bank of Australia (RBA) account (a ‘State pool account’) for the purpose of receiving all Commonwealth and activity–based State public hospital funding. The Administrator of the

National Health Funding Pool (the Administrator) is responsible for making payments from each State pool account, at the direction of each State Health Minister. This process is supported by the NHFB.

SiGNiFiCANT REMOTE CONTiNGENCiES

As at 30 June 2018, the NHFB had no significant remote contingencies. (2017: Nil)

CONTiNGENT ASSETS AND LiABiLiTiES

As at 30 June 2018, the NHFB did not have any contingency assets or liabilities. (2017: Nil)

ACCOUNTiNG POLiCY

Contingent assets and liabilities are not recognised in the balance sheet but are reported in

this note. They may arise from uncertainty as to the existence of an asset or liability, 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.

Note 9: Key Management Personnel Remuneration

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the NHFB 1, directly or indirectly. The NHFB has determined the key management personnel to be the CEO and the Administrator.

2018

$

2017

$

Short–term employee benefits

Salary

290,260

307,355

Other

65,482

67,149

Total short–term employee benefits

355,742

374,504

Post–employment benefits

Superannuation

40,700

50,232

Total post employment benefits

40,700

50,232

Other long–term benefits

Annual leave

34,269

24,285

Long–service leave

23,757

10,947

Total other long–term benefits

58,026

35,232

TOTAL EMPLOYMENT BENEFITS

454,468

459,968

1 Correction: In the 2016–17 Financial Statements this statement incorrectly referred to the activities of the ANAO.

Notes: The total number of key management personnel that are included in the above table is four. (2017:3) The number of key management personnel includes one officer with a period of acting in excess of 4 weeks.

Note 10: Related Party Disclosures

Related parties for the NHFB are the Key Management Personnel, the Portfolio Ministers, and other Australian Governmententities. Significant transactions with related entities include the purchase of goods and services and payments inrelation to a Memorandum of Understanding for shared services.

No payments were made outside of the normal course of business.

There are no related party transactions by Ministers requiring disclosure.

Note 11: Financial Instruments

Note 11A: Categories of Financial Instruments

2018

$

2017

$

Note 11A: Categories of Financial Instruments

FINANCIAL ASSETS

Loans and Receivables

Cash and equivalents

25,978

25,444

Trade and other receivables

143,473

18,249

Total

169,451

43,693

CARRYING AMOUNT OF FINANCIAL ASSETS

169,451

43,693

FINANCIAL LIABILITIES

At amortised cost

Trade creditors and accruals

657,959

243,203

Total

657,959

243,203

CARRYING AMOUNT OF FINANCIAL LIABILITIES

657,959

243,203

Note 11B: Net Income and Expense from Financial Assets

There is no income or expense from financial assets in 2017–18. (2016–17: Nil)

Note 11C: Net Income and Expense from Financial Liabilities

There is no net income or expense from financial liabilities in 2018–17. (2016–17: Nil)

Note 11D: Fair Value of Financial Instruments

The fair value of all financial assets and liabilities equals its carrying amount in 2017-18 and 2016-17.

ACCOUNTiNG POLiCY

The NHFB classifies its financial assets as loans and receivables.

The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Financial assets are recognised and derecognised upon trade date.

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at their nominal value less impairment.

Effective Interest Method

Income is recognised on an effective interest rate basis.

Impairment of financial assets

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

Financial liabilities

NHFB classifies its financial liabilities as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

Note 12: Financial Assets Reconciliation

Notes

2018

$

2017

$

FINANCIAL ASSETS

Total financial assets as per balance sheet

2,542,279

1,476,785

Less: non–financial instrument components

Appropriations receivable

4B

2,359,960

1,414,434

GST Receivable from the Australian Taxation Office

4B

12,868

18,658

Total non–financial instrument components

2,372,828

1,433,092

TOTAL FINANCIAL ASSETS AS PER FINANCIAL INSTRUMENTS NOTE

169,451

43,693

Note 13: Appropriations

Table A: Annual Appropriations (Recoverable GST exclusive)​

Annual Appropriation for 2018

Annual Appropriation

Section 74

Total appropriation

Appropriation

applied in 2018

(current and prior years)

Variance 1

$

$

$

$

$

DEPARTMENTAL

Ordinary annual services

5,844,000

29,369

5,873,369

(4,927,843)

945,526

TOTAL DEPARTMENTAL

5,844,000

29,369

5,873,369

(4,927,843)

945,526

1 Variances are due to the NHFB drawing down on its prior year appropriations.

Annual Appropriation for 2017

Annual Appropriation

Section 742

Total appropriation

Appropriation

applied in 2017

(current and prior years)

Variance

$

$

$

$

$

DEPARTMENTAL

Ordinary annual services

4,307,000

58,956

4,365,956

(4,856,488)

(490,532)

TOTAL DEPARTMENTAL

4,307,000

58,956

4,365,956

(4,856,488)

(490,532)

2 Section 74 receipts were previously reported as $259,083 in the 2016–17 Financial Statements. This amount incorrectly included Goods and Services Tax of $200,127.

Table B: Departmental and Administered Capital Budgets (Recoverable GST exclusive)

There was no Departmental Capital Budget appropriated to the NHFB in 2017–18. (2016–17:nil)

Table C: Unspent Annual Appropriations (Recoverable GST exclusive)​

Authority

2018

$

2017

$

DEPARTMENTAL

Appropriation Act (No 1) 2017–18

2,359,960

Appropriation Act (No 1) 2016–17

135,141

Appropriation Act (No 1) 2015–16

1,279,293

Cash at Bank

25,978

25,444

Total

2,385,938

1,439,878

Note 14: Budgetary Reporting — Explanation of Major Variances

The Statement of Comprehensive Income has the following variances:

+ The NHFB was granted $1.597 million in additional funding for 2017–18 for work to be performed in relation to the Addendum of the National Health Reform Agreement. The delay in two major projects led to the decrease of suppliers expenses in the original budget published in the 2017‑18 Portfolio Budget Statements (PBS) of 29%.

Some costs in relation to these projects were capitalised as it related to development of internally developed software. The reported result for the financial year is $635,214.

+ Estimated budget of other gains of $53,000 relates to resources received free of charge worth $90,000. The amount relates to auditors remuneration.

National Health Funding Body Notes to and forming part of the Financial Statements

for the year ended 30 June 2018

The Statement of Financial Position has the following variances:

+ Trade and other receivables are higher than budgeted, reflecting the accumulation of unused funds from prior year appropriations. This resulted in $945,526 higher appropriation receivable for FY2017–18 compared to budget.

+ Non–financial assets includes internally generated software of $323,701 which has been reported as work–in–progress. The amount of $155,942 incurred in financial year 2017–18 is also reflected in cash used for investing activities in the Cash Flow Statement.

+ An increase in other payables as at 30 June 2018 is due to employees transferring their leave to other Commonwealth entities upon leaving the NHFB. This amounts to

$77,465 payable to other agencies.

+ An increase of $99,826 in employee leave provisions is mainly due to an increase

in salaries, staff accruing more leave and new staff commencing in NHFB (this does not impact on expenses as leave was transferred from other government entities).

End of General Purpose Financial Statements.

Correction

In NHFB’s 2016-17 AnnualReport, the Australian National Audit Office (ANAO) was incorrectly mentioned at Note 9 to the Financial Statements: Key Management Personnel Remuneration (page 91).

The text should have read: “Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the NHFB, directly or indirectly.The NHFB has determined the key management personnel to be the CEO and the Administrator”.