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National Health Funding Body Annual Report 2018–19

Annual Financial Statement's 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 function 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:

a) Calculating and advising the Commonwealth Treasurer of the Commonwealth’s contribution to public hospital funding in each State and Territory;

b) Reconciling estimated and actual hospital services and adjusting Commonwealth payments;

c) Undertaking funding integrity analysis to identify public hospital services that potentially received funding through other Commonwealth programs;

d) Monitoring payments of Commonwealth, State and Territory public hospital funding into the Pool, including each State (and Territory) Pool Account;

e) Making payments from each State (and Territory) Pool Account to each Local Hospital Network;

f) Reporting publicly on National Health Reform Agreement funding, payments and services; and

g) 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 (FFR); 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 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

All new, revised, amended standards and/or interpretations that were issued prior to the sign-off date and are applicable to the current reporting period did not have a material effect on the National Health Funding Body (NHFB) financial statements.

1.3. Taxation

NHFB is exempt from all forms of taxation except Fringe Benefits Tax (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

Note 2: Expenses
Goods and services supplied or rendered¹
	2019 $	2018 $
Note 2A: Employee Benefits
Wages and salaries	2,001,501	1,896,881
Superannuation
Defined contribution plans	203,498	232,113
Defined benefit plans	482,709	139,121
Leave and other entitlements	444,674	447,343
Total employee benefits	3,132,382	2,715,457
Accounting Policy The accounting policy for Employee Benefits is contained in Note 7: Provisions.
Note 2B: Suppliers
Consumables, printing and training	63,257	90,315
Contractors and Support Agreements (Shared Services)	1,633,568	1,941,254
Professional fees (Audit and Legal)	144,058	206,947
Travel	85,122	74,729
Other	24,815	20,183
Total goods and services supplied or rendered	1,950,821	2,333,429
Other Suppliers
Operating lease rentals in connection with minimum lease payments	202,019	204,844
Workers compensation expenses	24,687	45,057
Total other supplier expenses	226,706	249,901
Total supplier expenses	2,117,528	2,583,329
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 ACT for a period of 3 years. The sub-lease commenced on 1 October 2016 and will expire on 30 September 2019. There is an option to extend the lease for a further 2 years and any increases in rent will be at a rate commensurate with CPI. As at 30 June 2019, a decision on lease extension has not been made.
Commitments for minimum lease payments in relation to non–cancellable operating leases are payable:
Within 1 year	50,505	206,189
Between 1 to 5 years	–	51,547
Total operating lease commitments	50,505	257,736
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.

¹ Goods and services charges were accounted for against different supplier cost categories in 2018–19. 2017-18 numbers were restated as a result to ensure comparability between financial years.

Note 3: Income

Note 3: Income
Own–Source Revenue
	2019 $	2018 $
Note 3A: Resources Received Free of Charge
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, 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.
Note 3B: Revenue from Government
Appropriations
Departmental appropriations	5,378,000	5,844,000
Total revenue from Government	5,378,000	5,844,000
Accounting Policy Revenues 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.

NOTE 4: Financial Assets

NOTE 4: Financial Assets
	2019 $	2018 $
Note 4A: Cash and Cash Equivalents
Cash on hand or on deposit	30,777	25,978
Total cash and cash equivalents	30,777	25,978
Accounting Policy Cash and Cash Equivalents Cash is recognised at its nominal amount. Cash and cash equivalents includes: Cash on hand; and 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	280,504	143,473
Total goods and services receivable	280,504	143,473
Appropriations receivable
For existing program	1,056,833	2,359,960
Total appropriations receivable	1,056,833	2,359,960
Other receivables
GST receivable from the Australian Taxation Office	25,626	12,868
Total other receivables	25,626	12,868
TOTAL TRADE AND OTHER RECEIVABLES (NET)	1,362,963	2,516,301
Accounting Policy Financial assets Trade receivables, loans and other receivables that are held for the purpose of collecting the contractual cash flows where the cash flows are solely payments of principal and interest, that are not provided at below-market interest rates, are subsequently measured at amortised cost using the effective interest method adjusted for any loss allowance. Impairment of financial assets Financial assets are assessed for impairment at the end of each reporting period.

NOTE 5: Non–Financial Assets

NOTE 5: Non–Financial Assets
Total as at 1 July 2018	323,700	323,700
	Computer Software¹ $	Total $
NOTE 5A: Reconciliation of the Opening and Closing Balances of Property, Plant and Equipment and Intangible²
As at 1 July 2018
Gross book value	323,700	323,700
Accumulated depreciation, amortisation and impairment	–	–
Additions
Additions for internally developed intangible assets - WIP at cost	1,308,285	1,308,285
Depreciation and amortisation	(24,900)	(24,900)
TOTAL AS AT 30 JUNE 2019	1,607,086	1,607,086
Total as at 30 June 2019 represented by
Gross book value	1,631,986	1,631,986
Accumulated depreciation, amortisation and impairment	(24,900)	(24,900)
TOTAL AS AT 30 JUNE 2019	1,607,086	1,607,086
No indicators of impairment were found for non–financial assets.
Accounting Policy Acquisition of assets Assets are recorded at cost on acquisition except as stated below. The cost of acquisition includes the fair value of assets transferred in exchange and liabilities undertaken. Financial assets are initially measured at their fair value plus transaction costs where appropriate. Assets acquired at no cost, or for nominal consideration, are initially recognised as assets and income at their fair value at the date of acquisition, unless acquired as a consequence of restructuring of administrative arrangements. In the latter case, assets are initially recognised as contributions by owners at the amounts at which they were recognised in the transferor’s accounts immediately prior to the restructuring. The NHFB does not have any Property, Plant and Equipment (PP&E) assets and use of PP&E is paid for under the Memoradum of Understanding (MOU) as a supplier expense. 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. Intangibles The NHFB’s intangibles comprise internally developed software for intenal use which have a capitalisation threshold of $10,000. These assets are carried at cost less accumulated amortisation and accumulated impairment losses. The NHFB has only one software asset valued at $323,700 of which is amortised on a straight line basis over its anticipated useful life of 5 years with the asset put into use in January 2019. All software assets were assessed for indications of impairment. No assets were assessed to be impaired. Work in progress (WIP) All non-financial assets not fully constructed at 30 June 2019 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. The WIP balance at 30 June 2019 was $1,308,285 from the total closing balance of PP&E and Intangibles shown above of $1,607,086. Depreciation Depreciable property, plant and equipment assets are written‐off to their estimated residual values over their estimated useful lives to the NHFB using in all cases, the straight line method of depreciation. Software assets are amortised on a straight‐line basis over its anticipated useful life. Depreciation rates (useful lives), 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:
	2019	2018
INTANGIBLE ASSET	3–5 years	3–5 years

¹ The carrying amount of computer software is comprised of all internally generated software including WIP and software assets at cost.

² NHFB has not capitalised any property, plant and equipment as all assets were provided under agreement with the Department of Health.

NOTE 6: Payables

NOTE 6: Payables
	2019 $	2018 $
Note 6A: Suppliers
Trade creditors and accruals	474,804	657,959
Total supplier payables	474,804	657,959
Suppliers expected to be settled within 12 months:
Related entities¹	80,516	122,448
External parties²	394,288	535,511
Total	474,804	657,959
Settlement was usually made within 30 days.
Note 6B: Other Payables
Wages and salaries	18,518	9,394
Superannuation	3,275	2,958
Leave provisions payable	4,744	77,465
Salary Sacrifice payable	5,277	–
TOTAL OTHER PAYABLES	31,814	89,817
Accounting Policy Financial liabilities are recognised and derecognised upon ‘trade date’. The NHFB’s financial liabilities are measured at nominal amounts. No fair value measurement disclosures are required.

¹ For the period ended 30 June, amounts relate to payables to the Department of Health under a shared services arrangement and some small payables to other Commonwealth government agencies.

² For the period ended 30 June, amounts relate to consultants and contractors.

NOTE 7: Provisions

NOTE 7: Provisions
	2019 $	2018 $
NOTE 7A: Employee Provisions
Leave	937,660	694,846
Total employee provisions	937,660	694,846
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. The NHFB applies the shorthand method for calculation of LSL liabilities. Superannuation Staff of the NHFB are members of the Public Sector Superannuation Scheme (PSS), the PSS accumulation plan (PSSap) or employee nominated superannuation funds. The PSS is a defined benefit scheme 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. In June 2019, the NHFB received revised actuary estimates from the Department of Finance which has resulted in an increase in defined benefit superannuation expenses by $0.3m.

NOTE 8: Aggregate Assets And Liabilities

NOTE 8: Aggregate Assets And Liabilities
	2019 $	2018 $
Assets expected to be recovered in:
Amounts recoverable from assets within 12 months	1,631,537	–
More than 12 months	1,369,289	–
Total assets	3,000,826	–
Liabilities expected to be settled in:
No more than 12 months	709,531	–
More than 12 months	734,747	–
Total liabilities	1,444,278	–
Accounting policy Amendments to the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 require reporting entities to disclose aggregate assets and liabilities expected to be recovered or settled within 12 months or in more than 12 months. This disclosure came into effect from 1 July 2018.

NOTE 9: Contingent Assets and Liabilities

Quantifiable Contingencies

As at 30 June 2019, 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 through to 2018–19 and remains current as of 30 June 2019.

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 Department of Finance Guidelines, (Financial Management Guidance No.6, Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort September 2003). 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 2019, the NHFB had no significant remote contingencies. (2018: Nil).

Contingent Assets and Liabilities

As at 30 June 2019, the NHFB did not have any contingency assets or liabilities (2018: 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 10: Key Management Personnel Remuneration

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.

	2019 $	2018 $
Short-term employee benefits:
Salary	404,558	314,799
Other	42,807	65,482
Total short-term employee benefits	447,365	380,281
Post-employment benefits:
Superannuation	47,448	40,700
Total post-employment benefits	47,448	40,700
Other long-term benefits:
Long-service leave	11,098	8,589
Total other long-term benefits	11,098	8,589
TOTAL EMPLOYMENT BENEFITS	505,911	429,570
Notes The total number of key management personnel that are included in the above table is two (2017-18: 3). In 2017-18, annual leave paid and the net movement in annual leave balance was disclosed as part of Other long-term benefits. In 2018–19, annual leave and the net movement in annual leave balance is included as part of short-term employee benefits. In addition, in 2018–19 the KMP calculation was changed to be based on the Remuneration Tribunal (Remuneration and Allowances for Holder of Full-time Public Office) Determination 2018. As a result, some 2017-18 numbers were restated.

NOTE 11: Related Party Disclosures

Related parties for the NHFB are the Key Management Personnel, the Portfolio Ministers, and other Australian Government entities. Significant transactions with related entities include the purchase of goods and services and payments in relation 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 12: Financial Instruments

NOTE 12: Financial Instruments
Financial Assets
	2019 $	2018 $
Note 12A: Categories of Financial Instruments
Loans and Receivables
Cash and equivalents	30,777	25,978
Trade and other receivables	280,504	143,473
Total	311,282	169,451
Carrying amount of financial assets	311,282	169,451
Financial Liabilities
At amortised cost
Trade creditors and accruals	474,804	657,959
Total	474,804	657,959
Carrying amount of financial liabilities	474,804	657,959
Note 12B: Net Income and Expense from Financial Assets There is no income or expense from financial assets in 2018–19. (2017-18: Nil) Note 12C: Net Income and Expense from Financial Liabilities There is no net income or expense from financial liabilities in 2018–19. (2017-18: Nil) Note 12D: Fair Value of Financial Instruments The fair value of all financial assets and liabilities equals its carrying amount in 2018–19 and 2017-18.
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. Trade and other receivables consisted wholly of receivables for employee entitlements within Government. 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. The NHFB did not impair any of its financial assets. Financial liabilities NHFB classifies its financial liabilities as other financial liabilities. Financial liabilities are recognised and derecognised upon ‘trade date’.

NOTE 13: Financial Assets Reconciliation

	Notes	2019 $	2018 $
FINANCIAL ASSETS
Total financial assets as per the Statement of Financial Position		1,393,740	2,542,279
Less: non-financial instrument components:
Appropriations receivable	4B	1,056,833	2,359,960
GST Receivable from the Australian Taxation Office	4B	25,626	12,868
Total non-financial instrument components		1,082,459	2,372,828
TOTAL FINANCIAL ASSETS AS PER FINANCIAL INSTRUMENTS NOTE	311,282	169,451

NOTE 14: Appropriations

Table 14A: Annual Appropriations (Recoverable GST exclusive)

Annual Appropriation for 2019

Table 14A: Annual Appropriations
DEPARTMENTAL
	Annual Appropriation $	Section 74¹ $	Total appropriation $	Appropriation applied in 2019 (current and prior years)² $	Variance³ $
Ordinary annual services	5,378,000	99,938	5,477,938	(6,781,065)	(1,303,127)
Total departmental	5,378,000	99,938	5,477,938	(6,781,065)	(1,303,127)

¹ Section 74 retained receipts exclude GST refunds of $291,313 for 2019 and $152,408 for 2018.

² Appropriation applied in 2019 of $6,781,065 includes $2,359,960 relating to the 2017-18 Financial Year (2018) undrawn appropriation.

³ The variance of $1,303,127 is due to the NHFB drawing down on its prior year appropriation during to pay its 2017-18 trade creditors and for additional capital projects undertaken during 2018-19.

Annual Appropriation for 2018

Annual Appropriation for 2018
DEPARTMENTAL
	Annual Appropriation $	Section 74 $	Total appropriation $	Appropriation applied in 2018 (current and prior years)	Variance¹ $
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 The variance of $945,526 is due to the NHFB drawing down on its prior year appropriation during 2017-18 to pay its 2016-17 trade creditors and accruals.

Table 14B: Departmental and Administered Capital Budgets
(Recoverable GST exclusive)

There was no Departmental Capital Budget appropriated to the NHFB in 2018–19
(2017–18: nil).

Table 14C: Unspent Annual Appropriations (Recoverable GST exclusive)

DEPARTMENTAL
Authority	2019 $	2018 $
Appropriation Act (No 1) 2018–19	1,056,833
Appropriation Act (No 1) 2017-18		2,359,960
Appropriation Act (No 1) 2016-17	–	–
Cash at Bank	30,777	25,978
TOTAL	1,087,610	2,385,938

NOTE 15: Budgetary Reporting — Explanation of Major Variances

The following note provides high level commentary of major variance between budgeted information for the NHFB published in the Treasury’s 2018–19 Portfolio Budget Statements (PBS) and the 2018–19 final outcome as presented in accordance with the Australian Accounting Standards for the NHFB. The budget is not audited.

An explanation for a major variance may not be provided where the item is considered immaterial in the overall context of the financial statements.

As a guide, variances are considered to be ‘major’ based on the following criteria:

the variance between budget and actual is greater or less than 10%; and
the variance between budget and actual is greater or less than 2% of total expenses or total own-source revenue; or
an item below this threshold but is considered important for the reader’s understanding or is relevant to an assessment of the discharge of accountability and to an analysis of performance of an entity.

The Statement of Comprehensive Income has the following variances:

Employee Benefits are higher mostly due to increases in defined benefit superannuation expenses of $302,000 as a result of revised actuary estimates provided by the Department of Finance.
Suppliers are lower due to deferred contractor expenditure for reviews for Data Matching and SAS Commonwealth Contributions Model (CCM). The value of deferred contractor expenditure in total was approximately $283,000.

The Statement of Financial Position has the following variances:

Computer Software is higher than budget due to higher than anticipated capital project work in 2018–19. These costs comprised of internally developed software (WIP) of $1,308,285, including: a new payments system for National Health Funding Pool valued at $1,025,000, a website upgrade valued at $262,000 and additional works in progress for the SAS (CCM) of $21,000. Further, the NHFB put into use new internally developed software during 2018–19 for the CCM valued at $323,700.
An increase in Suppliers Payable is mainly due to additional year end accruals for contractor expenses and the Department of Health Memorandum of Understanding (MOU); and
An increase in Employee Leave Provisions is mainly due to the increase in salaries, staff accruing more leave and staff commencements during 2018–19 (which is fully funded through portability of leave transferred from within Government). Also, a minor part of the increase related to current year LSL discount factors yet to be applied offset by LSL estimated to be taken whilst in service.

End of General Purpose Financial Statements.

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