Statement of Accounting Policies

for the year ended 30 June 2009

Reporting Entity

The Department of Internal Affairs financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989. Section 2 of this Act defines the Department of Internal Affairs as a Government Department. For the purposes of financial reporting the Department of Internal Affairs is a public benefit entity.

In addition, the Department has reported the Crown activities and trust money, which it administers.

The Department of Internal Affairs is domiciled in New Zealand.

Reporting Period

The reporting period for these financial statements is the year ended 30 June 2009. The financial statements were authorised for issue by the Chief Executive of the Department on 23 September 2009.

Budget Figures

The budget figures are those presented in the Budget 2008 Estimates of Appropriation (Main Estimates) and those amended by the Supplementary Estimates (Supp. Estimates).

Statement of Compliance

These financial statements have been prepared in accordance with New Zealand generally accepted accounting practice. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable Financial Reporting Standards, as appropriate for public benefit entities.

Standards, amendments and interpretations issued that are not effective and have not been early adopted and which are relevant to the Department include:

NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in equity resulting from transactions with the Crown in its capacity as ”owner” separately from ”non-owner” changes. The revised standard gives the Department the option of presenting items in income and expense and components of other comprehensive income either in a single or two separate statements (a separate income statement followed by a statement of comprehensive income). The Department expects it will apply the revised standard for the first time for the year ended 30 June 2010, and is yet to decide whether it will prepare a single statement of comprehensive income or a separate income statement followed by a statement of comprehensive income.

NZ IAS 39 Financial Instruments: Recognition and Measurement (revised 2008) replaces NZ IAS 39 Financial Instruments: Recognition and Measurement (issued 2004) and is effective on or after January 2010. The revised standard requires an amendment to clarify when to recognise gains or losses on hedging instruments as a reclassification adjustment in a cash flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment clarifies that gains or losses should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects profit or loss. The Department intends to adopt this standard for the year ending 30 June 2011 and has not determined the potential impact of the new standard.

Accounting Policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing an opening NZ IFRS Statement of Financial Position as at 1 July 2006 for the purposes of the transition to NZ IFRS.

The measurement base applied is that of historical cost, modified by the revaluation of land, buildings, antiques and works of art.

The accrual basis of accounting has been used unless otherwise stated. These financial statements are presented in New Zealand dollars rounded to the thousand. The functional currency of the Department is New Zealand dollars.

Critical Accounting Judgements and Estimates

The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Provision for Doubtful Debts

Note 6, includes a provision for doubtful debts on accounts receivable as at 30 June 2009. The provision is determined by using percentage of potential doubtful debts over reported period ranges based on past hifinancials for the Department and review of the accounts receivable balances held.

Long Service, Sick and Retirement Leave

Note 14, provides details of valuation of long service, sick and retirement leave. The long service and retirement valuation have been calculated by an independent valuer and includes the use of discount rates and inflationary estimates to determine the final valuations.

Finance Leases

The Department has exercised its judgement on the appropriate classification of equipment leases and has determined one lease arrangement to be a finance lease as identified in Note 15. To determine if a lease arrangement is a finance lease or an operating lease requires judgement as to whether the arrangement transfers substantially all the risks and rewards of ownership to the Department. Judgement is involved in determining the fair value of the leased asset, useful life and discount rate to calculate the present value of the minimum lease payments.

Cost Allocation

The methods used in the allocation of costs are consistent between projected (budgeted) and actual figures. Costs of outputs are derived using the following cost allocation system:

“Direct Costs” are those costs directly attributed to an output and are treated as follows:

• personnel costs are allocated on the basis of estimated time engaged in the delivery of a particular output
• operating costs are allocated on the basis of usage
• depreciation and capital charge are allocated on the basis of estimated asset utilisation
• accommodation costs are allocated on the basis of floor space occupied.

“Indirect Costs” are those costs incurred by support units that are not directly attributable to an output. Indirect costs are allocated to outputs on an activity-costing basis reflecting a mix of perceived benefit, personnel numbers, floor space, network connections and estimated allocation of time.

For the year ended 30 June 2009, direct costs accounted for 83% of the Department’s costs (2007/08: 84%). Direct costs include personnel, operating, capital charge, accommodation and depreciation.

Taxation

The Department is exempt from the payment of income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided. The Department is subject to fringe benefit tax (FBT), and goods and services tax (GST). It administers pay as you earn tax (PAYE), employer superannuation contribution tax (ESCT) and withholding tax (WHT).

Goods and Services Tax (GST)

Amounts in the financial statements are reported exclusive of GST except for accounts receivable, prepayments and accounts payable.

The amount of GST owing to or from Inland Revenue at balance date is included in the Statement of Financial Position as a receivable or payable (as appropriate).

Commitments and contingencies are disclosed exclusive of GST.

Revenue

Revenue Crown

The Department derives revenue for the provision of outputs (services) to the Crown. Revenue Crown is recognised when earned and reported in the financial period to which it relates.

Third Party Revenue

The Department derives revenue from third parties for the provision of outputs (products or services) to third parties. Revenue from the supply of goods and services is measured at the fair value of consideration received. Revenue from the supply of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer unless an alternative method better represents the stage of completion of the transaction. Such revenue is recognised when earned and is reported in the financial period to which it relates.

Expenses

Expenses are recognised and reported in the Statement of Financial Performance in the period in which the service is provided or the goods are received.

Foreign Currency

Transactions in foreign currencies are initially translated at the foreign exchange rate at the date of the transaction.

Monetary assets denominated in foreign currencies at balance date are translated to New Zealand dollars at the foreign exchange rate at balance date. Foreign exchange gains or losses arising from translation of monetary assets are recognised in the Statement of Financial Performance.

Financial Instruments

Designation of financial assets and financial liabilities is determined by the business purpose of the financial instruments, policies and practices for their management, their relationship with other instruments and the reporting costs and benefits associated with each designation.

Financial Assets

Cash and cash equivalents include cash on hand, cash in transit, and funds on deposit with banks.

Accounts receivable have been designated as loans and receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables entered into with a duration of less than 12 months are recognised at their nominal value. At each balance date, the Department assesses whether there is any objective evidence that loans and receivables are impaired. Any Impairment losses are recognised in the Statement of Financial Performance as bad debts.

Financial Liabilities

Financial liabilities are recognised initially at fair value less transaction costs and subsequently measured at amortised cost using the effective interest rate method.

Financial liabilities entered into with duration less than 12 months are recognised at their nominal value.

Inventories

Inventories held for sale are recorded at the lower of cost (calculated using First In First Out method) and net realisable value.

Property, Plant and Equipment

Items of property, plant and equipment costing more than $3,000 are initially capitalised and recorded at cost.

Revaluations are carried out for a number of classes of property, plant and equipment to reflect the service potential or economic benefit obtained through control of the asset. Revaluation is based on the fair value of the asset with changes reported by class of asset.

Land and buildings are recorded at fair value less impairment losses and, for buildings, less depreciation accumulated since the assets were last revalued. Valuations undertaken in accordance with the standards issued by the New Zealand Property Institute are used.

Antiques and works of art are recorded at fair value and are not depreciated.

Other property, plant and equipment, which include motor vehicles and office equipment, are recorded at cost less accumulated depreciation and accumulated impairment losses.

Classes of property, plant and equipment that are revalued, are revalued at least every five years or whenever the carrying amount differs materially to fair value. Unrealised gains and losses arising from changes in the value of property, plant and equipment are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the Statement of Financial Performance for the asset class, the gain is credited to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that class of asset. To the extent that there is a balance in the asset revaluation reserve for the asset class any loss is debited to the reserve. Otherwise, losses are reported in the Statement of Financial Performance.

Accumulated depreciation at revaluation date is eliminated against the gross carrying amount so that the carrying amount after revaluation equals the revalued amount.

Realised gains and losses arising from disposal of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

For each property, plant and equipment asset project, borrowing costs incurred during the period required to complete and prepare the asset for its intended use are expensed.

Depreciation

Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life. The estimated useful lives are as follows:

Buildings	10–66 Years
Plant and Equipment	5–20 Years
Furniture and Fittings	5–10 Years
Office Equipment	5–10 Years
Motor Vehicles	3–6 Years
IT Equipment	3–5 Years
Births, Deaths and Marriages Historical Records Database	10 Years

The cost of leasehold improvements is capitalised and depreciated over the unexpired period of the lease, or the estimated remaining useful life of the improvements, whichever is the shorter.

Land and antiques and works of art are not depreciated.

Capital work in progress is not depreciated. The total cost of the capital project is transferred to the appropriate asset on its completion and then depreciated.

Intangible Assets

Intangible assets are initially recorded at cost. The cost of an internally generated intangible asset represents expenditure incurred in the development phase of the asset only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to sell or use; and development expenditure can be reliably measured. Expenditure incurred on research of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.

Intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation is charged to the Statement of Financial Performance on a straight-line basis over the useful life of the asset. Typically, the estimated useful lives of these intangible assets (Software) is 3–5 years. One exception is Births, Deaths and Marriages Historical Records Databases which are depreciated over 10 years.

Realised gains and losses arising from disposal of intangible assets are recognised in the Statement of Financial Performance in the period in which the transaction occurs. Unrealised gains and losses arising from changes in the value of intangible assets are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the Statement of Financial Performance, the gain is credited to the Statement of Financial Performance. Otherwise, gains are credited to an asset revaluation reserve for that asset. To the extent that there is a balance in the asset revaluation reserve for the intangible asset a revaluation loss is debited to the reserve. Otherwise, losses are reported in the Statement of Financial Performance.

Impairment of non-current assets

The carrying amounts of plant, property and equipment and intangible assets are reviewed at least annually to determine if there is any indication of impairment. Where an asset’s recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. Losses resulting from impairment are reported in the Statement of Financial Performance, unless the asset is carried at a revalued amount in which case any impairment loss is treated as a revaluation decrease.

Finance Leases

Finance leases transfer to the Department, as lessee, substantially all the risks and rewards incident on the ownership of a leased asset. Initial recognition of a finance lease results in an asset and liability being recognised at amounts equal to the lower of the fair value of the leased property or the present value of the minimum lease payments. The capitalised values are amortised over the period in which the Department expects to receive benefits from their use.

The Department currently holds one finance lease. Approval is held under section 50 of the Public Finance Act 1989 for the Department to be able to enter into a finance lease for supply of specialist printing equipment for production of passport books.

Operating Leases

Operating leases, where the lessor substantially retains the risks and rewards of ownership, are recognised in a systematic manner over the term of the lease. Accommodation and motor vehicle leases are recognized as operating leases.

Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

Revenue Received in Advance

The Department derives revenue from third parties for the supply of products and services to third parties. The revenue is recognised in Statement of Financial Position as a liability when the revenue has been received but does meet the criteria for recognition as revenue in the Statement of Financial Performance.

Employee Entitlements

Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave, sick leave and other similar benefits are recognised in the Statement of Financial Performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. The liability for long-term employee entitlements is reported as the present value of the estimated future cash outflows.

Termination benefits are recognised in the Statement of Financial Performance only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

Other Liabilities and Provisions

Other liabilities and provisions are recorded at the best estimate of the expenditure required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

Commitments

Operating and capital commitments arising from non-cancellable contractual or statutory obligations are disclosed within the Statement of Commitments to the extent that both parties have not performed their obligations.

Contingent Assets and Liabilities

Contingent assets and contingent liabilities are recorded in the Statement of Contingent Assets and Contingent Liabilities at the point at which the contingency is evident. Contingent assets are disclosed if it is probable that the benefits will be realised. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote.

Taxpayers’ Funds

This is the Crown’s net investment in the Department. Taxpayers’ funds are aggregated and classified as General funds and Revaluation Reserve.

Changes in Accounting Policies

Accounting policies are changed only if the change is required by a standard or interpretation or otherwise provides more reliable and more relevant information.

There have been no changes in accounting policies. All policies have been applied on a basis consistent with the previous year.

Comparatives

When presentation or classification of items in the financial statements are amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

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Statement of Financial Performance

for the year ended 30 June 2009

	Note	Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Revenue
Crown		98,348	93,236	98,347	94,382
Third Parties	1	119,669	116,864	121,889	120,589
Gain on Sale of Property, Plant and Equipment		865	0	0	0
Revaluation Gain	9	0	0	0	234
Total Revenue		218,882	210,100	220,236	215,205
Expenses
Personnel	2	112,530	112,850	120,190	110,649
Operating	3	86,067	87,122	90,161	84,025
Depreciation and Amortisation	9,10	9,526	11,209	9,911	8,630
Capital Charge	4	3,490	3,465	3,491	3,337
Total Expenses		211,613	214,646	223,753	206,641
Net Surplus/(Deficit)		7,269	(4,546)	(3,517)	8,564

Explanation of significant variances against main estimates are detailed in note 20.

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Financial Position

as at 30 June 2009

	Note	Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Assets
Current Assets
Cash and Cash Equivalents	5	37,410	20,094	34,702	42,504
Accounts Receivable	6	4,467	3,228	4,380	3,975
Inventories	7	1,604	2,767	1,504	2,295
Prepayments		131	571	214	269
Derivative Financial Instruments	8	2	0	0	0
Total Current Assets		43,614	26,660	40,800	49,043
Non Current Assets
Property, Plant and Equipment	9	30,571	35,704	25,077	21,971
Intangible Assets	10	31,354	29,012	29,090	16,719
Total Non Current Assets		61,925	64,716	54,167	38,690
Total Assets		105,539	91,376	94,967	87,733
Liabilities and Taxpayers’ Funds
Current Liabilities
Accounts Payable	11	21,059	18,102	17,067	16,765
Provisions	12	1,166	1,169	1,049	1,049
Revenue Received in Advance	13	7,034	9,869	8,179	8,235
Employee Entitlements	14	6,368	4,836	6,021	5,901
Finance Leases	15	1,059	0	0	0
Provision for Payment of Surplus	16	7,267	0	0	8,564
Derivative Financial Instruments	8	0	0	0	17
Total Current Liabilities		43,953	33,976	32,316	40,531
Non Current Liabilities
Employee Entitlement	14	1,157	695	697	792
Finance Leases	15	5,549	0	0	0
Total Non Current Liabilities		6,706	695	697	792
Total Liabilities		50,659	34,671	33,013	41,323
Taxpayers’ Funds
General Funds	16	52,431	55,049	58,580	43,036
Revaluation Reserve	16	2,449	1,656	3,374	3,374
Total Taxpayers’ Funds		54,880	56,705	61,954	46,410
Total Liabilities and Taxpayers’ Funds		105,539	91,376	94,967	87,733

Explanation of significant variances against Main Estimates are detailed in note 20.

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Cash Flows

for the year ended 30 June 2009

	Note	Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Cash Flows from Operating Activities
Cash was Provided from:
Supply of Outputs to the Crown		98,348	93,236	98,347	94,382
Supply of Outputs to Third Parties		117,976	116,865	121,484	116,990
		216,324	210,101	219,831	211,372
Cash was Disbursed to:
Costs of Producing Outputs		(192,393)	(217,372)	(209,250)	(197,286)
Capital Charge		(3,490)	(3,465)	(3,491)	(3,337)
		(195,883)	(220,837)	(212,741)	(200,623)
Net Cash Flows from Operating Activities		20,441	(10,736)	7,090	10,749
Cash Flows from Investing Activities
Cash was Provided from:
Sale of Property, Plant and Equipment		2,111	1,836	1,836	316
Cash was Disbursed to:
Purchase of Intangibles		(19,864)	(17,402)	(17,402)	(5,084)
Purchase of Property, Plant and Equipment		(8,611)	(9,823)	(9,823)	(4,943)
Net Cash Flows from Investing Activities		(26,364)	(25,389)	(25,389)	(9,711)
Cash Flows from Financing Activities
Cash was Provided from:
Capital Contribution	16	9,159	16,559	19,061	520
Cash was Disbursed to:
Payment of Net Surplus		(8,330)	0	(8,564)	(8,611)
Net Cash Flows from Financing Activities		829	16,559	10,497	(8,091)
Net Increase/(Decrease) in Cash Held		(5,094)	(19,566)	(7,802)	(7,053)
Add Opening Cash		42,504	39,660	42,504	49,557
Closing Cash and Cash Equivalents		37,410	20,094	34,702	42,504

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Reconciliation of Net Surplus to Net Cash Flow

from Operating Activities for the year ended 30 June 2009

		Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Surplus From Statement of Financial Performance		7,269	(4,546)	(3,517)	8,564
Add/(Deduct) Non Cash Items
Depreciation and Amortisation		9,526	11,209	9,911	8,630
Revaluation Gain on Properties		0	0	0	(234)
Net Losses on Derivative Financial Instruments		(19)	0	0	9
		9,507	11,209	9,911	8,405
Add/(Deduct) Movements in Working Capital Items
(Increase)/Decrease in Accounts Receivable		(492)	1	(405)	(747)
(Increase)/Decrease in Inventories		691	(59)	791	418
(Increase)/Decrease in Prepayments		138	(8)	55	68
Increase/(Decrease) in Accounts Payable		4,294	(16,991)	285	(3,306)
Increase/(Decrease) in Provisions		117	0	0	(220)
Increase/(Decrease) in Revenue Received in Advance		(1,201)	(424)	(56)	(2,852)
Increase/(Decrease) in Employee Entitlements		832	82	25	479
		4,379	(17,399)	695	(6,160)
Add/(Deduct) Items Classified as Investing Activities
Loss/(Gain) on Sale of Property, Plant and Equipment		(714)	0	1	(60)
		(714)	0	1	(60)
Net Cash Flows From Operating Activities		20,441	(10,736)	7,090	10,749

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Movements in Taxpayers’ Funds

for the year ended 30 June 2009

	Note	Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Net Surplus/(Deficit) for the year		7,269	(4,546)	(3,517)	8,564
Increase/(decrease) in Revaluation Reserve	16	(925)	0	0	1,718
Total Recognised Revenue and Expenses		6,344	(4,546)	(3,517)	10,282
Provision for Payment of Surplus	16	(7,267)	0	0	(8,564)
Other Movements in Taxpayers Funds	16	234	0	0	0
Capital Contribution	16	9,159	16,559	19,061	520
Movement in Taxpayers’ Funds for the year		8,470	12,013	15,544	2,238
Taxpayers’ Funds as at 1 July		46,410	44,692	46,410	44,172
Taxpayers’ Funds as at 30 June		54,880	56,705	61,954	46,410

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Commitments

as at 30 June 2009

	Actual 2008/09 $000	Actual 2007/08 $000
Capital Commitments
Capital Contracts for Goods and Services
Less than one year	9,287	0
Total Capital Goods and Services Commitments	9,287	0
Operating Commitments
Non-Cancellable Accommodation Leases
Less than one year	9,779	8,836
One to two years	8,036	7,912
Two to five years	7,701	10,995
Over five years	989	663
Total Accommodation Commitments	26,505	28,406
Other Non-Cancellable Leases
Less than one year	8,592	6,691
One to two years	6,524	6,543
Two to five years	4,893	11,417
Total Other Lease Commitments	20,009	24,651
Non-Cancellable Contracts for Goods and Services
Less than one year	5,729	1,048
One to two years	1	2
Total Goods and Services Commitments	5,730	1,050
Total Commitments	61,531	54,107

Capital Commitments

Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and equipment and intangible assets that have not been paid for, or not recognised as a liability, at the balance sheet date. The Capital commitments for 2008/09 relate to the Passport Personalisation project.

Non-Cancellable Lease Commitments

The Department leases property, plant and equipment in the normal course of its business. The majority of the leases are for premises, vehicles, office equipment and electronic monitoring of non-casino gaming machines. The non-cancellable leasing period for these leases varies. The 2007/08 other non-cancellable leases actual amounts have been restated to $24.651 million from $0.307 million to reflect the correct commitments as at 30th June 2008.

Non-Cancellable Contracts for Goods and Services

The Department has entered into non-cancellable contracts for IT maintenance, property maintenance and other contracts for service.

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Contingent Assets and Liabilities

as at 30 June 2009

Quantified Contingent Liabilities

	Actual 2008/09 $000	Actual 2007/08 $000
Legal Proceedings and Disputes
Legal costs	215	0
Total Contingent Liabilities	215	0

Unquantified Contingent Liabilities

Year Ended 30 June 2009

The Department has no unquantified contingent liabilities.

Year Ended 30 June 2008

There was a personal grievance case pending against the Department that has not been quantified due to nature of the issue and uncertainty of the outcome. While an estimate of the financial effect cannot be made, management believes the resolution of this case would not have a materially adverse effect on the financial statements of the Department.

Contingent Assets

The Department has no contingent assets. (2008 – nil)

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Unappropriated Expenditure

for the year ended 30 June 2009

Year Ended 30 June 2009

There was no Unappropriated Expenditure for the year ended 30 June 2009.

Year Ended 30 June 2008

Breaches of projected departmental net asset schedules

The 2007/08 Supplementary Estimates shows an operating deficit for 2007/08 financial year. The actuals have resulted in the Department having an operating surplus for 2007/08 financial year. The actual surplus has resulted in a technical breach of the net asset limits of the Public Finance Act 1989. Approval has been obtained from the Minister of Finance for this breach.

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Memorandum Accounts

for the year ended 30 June 2009

Memorandum accounts are notional accounts to record the accumulated balance of surpluses and deficits for outputs funded by fees charged to third parties. They are intended to provide a long-run perspective to the pricing of outputs.

	Opening Balance 2008/09 $000	Movement During 2008/09 $000	Closing Balance 2008/09 $000
New Zealand Gazette	141	220	361
Use of facilities and access to Lake Taupo by boat users	52	(50)	2
Passport products	3,481	2,091	5,572
Citizenship products	1,683	(1,239)	444
Marriage products	284	(223)	61
Issue of Birth, Death and Marriage certifications and other products	3,971	(712)	3,259
Administration of non-casino gaming	(8,500)	1,539	(6,961)

The memorandum accounts were established on 30 June 2002.

Action Taken to Address Surpluses and Deficits

New Zealand Gazette

The cost of publishing and distributing the New Zealand Gazette is recovered through third party fees. Fees are to be reviewed in the next six months to a level that will reduce the surplus over the next three financial years.

Use of Facilities and Access to Lake Taupo by Boat Users

The Department of Internal Affairs manages marina berths, jetties and boat ramps located about Lake Taupo. Fees are charged to third parties who use marina berths and boat ramps. Fee income is applied to recover the maintenance and administration cost of these facilities. Operating surpluses in any year will be applied in subsequent financial years. The operating surplus brought forward as at 1 July 2008 was used in 2008/09 to fund a higher level of maintenance required for boat ramps due to adverse weather and water conditions.

Passport Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. This strategy supports the introduction of new technologies including the replacement of the ageing passport system within that timeframe. The current fees schedule was approved with effect from 4 November 2005. The balance in this account is affected by fluctuating volumes and the timing of system changes. The surplus is expected to reduce over the short to medium term as the passports developments are implemented.

Citizenship Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. The negative movement in 2008/09, which will continue in 2009/10 reflects legislative changes which increased the citizenship eligibility qualifying period from 3 to 5 years of permanent residence. The current fees schedule was approved with effect from 1 September 2003 to recover full costs. Citizenship fees were last reviewed in 2005 and a review of fees is planned in 2009/10.

Marriage Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. The current fees schedule was approved with effect from 1 September 2003 to recover full costs. The negative movement in 2008/09 that is expected to continue in 2009/10 reflects higher costs since fees were last reviewed. A review of fees is planned in 2009/10.

Births, Deaths and Marriages Certificates, and Other Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. This strategy includes the introduction of new technologies that allow greater access by applicants through the Internet. The current fees schedule was approved with effect from 1 September 2003 to recover full costs. The negative movement in 2008/09, which will continue in 2009/10 reflects higher costs and additional expenditure associated with the implementation of the Births, Deaths, Marriages and Relationships Registration legislation. As a result the accumulated surplus is expected to further decline.

Administration of Non-casino Gaming

Fees established to recover the cost of administration and regulation of non-casino gaming are reflected in gaming machine fees, licence fees and similar charges for differing types of gaming activity in addition to charges relating to the electronic monitoring of non-casino gaming machines. The accumulated deficit, recoverable over five years resulted from uncertainties surrounding the introduction of the Gambling Act 2003 and the electronic monitoring system in 2006, in particular around volumes and activity. The current fees schedule was approved with effect from 1 February 2008. The opening balance for 2008/09 has been restated to ($8.500) million from ($6.336) million to reflect the correct balance as at 1st July 2008.

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Statement of Departmental Expenditure Appropriations

for the year ended 30 June 2009

	Actual 2008/09 $000	Main Estimates 2008/09 $000	Supp. Estimates 2008/09 $000	Actual 2007/08 $000
Appropriations for Output Expenses
Vote Community and Voluntary Sector
Multi-Class Output Appropriation
Community and Voluntary Sector Services
Policy Advice – Community	1,687	1,705	1,769	1,763
Administration of Grants	14,438	12,240	15,278	13,439
Community Advisory Services	5,123	5,490	5,498	5,374
Total Community and Voluntary Sector Services	21,248	19,435	22,545	20,576
Total Vote Community and Voluntary Sector	21,248	19,435	22,545	20,576
Vote Emergency Management
Multi-Class Output Appropriation
Emergency Management Services
Policy Advice – Emergency Management	927	860	980	868
Support Services, Information and Education	5,621	6,156	6,286	6,192
Management of National Emergency Readiness, Response and Recovery	3,985	4,321	4,341	3,916
Total Emergency Management Services	10,533	11,337	11,607	10,976
Total Vote Emergency Management	10,533	11,337	11,607	10,976
Vote Internal Affairs
Multi-Class Output Appropriation
Policy and Advisory Services
Policy Advice – Internal Affairs	4,760	4,493	5,249	4,107
Information and Advisory Services	4,444	8,093	5,508	3,003
Total Policy and Advisory Services	9,204	12,586	10,757	7,110
Departmental Output Expenses
Regulatory Services	25,166	25,306	25,845	25,494
Identity Services	84,704	89,531	88,977	86,226
Services for Ethnic Affairs	5,670	5,007	5,680	4,228
Contestable Services *	834	899	899	1,139
Total Vote Internal Affairs	125,578	133,329	132,158	124,197
Vote Local Government
Multi-Class Output Appropriation
Services for Local Government
Policy Advice – Local Government	7,741	7,060	7,355	6,062
Information, Support and Regulatory Services – Local Government	5,080	5,233	5,784	5,466
Total Services for Local Government	12,821	12,293	13,139	11,528
Departmental Output Expenses
Implementation of Auckland Governance Reforms	232	0	1,275	0
Total Vote Local Government	13,053	12,293	14,414	11,528
Vote Ministerial Services
Departmental Output Expenses
Support Services to Members of the Executive	30,154	27,282	30,375	26,663
Visits and Official Events Co-ordination	3,912	3,479	4,465	5,728
VIP Transport	7,653	7,195	7,919	7,303
Total Vote Ministerial Services	41,719	37,956	42,759	39,694
Vote Racing
Departmental Output Expenses
Policy Advice – Racing	195	361	270	214
Total Vote Racing	195	361	270	214
Total Department Appropriations	212,326	214,711	223,753	207,185

* The appropriation for Contestable Services is restricted by revenue earned. Revenue for the year ending 30 June 2009 was $0.870 million (2007/08 $1.146 million).

The statement of accounting policies and notes form an integral part of, and should be read in conjunction with, these financial statements.

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Notes to the Financial Statements

for the year ended 30 June 2009

NOTE 1

Revenue Third Parties

	Actual 2008/09 $000	Actual 2007/08 $000
Passport Fees	53,391	55,321
Citizenship Fees	9,922	12,451
Birth, Death, Marriage and Civil Union Fees	10,620	10,151
Gaming Licences	17,501	17,036
Casino Operators’ Levies	5,384	4,440
VIP Transport	7,004	6,577
Recovery from New Zealand Lottery Grants Board	9,711	9,214
New Zealand Gazette	1,096	978
Other	5,040	4,421
Total Revenue Third Parties	119,669	120,589

NOTE 2

Personnel Costs

	Actual 2008/09 $000	Actual 2007/08 $000
Salaries, Wages and Contractors	106,967	104,926
Employer Contribution to defined contribution plans	2,310	1,966
Increase/(decrease) in employee entitlements	835	775
Other Personnel Costs	2,418	2,982
Total Personnel	112,530	110,649

NOTE 3

Operating Expenses

	Actual 2008/09 $000	Actual 2007/08 $000
Agency Fees	9,626	9,539
Computer Costs	11,530	9,912
Consultants	3,308	3,063
Inventory Costs	15,120	15,652
Office Expenses	12,938	12,512
Professional Fees	3,200	3,472
Publicity and Promotion	2,411	2,031
Rental and Leasing Costs	11,468	9,907
Staff Development	2,523	2,180
Travel Expenses	4,591	5,306
Fee for Audit of Financial Statements	185	189
Fee for Audit of NZ IFRS Transition	0	10
Fees to Auditors for Other Services Provided	45	10
Increase/(Decrease) in Provision for Doubtful Debts	17	2
Loss on Sale of Property, Plant and Equipment	151	(60)
Realised Foreign Exchange Losses/(Gains)	(17)	(8)
Unrealised Foreign Exchange Losses/(Gains)	(2)	17
Other Departmental Operating Costs	8,973	10,291
Total Operating Expenses	86,067	84,025

NOTE 4

Capital Charge

The Crown imposes a capital charge on the Department’s taxpayers’ funds as at 30 June and 31 December each year. The capital charge rate in 2008/09 was 7.5% (2007/08: 7.5%).

NOTE 5

Cash and Cash Equivalents

	Actual 2008/09 $000	Actual 2007/08 $000
New Zealand Bank Accounts	37,019	41,864
Overseas Bank Accounts
Sydney	372	338
London	19	302
Total Cash and Cash Equivalents	37,410	42,504

Overseas bank accounts are shown in New Zealand dollars converted at the closing mid-point exchange rate.

NOTE 6

Accounts Receivable

	Actual 2008/09 $000	Actual 2007/08 $000
Trade Receivables	4,504	4,002
Less Provision for Doubtful Debts	(37)	(27)
Total Accounts Receivable	4,467	3,975

The carrying value of trade receivables approximates their fair value.

As at 30 June 2009 and 2008, all overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below.

		Actual 2008/09			Actual 2007/08
	Gross $000	Impairment $000	Net $000	Gross $000	Impairment $000	Net $000
Not past due	4,122	(25)	4,097	3,765	(11)	3,754
Past due 1–30 days	310	(3)	307	191	(2)	189
Past due 31–60 days	43	(2)	41	19	(1)	18
Past due 61–90 days	15	(5)	10	5	(1)	4
Past due > 91 days	14	(2)	12	22	(12)	10
Total	4,504	(37)	4,467	4,002	(27)	3,975

The provision for doubtful debts has been calculated based on expected losses for the Department’s pool of receivables. The expected losses have been determined based on analysis of the Department’s losses in prior periods, and review of individual receivables.

Movements in the provision for doubtful debts are as follows:

	Actual 2008/09 $00	Actual 2007/08 $000
Balance at 1 July	27	62
Additional Provisions made during the year	17	2
Trade Receivables written off	(7)	(37)
	37	27

NOTE 7

Inventories

	Actual 2008/09 $000	Actual 2007/08 $000
Passports
Stock on hand	18	34
Work in Progress	691	736
Visits and Ceremonials
Liquor	21	35
Civil Defence and Emergency Management
Guides to National CDEM Plan	20	20
Birth, Death and Marriage Certificates
Stock on hand	22	24
Citizenship
Stock on hand	79	113
Work in Progress	753	1,333
Total Inventories	1,604	2,295

The carrying amount of inventories held for distribution that are measured at current replacement cost as at 30 June 2009 amounted to $0. (2008 $0)

No inventories are pledged as security for liabilities, however some inventories are subject to retention of title clauses.

NOTE 8

Derivative Financial Instruments

The notional principal amounts of the outstanding forward exchange contracts at 30 June 2009 were Australian dollars $1,350,000 (2008 $1,050,000) and UK Sterling 120,000 (2008 140,000).

The fair value of forward exchange contracts has been determined using a discounted cash flows valuation technique based on stated market rates.

NOTE 9

Property, Plant and Equipment

2008/09

Cost or Valuation	Balance 1 July $000	Additions $000	Revaluations $000	Disposals $000	Reclassed $000	Balance 30 June $000
Land	6,175	0	(705)	(120)	0	5,350
Buildings	3,707	0	(230)	(80)	0	3,397
Lease Improvements	7,765	2,481	0	(186)	0	10,060
Antiques and Works of Art	456	0	0	0	0	456
Furniture and Fittings	627	56	0	(44)	0	639
Office Equipment	1,128	111	0	(41)	0	1,198
Motor Vehicles	5,048	4,141	0	(2,561)	0	6,628
Plant and Equipment	1,020	8	0	0	0	1,028
IT Equipment	10,211	1,814	0	(1,005)	74	11,094
Leased Assets	0	6,608	0	0	0	6,608
Total Cost	36,137	15,219	(935)	(4,037)	74	46,458

Accumulated Depreciation	Balance 1 July $000	Depreciation $000	Revaluations $000	Disposals $000	Reclassed $000	Balance 30 June $000
Buildings	3	105	(10)	0	0	98
Lease Improvements	4,263	1,232	0	(167)	0	5,328
Furniture and Fittings	404	42	0	(26)	0	420
Office Equipment	690	191	0	(41)	0	840
Motor Vehicles	1,865	1,010	0	(1,456)	0	1,419
Plant and Equipment	686	59	0	0	0	745
IT Equipment	6,255	1,766	0	(984)	0	7,037
Leased Assets	0	0	0	0	0	0
Total Accumulated Depreciation	14,166	4,405	(10)	(2,674)	0	15,887

2007/08

Cost	Balance 1 July $000	Additions $000	Revaluations $000	Disposals $000	Reclassed $000	Balance 30 June $000
Land	4,765	0	1,410	0	0	6,175
Buildings	3,362	0	311	0	34	3,707
Lease Improvements	6,873	926	0	0	(34)	7,765
Antiques and Works of Art	416	0	40	0	0	456
Furniture and Fittings	609	31	0	(13)	0	627
Office Equipment	998	123	0	(17)	24	1,128
Motor Vehicles	4,229	1,479	0	(660)	0	5,048
Plant and Equipment	905	128	0	(13)	0	1,020
IT Equipment	8,447	2,256	0	(468)	(24)	10,211
Leased Assets	0	0	0	0	0	0
Total Cost	30,604	4,943	1,761	(1,171)	0	36,137

Accumulated Depreciation	Balance 1 July $000	Depreciation $000	Revaluations $000	Disposals $000	Reclassed $000	Balance 30 June $000
Buildings	97	96	(191)	0	1	3
Lease Improvements	2,984	1,280	0	0	(1)	4,263
Furniture and Fittings	376	41	0	(13)	0	404
Office Equipment	532	171	0	(13)	0	690
Motor Vehicles	1,504	775	0	(414)	0	1,865
Plant and Equipment	623	70	0	(7)	0	686
IT Equipment	5,266	1,457	0	(468)	0	6,255
Leased Assets	0	0	0	0	0	0
Total Accumulated Depreciation	11,382	3,890	(191)	(915)	0	14,166

Carrying Values		Actual 2008/09			Actual 2007/08
	Cost or Valuation $000	Accumulated Depreciation $000	Carrying Value $000	Cost or Valuation $000	Accumulated Depreciation $000	Carrying Value $000
Land at valuation	5,350	0	5,350	6,175	0	6,175
Buildings	3,397	(98)	3,299	3,707	(3)	3,704
Lease Improvements	10,060	(5,328)	4,732	7,765	(4,263)	3,502
Antiques and Works of Art	456	0	456	456	0	456
Furniture and Fittings	639	(420)	219	627	(404)	223
Office Equipment	1,198	(840)	358	1,128	(690)	438
Motor Vehicles	6,628	(1,419)	5,209	5,048	(1,865)	3,183
Plant and Equipment	1,028	(745)	283	1,020	(686)	334
IT Equipment	11,094	(7,037)	4,057	10,211	(6,255)	3,956
Leased Assets	6,608	0	6,608	0	0	0
Total Property, Plant and Equipment	46,458	(15,887)	30,571	36,137	(14,166)	21,971

Leased Assets

The net carrying amount of the leased assets (Passport Printers) held under finance lease is $6,608,000 (2008 nil).

Revaluation Basis

Valuations for land, buildings and antiques and works of art were made on the basis of fair value determined by the highest and best use for these assets.

Land and Buildings

Ministerial Properties

DTZ New Zealand Ltd (MREINZ), registered independent valuer, conducted a valuation of Ministerial Properties land and buildings for the Department in April 2008 with valuations effective 30 June 2008.

Lake Taupo

DTZ New Zealand Ltd (MREINZ), registered independent valuer, conducted a valuation of the structures controlled by Lake Taupo Harbourmaster for the Department in May 2009 with valuations effective 30 June 2009.

Antiques and Works of Art

A valuation of antiques and works of art was undertaken by Dunbar Sloane Ltd, an independent expert, in May 2008.

Revaluation Movement

	Land	Buildings	Antiques & Works of Art	Total
Revaluation Movement	(705)	(220)	0	(925)
allocated to:
Revaluation Reserve	0	13	0	13
Reversal of Reserve associated with disposed assets	(705)	(233)	0	(938)

Revaluation gain coded to Statement of Financial Performance reverses previous revaluation losses recognised.

Capital Work in Progress

The total amount of property, plant and equipment in the course of construction is $7,767,000 (2008 $1,239,000). The property, plant and equipment in the course of construction includes the total assets held under the finance lease.

Impairments Losses

Impairment losses of $0 (2008 $0) have been recognised.

NOTE 10

Intangible Assets

2008/09

Cost	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Balance 30 June $000
Total Intangibles Assets	35,767	19,864	(1,760)	(74)	53,797

Accumulated Amortisation	Balance 1 July $000	Amortisation $000	Disposals $000	Reclassed $000	Balance 30 June $000
Total Intangibles Assets	19,048	5,121	(1,726)	0	22,443

2007/08

Cost	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Balance 30 June $000
Total Intangibles Assets	30,733	5,084	(50)	0	35,767

Accumulated Amortisation	Balance 1 July $000	Amortisation $000	Disposals $000	Reclassed $000	Balance 30 June $000
Total Intangibles Assets	14,358	4,740	(50)	0	19,048

Carrying Values		Actual 2008/09			Actual 2007/08
	Cost or Valuation $000	Accumulated Amortisation $000	Carrying Value $000	Cost or Valuation $000	Accumulated Amortisation $000	Carrying Value $000
Total Intangibles Assets	53,797	(22,443)	31,354	35,767	(19,048)	16,719

Capital Work in Progress

The total amount of intangibles in the course of construction is $15,451,000 (2008 $2,828,000).

There are no restrictions over the title of the Department’s intangible assets and no intangible assets are pledged as security for liabilities.

Note 11

Accounts Payable

	Actual 2008/09 $000	Actual 2007/08 $000
Accounts Payable	8,012	6,463
Accrued Expenses	10,527	8,937
Accrued Salaries	1,575	1,041
GST Payable	945	324
Total Accounts Payable	21,059	16,765

Accounts Payable are non-interest bearing and are normally settled on 30 day terms, therefore the carrying value of account payables approximates their fair value.

NOTE 12

Provisions

		Actual 2008/09			Actual 2007/08
	Reorganisation $000	Other $000	Total $000	Reorganisation $000	Other $000	Total $000
Opening Balance	0	1,049	1,049	223	1,046	1,269
Additional provisions made during the year	0	302	302	0	340	340
Charge against provision for the year	0	(185)	(185)	(204)	(337)	(541)
Unused provisions reversed	0	0	0	(19)	0	(19)
Closing Balance	0	1,166	1,166	0	1,049	1,049

The ‘Reorganisation’ provision ($0.223m) was established in 2006/07 to centralise functions within the Department. This centralisation was fully completed by the end of 2007/08.

A staff development programme is the major component of the ‘other’ provision.

Note 13

Revenue Received in Advance

	Actual 2008/09 $000	Actual 2007/08 $000
Identity Products	4,065	6,462
New Zealand Gazette	53	58
Licensing Fees	2,848	1,600
National Dogs Database	68	115
Total Revenue Received in Advance	7,034	8,235

NOTE 14

Employee Entitlements

	Actual 2008/09 $000	Actual 2007/08 $000
Current
Annual Leave	5,712	5,147
Sick Leave	189	178
Long Service and Retirement Leave	467	576
Total Current Entitlements	6,368	5,901
Long Term
Long Service and Retirement Leave	1,157	792
Total Employee Entitlements	7,525	6,693

Long service, retirement leave and sick leave are calculated on an actuarial basis. The portion not considered payable in the next twelve months is recognised as a term liability. The current portion is recognised as a current liability. The assessment was undertaken for each employee as at 30 June 2009. Actuarial services were provided by Mercer Human Resource Consulting Ltd. The report was prepared by Paul Dalebroux, Fellow of the New Zealand Society of Actuaries.

NOTE 15

Finance Leases

	Actual 2008/09 $000	Actual 2007/08 $000
Minimum Lease Payments Payable
Not later than one year	1,589	0
Later than one year and not later than five years	6,356	0
Total Minimum Lease Payments	7,945	0
Future Finance Charges	(1,337)	0
Present Value of Minimum Lease Payments Payable	6,608	0
Not later than one year	1,059	0
Later than one year and not later than five years	5,549	0
Total Present Value of Minimum Lease Payments	6,608	0
Finance Leases
Current	1,059	0
Non-current	5,549	0
	6,608	0

Description of leasing arrangements

The Department has entered into a finance lease for the supply of specialist printing equipment required for printing passport books. The net carrying amount of the leased assets is shown within Note 9 Property, Plant and Equipment.

There are no restrictions placed on the Department by the finance lease arrangement.

Finance lease liabilities are effectively secured as the rights to the leased assets reverted to the lessor in the event of default.

NOTE 16

Movements In Taxpayers’ Funds

Taxpayers’ funds represent the Crown’s net investment in the Department.

a) Provision for Payment of Surplus

The Department is required to repay the surplus to the Crown by 31 October each year.

	Actual 2008/09 $000	Actual 2007/08 $000
Net Surplus as per Statement of Financial Performance	7,269	8,564
Unrealised Foreign Exchange Losses/(Gains)	(2)	0
Provision for Payment of Surplus	7,267	8,564

b) General Funds

	Actual 2008/09 $000	Actual 2007/08 $000
Opening Balance	43,036	42,516
Net Surplus/(deficit)	7,269	8,564
Capital Contribution	9,159	520
Other Movements	234	0
Provision for Repayment of Surplus	(7,267)	(8,564)
Closing Balance	52,431	43,036

c) Revaluation Reserve

		Actual 2008/09			Actual 2007/08
	Opening Balance $000	Revaluation Movement $000	Closing Balance $000	Opening Balance $000	Revaluation Movement $000	Closing Balance $000
Land	2,872	(705)	2,167	1,462	1,410	2,872
Buildings	268	(220)	48	0	268	268
Antiques and Works of Art	234	0	234	194	40	234
Total Revaluation Reserve	3,374	(925)	2,449	1,656	1,718	3,374

d) Capital Contribution

	Actual 2008/09 $000	Actual 2007/08 $000
IT Infrastructure	3,019	0
Securing and Protecting New Zealander’s Identity Information	2,010	0
Development of Evidence of Identity Technical Infrastructure	2,000	0
Passport Systems Redevelopment	1,700	0
Anti-Spam Regulation	250	0
BDM Registration Amendment Bill	180	0
National Warning System	0	120
Backup Emergency Operations Facilities	0	400
Total Capital Contribution	9,159	520

Note 17

Financial Instruments

The Department is party to financial instrument arrangements as part of its daily operations. These include cash and cash equivalents, accounts receivable, accounts payable and provisions, accrued expenses, term accrued expenses and foreign currency forward contracts.

a) Currency Risk

Currency risk is the risk that accounts receivable and accounts payable due in foreign currency will fluctuate because of changes in foreign exchange rates. Foreign exchange forward contracts are used to manage foreign exchange exposures.

The Department maintains bank accounts denominated in foreign currencies. Balances are regularly cleared to minimise exposure risk.

Sensitivity Analysis

At 30 June 2009, if the New Zealand dollar had weakened or strengthened by 5% against the Australian dollar with all other variables held constant, the surplus for the year would have been $79,000 higher or $88,000 lower (2008 $62,000 higher or $69,000 lower). This movement is attributable to the foreign exchange gains/losses on translation of Australian dollar denominated derivative financial instruments.

At 30 June 2009, if the New Zealand dollar had weakened or strengthened by 5% against UK Sterling with all other variables held constant, the surplus for the year would have been $15,000 higher or $16,000 lower (2008 $17,000 higher or $19,000 lower). This movement is attributable to the foreign exchange gains/losses on translation of UK Sterling denominated derivative financial instruments.

b) Interest Rate Risk

Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. This could impact on the return on investment or the cost of borrowing.

Under section 46 of the Public Finance Act 1989, the Department cannot raise a loan without approval of the Minister of Finance. Office equipment leases are identified as finance leases in accordance with SSAP-18 Accounting for Leases and Hire Purchase Contracts. The Department has received the Minister of Finance approval for these leases. The fixed interest rate on the term of these leases reduces the exposure on borrowed funds.

c) Credit Risk

Credit risk is the risk that a third party will default on its obligations to the Department, causing the Department to incur a loss.

Financial instruments, which potentially subject the Department to credit risk, consist of cash and bank balances and trade receivables.

The Department banks with Treasury approved financial institutions.

Credit evaluations are undertaken on customers requiring credit. Collateral or other security is not generally required to support financial instruments with credit risk. Other than cash and bank balances and trade receivables, the Department does not have any significant credit risk.

d) Maximum exposures to credit risk

	Actual 2008/09 $000	Actual 2007/08 $000
Cash and Cash Equivalents	37,388	42,482
Accounts Receivable	4,467	3,975
Total	41,855	46,457

Cash and Cash Equivalents exclude any cash physically held including Petty Cash as cash is not exposed to credit risk.

e) Liquidity risk

Liquidity risk is the risk that the Department will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting its liquidity requirements, the Department closely monitors its forecast cash requirements with expected drawdowns from the New Zealand Debt Management Office. The Department maintains a target level of available cash to meet liquidity requirements.

The table below analyses the Department’s financial liabilities that will be settled based on the remaining period at year-end to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

	Less than 6 months $000	Between 6 months and 1 year$000	Between 1 year and 5 years$000	Over 5 years $000
2008/09
Accounts Payable	21,059	0	0	0
Derivative Financial Instruments	0	0	0	0
2007/08
Accounts Payable	16,765	0	0	0
Derivative Financial Instruments	17	0	0	0

f) Nominal Value

The Department has six foreign exchange forward contracts with a nominal value of $1.983 million (2008: six contracts valued at $1.679 million).

Note 18

Categories of Financial Instruments

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

	Note	Actual 2008/09 $000	Actual 2007/08 $000
Loans and receivables
Cash and Cash Equivalents	5	37,410	42,504
Accounts Receivable	6	4,467	3,975
Total loans and receivables		41,877	46,479
Fair value through profit and loss
Derivative financial instrument assets/(liabilities)		2	(17)
Financial liabilities measured at amortised cost
Accounts Payable	11	(21,059)	(16,765)

NOTE 19

Capital Management

The Department’s capital is its taxpayers’ funds, which comprise general funds and revaluation reserves. Equity is represented by net assets.

The Department manages its revenues, expenses, assets, liabilities and general financial dealings prudently. The Department’s taxpayers’ funds are largely managed by a by-product of managing income, expenses, assets, liabilities and compliance with the Government Budget processes and with Treasury instructions.

The objective of managing the Department’s taxpayers’ funds is to ensure the Department effectively achieves its goals and objectives for which it has been established, while remaining a going concern.

NOTE 20

Explanation of Significant Variance between Actual and Main Estimates – Statement of Financial Performance

Explanations for significant variances above 5% between Actual and Main Estimates for 2008/09 are as follows:

	Note	ACTUAL 2008/09 $000	MAIN ESTIMATES 2008/09 $000	UNDERSPEND/ (OVERSPEND) 2008/09 $000	UNDERSPEND/ (OVERSPEND) 2008/09 %
Crown Revenue	(a)	98,348	93,236	(5,112)	(5)

a) Crown revenue

The Department’s baseline increased by $5.047 million in the 2008/09 year mainly due to additional funding for:

• implementation of the recommendation of the government’s decisions on the recommendations of the Royal Commission on Auckland Governance;
• servicing of ministerial offices; and
• the guests of government visit programme.

Explanation of Significant Variance between Actual and Main Estimates – Statement of Financial Position

Explanations for significant variances above 5% between Actual and Main Estimates for 2008/09 are as follows:

	Note	ACTUAL 2008/09 $000	MAIN ESTIMATES 2008/09 $000	UNDERSPEND/ (OVERSPEND) 2008/09 $000	UNDERSPEND/ (OVERSPEND) 2008/09 %
Cash and Cash Equivalents	(a)	37,410	20,094	(17,316)	(86)
Accounts Receivable	(b)	4,467	3,228	(1,239)	(38)
Inventories	(c)	1,604	2,767	1,163	42
Prepayments	(d)	131	571	440	77
Intangible Assets	(e)	31,354	29,012	(2,342)	(8)
Accounts Payable	(f)	21,059	18,102	(2,957)	(16)
Revenue Received in Advance	(g)	7,034	9,869	2,835	29
Employee Entitlements – Current Liabilities	(h)	6,368	4,836	(1,532)	(32)
Employee Entitlements – Non Current Liabilities	(i)	1,157	695	(462)	(66)
Revaluation Reserve	(j)	2,449	1,656	(793)	(48)

Statement of Financial Position

a) Cash and Cash Equivalents

The cash and bank balances were higher than initially forecast in the Main Estimates due to the operating surplus against a budgeted deficit and higher than forecast accounts payable.

b) Accounts Receivable

Accounts receivable are higher than forecast at Main Estimates due to higher year end recoverables than anticipated for VIP Transport and the Lottery Grants Board.

c) Inventories

Inventories are lower than forecast at Main Estimates due to the lower than anticipated number of uncompleted Citizenship applications. This results in a lower level of work in progress at year end.

d) Prepayments

Prepayments are lower than Main Estimates due to lower than anticipated prepayments for software licence and support fees.

e) Intangible Assets

Intangible assets are higher than the Mains Estimates mainly due to the timing of expenditure on passport redevelopment.

f) Accounts Payable

Accounts Payable are higher than Main Estimates mainly due to the timing of year end payments.

g) Revenue Received in Advance

Revenue Received in Advance was lower than forecast due to a lower level of incomplete Citizenship applications at 30 June 2009 than anticipated.

h) Employee Entitlements – Current Liabilities

The increase in employee entitlements was due to a higher level of accrued leave for the Department in 2008/09 than anticipated.

i) Employee Entitlements – Non-Current Liabilities

The increase in employee entitlements variance was due to a higher level of long service and retirement leave for the Department in 2008/09 than anticipated.

j) Revaluation Reserve

The increase in revaluation reserves relates to the timing of the revaluation of ministerial properties in 2008/09.

NOTE 21

Reconciliation between Total Operating Expenses and Total Appropriations

The financial information shown for each Output expense on the Statement of Service Performance and in the Statement of Departmental Appropriations and Expenditure includes revenue earned from other business units within the Department. The intra-entity charging reported at output expense level has been eliminated from the other departmental financial statements.

	Actual 2008/09 $000	Actual 2007/08 $000
Total Operating Expenses in Statement of Financial Performance	211,613	206,641
Gain on Sale of Property, Plant and Equipment	(32)	0
Revaluation Gain	0	(234)
Intra-entity Expenditure	745	778
Total Appropriations in Statement of Departmental Appropriations and Expenditure	212,326	207,185

NOTE 22

Related Parties

The Department of Internal Affairs is a government department and wholly owned and controlled by the Crown. The Department undertakes a number of trading activities with the Crown, other government departments, Crown entities and state-owned enterprises who are related parties as they are similarly related to the Crown.

All material transactions are on an arms’ length basis, with the interests of each party being completely independent.

Where there are close family members of key management personnel employed by the Department, the terms and conditions of the employment arrangements are no more favourable than the Department would have adopted if there were no relationship to key management personnel.

Key Management Personnel Compensation

	ACTUAL 2008/09 $000	ACTUAL 2007/08 $000
Salaries and other Short-Term Employee Benefits	2,274	2,104
Post-employment Benefits	94	73
Other Long-Term Benefits	12	25
Total Key Management Personnel Compensation	2,380	2,202

Key management personnel include the Chief Executive and the eight members of the Executive Leadership Team. The position of Chief Executive was held by two individuals during 2007/08.

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Summary of Departmental Financial Results

	Unit	Actual 2008/09	Actual 2007/08
Working Capital
Liquid Ratio		0.85:1	1.05:1
Current Ratio		0.99:1	1.21:1
Average Debtors Outstanding	days	11	10
Average Creditors Outstanding	days	22	25
Resource Utilisation
Physical Assets:
Physical Assets as % of Total Assets	%	58.67	44.10
Additions as % of Physical Assets	%	45.98	25.92
Taxpayers’ Funds:
Level at year-end	$000	54,880	46,410
Taxpayers’ Funds as % of Total Assets	%	52.00	52.90

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