Corporate Publications Statements of Intent Annual Reports

Resource material › Corporate Publications › Annual Report 2011-12Pūrongo ā Tau

Part C: Financial Statements - Departmental

Comprehensive Income

Statement of Comprehensive Income for the year ended 30 June
Income
ACTUAL 2011 $000		NOTE	ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
141,695	Crown		214,138	202,544	214,136
147,570	Other Revenue	2	162,521	152,366	160,149
9	Gain on Sale of Property, Plant and Equipment		–	–	–
289,274	Total Income		376,659	354,910	374,285
Expenditure
136,327	Personnel Costs	3	169,408	170,462	175,557
23,116	Depreciation and Amortisation Expense	11,12	29,485	33,216	30,824
11,835	Capital Charge	6	20,980	24,324	21,054
67	Finance Costs	5	267	64	–
896	Canterbury Earthquake Costs		–	–	–
105,433	Other Operating Expenses	4	132,933	132,381	141,787
711	Loss on Sale of Property, Plant and Equipment		875	–	–
278,385	Total Expenditure	19	353,948	360,447	369,222

10,889	Net Surplus/(Deficit)		22,711	(5,537)	5,063

Other Comprehensive Income
(2,173)	Revaluation Gain (Loss)	20	–	–	–

8,716	Total Comprehensive Income		22,711	(5,537)	5,063

Explanations of significant variances against budget are detailed in note 27.

The accompanying notes form part of these financial statements.

Financial Position

Statement of Financial Position as at 30 June
Assets
ACTUAL 2011 $000		NOTE	ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
Current Assets
51,721	Cash and Cash Equivalents	7	72,952	30,584	64,218
25,271	Debtors and Other Receivables	8	15,472	4,885	15,622
1,419	Inventories	9	1,398	1,544	1,544
4,654	Prepayments		3,963	3,143	3,368
15	Derivative Financial Instruments	24	–	–	–
1,100	Property, Plant and Equipment Held for Sale	11	3,505	–	–
84,180	Total Current Assets		97,290	40,156	84,752
Non-Current Assets
192,929	Property, Plant and Equipment	11	206,888	213,886	224,073
59,973	Intangible Assets	12	63,160	99,279	66,574
–	Other Non-Current Assets		–	225	–
252,902	Total Non-Current Assets		270,048	313,390	290,647
337,082	Total Assets		367,338	353,546	375,399
Liabilities and Taxpayers’ Funds
Current Liabilities
30,284	Creditors and Other Payables	13	32,258	26,136	24,585
3,468	Provisions	14	4,183	2,656	2,656
8,141	Revenue Received in Advance	15	8,488	6,000	6,000
10,106	Employee Entitlements	16	9,406	11,206	14,071
1,322	Finance Leases	17	1,322	1,322	1,322
16,600	Provision for Repayment of Surplus	18	10,317	–	–
81	Derivative Financial Instruments	24	21	–	–
70,002	Total Current Liabilities		65,995	47,320	48,634
Non-Current Liabilities
1,632	Employee Entitlements	16	1,773	1,428	1,428
3,194	Finance Leases	17	1,872	1,871	1,871
4,826	Total Non-Current Liabilities		3,645	3,299	3,299
74,828	Total Liabilities		69,640	50,619	51,933
Equity
233,776	Taxpayer’s Funds	20	247,541	272,276	284,251
–	Memorandum Accounts	20	22,519	–	10,737
28,478	Revaluation Reserves	20	27,638	30,651	28,478
262,254	Total Equity		297,698	302,927	323,466
337,082	Total Liabilities and Equity		367,338	353,546	375,399

Explanation of significant variances against budget is detailed in note 27.

The accompanying notes form part of these financial statements.

Movements in Equity

Statement of Movements in Equity for the year ended 30 June
Transfers of General Funds and Revaluation Reserves between Government Departments
ACTUAL 2011 $000		NOTE	ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
8,716	Total Comprehensive Income		22,711	(5,537)	5,063
–	Memorandum Account Opening Balances	20	10,737	–	10,737
–	Foreign Exchange Reserve		29	–	–
–	Capital Injections	21	12,284	12,284	45,412
(16,600)	Provision for Payment of Surplus	18	(10,317)	–	–
115,689	National Library		–	–	–
73,444	Archives New Zealand		–	–	–
189,133	Total Transfers of General Funds and Revaluation Reserves between Government Departments		–	–	–
181,249	Movement in Equity for the year		35,444	6,747	61,212
81,005	Add Equity as at 1 July		262,254	296,180	262,254
262,254	Equity as at 30 June		297,698	302,927	323,466

Explanation of significant variances against budget is detailed in note 27.

The accompanying notes form part of these financial statements.

Cash Flows

Statement of Cash Flows for the year ended 30 June
Cash Flows from Operating Activities
ACTUAL 2011 $000		NOTE	ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
Cash was Provided from:
127,374	Supply of Outputs to the Crown		228,528	202,544	228,527
140,287	Supply of Outputs to Third Parties		168,560	150,799	166,554
267,661			397,088	353,343	395,081
Cash was Disbursed to:
(238,062)	Suppliers and Employees		(300,102)	(306,157)	(320,746)
(11,835)	Capital Charge	6	(20,980)	(24,324)	(21,054)
2,289	Goods and Services Tax (Net)		(922)	(1,210)	(2,286)
(247,608)			(322,004)	(331,691)	(344,086)
20,053	Net Cash Flows from Operating Activities		75,084	21,652	50,995
Cash Flows from Investing Activities
Cash was Provided from:
–	Sale of Property, Plant and Equipment		2,604	1,303	1,303
–	Sale of Intangibles		547	–	–
–			3,151	1,303	1,303
Cash was Disbursed to:
(25,797)	Purchase of Property, Plant and Equipment		(35,828)	(40,173)	(47,047)
(6,417)	Purchase of Intangibles		(16,862)	(32,718)	(21,568)
(32,214)			(52,688)	(72,891)	(68,615)
(32,214)	Net Cash Flows from Investing Activities		(49,537)	(71,588)	(67,312)
Cash Flows from Financing Activities
Cash was Provided from:
–	Capital Contribution	21	12,284	12,284	45,412
30,204	Transfers from Government Departments		–	–	–
30,204			12,284	12,284	45,412
Cash was Disbursed to:
(7,777)	Repayment of Net Surplus		(16,600)	–	(16,600)
(1,388)	Payment of Finance Leases		–	–	–
(9,165)			(16,600)	–	(16,600)
21,039	Net Cash Flows from Financing Activities		(4,316)	12,284	28,812
Movement in Cash
42,843	Opening Cash and Cash Equivalents		51,721	68,236	51,723
8,878	Add Net Increase/(Decrease) in Cash Held		21,231	(37,652)	12,495
51,721	Closing Cash and Cash Equivalents		72,952	30,584	64,218

The accompanying notes form part of these financial statements.

Net Surplus to Net Cash Flow from Operating Activities

Reconciliation of Total Comprehensive Income to Net Cash Flow from Operating Activities for the year ended 30 June
Add/(Deduct) Non-Cash Items
ACTUAL 2011 $000		ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
8,716	Total Comprehensive income	22,711	(5,537)	5,063
23,116	Depreciation and Amortisation	29,483	33,216	30,824
(66)	Net Losses/(Gains) on Derivative Financial Instruments	–	–	–
(161)	Revenue from Collection Donations and Legal Deposits	(374)	–	–
(200)	Interest Unwind on Leased Premises	–	–	–
7	Net Foreign Exchange Losses	–	–	–
22,696		29,111	33,216	30,824
Add/(Deduct) Items Classified as Investing Activities
702	Loss/(Gain) on Sale of Property, Plant and Equipment	875	(382)	(382)
702		875	(382)	(382)
Add/(Deduct) Movements in Working Capital Items
(21,614)	(Increase)/Decrease in Debtors and Other Receivables	20,536	(1,185)	20,953
(4,119)	(Increase)/Decrease in Other Current Assets	727	961	(1,618)
12,097	Increase/(Decrease) in Creditors and Other Payables	1,974	(3,417)	(9,736)
1,575	Increase/(Decrease) in Other Current Liabilities	331	(2,004)	2,887
–	Increase /(Decrease) in Non-Current Liabilities	(1,181)	–	–
(12,061)		22,387	(5,645)	15,490
20,053	Net Cash Flows From Operating Activities	75,084	21,652	50,995

The accompanying notes form part of these financial statements.

Commitments

Statement of Commitments as at 30 June
Capital Commitments
ACTUAL 2011 $000		ACTUAL 2012 $000
Capital Contracts for Goods and Services
19,442	Less than one year	7,908
3,852	One to two years	212
167	Two to five years	–
23,461	Total Capital Contracts for Goods and Services	8,120
23,461	Total Capital Commitments	8,120
Operating Commitments
Non-Cancellable Accommodation Leases
13,655	Less than one year	11,595
10,964	One to two years	9,855
23,227	Two to five years	20,876
20,274	Over five years	12,944
68,120	Total Non-Cancellable Accommodation Leases	55,270
Other Non-Cancellable Leases
11,097	Less than one year	16,769
8,450	One to two years	13,372
22,871	Two to five years	35,260
20,667	Over five years	18,993
63,085	Total Other Non-Cancellable Leases	84,394
131,205	Total Operating Commitments	139,664
154,666	Total Commitments	147,784

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 date.

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.

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 accompanying notes form part of these financial statements.

Contingent Assets and Liabilities

Statement of Contingent Assets and Liabilities as at 30 June

Quantified Contingent Liabilities
ACTUAL 2011 $000		ACTUAL 2012 $000
124	Legal Disputes	–
124	Total Contingent Liabilities	–

There were no quantified contingent liabilities as at 30 June 2012 (2010/11: $0.124 m).

Unquantified Contingent Liabilities

As at 30 June 2012 the Department had an unquantified contingent liability for a personal grievance lodged against the Department with the Employment Relations Authority (ERA). There are also two personal grievances that have been raised with the Department that have not been lodged with the ERA, but still have a further 12 months in which they can be lodged. Management believes the resolution of these cases will not have a materially adverse effect on the financial statements of the Department.

The Department had one personal grievance case outstanding at 30 June 2011.

Quantified Contingent Assets
ACTUAL 2011 $000		ACTUAL 2012 $000
–	Insurance Recoveries from Canterbury Earthquakes	169
–	Total Contingent Assets	169

Unquantified Contingent Assets

As at 30 June 2012 the Department had one unquantified contingent asset. This relates to as yet unquantified insurance recoveries as a consequence of the 2010/11 Canterbury earthquakes.

As at 30 June 2011 the Department had two unquantified contingent assets. One was from normal operations and the other resulted from insurance recoveries as a consequence of the 2010/11 Canterbury earthquakes.

The accompanying notes form part of these financial statements.

Unappropriated Expenditure

Statement of Unappropriated Expenditure and Capital Expenditure for the year ended 30 June

There was no unappropriated expenditure for the year ended 30 June 2012 (2010/11: $nil).

Statement of Departmental Expenditure and Capital Appropriations for the year ended 30 June
Appropriations for Output Expenses
ACTUAL 2011 $000		NOTE	ACTUAL 2012 $000	MAIN EST 2012 $000	SUPP EST 2012 $000
Vote Community and Voluntary Sector
Multi-Class Output Appropriation
Policy Advice, Advisory and Support Services
1,679	Policy Advice		1,647	2,121	1,898
13,355	Administration of Grants		4,089	3,905	4,098
5,398	Community Advisory Services		5,581	6,386	5,988
–	Support Services for Grant Funding Bodies		250	305	314
20,432	Total Community and Voluntary Sector Services		11,567	12,717	12,298
20,432	Total Vote Community and Voluntary Sector		11,567	12,717	12,298
Vote Emergency Management
Multi-Class Output Appropriation
Emergency Management Services
774	Policy Advice – Emergency Management		1,105	957	867
6,105	Support Services, Information and Education		6,173	5,794	6,805
5,715	Management of National Emergency Readiness, Response and Recovery		4,843	4,201	5,315
12,594	Total Emergency Management Services		12,121	10,952	12,987
12,594	Total Vote Emergency Management		12,121	10,952	12,987
Vote Internal Affairs
Multi-Class Output Appropriation
Policy Advice and Support Services
3,453	Policy Advice		3,473	4,262	3,523
4,450	Information and Advisory Services		13,048	6,549	15,221
7,903	Total Policy and Support Services		16,521	10,811	18,744
Departmental Output Expenses
969	Anti-Money Laundering and Countering Financing of Terrorism		1,035	2,500	1,131
8,536	Government Technology Services		9,918	6,989	11,591
–	Cross-Government ICT Investment Proposals		2,926	3,000	3,000
108,437	Identity Services		116,320	125,536	118,436
–	Machinery of Government Transition Costs		800	–	800
25,313	Regulatory Services		25,279	25,982	25,590
–	Service Delivery Programme Development PLA		288	–	1,000
5,671	Services for Ethnic Affairs		5,497	6,243	5,726
–	Support Services for Grant Funding Bodies		8,994	9,699	10,099
957	Contestable Services		841	908	921
149,883	Total Departmental Output Expenses		171,898	180,857	178,294
157,786	Total Vote Internal Affairs		188,419	191,668	197,038
Vote Local Government
Multi-Class Output Appropriation
Services for Local Government
6,563	Policy Advice – Local Government		3,730	6,489	4,391
3,462	Information, Support and Regulatory Services – Local Government		3,751	3,433	3,186
10,025	Total Services for Local Government		7,481	9,922	7,577
Departmental Output Expenses
158	Implementation of Auckland Governance Reforms		–	–	–
10,183	Total Vote Local Government		7,481	9,922	7,577
Vote Ministerial Services
Departmental Output Expenses
26,475	Support Services to Members of the Executive*		26,533	26,852	26,870
5,361	Official Visits and Events Coordination*		4,343	4,435	4,331
7,214	VIP Transport Services		7,936	7,947	7,947
39,050	Total Vote Ministerial Services		38,812	39,234	39,148
Vote Racing
Departmental Output Expenses
195	Policy Advice – Racing		149	221	206
195	Total Vote Racing		149	221	206
Vote National Library
Multi-Class Output Appropriation
National Library Services
9,664	Access to Information		33,246	32,787	34,726
12,382	Collecting and Preserving Information		21,716	23,070	22,941
374	Policy Advice and Statutory Servicing		720	1,040	896
5,244	Library and Information Services to Schools		15,395	14,577	16,274
27,664	Total Vote National Library		71,077	71,474	74,837
Vote National Archives
Multi-Class Output Appropriation
Departmental Output Expenses
9,442	Archives Management and Policy Advice		–	–	–
–	Archives Services		20,261	19,674	20,866
–	Policy Advice		318	535	386
–	Regulation of Public Sector Recordkeeping		3,743	4,050	3,879
9,442	Total Vote National Archives		24,322	24,259	25,131

277,346	Total Department Appropriation for Output Expenses	19,27	353,948	360,447	369,222

Other Expenses
896	Recovery from February 2011 Christchurch Earthquake		–	–	–
896	Total Other Expenses		–	–	–

Appropriation for Capital Expenditure
35,487	Department of Internal Affairs		–	72,891	68,615
35,487	Total Department Appropriation for Capital Expenditure		–	72,891	68,615

312,833	Total Department Appropriations		353,948	433,338	437,837

*: The supplementary estimates include a fiscally neutral adjustment of $0.216 m, approved by the Minister of Finance under section 26A of the Public Finance Act.

The accompanying notes form part of these financial statements.

Notes to the Financial Statements Notes to the Financial Statements for the year ended 30 June

1. Statement of Accounting Policies

Reporting Entity

Financial statements of the Department of Internal Affairs (the Department) have been prepared in accordance with the requirements of the Public Finance Act 1989. Section 2 of this Act defines the Department as a Government Department. For the purposes of financial reporting the Department is a public benefit entity for the purposes of applying New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

The Department has also reported the Crown activities and trust money which it administers.

Integration with the Charities Commission

As a result of the Charities Amendment Act 2012, the Department is integrating with the Charities Commission from 1 July 2012. This will result in the carrying balances for the Charities Commission’s assets and liabilities being transferred to the Department on 1 July 2012.

Reporting Period

The reporting period for these financial statements is the year ended 30 June 2012. The financial statements were authorised for issue by the Chief Executive of the Department on 28 September 2012.

Basis of Preparation

Statement of Compliance

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

Measurement Base

The financial statements have been prepared on an historical cost basis, modified by the revaluation of land and buildings, antiques and art, and derivative financial instruments to fair value.

Budget Figures

The budget figures are those presented in the Budget Estimates of Appropriation (Main Est) for the Department and also the Supplementary Estimates (Supp Est). The budgets also include other amendments made through the course of the Supplementary Estimates process.

Changes in Accounting Policies

There have been no changes in accounting policies during the financial year.

The accounting policies as set out below have been applied consistently to all periods presented in these financial statements.

Comparatives

When presentation or classification of items in the financial statements is 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.

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.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are:

Long Service, Sick and Retirement Leave

The long service and retirement leave valuations include the use of discount rates and inflationary estimates. These valuations are independently conducted.

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 17. 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.

Effects from Accounting Standard Adoption

The Department has adopted the following revisions to accounting standards during the financial year, which have had only a presentational or disclosure effect:

Amendments to NZ IAS 1 Presentation of Financial Statements. The amendments introduce a requirement to present, either in the statement of changes in equity or the notes, for each component of equity, an analysis of other comprehensive income by item. The Department has decided to present this analysis in note 20
FRS – 44 New Zealand Additional Disclosures and Amendments to NZ IFRS to harmonise with IFRS and Australian Accounting Standards (Harmonisation Amendments) – the purpose of the new standard and amendments is to harmonise Australian and New Zealand accounting standards with source IFRS and to eliminate many of the differences between the accounting standards in each jurisdiction. The main effect of the amendments on the Department is that certain information about property valuations is no longer required to be disclosed. Note 11 has been updated for these changes
Amendments to NZ IFRS 7 – Financial Instruments Disclosure – the amendment reduces the disclosure requirements relating to credit risk. Note 8 has been updated for the amendments.

Standards, Amendments, and Interpretations Issued that are not yet Effective and have not been Early Adopted

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

NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following three main phases: Phase 1 Classification and Measurement; Phase 2 Impairment Methodology; and Phase 3 Hedge Accounting. Phase 1 on the classification and measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS 39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ended 30 June 2014. The Department has not yet assessed the effect of the new standard and expects it will not be early adopted.

Functional and Presentation Currency

The functional currency of the Department is New Zealand dollars. The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000). All notes are presented in millions (m).

Significant Accounting Policies

The measurement base used in preparing the financial statements is historical cost modified by the revaluation of land and buildings and antiques and artworks and certain financial instruments (including derivative instruments). The accrual basis of accounting has been used unless otherwise stated.

The following particular accounting policies have been applied:

Revenue

Revenue is measured at the fair value of consideration received or receivable.

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.

Donated or Subsidised Assets

Where a physical asset is acquired for nil or nominal consideration the fair value of the asset received is recognised as revenue in the Statement of Comprehensive Income.

Revenue Received in Advance

Revenue is recognised in the Statement of Financial Position as a liability when the revenue has been received but does not meet the criteria for recognition as revenue in the Statement of Comprehensive Income.

Expenses

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

Statement of Cost Accounting Policies

Criteria for Direct and Indirect Costs

Direct costs are those costs directly attributed to an output. Indirect costs are those costs that cannot be identified with a specific output in an economically feasible manner.

Cost Allocation Policy

Direct costs are charged directly to significant activities. Indirect costs are charged to significant activities based on cost drivers and related activity/usage information.

Method of Assigning Costs to Outputs

Costs of outputs are derived using the following cost allocation system:

Direct charging of costs to outputs includes capital charge and depreciation (which are charged on the basis of assets utilised), personnel costs (which are charged by recording time spent on each output) and operating costs (which are charged based on usage). For the year ended 30 June 2012, 80% of output costs were direct costs (2010/11: 85%).
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 2012, indirect costs accounted for 20% of the Department’s costs (2010/11: 15%).

Cash and Cash Equivalents

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

Debtors and Other Receivables

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 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 Comprehensive Income as bad debts.

Provision for Doubtful Debts

A provision is established when there is objective evidence that the Department will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. The amount of the provision is the difference between the receivables carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate.

Inventories

Inventories held for distribution, or consumption in the provision of services, that are not issued on a commercial basis are measured at the lower of cost (determined on the first-in first-out method) and current replacement costs. Where inventories are acquired at no cost, or for nominal consideration, the cost is the current replacement cost at the date of acquisition.

The replacement cost of the economic benefits or service potential of inventory held for distribution reflects any obsolescence or any other impairment.

Any write-down from cost to current replacement cost is recognised in the Statement of Comprehensive Income in the period when the write-down occurs.

Accounting for Derivative Financial Instruments, Hedging Activities and Foreign Currency Transactions

The Department uses derivative financial instruments to hedge exposure to foreign exchange. In accordance with its foreign exchange policy, the Department does not hold or issue derivative financial instruments for trading purposes. The Department has not adopted hedge accounting.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value at each balance date. Movements in the fair value of derivative financial instruments are recognised in the Statement of Comprehensive Income.

Foreign currency transactions (including those for which forward exchange contracts are held) are translated into New Zealand dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Comprehensive Income.

Property, Plant and Equipment

Additions

Items of property, plant and equipment costing more than $0.003 m were initially capitalised and recorded at cost.

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.

From 1 July 2012, under the Department’s new Assets Grouping Policy, plant and equipment that individually cost less than $0.003 m are acquired as a group purchase with a total cost in excess of $0.030 m, the purchase will be treated as a capital acquisition and capitalised as a fixed asset.

Disposals

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

Impairment

The carrying amounts of plant, property and equipment 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 on the Statement of Comprehensive Income as either Loss on Sale of Property, Plant and Equipment or Canterbury Earthquake Costs. Losses resulting from impairment are reported in the Statement of Comprehensive Income, unless the asset is carried at a revalued amount, in which case any impairment loss is treated as a revaluation decrease.

Revaluations

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.

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 and are debited or credited to Other Comprehensive Income in the Statement of Comprehensive Income.

To the extent that a gain reverses a loss previously charged to the Statement of Comprehensive Income for the asset class, the gain is credited to the Statement of Comprehensive Income. 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 Comprehensive Income.

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

Specific Asset Class Policies

The following asset class specific policies have been applied:

Land and Buildings

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

Collections

Collections include both general and school library collections. These current use collections are recorded at cost less accumulated depreciation and accumulated impairment losses.

Other Property, Plant and Equipment

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

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 or collections, less any estimated residual value, over its estimated useful life.

Depreciation is not charged on land, artworks or capital work in progress.

The estimated useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

Estimated useful lives and associated depreciation rates of major classes of assets
ASSET CATEGORY	ASSET LIFE
Buildings	30–90 Years
Leasehold Improvements	The unexpired period of the lease or the estimated life of the improvements, whichever is shorter
National Library General and Schools Collections	5–50 Years
Plant and Equipment	5–60 Years
Furniture and Fittings	5–30 Years
Office Equipment	5–10 Years
Motor Vehicles	3–6 Years
IT Equipment	3–5 Years
Leased Assets	3 years

Intangible Assets

Additions

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.

Disposal

Realised gains and losses arising from disposal of intangible assets are recognised in the Statement of Comprehensive Income 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 Comprehensive Income, the gain is credited to the Statement of Comprehensive Income. 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 Comprehensive Income.

Impairment

Intangible assets with finite lives are reviewed at least annually to determine if there is any indication of impairment. Where an intangible 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 as Loss on Sale of Property, Plant and Equipment in the Statement of Comprehensive Income.

Amortisation

Amortisation is charged to the Statement of Comprehensive Income on a straight-line basis over the useful life of the asset. Amortisation is not charged on capital work in progress. The estimated useful lives of intangible assets are as follows:

Estimated useful lives of intangible assets
ASSET CATEGORY	ASSET LIFE
Computer Software	3–8 Years
Births, Deaths and Marriages Historical Records Databases	10 Years
Digitised Collections	8 Years

Non-Current Assets Held for Sale

Non-current assets held for sale are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. Non-current assets held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

Any impairment losses for write-downs of non-current assets held for sale are recognised in the Statement of Comprehensive Income.

Any increases in fair value (less costs to sell) are recognised up to the level of any impairment losses that have been previously recognised.

Non-current assets held for sale (including those as part of a disposal group) are not depreciated or amortised while they are classified as held for sale.

Treatment of Non-Current Assets Transferred from Other Government Departments

All assets are transferred at net book value which was considered to equate to fair value. The assets, where applicable, will continue to be depreciated or amortised over their remaining useful lives.

Financial Instruments

Financial assets and financial liabilities are measured at fair value plus transaction costs. Any profit or loss from the financial transaction is recognised in the Statement of Comprehensive Income.

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 of less than 12 months are recognised at their nominal value.

Leases

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.

Determining whether a lease agreement is a finance lease or an operating lease requires judgement as to whether the agreement transfers substantially all the risks and rewards of ownership to the Department. Judgement is required on various aspects that include, but are not limited to, the fair value of the leased asset, the economic life of the leased asset, whether or not to include renewal options in the lease term, and determining an appropriate discount rate to calculate the present value of the minimum lease payments. Classification as a finance lease means the asset is recognised in the statement of financial position as property, plant and equipment, whereas with an operating lease no such asset is recognised.

The Department has exercised its judgement on the appropriate classification of an equipment 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 the 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 recognised as operating leases.

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

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 Comprehensive Income 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 Comprehensive Income 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.

Long Service, Retirement and Sick Leave

Long service, retirement leave and sick leave are calculated on an actuarial basis. The portion not considered payable in the next 12 months is recognised as a term liability as per note 16. The current portion is recognised as a current liability.

Defined Contribution Superannuation Schemes

Obligations for contributions to the State Sector Retirement Savings Scheme, KiwiSaver and the Government Superannuation Fund are accounted for as defined contribution schemes and are recognised as an expense in the Statement of Comprehensive Income when incurred.

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.

Capital Charge

The capital charge is recognised as an expense in the period to which the charge relates.

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 Schedule 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 when there is a possibility they will crystallise.

Equity

Equity is the Crown’s investment in the Department and is measured as the difference between total assets and total liabilities. Equity is disaggregated and classified as taxpayers’ funds, memorandum accounts and property revaluation reserves.

Memorandum Accounts

Memorandum accounts reflect the cumulative surplus/(deficit) on those departmental services provided that are intended to be fully cost recovered from third parties through fees, levies, or charges. The balance of each memorandum account is expected to trend toward zero over time.

Property Revaluation Reserve

These reserves relate to the revaluation of land and buildings and works of art and antiques to fair value.

Provisions

A provision is recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditure to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

Taxation

The Department is exempt from the payment of income tax. 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)

All items in the financial statements including commitments and contingencies are GST exclusive, except for receivables and payables that are GST inclusive. Where GST is not recoverable as an input tax it is recognised as part of the related asset or expense.

The amount of GST owing by or payable to the Department at balance date, being the difference between output GST and input GST, is included in either receivables or payables.

Critical Accounting Estimates and Assumptions

In preparing these financial statements, estimates and assumptions have been made concerning the future. These estimates and assumptions may differ from the subsequent actual results. Estimates and assumptions are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are referred to below.

2. Other Revenue

Other Revenue
ACTUAL 2011 $000		ACTUAL 2012 $000
78,796	Passport Fees	86,399
9,073	Citizenship Fees	12,204
10,345	Birth, Death, Marriage and Civil Union Fees	10,043
16,264	Non-Casino Gaming Licences and Fees	15,032
5,352	Casino Operators’ Levies	5,359
7,142	VIP Transport	7,908
8,976	Recovery from New Zealand Lottery Grants Board	7,842
952	New Zealand Gazette	922
935	Translation Services	835
352	Language Line Interpreter Services	904
1,340	e-Government Development and Operations	963
2,052	Te Puna Catalogue and Interloan Library Services	4,252
–	Kotui Library Services	1,168
2,661	State Sector Retirement Scheme Recoveries	3,189
–	Canterbury Earthquake Insurance Recoveries	665
3,330	Other Third Party Revenue	4,836
147,570	Total Other Revenue	162,521

3. Personnel Costs

Personnel Costs
ACTUAL 2011 $000		ACTUAL 2012 $000
127,812	Salaries, Wages and Contractors	160,516
2,736	Employer Contribution to Defined Contribution Plans	3,141
2,690	Increase/(Decrease) in Employee Entitlements	(588)
3,089	Other Personnel Costs	6,338
136,327	Total Personnel Costs	169,408

4. Operating Expense

Operating Expense
ACTUAL 2011 $000		ACTUAL 2012 $000
10,427	Agency Fees	10,851
19,140	Computer Costs	24,839
4,633	Consultants	5,873
15,819	Inventory Costs	17,737
13,981	Office Expenses	13,473
7,647	Professional Fees	13,309
1,623	Publicity and Promotion	2,380
12,322	Rental and Leasing Costs	14,134
2,298	Staff Development	2,391
1,957	Library Resources and Subscriptions	3,662
5,806	Travel Expenses	6,589
325	Fee for Auditor (for the Financial Statement Audit)	268
34	Fees to Auditor (for Assurance and Related Services)	28
3	Increase/(Decrease) in Provision for Doubtful Debts	(13)
36	Realised Foreign Exchange Losses	16
(29)	Unrealised Foreign Exchange Losses/(Gains)	24
9,411	Other Departmental Operating Costs	17,372
105,433	Total Operating Expenses	132,933

5. Finance Costs

Finance Costs
ACTUAL 2011 $000		ACTUAL 2012 $000
267	Interest on Finance Leases	267
(200)	Make Good on Lease Premises	–
67	Total Finance Costs	267

6. Capital Charge Expense

The Department pays a capital charge to the Crown based on the taxpayers’ funds held as at 30 June and 31 December each year. The capital charge rate in 2011/12 was 8.0% (2010/11: 7.5%).

7. Cash and Cash Equivalents

Cash and Cash Equivalents
Overseas Bank Accounts
ACTUAL 2011 $000		ACTUAL 2012 $000
50,197	New Zealand Bank Accounts	71,642
374	Australian Bank Accounts	535
864	UK Bank Accounts	752
286	US Bank Accounts	22
51,721	Total Cash and Cash Equivalents	72,952

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

8. Debtors and Other Receivables

Debtors and Other Receivables
ACTUAL 2011 $000		ACTUAL 2012 $000
10,902	Trade Receivables	4,822
14,390	Debtor Crown	10,657
(21)	Less Provision for Doubtful Debts	(7)
25,271	Total Accounts Receivable	15,472

The carrying value of trade receivables approximates their fair value.

As at balance date, all overdue receivables have been assessed for impairment, and appropriate provisions applied, as detailed below.

Debtor Impairment
GROSS $000	IMPAIRMENT $000	NET $000		GROSS $000	IMPAIRMENT $000	NET $000
ACTUAL 2011				ACTUAL 2012
24,450	–	24,450	Not past due	14,708	–	14,708
105	–	105	Past due 1–30 days	614	–	614
194	–	194	Past due 31–60 days	49	–	49
218	–	218	Past due 61–90 days	33	–	33
325	(21)	304	Past due > 91 days	75	(7)	68
25,292	(21)	25,271	Total Accounts Receivable	15,479	(7)	15,472

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 a review of individual receivables.

Movements in the provision for doubtful debts are as follows:

Movements in the provision for doubtful debts
ACTUAL 2011 $000		ACTUAL 2012 $000
(18)	Opening Doubtful Debts as at 1 July	(21)
(3)	Additional Provisions Made During the Year	–
–	Provisions Released During the Year	14
–	Trade Receivables Written Off	–
(21)	Closing Doubtful Debts as at 30 June	(7)

9. Inventories

Inventories
Birth, Death and Marriage Certificates
ACTUAL 2011 $000		ACTUAL 2012 $000
22	Stock on Hand	19
Citizenship
18	Stock on Hand	49
534	Work in Progress	583
Civil Defence and Emergency Management
–	Guides to National CDEM Plan	–
National Library
48	Stock on Hand	48
Passports
11	Stock on Hand	51
786	Work in Progress	648
1,419	Total Inventories	1,398

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

10. Derivative Financial Instruments

The notional principal amounts of the outstanding forward exchange contracts at balance date are as follows:

Notional principal amounts of the outstanding forward exchange contracts
ACTUAL 2011 $000		ACTUAL 2012 $000
2,700	Australian dollars $	–
210	UK Sterling £	–
1,353	United States dollars $	665

The fair value of forward exchange contracts has been determined using a discounted cash flows valuation technique based on quoted market prices. The inputs into the valuation model are from independently sourced market parameters such as currency rates. Most market parameters are implied from instrument prices.

The nominal value of these two contracts was $NZD 0.877 m (2010/11: 11 contracts valued at $NZD 5.628 m).

11. Property, Plant and Equipment

Cost or Valuation 2012
Asset Class	Balance 1 July $000	Additions $000	Revaluations/ Impairments $000	Disposals $000	Transfers and Held for Sale $000	Balance 30 June $000
Land	53,025	–	–	(1,400)	(1,800)	49,825
Buildings	84,157	26,452	–	(450)	(1,705)	108,454
Leasehold Improvements	12,776	1,387	–	(22)	–	14,141
Antiques and Works of Art	1,186	7	–	–	–	1,193
Furniture and Fittings	12,495	1,024	–	(898)	(799)	11,822
General Collections	26,378	719	–	–	–	27,097
Schools Collections	12,290	1,159	–	–	–	13,449
Office Equipment	5,355	249	–	(343)	–	5,261
Motor Vehicles	7,505	4,086	–	(3,494)	–	8,097
Plant and Equipment	8,873	3,219	–	(354)	799	12,537
IT Equipment	44,612	31	–	(1,112)	–	43,531
Leased Assets	6,608	–	–		–	6,608
Total Cost	275,260	38,333	–	(8,073)	(3,505)	302,015

Accumulated Depreciation 2012
Asset Class	Balance 1 July $000	Depreciation $000	Revaluations/ Impairments $000	Disposals $000	Transfers and Held for Sale $000	Balance 30 June $000
Land	–	–	–	–	–	–
Buildings	5,085	2,827	–	(121)	–	7,791
Leasehold Improvements	7,527	1,468	–	(17)	–	8,978
Antiques and Works of Art	–	–	–	–	–	–
Furniture and Fittings	7,383	522	–	(493)	(525)	6,887
General Collections	13,764	1,776	–	–	–	15,540
Schools Collections	9,326	1,182	–	–	–	10,508
Office Equipment	4,816	254	–	(292)	–	4,778
Motor Vehicles	3,476	1,529	–	(1,921)	–	3,084
Plant and Equipment	4,426	(75)	–	(350)	525	4,526
IT Equipment	24,435	5,551	–	(365)	–	29,621
Leased Assets	2,093	1,321	–	–	–	3,414
Total Accumulated Depreciation	82,331	16,355	–	(3,559)	–	95,127

Cost or Valuation 2011
Asset Class	Balance 1 July $000	Additions $000	Revaluations/ Impairments $000	Disposals $000	Transfers* $000	Balance 30 June $000
Land	3,650	–	(1,162)	–	50,537	53,025
Buildings	2,972	11,114	(5,744)	–	75,815	84,157
Leasehold Improvements	10,915	1,617	–	(3,128)	3,372	12,776
Antiques and Works of Art	456	–	323	(24)	431	1,186
Furniture and Fittings	983	1,536	–	(150)	10,126	12,495
General Collections	–	337	–	–	26,041	26,378
Schools Collection	–	599	–	–	11,691	12,290
Office Equipment	1,056	28	–	(50)	4,321	5,355
Motor Vehicles	6,564	293	–	(73)	721	7,505
Plant and Equipment	886	239	–	(205)	7,953	8,873
IT Equipment	16,840	12,382	–	(522)	15,912	44,612
Leased Assets	6,608	–	–		–	6,608
Total Cost	50,930	28,145	(6,583)	(4,152)	206,920	275,260

Accumulated Depreciation 2011
Asset Class	Balance 1 July $000	Depreciation $000	Revaluations/ Impairments $000	Disposals $000	Transfers* $000	Balance 30 June $000
Land	–	–	–	–	–	–
Buildings	169	1,019	(4,410)		8,307	5,085
Leasehold Improvements	7,518	1,588	–	(3,111)	1,532	7,527
Antiques and Works of Art	–	–	–	–	–	–
Furniture and Fittings	575	293	–	(118)	6,633	7,383
General Collections	–	718	–	–	13,046	13,764
Schools Collection	–	454	–	–	8,872	9,326
Office Equipment	756	210	–	(49)	3,899	4,816
Motor Vehicles	2,047	1,042	–	(41)	428	3,476
Plant and Equipment	698	170	–	(3)	3,561	4,426
IT Equipment	10,010	4,110	–	(393)	10,708	24,435
Leased Assets	771	1,322	–	–	–	2,093
Total Accumulated Depreciation	22,544	10,926	(4,410)	(3,715)	56,987	82,331

*: Transfers include transfers made to Non-Departmental accounts and transfers between Government Departments.

Summary of Property, Plant and Equipment
2010/11			Asset Class	2011/12
Cost of Valuation $000	Accumulated Depreciation $000	Carrying Value $000	Asset Class	Cost or Valuation $000	Accumulated Depreciation $000	Carrying Value $000
53,025	–	53,025	Land	49,825	–	49,825
84,157	5,085	79,072	Buildings	108,454	7,791	100,663
12,776	7,527	5,249	Lease Improvements	14,141	8,978	5,163
1,186	–	1,186	Antiques and Works of Art	1,193	–	1,193
12,495	7,383	5,112	Furniture and Fittings	11,822	6,887	4,935
26,378	13,764	12,614	General Collections	27,097	15,540	11,557
12,290	9,326	2,964	School Collections	13,449	10,508	2,941
5,355	4,816	539	Office Equipment	5,261	4,778	483
7,505	3,476	4,029	Motor Vehicles	8,097	3,084	5,013
8,873	4,426	4,447	Plant and Equipment	12,537	4,526	8,011
44,612	24,435	20,177	IT Equipment	43,531	29,621	13,910
6,608	2,093	4,515	Leased Assets	6,608	3,414	3,194
275,260	82,331	192,929	Total Property, Plant and Equipment	302,015	95,127	206,888

Leased Assets

The net carrying amount of the leased assets (Passport Printers) held under finance lease is $3.194 m (2010/11: $4.515 m).

Capital Work in Progress

The total amount of property, plant and equipment in the course of construction is $12.699 m (2010/11: $17.254 m).

Revaluation Movement

Details of valuations and revaluation movements are contained in note 20.

Impairment Losses

Adjustments have been made within the accounts for all potential impairment losses resulting from the 2010/11 Canterbury earthquakes. While damages have not as yet been fully quantified damages are not expected to materially affect the current residual value of the Department’s assets.

Restrictions of Title

There are no restrictions over the title of the Department’s Property, Plant and Equipment and no Property, Plant and Equipment assets are pledged as security for liabilities.

Non-Current Property, Plant and Equipment Held for Sale

Two Department owned buildings have been classified as current Property, Plant and Equipment held for sale following the approval to sell the premises, as they will provide no future use to the Department. It is not known when these properties will be sold.

Non-Current Property, Plant and Equipment Held for Sale
Non-current Assets Held for Sale
ACTUAL 2010/11 $000		ACTUAL 2011/12 $000
400	Buildings	1,705
700	Land	1,800
1,100		3,505

The accumulated property revaluation reserve recognised in equity for these properties at 30 June 2012 is $1.274 m (2010/11: $0.840 m).

12. Intangible Assets

Intangible Assets 2012
Asset Class	Balance 1 July $000	Additions $000	Impairment $000	Disposals $000	Transfers $000	Balance 30 June $000
Cost
Computer Software	119,755	17,034	(184)	(1,221)	–	135,384
Less Accumulated Depreciation
Computer Software	59,782	13,128	–	(686)	–	72,224
Net Book Value	59,973	3,906	(184)	(535)	–	63,160

Intangible Assets 2011
Asset Class	Balance 1 July $000	Additions $000	Impairment $000	Disposals $000	Transfers $000	Balance 30 June $000
Cost
Computer Software	87,716	7,342	–	(1,704)	26,401	119,755
Less Accumulated Depreciation
Computer Software	34,378	12,189	–	(1,452)	14,667	59,782
Net Book Value	53,338	(4,847)	–	(252)	11,734	59,973

Capital Work in Progress

The total amount of intangibles in the course of construction is $28.669 m (2010/11: $20.734 m).

Impairment Losses

There was one impairment loss of $0.184 m (2010/11: $nil).

Restrictions of Title

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

13. Creditors and Other Payables

Creditors and Other Payables
ACTUAL 2011 $000		ACTUAL 2012 $000
11,882	Creditors	9,203
12,300	Accrued Expenses	16,861
3,425	Accrued Salaries	4,439
2,677	GST Payable	1,755
30,284	Total Accounts Payable	32,258

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.

14. Provisions

Provisions
	Restructuring $000	Lease Make Good $000	Other $000	TOTAL $000
Balance as at 1 July 2010	–	320	1,280	1,600
Additional provisions made	1,184	675	962	2,821
Charge against provision for the year	(263)	–	(189)	(452)
Unused provisions reversed	–	–	(501)	(501)
Discount unwind (see note 5)	–	–	–	–
Balance as at 30 June 2011	921	995	1,552	3,468
Balance as at 1 July 2011	921	995	1,552	3,468
Additional provisions made	603	261	1,777	2,641
Charge against provision for the year	(482)	(302)	(758)	(1,542)
Unused provisions reversed	(166)	(218)	–	(384)
Discount unwind (see note 5)	–	–	–	–
Balance as at 30 June 2012	876	736	2,571	4,183

Restructuring Provision

Provision has been made for one-off costs for lower level restructuring across the Department during 2011/12 following the introduction of a new high level structure in 2010/11.

Lease Make Good Provision

In respect of a number of the Department’s leased properties, the Department is required at the expiry of the lease term to restore the properties to an agreed condition, repairing any damages to the properties and removing any fixtures and fittings installed by the Department. A provision has been recorded to recognise this liability.

Other Provisions

The rental savings from the Canterbury earthquakes and the Chief Executive’s Scholarships are the major components of the other provisions.

15. Revenue Received in Advance

Revenue Received in Advance
ACTUAL 2011 $000		ACTUAL 2012 $000
3,183	Identity Products	3,268
2,034	Licensing Fees	3,053
329	Te Puna Subscriptions	–
1,993	Electronic Purchasing in Collaboration (EPIC)	2,025
602	Other	142
8,141	Total Revenue Received in Advance	8,488

16. Employee Entitlements

Employee Entitlements
Current Entitlements
ACTUAL 2011 $000		ACTUAL 2012 $000
9,185	Annual Leave	8,604
142	Sick Leave	76
779	Long Service and Retirement Leave	726
10,106	Total Current Entitlements	9,406
Term Entitlements
1,632	Long Service and Retirement Leave	1,773
11,738	Total Entitlements	11,179

Long Service and Retirement Leave

The assessment was undertaken of the Long Service and Retirement Leave liability for each employee as at balance date. Actuarial services were provided by Mercer Human Resource Consulting Ltd and were prepared by Anna Whitmore, Fellow of the New Zealand Society of Actuaries.

The measurement of the retiring and long service leave obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Two key assumptions used in calculating this liability include the discount rate and salary inflation factor. Any changes in these assumptions will affect the carrying value of the liability.

Long Service and Retirement Leave
Discount Rate
	2011	2012
Long Service Leave	6.19%	2.81%
Retiring Leave	6.19%	2.20%
Salary Inflation Factor
Salary Inflation Factor	3.50%	3.50%

17. Finance Leases

Finance Leases
Minimum Lease Payments Payable
ACTUAL 2011 $000		ACTUAL 2012 $000
1,589	Not later than one year	1,589
3,840	Later than one year and not later than five years	2,251
5,429	Total Minimum Lease Payments	3,840
(913)	Future Finance Charges	(646)
4,516	Total Present Value of Minimum Lease Payments	3,194
1,322	Not later than one year	1,322
3,194	Later than one year and not later than five years	1,872
4,516	Total Present Value of Minimum Lease Payments	3,194
Represented by:
1,322	Current	1,322
3,194	Non-Current	1,872
4,516	Total Present Value of Minimum Lease Payments	3,194

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 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 revert to the lessor in the event of default. The effective interest rate used for this lease is 7.5%.

18. Return of Operating Surplus

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

Return of Operating Surplus
ACTUAL 2011 $000		ACTUAL 2012 $000
8,716	Total Comprehensive Income	22,711
2,173	Add Revaluation Loss/(Gain)	–
(29)	Less/Add Unrealised Foreign Exchange (Gains)/Loss	53
–	Transfer Memorandum Account Balance	(11,782)
896	Less Repayment of Other Expenses from Recovery from February 2011 Christchurch Earthquake	–
–	Insurance Recoveries from February 2011 Canterbury earthquake	(665)
4,837	Add Repayment of National Library of New Zealand Net Surplus as at 31/1/11	–
7	Add Repayment of Archives New Zealand Net Surplus as at 31/1/11	–
16,600	Total Return of Operating Surplus	10,317

*: The net surplus from the National Library of $4.837 m and the net surplus from Archives New Zealand of $0.007 m for the seven months ended 31 January 2011 were transferred into the Department of Internal Affairs Taxpayers’ Funds. These funds were repaid to the Crown by 31 October 2011.

19. 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.

Reconciliation between Total Operating Expenses and Total Appropriations
ACTUAL 2011 $000		ACTUAL 2012 $000
278,385	Total Operating Expenses in Statement of Comprehensive Income	353,948
(143)	Remeasurement of Long Service Leave	–
(896)	Other Expenses	–
277,346	Total Appropriations in Statement of Departmental Appropriations and Expenditure	353,948

20. Equity

Equity
Taxpayers’ Funds
ACTUAL 2011 $000		ACTUAL 2012 $000
79,297	Opening balance at 1 July	233,776
10,889	Surplus	22,711
–	Foreign Exchange Reserve	29
160,190	Transfer of General Funds between Government Departments	–
–	Transfer Revaluation Reserve to Taxpayers’ Funds on Disposal	840
–	Transfer of Memorandum Account net (surplus)/deficit for the year	(11,782)
–	Capital Injections	12,284
(16,600)	Return of operating surplus to the Crown	(10,317)
233,776	Balance at 30 June	247,541
Memorandum Accounts
–	Opening Balance 1 July	–
–	Capital Injection for Memorandum Account opening balance	10,737
–	Net Memorandum Account surpluses/(deficits) for the year	11,782
–	Balance at 30 June	22,519
Revaluation Reserves
1,708	Opening Balance 1 July	28,478
(2,173)	Revaluation gains/(losses)	–
28,943	Transfer of Revaluation Reserves between Government Departments	–
–	Transfer to Taxpayers’ Funds on Disposal	(840)
28,478	Balance at 30 June	27,638
262,254	Total Equity at 30 June	297,698
Revaluation Reserves Consist of:
14,674	Land Revaluation Reserve	14,368
13,019	Buildings Revaluation Reserve	12,485
785	Antiques and Works of Art	785
28,478	Total Property Revaluation Reserves	27,638

Land and Buildings

Ministerial Properties and Department Accommodation

Darroch Ltd, a Licensed Real Estate Agent (REAA 2008), registered independent valuer, conducted a valuation of Ministerial Properties land and buildings for the Department in May 2011 with valuations effective 30 June 2011.

The 2011/12 revaluation movement is a result of the sale of a Ministerial Property ($0.840 m). The 2010/11 revaluation movement is a result of the transfer of one Ministerial Property from the Department to Non-Department, and the sale of a Ministerial Property ($0.938 m).

Antiques and Works of Art

A valuation of antiques and works of art was undertaken by Dunbar Sloane Ltd, an independent expert, in June 2011 with valuations effective 30 June 2011.

Memorandum Accounts

Memorandum accounts are 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.

Memorandum Accounts
New Zealand Gazette
ACTUAL 2011 $000		ACTUAL 2012 $000
–	Capital Injection 1 July	620
–	Revenue Movement for the year	1,003
–	Expense Movement for the year	1,107
–	Net Memorandum Account surpluses/(deficits) for the year	(104)
–	Balance at 30 June	516
Use of Facilities and Access to Lake Taupo by Boat Users
–	Capital Injection 1 July	(125)
–	Revenue Movement for the year	225
–	Expense Movement for the year	283
–	Net Memorandum Account surpluses/(deficits) for the year	(58)
–	Balance at 30 June	(183)
Passport Products
–	Capital Injection 1 July	17,425
–	Revenue Movement for the year	87,071
–	Expense Movement for the year	77,128
–	Net Memorandum Account surpluses/(deficits) for the year	9,943
–	Balance at 30 June	27,368
Citizenship Products
–	Capital Injection 1 July	(315)
–	Revenue Movement for the year	12,337
–	Expense Movement for the year	8,796
–	Net Memorandum Account surpluses/(deficits) for the year	3,541
–	Balance at 30 June	3,226
Marriage Products
–	Capital Injection 1 July	(531)
–	Revenue Movement for the year	2,975
–	Expense Movement for the year	3,010
–	Net Memorandum Account surpluses/(deficits) for the year	(35)
–	Balance at 30 June	(566)
Issue of Birth, Death and Marriage Certifications and other Products
–	Capital Injection 1 July	272
–	Revenue Movement for the year	7,128
–	Expense Movement for the year	6,728
–	Net Memorandum Account surpluses/(deficits) for the year	400
–	Balance at 30 June	672
Administration of Non-casino Gaming
–	Capital Injection 1 July	(5,538)
–	Revenue Movement for the year	15,156
–	Expense Movement for the year	16,576
–	Net Memorandum Account surpluses/(deficits) for the year	(1,420)
–	Balance at 30 June	(6,958)
Infrastructure as a Service (IaaS)
–	Capital Injection 1 July	(1,071)
–	Expense Movement for the year	1,247
–	Net Memorandum Account surpluses/(deficits) for the year	(1,247)
–	Balance at 30 June	(2,318)
Kotui Library Services
–	Capital Injection 1 July	–
–	Revenue Movement for the year	1,168
–	Expense Movement for the year	406
–	Net Memorandum Account surpluses/(deficits) for the year	762
–	Balance at 30 June	762

Actions Taken to Address Surpluses and Deficits

New Zealand Gazette (Established 30 June 2002)

Purpose: The cost of publishing and distributing the New Zealand Gazette is recovered through third party fees.

Actions: Fees will be reviewed once the costs of a project to improve the New Zealand Gazette’s online capability have been fully scoped. The planning phase for this project is underway and is due to be completed by August 2012.

Use of Facilities and Access to Lake Taupo by Boat Users (Established 30 June 2002)

Purpose: The Department manages berths, jetties and boat ramps located at Lake Taupo. Fees are charged to third parties for the use of boat ramps and marina berths. These fees are used to cover the cost of the administration and maintenance of these facilities.

Actions: In 2010/11 and 2011/12 lower levels of fees were recovered due to reduced usage of lake facilities as a result of the continued economic downturn. A new schedule of fees was approved during 2011/12 and will come into effect from July 2012.

Passport Products (Established 30 June 2002)

Purpose: 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.

Actions: The memorandum account surplus is expected to reduce as passport developments are implemented. The technology to enable passport adult renewal applications to be lodged online is expected to be rolled out in 2012/13.

Passport fees are being reviewed in 2012/13. 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 2011/12 movement mainly reflected the timing of expenditure on Passport Redevelopment Programme developments and higher revenue than forecast. Productivity improvements achieved through system enhancements implemented to date also resulted in the ability to handle the 2011/12 passport volume increase with a modest increase in staff.

The Passport Redevelopment Programme that is expected to be completed in 2013/14 will replace ageing technology, improve process integrity, and implement a new robust system to handle the progressive increase in passport application volumes resulting from the move to a five-year passport announced in 2005. The technology to enable passport adult renewal applications to be lodged online is expected to be rolled out in 2012/13.

Citizenship Products (Established 30 June 2002)

Purpose: To support a strategy to stabilise fees based on full cost recovery over a four- to five-year planning horizon.

Actions: The current fees schedule was approved with effect from 1 September 2003. The balance in this account in recent years has been affected by fluctuating volumes and legislative changes that increased the citizenship eligibility qualifying period from three to five years of permanent residence.

The 2011/12 favourable movement reflected higher revenues from citizenship grants than forecast. Productivity improvements achieved through system enhancements implemented in 2010/11 also resulted in the ability to handle the 2011/12 citizenship volume increase with a modest increase in expenditure.

The balance in the Citizenship Memorandum Account is expected to contribute to the costs of replacing ageing technology including system process improvement and integrity. Citizenship fees will be reviewed in 2013/14 following the completion of this programme of work.

Marriage Products (Established 30 June 2002)

Purpose: To support a strategy to stabilise fees based on full cost recovery over a four- to five-year planning horizon.

Actions: The current fees schedule was approved with effect from 1 September 2003 to recover full costs. The adverse movement in 2011/12 is expected to continue in 2012/13 and reflects higher costs since fees were last reviewed. Marriage systems, processes and costs are currently being reviewed as part of the Department’s Performance and Productivity Improvement Programme and Machinery of Government changes affecting the Department. Marriage product fees will be reviewed in 2012/13 and will incorporate the results of the foregoing initiatives and the impact of volume changes.

Births, Deaths and Marriages Certificates, and Other Products (Established 30 June 2002)

Purpose: 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.

Actions: The current fees schedule was approved with effect from 1 September 2003 to recover full costs. The favourable movement in 2011/12 is due to efficiency savings resulting from the Department’s Performance and Productivity Improvement Programme, together with lower business support costs and the deferral of expenditure relating to system technology upgrades until later periods.

Administration of Non-casino Gaming (Established 30 June 2002)

Purpose: 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.

Actions: The current fees schedule was approved with effect from 1 February 2008. Changes since that time to the bases of revenue recovery for gaming machines and associated activity, in particular around volumes and activity due to permanent reductions in the number of gaming machines, have resulted in lower than anticipated fees income. A review of fees, planned for 2011/12, was delayed pending a structural review of associated regulatory and compliance functions.

Infrastructure as a Service (IaaS) (Established 1 January 2011)

Purpose: The establishment of IaaS is to provide government agencies with access to shared storage, computing and data centre facilities on a self-service, pay-as-you-use basis. The model is flexible so that agencies can choose service elements that best fit their business needs, and to join the initiative in a staged way as existing infrastructure assets require replacement or as new capacity is required.

This approach consolidates Government demand, reduces duplication (in respect of infrastructure and capital expenditure), allows agencies to manage resources better and provides agencies with the improved ability to understand the total cost of ownership of their use of ICT infrastructure.

The cost of establishing and managing the IaaS will be recovered through fees charged to government agencies for use of the service.

Actions: Nine agencies were signed up for IaaS services as at the end of June 2012, 200% more than forecast. The cost of establishing and managing the IaaS will be recovered through government agencies that use the service. Agency fees will be agreed by the Inter-agency Steering Group on an annual basis. At the March Baseline Update 2012, the Department has indicated that the establishment costs will be fully recovered by 2017/18.

Kotui Library Services (Established 30 January 2011)

Purpose: The National Library has been working towards providing a shared service for public library management and discovery systems in collaboration with the Association of Public Library Managers (APLM). The business model is a subscription service where libraries will pay a one-off license fee followed by annual subscription.

Actions: The Kotui shared library and resource discovery service was launched to public libraries in September 2011. Since then, nine libraries have gone live during the second half of the 2011/12 financial year. Feedback from library staff and patrons has been positive. Because Kotui is a shared library service, one of the effects it has had is to increase collaborative opportunities between geographically dispersed libraries. This will allow library staff around New Zealand to participate in experts’ groups to help shape the development of the service into the future.

21. Capital Injections

Capital Injections
ACTUAL 2011 $000		ACTUAL 2012 $000
–	Passport Redevelopment Programme	1,079
–	National Library New Generation Improvement Programme	9,705
–	Emergency Management Information System	1,500
–	Total Capital Injections	12,284

22. Related Parties Transactions and Key Management Personnel

All related party transactions have been entered into on an arms’ length basis.

The Department is a government department and wholly owned and controlled by the Crown. The Government significantly influences the roles of the Department as well as being its major source of revenue.

Significant Transactions with Government-related Entities

In conducting its activities the Department is required to pay various taxes and levies (such as GST, PAYE, FBT and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on standard terms and conditions that apply to all tax and levy payers. The Department is exempt from Income Tax.

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. Purchases from these entities for the year ended 30 June totalled $5.724 m (2011 $2.508 m). These purchases included the the purchase of electricity from Meridian, air travel from Air New Zealand, legal services from The Crown Law Office, auditing and accounting services from Audit New Zealand, postal services from New Zealand Post and other services from The Privacy Commissioner, Learning State Ltd, Leadership Development Centre, Statistics New Zealand, Research and Education Advanced Network, Office of Film and Literature Classification and Agresearch Limited.

The Department receives third party revenue for administering the Lottery Grants Board grants. See note 2.

Transactions with Key Management Personnel and Their Close Family Members

Key Management Personnel Compensation
ACTUAL 2011 $000		ACTUAL 2012 $000
2,345	Salaries and Other Short-term Employee Benefits	2,025
–	Post-employment Benefits	43
5	Other Long-term Benefits	16
126	Termination Benefits	–
2,476	Total Key Management Personnel Compensation	2,084

Key management personnel of the Department comprise twelve ministers, the Chief Executive Officer and six members of the Executive Leadership Team (ELT).

In 2010/11 key management personnel included 13 members as the ELT transitioned from 10 members, pre 1 February 2011, to seven members post 1 February 2011.

Key management personnel compensation excludes the remuneration and other benefits of the Responsible Ministers for the Department, namely, Hon Nathan Guy, Rt Hon John Key, Hon Hekia Parata, Hon David Carter, Hon Rodney Hide, Hon Craig Foss, Hon Jo Goodhew, Hon Judith Collins, Hon Amy Adams, Hon Chris Tremain, Hon Dr Nick Smith and Hon John Carter. The Ministers’ remuneration and other benefits are not received for their role as a member of key management personnel of the Department. The Ministers’ remuneration and other benefits are set out by the remuneration authority under the Civil List Act 1979 and are paid under Permanent Legislative Authority.

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.

The Department purchased goods and services from entities that some key management personnel have a relationship with. Purchases from these related entities are set out in the table below:

Departmental purchases from entities that some key management personnel have a relationship with.
ACTUAL 2011 $000		ACTUAL 2012 $000	OUTSTANDING BALANCE 2012 $000
108	KPMG	84	17
15	Deloitte	189	97
123	Total Related Transactions	273	114

23. Financial Instrument Risks

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.

The Department’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Department has a series of policies to manage the risks associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market Risk

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. For more details see note 10.

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

Sensitivity Analysis

The following table shows the impact on the Department as at balance date, if the New Zealand dollar had weakened or strengthened by 5% against the currencies in which the Department has denominated derivative financial instruments.

Sensitivity Analysis
Sensitivity	NET SURPLUS IMPACT FROM FX MOVEMENT IN $NZD 000
Sensitivity	Total $000	AUD $000	GBP $000	USD $000
2012
5% Lower (New Zealand dollar weakened)	(45)	–	–	(45)
5% Higher (New Zealand dollar strengthened)	40	–	–	40
2011
5% Lower (New Zealand dollar weakened)	(289)	(182)	(21)	(86)
5% Higher (New Zealand dollar strengthened)	262	165	19	78

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. Equipment leases are identified as finance leases in accordance with NZ IAS 17 Leases. The Department has received the approval of the Minister of Finance for this lease. The fixed interest rate on the term of these leases reduces the exposure on borrowed funds.

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.

The Department holds cash with Westpac Banking Corporation (Westpac). Westpac is part of the Crown Retail Deposit Guarantee Scheme and so all deposits up to $1.000 m held with Westpac are guaranteed by the Crown.

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.

Maximum Exposures to Credit Risk
ACTUAL 2011 $000		ACTUAL 2012 $000
51,721	Cash and Cash Equivalents	72,952
25,271	Debtors and Other Receivables	15,472
76,992	Total Exposure to Credit Risk	88,424

Cash and cash equivalents excludes any cash physically held including as petty cash as cash is not exposed to credit risk.

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 draw downs 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 balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

Liquidity Risk
2011/12
	TOTAL	LESS THAN 6 MONTHS	BETWEEN 6 MONTHS AND 1 YEAR	BETWEEN 1 YEAR AND 5 YEARS	OVER 5 YEARS
Creditors and Other Payables	32,258	32,258	–	–	–
Derivative Financial Instruments – Assets	–	–	–	–	–
Derivative Financial Instruments – Liabilities	21	21
2010/11
Creditors and Other Payables	30,284	30,284	–	–	–
Derivative Financial Instruments – Assets	15	15	–	–	–
Derivative Financial Instruments – Liabilities	81	81	–	–	–

24. Categories of Financial Instruments

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

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories
Loans and Receivables
ACTUAL 2011 $000		ACTUAL 2012 $000
51,721	Cash and Cash Equivalents	72,952
25,271	Debtors and Other Receivables	15,472
76,992	Total Loans and Receivables	88,424
Fair Value Through Profit and Loss
(81)	Derivative Financial Instrument Liabilities	21
15	Derivative Financial Instrument Assets	–
(66)	Total Fair Value Through Profit and Loss	21
Financial Liabilities Measured at Amortised Cost
30,284	Creditors and Other Payables	32,258

25. Fair Value Hierarchy Disclosures

For those financial instruments recognised at fair value in the Statement of Financial Position, fair values are determined using the following hierarchy:

Level 1 – Quoted market price – financial instruments with quoted prices for identical instruments in active markets.
Level 2 – Valuation technique using observable inputs – financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.
Level 3 – Valuation techniques with significant non-observable inputs – financial instruments valued using models where one or more significant inputs are not observable.

The following table analyses the basis of the valuation of classes of instruments measured at fair value in the Statement of Financial Position.

Fair Value Hierarchy Disclosures
	TOTAL $000	QUOTED MARKET PRICE $000	OBSERVABLE INPUTS $000	SIGNIFICANT NON-OBSERVABLE INPUTS $000
	VALUATION TECHNIQUE
2011/12
Financial Assets
Foreign Exchange Derivatives	–	–	–	–
Financial Liabilities
Foreign Exchange Derivatives	21	–	21	–
2010/11
Financial Assets
Foreign Exchange Derivatives	15	–	15	–
Financial Liabilities
Foreign Exchange Derivatives	81	–	81	–

There were no transfers between the different levels of the fair value hierarchy.

26. 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.

27. Explanation of Significant Variances against Budget

Statement of Comprehensive Income

Variance between the Main Estimates and the Supplementary Estimates

The changes in the budgets between the Main Estimates and the Supplementary Estimates, together with explanations for the significant variances between actual expenditure and the Supplementary Estimates, are detailed, by output expense, in the revenue and output expense section.

The primary factors contributing to the overall increase in the revenue and expense budgets between the Main Estimates and the Supplementary Estimates of $8.775 m include:

Statement of Comprehensive Income – Variance between the Main Estimates and the Supplementary Estimates
REASON FOR BUDGET CHANGE	$000
Expense transfers from 2010/11 to 2011/12	9,471
Expense transfers from 2011/12 to 2012/13	(1,445)
Retention of underspend from 2011/12 to 2012/13	(550)
New funding in 2011/12	5,589
Decrease in costs due to timing of passport development expenditure	(5,627)
Increased demand for information technology services	3,227
Decrease in the level on non-casino gaming activity	(750)
Transfer of funding to the Non-Departmental appropriation Community Development Scheme	(400)
Other changes	(740)
Total Budget Change	8,775

Variance between Actual 2011/12 and the Supplementary Estimates

Actual expenditure was 4% lower than the Supplementary Estimates. The overall under-expenditure of $15.274 m is primarily attributable to the following factors:

delayed expenditure in a number of work programmes, including the New Generation Implementation Programme for the National Library, Aotearoa People’s Network Kaharoa, Royal Commissions of Inquiry on the Pike River Mine Tragedy, the Royal Commission of Inquiry into Building Failure caused by the Canterbury Earthquakes, the Government Information Service On-line Programme and the programme of work to develop and implement initiatives to position the Department to generate efficiency savings, for which in-principle expense transfers $10.220 m, from 2011/12 to 2012/13 were approved;
lower provision of services to the Lottery Grants Board ($0.722 m)
lower support costs incurred for passports, in particular for fewer staff to roll out online passport renewals, which has been rescheduled to 2012/13 ($1.742 m)
costs associated with the Service Delivery Programme Development being directly incurred by the Ministry of Social Development ($0.712 m)
lower support costs for the Canterbury earthquakes claim audit ($0.726 m).

The changes between the Supplementary Estimates and actual expenditure are further detailed by output expenses in the Statement of Service Performance.

Statement of Financial Position

Variance between the Main Estimates and the Supplementary Estimates

The primary factors contributing to the increase in general funds between the Main Estimates and the Supplementary Estimates of $22.712 m include:

Statement of Financial Position – Variance between the Main Estimates and the Supplementary Estimates
REASON FOR BUDGET CHANGE	$000
Difference in opening balance mainly due to integration of Archives New Zealand and National Library New Zealand	(31,753)
An increase in capital contributions in 2011/12	33,128
Movement in forecast net surplus for 2011/12	10,600
Recognition of memorandum accounts	10,737
Total Budget Change	22,712

Variance between Actuals and the Supplementary Estimates

Explanations for significant variances between actual and the Supplementary Estimates are as follows:

higher current assets of $12.538 m mainly due to:
- higher cash and cash equivalents of $8.734 m as a result of higher than forecast creditors and other payables of $7.673 m
- reclassification of two Ministerial houses to be sold of $3.505 m (previously recognised as part of non-current assets).
lower non-current assets of $20.599 m mainly due to delays in the timing of capital expenditure, primarily the New Generation Implementation Programme, Passport Redevelopment Programme and Government Digital Archive Programme, for which in-principle capital transfers from 2011/12 to 2012/13 were approved.
higher current liabilities of $17.361 m mainly due to:
- higher provisions, creditors and other payables as a result of timing of year end payments totalling $9.200 m
- higher provision for repayment of surplus of $10.317 m
- higher revenue received in advance of $2.488 m as a result of incomplete citizenship applications
- lower employee entitlements of $4.665 m mainly in annual leave.
lower equity of $25.768 m mainly due to:
- higher comprehensive income for the year of $17.648 m
- lower provision for repayment of surplus of $10.317 m
- lower capital injections of $33.128 m as a result of delayed capital expenditure.

28. Significant Events after Balance Date

There were no significant events after the balance date that would have led to an amended view of the values of assets or liabilities at the date of the balance sheet.

The Department of Internal Affairs

Te Tari Taiwhenua

Building a safe, prosperous and respected nation

Part C: Financial Statements - Departmental

On this page

Comprehensive Income

Financial Position

Movements in Equity

Cash Flows

Net Surplus to Net Cash Flow from Operating Activities

Commitments

Capital Commitments

Non-Cancellable Lease Commitments

Non-Cancellable Contracts for Goods and Services

Contingent Assets and Liabilities

Statement of Contingent Assets and Liabilities as at 30 June

Unquantified Contingent Liabilities

Unquantified Contingent Assets

Unappropriated Expenditure

Statement of Unappropriated Expenditure and Capital Expenditure for the year ended 30 June

Notes to the Financial Statements Notes to the Financial Statements for the year ended 30 June

1. Statement of Accounting Policies

Reporting Entity

Integration with the Charities Commission

Reporting Period

Basis of Preparation

Statement of Compliance

Measurement Base

Budget Figures

Changes in Accounting Policies

Comparatives

Critical Accounting Judgements and Estimates

Long Service, Sick and Retirement Leave

Finance Leases

Effects from Accounting Standard Adoption

Standards, Amendments, and Interpretations Issued that are not yet Effective and have not been Early Adopted

Functional and Presentation Currency

Significant Accounting Policies

Revenue

Revenue Crown

Third Party Revenue

Donated or Subsidised Assets

Revenue Received in Advance

Expenses

Statement of Cost Accounting Policies

Criteria for Direct and Indirect Costs

Cost Allocation Policy

Method of Assigning Costs to Outputs

Cash and Cash Equivalents

Debtors and Other Receivables

Provision for Doubtful Debts

Inventories

Accounting for Derivative Financial Instruments, Hedging Activities and Foreign Currency Transactions

Property, Plant and Equipment

Additions

Disposals

Impairment

Revaluations

Specific Asset Class Policies

Land and Buildings

Collections

Other Property, Plant and Equipment

Depreciation

Intangible Assets

Additions

Disposal

Impairment

Amortisation

Non-Current Assets Held for Sale

Treatment of Non-Current Assets Transferred from Other Government Departments

Financial Instruments

Financial Liabilities

Leases

Finance Leases

Operating Leases

Employee Entitlements

Long Service, Retirement and Sick Leave

Defined Contribution Superannuation Schemes

Other Liabilities and Provisions

Capital Charge