The Department of Internal Affairs

The Department of Internal Affairs

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Resource material › Corporate Publications › Annual Report 2012-13Pūrongo ā Tau

Part C: Financial Statements - Departmental

Comprehensive Income

Statement of Comprehensive Income for the year ended 30 June 2013
ACTUAL
2012
$000
NOTE ACTUAL
2013
$000
MAIN EST
2013
$000
SUPP EST
2013
$000
Income
214,138 Crown 213,125 193,387 213,128
162,521 Other Revenue 2 157,949 158,042 163,442
376,659 Total Income 371,074 351,429 376,570
Expenditure
169,408 Personnel Costs 3 180,245 167,674 190,789
29,485 Depreciation and Amortisation Expense 11,12 33,243 40,012 30,745
20,980 Capital Charge 6 21,466 25,280 22,210
267 Finance Costs 5 277 64 264
132,933 Other Operating Expenses 4 131,619 124,778 143,790
875 Loss on Sale of Property, Plant and Equipment 1,080
353,948 Total Expenditure 367,930 357,808 387,798
22,711 Net Surplus/(Deficit) 3,144 (6,379) (11,228)
Other Comprehensive Income
Revaluation Gains (Loss) 19 12,192
22,711 Total Comprehensive Income 15,336 (6,379) (11,228)

Explanations of significant variances against budget are detailed in note 26.

The accompanying notes form part of these financial statements.

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Financial Position

Statement of Financial Position as at 30 June 2013
ACTUAL
2012
$000
NOTE ACTUAL
2013
$000
MAIN EST
2013
$000
SUPP EST
2013
$000
Assets
Current Assets
72,952 Cash and Cash Equivalents 7 50,858 34,587 23,720
15,472 Debtors and Other Receivables 8 17,346 15,703 16,761
1,398 Inventories 9 1,673 1,544 1,544
3,963 Prepayments 5,447 3,143 3,943
3,505 Property, Plant and Equipment Held for Sale 11
97,290 Total Current Assets 75,324 54,997 45,968
Non-Current Assets
206,888 Property, Plant and Equipment 11 213,588 243,601 216,376
63,160 Intangible Assets 12 69,922 72,540 69,692
Other Non-Current Assets 225
270,048 Total Non-Current Assets 283,510 316,366 286,068
367,338 Total Assets 358,834 371,343 332,036
Liabilities and Taxpayers’ Funds
Current Liabilities
32,258 Creditors and Other Payables 13 33,642 24,585 28,085
3,983 Provisions 14 3,721 3,083 4,083
8,488 Revenue Received in Advance 15 7,389 6,000 8,500
9,406 Employee Entitlements 16 10,092 14,071 14,094
1,322 Finance Leases 17 1,322 1,322 1,322
10,317 Provision for Repayment of Surplus 18 6,103
21 Derivative Financial Instruments 23
65,795 Total Current Liabilities 62,269 49,061 56,084
Non-Current Liabilities
200 Provisions 14 210
1,773 Employee Entitlements 16 1,874 1,428 1,728
1,872 Finance Leases 17 551 549 549
3,845 Total Non-Current Liabilities 2,635 1,977 2,277
69,640 Total Liabilities 64,904 51,038 58,361
297,698 Net Assets 293,930 320,305 273,675
Equity
247,541 Taxpayer’s Funds 19 235,667 291,827 246,037
22,519 Memorandum Accounts 19 19,560
27,638 Revaluation Reserves 19 38,703 28,478 27,638
297,698 Total Equity 293,930 320,305 273,675

Explanation of significant variances against budget is detailed in note 26.

The accompanying notes form part of these financial statements.

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Changes in Equity

Statement of Changes in Equity for the year ended 30 June 2013
ACTUAL
2012
$000
NOTE ACTUAL
2013
$000
MAIN EST
2013
$000
SUPP EST
2013
$000
22,711 Surplus/(deficit) for the year 3,144 (6,379) (11,228)
Other Comprehensive Income 12,192
22,711 Total comprehensive income 15,336 (6,379) (11,228)
10,737 Memorandum Account Opening Balances 19
29 Foreign Exchange Reserve 19
12,284 Capital Injections 20 241 2,205
Capital Withdrawals 20 (15,000) (15,000)
(10,317) Provision for Payment of Surplus 18 (6,103)
Transfers of General Funds and Revaluation Reserves between Government Entities
Charities Commission 2,199
Parliamentary Services (200)
Total Transfers of General Funds and Revaluation Reserve 1,999
35,444 Movement in Equity for the year (3,768) (6,138) (24,023)
262,254 Add Equity as at 1 July 297,698 326,443 297,698
297,698 Equity as at 30 June 293,930 320,305 273,675

Explanation of significant variances against budget is detailed in note 26.

The accompanying notes form part of these financial statements.

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Cash Flows

Statement of Cash Flows for the year ended 30 June 2013
ACTUAL
2012
$000
NOTE ACTUAL
2013
$000
MAIN EST
2013
$000
SUPP EST
2013
$000
Cash Flows from Operating Activities
Cash was Provided from:
228,528 Supply of Outputs to the Crown 213,125 193,387 213,128
168,560 Supply of Outputs to Third Parties 155,045 157,579 165,397
Goods and Services Tax (Net) 585
397,088 368,755 350,966 378,525
Cash was Disbursed to:
(300,102) Suppliers and Employees (318,667) (293,411) (335,945)
(20,980) Capital Charge 6 (21,466) (25,280) (22,210)
(922) Goods and Services Tax (Net) (156)
(322,004) (340,133) (318,691) (358,311)
75,084 Net Cash Flows from Operating Activities 28,622 32,275 20,214
Cash Flows from Investing Activities
Cash was Provided from:
Sale of Property, Plant and Equipment Held for Sale 3,123
2,604 Sale of Property, Plant and Equipment 548 6 6
547 Sale of Intangibles
3,151 3,671 6 6
Cash was Disbursed to:
(35,826) Purchase of Property, Plant and Equipment (12,078) (37,976) (25,512)
(16,862) Purchase of Intangibles (18,537) (26,484) (20,167)
(52,688) (30,615) (64,460) (45,679)
(49,537) Net Cash Flows from Investing Activities (26,944) (64,454) (45,673)
Cash Flows from Financing Activities
Cash was Provided from:
12,284 Capital Contribution 20 241 1,545
Transfers from Government Entities 1,545
12,284 1,545 241 1,545
Cash was Disbursed to:
Capital Withdrawal 20 (15,000) (15,000)
(16,600) Repayment of Net Surplus (10,317) (4,835) (10,318)
Payment of Finance Leases
(16,600) (25,317) (4,835) (25,318)
(4,316) Net Cash Flows from Financing Activities (23,772) (4,594) (23,773)
Movement in Cash
51,721 Opening Cash and Cash Equivalents 72,952 71,360 72,952
21,231 Add Net Increase/(Decrease) in Cash Held (22,094) (36,773) (49,232)
72,952 Closing Cash and Cash Equivalents 7 50,858 34,587 23,720

The accompanying notes form part of these financial statements.

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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 2013
ACTUAL
2012
$000
ACTUAL
2013
$000
MAIN EST
2013
$000
SUPP EST
2013
$000
22,711 Total Comprehensive income 15,336 (6,379) (11,228)
Add/(Deduct) Non Cash Items
29,485 Depreciation and Amortisation 33,243 40,012 30,745
Asset Revaluation Loss/(Gain) (12,192)
(374) Revenue from Collection Donations and Legal Deposits
Interest Unwind on Leased Premises 10
29,111 21,061 40,012 30,745
Add/(Deduct) Items Classified as Investing Activities
875 Loss/(Gain) on Sale of Property, Plant and Equipment 1,080 (382) (382)
875 1,080 (382) (382)
Add/(Deduct) Movements in Working Capital Items
20,536 (Increase)/Decrease in Debtors and Other Receivables (1,798) (81) 2,357
727 (Increase)/Decrease in Other Current Assets (1,759) (146)
1,974 Increase/(Decrease) in Creditors and Other Payables (3,280) 86
331 Increase/(Decrease) in Other Current Liabilities (798) (895) (1,218)
(1,181) Increase/(Decrease) in Non-Current Liabilities (1,220)
22,387 (8,855) (976) 1,079
75,084 Net Cash Flows From Operating Activities 28,622 32,275 20,214

The accompanying notes form part of these financial statements.

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Commitments

Statement of Commitments as at 30 June 2013
ACTUAL
2012
$000
ACTUAL
2013
$000
Capital Commitments
Capital Contracts for Goods and Services
7,908 Less than one year 249
212 One to two years
Two to five years
8,120 Total Capital Contracts for Goods and Services 249
8,120 Total Capital Commitments 249
Operating Commitments
Non-Cancellable Leases
11,595 Less than one year 10,933
9,855 One to two years 8,125
20,876 Two to five years 16,812
12,944 Over five years 12,226
55,270 Total Non-Cancellable Leases 48,096
63,390 Total Commitments 48,345

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 and office equipment. The non-cancellable leasing period for these leases varies.

The accompanying notes form part of these financial statements.

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Contingent Assets and Liabilities

Statement of Contingent Assets and Liabilities as at 30 June 2013

Quantifiable Contingent Assets
ACTUAL
2012
$000
ACTUAL
2013
$000
169 Insurance Recoveries from Canterbury Earthquakes 3,309
169 Total Contingent Assets 3,309

The Department had four quantifiable contingent assets as at 30 June 2013. These relate to business interruption and material damage insurance claims due to the Department following the 2010/11 Canterbury earthquakes.

Non-quantifiable Contingent Assets

As at 30 June 2013 the Department had one non-quantifiable contingent asset relating to an insurance claim for building damage as a consequence of the 2010/11 Canterbury earthquakes.

As at 30 June 2012 the Department had one non-quantifiable contingent asset relating to yet to be qualified insurance recoveries as a consequence of the 2010/11 Canterbury earthquakes.

Quantifiable Contingent Liabilities

There were no quantifiable contingent liabilities as at 30 June 2013 (2012: $nil).

Non-quantifiable Contingent Liabilities

There were no non-quantifiable contingent liabilities as at 30 June 2013.

As at 30 June 2012 the Department had one non-quantifiable contingent liability for a personal grievance lodged against the Department with the Employment Relations Authority (ERA). There were also two personal grievances that had been raised with the Department that had not been lodged with the ERA, but still had a further 12 months in which they could be lodged.

The accompanying notes form part of these financial statements.

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Unappropriated Expenditure

Statement of Unappropriated Expenditure and Capital Expenditure for the year ended 30 June 2013

There was no unappropriated expenditure for the year ended 30 June 2013. (2012: $nil)

The accompanying notes form part of these financial statements.

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Departmental Expenditure and Capital Appropriations

Statement of Departmental Expenditure and Capital Appropriations for the year ended 30 June 2013
EXPEND-
ITURE
AFTER
REMEAS-UREMENT
2012
$000
EXPEND-
ITURE
BEFORE
REMEAS-UREMENT
2013
$000
REMEAS-
UREMENT
2013
$000
EXPEND-
ITURE
AFTER
REMEAS-UREMENT
2013
$000
APPROP-
RIATION
VOTED*
2013
$000
Appropriations for Output Expenses
Vote Internal Affairs
Multi-Class Output Appropriation: Civic Information Services
Managing and Accessing Identity Information 127,081 (17) 127,064 135,843
Managing and Accessing Knowledge Information 87,464 (24) 87,440 88,808
Publishing Civic Information 1,022 1,022 1,101
Total Civic Information Services 215,567 (41) 215,526 225,752
Multi-Class Output Appropriation: Community Information and Advisory Services
Advisory and Information services to Ethnic Communities 5,138 (2) 5,136 5,275
Community Archives Support 123 123 100
Community Development and Engagement Advice 5,691 (3) 5,688 5,737
Community Information – Civil Defence Emergency Management 1,570 1,570 1,634
Total Community Information and Advisory Services 12,522 (5) 12,517 12,746
Multi-Class Output Appropriation: Emergency Management Services
Emergency Sector Support and Development 3,722 (1) 3,721 3,998
Management of National Emergency Management Readiness, Response and Recovery 4,236 (1) 4,235 4,047
Total Emergency Management Services 7,958 (2) 7,956 8,045
Multi-Class Output Appropriation: Information and Technology Services
Cross-Government Service Delivery and ICT Investment Proposals 6,639 6,639 7,224
Government Information and Technology Services 13,778 (10) 13,768 15,893
Total Information and Technology Services 20,417 (10) 20,407 23,117
Multi-Class Output Appropriation: Ministerial Support Services
Crown Entity Monitoring 676 (1) 675 847
Ministerial Support Services – Community and Voluntary Sector 174 174 150
Ministerial Support Services – Emergency Management 254 254 189
Ministerial Support Services – Ethnic Affairs 97 97 89
Ministerial Support Services – Internal Affairs 326 326 380
Ministerial Support Services – Local Government 352 352 295
Ministerial Support Services – Ministerial Services 175 175 200
Ministerial Support Services – Racing 51 51 47
Total Ministerial Support Services 2,105 (1) 2,104 2,197
Multi-Class Output Appropriation: Policy Advice
Policy Advice – Community and Voluntary Sector 1,041 1,041 1,747
Policy Advice – Emergency Management 582 582 715
Policy Advice – Ethnic Affairs 722 722 752
Policy Advice – Internal Affairs 4,048 (2) 4,046 3,858
Policy Advice – Local Government 5,285 (1) 5,284 5,011
Policy Advice – Racing 175 175 198
Total Policy Advice 11,853 (3) 11,850 12,281
Multi-Class Output Appropriation: Policy Advice and Support Services
3,473 Policy Advice
13,048 Information and Advisory Services
16,521 Total Policy and Support Services
Multi-Class Output Appropriation: Regulatory Services
Charities Administration 5,902 5,902 6,016
Regulatory Services 30,741 (9) 30,732 32,493
Total Regulatory Services 36,643 (9) 36,634 38,509
Multi-Class Output Appropriation: Services Supporting the Executive
Coordination of Official Visits and Events 4,601 (1) 4,600 5,267
Support Services to Members of the Executive 24,571 (6) 24,565 24,941
VIP Transport Services 7,688 (4) 7,684 7,814
Total Services Supporting the Executive 36,860 (11) 36,849 38,022
Multi-Class Output Appropriation: Support to Statutory and Other Bodies
Commissions of Inquiry & Similar Bodies 5,087 (1) 5,086 5,520
Statutory and Advisory Body Support – National Archives 70 70 101
Statutory and Advisory Body Support – National Library 3 3 100
Statutory Body Support – Gambling Commission 894 894 1,158
Statutory Body Support – Local Government Commission 1,190 1,190 1,604
Support for Grant Funding Bodies – Community and Voluntary Sector 322 322 324
Support for Grant Funding Bodies – Internal Affairs 9,269 (4) 9,265 10,861
Total Support to Statutory and Other Bodies 16,835 (5) 16,830 19,668
Departmental Output Expenses
Administration of Grants 3,590 (2) 3,588 3,775
1,035 Anti Money Laundering and Countering Financing of Terrorism
9,918 Government Technology Services
2,926 Cross Government ICT Investment Proposals
116,320 Identity Services
Local Government Services 2,782 (1) 2,781 2,785
800 Machinery of Government Transition Costs
25,279 Regulatory Services
288 Service Delivery Programme Development PLA
5,497 Services for Ethnic Affairs
8,994 Support Services for Grant Funding Bodies
841 Contestable Services 889 (1) 888 901
171,898 Total Departmental Output Expenses 7,261 (4) 7,257 7,461
188,419 Total Vote Internal Affairs 368,021 (91) 367,930 387,797
Vote Community and Voluntary Sector
Multi-Class Output Appropriation: Policy Advice, Advisory and Support Services
1,647 Policy Advice
4,089 Administration of Grants
5,581 Community Advisory Services
250 Support Services for Grant Funding Bodies
11,567 Total Policy Advice, Advisory and Support Services
11,567 Total Vote Community and Voluntary Sector
Vote Emergency Management
Multi-Class Output Appropriation: Emergency Management Services
1,105 Policy Advice – Emergency Management
6,173 Support Services, Information and Education
4,843 Management of National Emergency Readiness, Response and Recovery
12,121 Total Emergency Management Services
12,121 Total Vote Emergency Management
Vote Local Government
Multi-Class Output Appropriation: Services for Local Government
3,730 Policy Advice – Local Government
3,751 Information, Support and Regulatory Services – Local Government
7,481 Total Vote Local Government
Vote Ministerial Services
Departmental Output Expenses
26,533 Support Services to Members of the Executive
4,343 Official Visits and Events Coordination
7,936 VIP Transport Services
38,812 Total Vote Ministerial Services
Vote Racing
Departmental Output Expenses
149 Policy Advice – Racing
149 Total Vote Racing
Vote National Library
Multi-Class Output Appropriation: National Library Services
33,246 Access to Information
21,716 Collecting and Preserving Information
720 Policy Advice and Statutory Servicing
15,395 Library and Information Services to Schools
71,077 Total Vote National Library
Vote National Archives
Multi-Class Output Appropriation: Archives Management and Policy Advice
20,261 Archives Services
318 Policy Advice
3,743 Regulation of Public Sector Recordkeeping
24,322 Total Vote National Archives
353,948 Total Department Appropriation for Output Expenses 368,021 (91) 367,930 387,798
Appropriation for Capital Expenditure
Department of Internal Affairs 24,756 24,756 45,679
Total Department Appropriation for Capital Expenditure 24,756 24,756 45,679
353,948 Total Department Appropriations 392,777 (91) 392,686 433,477
*
This includes adjustments made in the Supplementary Estimates and transfers under section 26A of the Public Finance Act

The accompanying notes form part of these financial statements.

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Notes to the Financial Statements for the year ended 30 June 2013

1. Statement of Accounting Policies

Reporting Entity

The Department of Internal Affairs (the Department) is a government department as defined by Section 2 of the Public Finance Act 1989 and is domiciled in New Zealand.

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

Transfer of Charities Commission functions

As a result of the Charities Amendment Act 2012, the Charities Commission was disestablished, and its functions were transferred to the Department from 1 July 2012. This resulted 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 2013. The financial statements were authorised for issue by the Chief Executive of the Department on 12 September 2013.

Basis of Preparation

Statement of Compliance

The financial statements of the Department have been prepared in accordance with the requirements of the Public Finance Act 1989, which include the requirement to comply with New Zealand generally accepted accounting practice (NZ GAAP), and Treasury Instructions.These financial statements have been prepared in accordance with NZ GAAP as appropriate for public benefit entities and they comply with NZ IFRS.

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.

Budgets are prepared consistently with NZ GAAP and accounting policies used in the financial statements.

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 judgments, 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 outlined below.

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 not adopted any new revisions to accounting standards during the financial year.

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 outlined below.

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.

The Minister of Commerce has approved a new Accounting Standards Framework (incorporating a Tier Strategy) developed by the External Reporting Board (XRB). Under this Accounting Standards Framework, the Department is classified as a Tier 1 reporting entity and it will be required to apply full Public Benefit Entity Accounting Standards (PAS). These standards are being developed by the XRB based on current International Public Sector Accounting Standards. The effective date for the new standards for public sector entities is expected to be for reporting periods beginning on or after 1 July 2014. This means the Department expects to transition to the new standards in preparing its 30 June 2015 financial statements. As the PAS are still under development, the Department is unable to assess the implications of the new Accounting Standards Framework at this time.

Due to the change in the Accounting Standards Framework for public benefit entities, it is expected that all new NZ IFRS and amendments to existing NZ IFRS will not be applicable to public benefit entities. Therefore, the XRB has effectively frozen the financial reporting requirements for public benefit entities up until the new Accounting Standard Framework is effective. Accordingly, no disclosure has been made about new or amended NZ IFRS that exclude public benefit entities from their scope.

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).

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 particular accounting policies that have been applied are outlined below.

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 outputs based on cost drivers and related activity/usage information.

There were no changes in cost allocation policies since the last audited financial statements.

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 2013, 80% of output costs were direct costs (2011/12: 80%).

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 2013, indirect costs accounted for 20% of the Department’s costs (2011/12: 20%).

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 $0.003m 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 $0.030m , the purchase will be treated as a capital acquisition and capitalised as a fixed asset.

Work in progress is recognised at cost less impairment and is not depreciated.

In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal amount, it is recognised at fair value as at the date of acquisition.

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 asset class specific policies that have been applied are outlined below.

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 Entities

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.

The finance charge is charged to the surplus or deficit over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability.

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, taking into account the likelihood of staff reaching the point of entitlement.

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.

Commitments and contingencies are disclosed exclusive of GST.

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.

2. Other Revenue

Other Revenue
ACTUAL
2012
$000
ACTUAL
2013
$000
86,399 Passport Fees 80,189
12,204 Citizenship Fees 13,065
10,043 Birth, Death, Marriage and Civil Union Fees 10,253
15,032 Non-casino Gaming Licences and Fees 17,098
5,359 Casino Operators’ Levies 5,353
7,908 VIP Transport 7,053
7,842 Recovery from New Zealand Lottery Grants Board 8,239
922 New Zealand Gazette 902
835 Translation Services 896
904 Language Line Interpreter Services 1,189
963 e-Government Development and Operations 3,161
Electronic Purchasing in Collaboration (EPIC) 2,660
4,252 Te Puna Catalogue and Interloan Library Services 1,323
1,168 Kotui Library Services 1,195
Charities Registrations 769
3,189 State Sector Retirement Scheme Recoveries
665 Canterbury Earthquake Insurance Recoveries
4,836 Other Third Party Revenue 4,604
162,521 Total Other Revenue 157,949

3. Personnel Costs

Personnel Costs
ACTUAL
2012
$000
ACTUAL
2013
$000
160,517 Salaries, Wages and Contractors 172,166
3,141 Employer Contribution to Defined Contribution Plans 3,350
(588) Increase/(Decrease) in Employee Entitlements 785
6,338 Other Personnel Costs 3,944
169,408 Total Personnel Costs 180,245

Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme, Kiwisaver, the Government Superannuation Fund and the National Provident Fund.

4. Operating Expense

Operating Expense
ACTUAL
2012
$000
ACTUAL
2013
$000
10,851 Agency Fees 10,332
24,839 Computer Costs 27,449
5,873 Consultants 6,681
17,737 Inventory Costs 17,730
13,473 Office Expenses 13,453
13,309 Professional Fees 12,021
2,380 Publicity and Promotion 2,034
14,134 Rental and Leasing Costs 12,602
2,391 Staff Development 2,534
3,662 Library Resources and Subscriptions 3,505
6,589 Travel Expenses 6,641
268 Fee for Auditor (for the Financial Statement Audit) 299
28 Fees to Auditor (for Assurance and Related Services) 8
(13) Increase/(Decrease) in Provision for Doubtful Debts
16 Realised Foreign Exchange Losses 72
24 Unrealised Foreign Exchange Losses/(Gains) (21)
17,372 Other Departmental Operating Costs 16,279
132,933 Total Operating Expenses 131,619

The fees for assurance services were for witness duties connected with citizenship ceremonies.

5. Finance Costs

Finance Costs
ACTUAL
2012
$000
ACTUAL
2013
$000
267 Interest on Finance Leases 267
Make Good on Lease Premises 10
267 Total Finance Costs 277

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 2012/13 was 8.0% (2011/12: 8.0%).

7. Cash and Cash Equivalents

Cash and Cash Equivalents
ACTUAL
2012
$000
ACTUAL
2013
$000
71,643 New Zealand Bank Accounts 49,870
Overseas Bank Accounts
535 Australian Bank Accounts 353
752 UK Bank Accounts 635
22 US Bank Accounts
72,952 Total Cash and Cash Equivalents 50,858

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
2012
$000
ACTUAL
2013
$000
4,822 Trade Receivables 6,703
10,657 Debtor Crown 10,650
(7) Less Provision for Doubtful Debts (7)
15,472 Total Accounts Receivable 17,346

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
ACTUAL 2012 ACTUAL 2013
GROSS
$000
IMPAIRMENT
$000
NET
$000
GROSS
$000
IMPAIRMENT
$000
NET
$000
14,708 14,708 Not past due 16,143 16,143
614 614 Past due 1–30 days 693 693
49 49 Past due 31–60 days 142 142
33 33 Past due 61–90 days 169 169
75 (7) 68 Past due > 91 days 206 (7) 199
15,479 (7) 15,472 Total Accounts Receivable 17,353 (7) 17,346

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
2012
$000
ACTUAL
2013
$000
(21) Opening Doubtful Debts as at 1 July (7)
Additional Provisions Made During the Year 8
14 Provisions Released During the Year
Trade Receivables Written Off (8)
(7) Closing Doubtful Debts as at 30 June (7)

9. Inventories

Inventories
ACTUAL
2012
$000
ACTUAL
2013
$000
Birth, Death and Marriage Certificates
19 Stock on Hand 62
Citizenship
49 Stock on Hand 49
583 Work in Progress 571
National Library
48 Stock on Hand 48
Passports
51 Stock on Hand 26
648 Work in Progress 917
1,398 Total Inventories 1,673

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
2012
$000
ACTUAL
2013
$000
Australian dollars $
UK Sterling £
665 United States dollars $

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 the contracts at 30 June 2012 was $NZD 0.877million.

11. Property, Plant and Equipment

Cost or Valuation 2013
Asset Class Balance
1 July
$000
Additions
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers
and Held
for Sale
$000
Balance
30 June
$000
Land 49,825 (10) 49,815
Buildings 108,454 6,120 1,275 24 115,873
Leasehold Improvements 14,141 31 (14) (478) 13,680
Antiques and Works of Art 1,193 63 (200) 1,056
Furniture and Fittings 11,822 476 (977) 97 11,418
General Collections 27,097 779 27,876
Schools Collections 13,449 1,293 14,742
Office Equipment 5,261 481 (124) 52 5,670
Motor Vehicles 8,097 866 (1,063) 7,900
Plant and Equipment 12,537 737 (58) 94 13,310
IT Equipment 43,531 1,223 (9,052) (1,094) 34,608
Leased Assets 6,608 6,608
Total Cost 302,015 12,069 1,265 (11,288) (1,505) 302,556
Accumulated Depreciation 2013
Asset Class Balance
1 July
$000
Additions
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers
and Held
for Sale
$000
Balance
30 June
$000
Land
Buildings 7,791 3,683 (11,149) (51) 274
Leasehold Improvements 8,978 1,188 (9) (555) 9,602
Antiques and Works of Art
Furniture and Fittings 6,887 512 (938) 74 6,535
General Collections 15,540 1,388 16,928
Schools Collections 10,508 1,170 11,678
Office Equipment 4,778 256 (118) 31 4,947
Motor Vehicles 3,084 1,384 (615) 3,853
Plant and Equipment 4,526 538 (50) (188) 4,826
IT Equipment 29,621 4,799 (9,051) 220 25,589
Leased Assets 3,414 1,322 4,736
Total Accumulated Depreciation 95,127 16,240 (11,149) (10,832) (418) 88,968
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
Additions
$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
*
Transfers include transfers made to Non-Departmental accounts and transfers between government entities.
Summary of Property, Plant and Equipment
ACTUAL 2012 Asset Class ACTUAL 2013
Cost or
Valuation
$000
Accumulated
Depreciation
$000
Carrying
Value
$000
Cost or
Valuation
$000
Accumulated
Depreciation
$000
Carrying
Value
$000
49,825 49,825 Land 49,815 49,815
108,454 7,791 100,663 Buildings 115,873 274 115,599
14,141 8,978 5,163 Leasehold Improvements 13,680 9,602 4,078
1,193 1,193 Antiques and Works of Art 1,056 1,056
11,822 6,887 4,935 Furniture and Fittings 11,418 6,535 4,883
27,097 15,540 11,557 General Collections 27,876 16,928 10,948
13,449 10,508 2,941 School Collections 14,742 11,678 3,064
5,261 4,778 483 Office Equipment 5,670 4,947 723
8,097 3,084 5,013 Motor Vehicles 7,900 3,853 4,047
12,537 4,526 8,011 Plant and Equipment 13,310 4,826 8,484
43,531 29,621 13,910 IT Equipment 34,608 25,589 9,019
6,608 3,414 3,194 Leased Assets 6,608 4,736 1,872
302,015 95,127 206,888 Total Property, Plant and Equipment 302,556 88,968 213,588

Leased Assets

The net carrying amount of the leased assets (Passport Printers) held under finance lease is $2.093m (2011/12: $3.194m).

Capital Work in Progress

The total amount of property, plant and equipment in the course of construction is $1.158m (2011/12: $12.699m).

Revaluation Movement

Details of valuations and revaluation movements are contained in note 19.

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

At 30 June 2013 there were no non-current assets held for sale. As at 30 June 2012 two Department owned buildings had been classified as current Property, Plant and Equipment held for sale. These were sold during the year ended 30 June 2013.

Non-Current Property, Plant and Equipment Held for Sale
ACTUAL
2012
$000
ACTUAL
2013
$000
Non-current Assets Held for Sale
1,705 Buildings
1,800 Land
3,505 Total Non-currents Held for Sale as at 30 June

The accumulated property revaluation reserve recognised in equity for these properties at 30 June 2012 was $1.274m.

12. Intangible Assets

Cost or Valuation 2013

Asset Class Balance
at 1 July
$000
Additions
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers and
Held for Sale
$000
Balance
at 30 June
$000
Cost
Computer Software 135,384 23,091 (4,188) 2,942 157,229
Asset Class Balance
at 1 July
$000
Amortisation
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers and
Held for Sale
$000
Balance
at 30 June
$000
Less Accumulated Amortisation
Computer Software 72,224 17,003 (3,108) 1,188 87,307
Net Book Value 63,160 69,922

Cost or Valuation 2012

Asset Class Balance
at 1 July
$000
Additions
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers and
Held for Sale
$000
Balance
at 30 June
$000
Cost
Computer Software 119,755 17,034 (184) (1,221) 135,384
Asset Class Balance
at 1 July
$000
Amortisation
$000
Revaluations/
Impairments
$000
Disposals
$000
Transfers and
Held for Sale
$000
Balance
at 30 June
$000
Less Accumulated Amortisation
Computer Software 59,782 13,128 (686) 72,224
Net Book Value 59,973 63,160

Capital Work in Progress

The total amount of intangibles in the course of construction is $17.875m (2011/12: $28.669m).

Impairment Losses

There were no impairment losses in 2012/13 (2011/12: $0.184m).

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
2012
$000
ACTUAL
2013
$000
9,203 Creditors 5,423
16,861 Accrued Expenses 19,356
4,439 Accrued Salaries 6,583
1,755 GST Payable 2,280
32,258 Total Accounts Payable 33,642

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

Actual
2012
$000
Actual
2013
$000
Current portion
876 Restructuring 488
536 Lease Make Good 427
2,571 Other 2,806
3,983 Total current portion 3,721
Non-current portion
200 Lease Make Good 210
200 Total non-current portion 210
4,183 Total Provisions 3,931
2012
Restructuring
$000
Lease
Make Good
$000
Other
$000
TOTAL
$000
Balance as at 1 July 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 876 736 2,571 4,183
2013
Restructuring
$000
Lease
Make Good
$000
Other
$000
TOTAL
$000
Balance as at 1 July 876 736 2,571 4,183
Additional provisions made 30 405 435
Charge against provision for the year (398) (52) (170) (620)
Unused provisions reversed (20) (57) (77)
Discount unwind (see note 5) 10 10
Balance as at 30 June 488 637 2,806 3,931

Restructuring Provision

This provision represents one-off costs for remaining integration activities related to Machinery of Government changes and other minor restructuring across the Department.

Lease Make Good Provision

A number of the Department’s property leases require, at the expiry of the lease term, restoration of the properties to an agreed condition, repairing any damage 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
2012
$000
ACTUAL
2013
$000
3,268 Identity Products 3,236
3,053 Licensing Fees 1,612
Kōtui Library Services 670
2,025 Electronic Purchasing in Collaboration (EPIC) 1,798
142 Other 73
8,488 Total Revenue Received in Advance 7,389

16. Employee Entitlements

ACTUAL
2012
$000
ACTUAL
2013
$000
Current Entitlements
8,604 Annual Leave 8,989
76 Sick Leave 89
726 Long Service and Retirement Leave 1,014
9,406 Total Current Entitlements 10,092
Term Entitlements
1,773 Long Service and Retirement Leave 1,874
1,773 Total Term Entitlements 1,874
11,179 Total Entitlements 11,966

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 Mark Channon, 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
2012 2013
Discount Rate
Long Service Leave 2.81% 3.78%
Retiring Leave 2.20% 2.92%
Salary Inflation Factor
Salary Inflation Factor 3.50% 3.50%

17. Finance Leases

Finance Leases
ACTUAL
2012
$000
ACTUAL
2013
$000
Total Minimum Lease Payments Payable
1,589 Not later than one year 1,589
2,251 Later than one year and not later than five years 708
3,840 Total Minimum Lease Payments 2,297
(646) Future Finance Charges (424)
3,194 Present Value of Minimum Lease Payments 1,873
Present Value of Minimum Lease Payments Payable
1,322 Not later than one year 1,322
1,872 Later than one year and not later than five years 551
3,194 Total Present Value of Minimum Lease Payments 1,873
Represented by:
1,322 Current 1,322
1,872 Non-Current 551
3,194 Total Finance Leases 1,873

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

Return of Operating Surplus
ACTUAL
2012
$000
ACTUAL
2013
$000
22,711 Total Comprehensive Income 15,336
Revaluation Loss/(Gain) (12,192)
53 Unrealised Foreign Exchange (Gains)/Loss
(11,782) Surplus/(Deficit) on Memorandum Accounts 2,959
(665) Insurance recoveries from February 2011 Canterbury earthquake
10,317 Total Return of Operating Surplus 6,103

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

19. Equity

Equity
ACTUAL
2012
$000
ACTUAL
2013
$000
Taxpayers’ Funds
233,776 Opening balance at 1 July 247,541
22,711 Total Comprehensive Income 15,336
29 Foreign Exchange Reserve
Transfer of General Funds between Government Departments 1,999
Transfer of Revaluation losses/(gains) (12,192)
840 Transfer Revaluation Reserve to Taxpayers’ Funds on Disposal 1,127
(11,782) Transfer of Memorandum Account net (surplus)/deficit for the year 2,959
12,284 Capital Injections
Capital Withdrawals (15,000)
(10,317) Return of operating surplus to the Crown (6,103)
247,541 Balance at 30 June 235,667
Memorandum Accounts
Opening Balance 1 July 22,519
10,737 Capital Injection for Memorandum Account opening balance
11,782 Net Memorandum Account surpluses/(deficits) for the year (2,959)
22,519 Balance at 30 June 19,560
Revaluation Reserves
28,478 Opening Balance 1 July 27,638
Revaluation gains/(losses) 12,192
(840) Transfer to Taxpayers’ Funds on Disposal (1,127)
27,638 Balance at 30 June 38,703
297,698 Total Equity at 30 June 293,930
Revaluation Reserves Consist of:
14,368 Land Revaluation Reserve 12,669
12,485 Buildings Revaluation Reserve 25,322
785 Antiques and Works of Art 712
27,638 Total Revaluation Reserves 38,703

Land and Buildings – Ministerial Properties and Department Accommodation

Darroch Ltd, a Licensed Real Estate Agent (REAA 2008) and registered independent valuer, conducted a valuation of ministerial properties and Departmental land and buildings in March 2013, with valuations effective 30 June 2013. The 2012/13 revaluation reserve transfer to Taxpayers’ Funds is a result of the sale of two ministerial properties ($1.127m).

The 2011/12 revaluation movement is a result of the sale of a ministerial property ($0.840m).

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.

ACTUAL
2012
$000
ACTUAL
2013
$000
New Zealand Gazette
Balance at 1 July 516
620 Capital Injection 1 July
1,003 Revenue Movement for the year 930
1,107 Expense Movement for the year 1,022
(104) Net Memorandum Account surpluses/(deficits) for the year (92)
516 Balance at 30 June 424
Use of Facilities and Access to Lake Taupo by Boat Users
Balance at 1 July (183)
(125) Capital Injection 1 July
225 Revenue Movement for the year 459
283 Expense Movement for the year 459
(58) Net Memorandum Account surpluses/(deficits) for the year
(183) Balance at 30 June (183)
Passport Products
Balance at 1 July 27,368
17,425 Capital Injection 1 July
87,071 Revenue Movement for the year 80,405
77,128 Expense Movement for the year 86,930
9,943 Net Memorandum Account surpluses/(deficits) for the year (6,525)
27,368 Balance at 30 June 20,843
Citizenship Products
Balance at 1 July 3,226
(315) Capital Injection 1 July
12,337 Revenue Movement for the year 13,095
8,796 Expense Movement for the year 7,578
3,541 Net Memorandum Account surpluses/(deficits) for the year 5,517
3,226 Balance at 30 June 8,743
Marriage and Civil Union Products
Balance at 1 July (566)
(531) Capital Injection 1 July
2,975 Revenue Movement for the year 2,843
3,010 Expense Movement for the year 3,153
(35) Net Memorandum Account surpluses/(deficits) for the year (310)
(566) Balance at 30 June (876)
Issue of Birth, Death and Marriage Certifications and other Products
Balance at 1 July 672
272 Capital Injection 1 July
7,128 Revenue Movement for the year 7,412
6,728 Expense Movement for the year 6,464
400 Net Memorandum Account surpluses/(deficits) for the year 948
672 Balance at 30 June 1,620
Administration of Non–casino Gaming
Balance at 1 July (6,958)
(5,538) Capital Injection 1 July
15,156 Revenue Movement for the year 17,637
16,576 Expense Movement for the year 17,398
(1,420) Net Memorandum Account surpluses/(deficits) for the year 239
(6,958) Balance at 30 June (6,719)
Infrastructure as a Service (IaaS)
Balance at 1 July (2,318)
(1,071) Capital Injection 1 July
Revenue Movement for the year 253
1,247 Expense Movement for the year 388
(1,247) Net Memorandum Account surpluses/(deficits) for the year (135)
(2,318) Balance at 30 June (2,453)
Kotui Library Services
Balance at 1 July 762
1,168 Revenue Movement for the year 1,211
406 Expense Movement for the year 1,136
762 Net Memorandum Account surpluses/(deficits) for the year 75
762 Balance at 30 June 837
All-of-Government Adoption of Cloud Computing
Balance at 1 July
Revenue Movement for the year
Expense Movement for the year 2,964
Net Memorandum Account surpluses/(deficits) for the year (2,964)
Balance at 30 June (2,964)
Electronic Purchasing in Collaboration (EPIC)
Balance at 1 July
Revenue Movement for the year 2,665
Expense Movement for the year 2,377
Net Memorandum Account surpluses/(deficits) for the year 288
Balance at 30 June 288

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 project is in phase one of three phases. The final phase is likely to be completed by June 2014.

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 and, over time, to cover costs relating to depreciation on Crown assets utilised and the rental paid to the Tūwharetoa Māori Trust Board for the portions of the lake bed used for berths, jetties and boat ramps.

Actions: Staggered fee increases were approved in June 2012 designed to move fees towards full cost recovery over a two year period including the Crown costs identified above.

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 online adult passport renewal applications was rolled out in 2012/13 and other initiatives to improve the passport services and to extend the online passport application service to child applicants and first time adult applicants will be rolled out over the next two years.

In order to reduce the passports memorandum account over several years from $27m at 30 June 2012 to approximately $6m by 30 June 2014, passport fees were reduced in November 2012 to below cost. The balance in this account is affected by fluctuating volumes and the timing of system changes. The 2012/13 expenditure movement mainly reflected the timing of expenditure on Passport Redevelopment Programme developments. The Passport Redevelopment Programme is expected to be completed in 2013/14. It 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 2005 move to a five-year passport.

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 for citizenship products 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 2012/13 favourable movement reflected higher than forecast revenues from citizenship grants. Productivity improvements achieved through system enhancements implemented in 2010/11 also resulted in the ability to handle the 2012/13 citizenship volume increase with lower 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 and Civil Union Products (Established 30 June 2002, amended to include Civil Unions 1 July 2012)

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 Births, Deaths and Marriages (BDM) systems within that timeframe.

Actions: The basis of current fees schedule for marriages and civil unions was approved with effect from 1 September 2003 to recover full costs. The adverse movement in 2012/13 reflects higher costs since fees were last reviewed, including the addition of civil union activities and the costs of implementing the same sex marriage legislation.

Work is expected to commence in 2013/14 to upgrade/replace the ageing legacy Life data system including developing access to marriage/civil union licence/registration on line. Marriage product fees will be reviewed in 2013/14 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 2012/13 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. Work is expected to commence in 2013/14 to upgrade/replace the ageing BDM legacy Life data system used for registering and accessing BDM data by customers.

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 over a number of years. The higher revenue in 2012/13 compared with 2011/12 reflected the timing of revenue recognition between years. A structural review of the associated regulatory and compliance functions was completed in 2012/13 and a review of fees is expected to be completed in 2013/14.

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

Purpose: IaaS was established 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 can join the initiative in a staged way as existing infrastructure assets require replacement or as new capacity is required.

This approach consolidates public sector 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: 42 agencies were signed up for IaaS services as at the end of June 2013, compared to the 12 agencies originally forecast to be signed up by end of year two. 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. It is projected that the establishment costs will be fully recovered by 2017/18.

Kōtui Library Services (Established 30 January 2011)

Purpose: The National Library provides Kōtui as a shared service integrated library management and resource discovery systems for public libraries. The business model is a subscription service where public libraries pay a one-off license fee followed by annual subscription charges.

Actions: The Kōtui shared library and resource discovery service was launched to public libraries in September 2011. During 2012/13 ten territorial local authorities joined and there are now eighteen members in the service. Because Kōtui is a shared library service, one of the effects it has had is to increase collaborative opportunities between geographically dispersed libraries. This allows library staff around New Zealand to participate in experts’ groups to help shape the development of the service into the future.

All of Government Adoption of Cloud Computing (Established 2012)

Purpose: Establish the foundational capabilities of cloud computing for All-of-Government use. The Department will recover all capital and operating costs incurred in implementing the cloud initiative, including establishing the foundational capabilities and implementing specific services, from agencies through service charges on individual deployments.

Actions: Cloud computing is in its development phase. The first deployment of initiatives is to occur during 2013/14. Recovery of costs will begin once agencies start to consume the services provided via the deployment of cloud initiatives. The rate of recovery will depend on the take up rate by agencies, and the recovery charges set. The intention is to recover all costs within 5 years of services being available for agencies to use.

EPIC (Electronic Purchasing in Collaboration) (Established 2012)

Purpose: The purpose of EPIC is to negotiate group licenses to electronic resources and to provide member libraries and all New Zealand schools with access to high quality subscription electronic resources at more favourable rates than they would be able to achieve individually.

Actions: EPIC operations are funded through an administration component of member libraries’ subscriptions. Membership and cost allocations are approved by the EPIC Governance Group on a case by case basis.

20. Capital Injections and Withdrawals

Capital Injections and Withdrawals
ACTUAL
2012
$000
ACTUAL
2013
$000
1,079 Passport Redevelopment Programme
9,705 National Library New Generation Improvement Programme
1,500 Emergency Management Information System
12,284 Total Capital Injections
Capital to Operating Swap 15,000
Total Capital Withdrawals 15,000

The capital withdrawal in 2013 was the result of a fiscally neutral adjustment between capital and operating for the Department to support a shift from funding owned assets to purchasing services.

21. 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 is 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 similarly related to the Crown. Purchases from these entities for the year ended 30 June totalled $4.489m (2011/12 $5.724m). These purchases included the purchase of electricity from Meridian, air travel from Air New Zealand, legal services from the Crown Law Office, auditing and assurance 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
2012
$000
ACTUAL
2013
$000
2,025 Salaries and Other Short-term Employee Benefits 2,332
43 Post-employment Benefits 72
16 Other Long-term Benefits 9
Termination Benefits
2,084 Total Key Management Personnel Compensation 2,413

In 2012/13 key management personnel of the Department comprised seven ministers, the Chief Executive Officer and six members of the Executive Leadership Team (ELT).

In 2011/12 key management personnel included twelve ministers, the Chief Executive Officer and six members of ELT.

Key management personnel compensation excludes the remuneration and other benefits of the Responsible Ministers for the Department. For 2012/13 these were Hon Chris Tremain, Rt Hon John Key, Hon Judith Collins, Hon David Carter, Hon Nathan Guy, Hon Nikki Kaye and Hon Jo Goodhew. For 2011/12 these were Hon Nathan Guy, Rt Hon Jon 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.

Related party transactions involving key management personnel (or their close family members)

Treasury has confirmed that there were no related party transactions with the Responsible Ministers or the Department.

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:

ACTUAL
2012
$000
ACTUAL
2013
$000
OUTSTANDING
BALANCE
2013
$000
189 Deloitte 594 22

22. 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
AUD
$000
GBP
$000
USD
$000
Total
$000
2013
5% Lower (New Zealand dollar weakened)
5% Higher (New Zealand dollar strengthened)
2012
5% Lower (New Zealand dollar weakened) (45) (45)
5% Higher (New Zealand dollar strengthened) 40 40
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 $1.000m 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
Maximum Exposures to Credit Risk
ACTUAL
2012
$000
ACTUAL
2013
$000
72,952 Cash and Cash Equivalents 50,858
15,472 Debtors and Other Receivables 17,346
88,424 Total Exposure to Credit Risk 68,204

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 drawdowns from the New Zealand Debt Management Office. The Department maintains a target level of available cash to meet liquidity requirements.

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

Liquidity Risk
TOTAL LESS THAN
6 MONTHS
BETWEEN
6 MONTHS
AND 1 YEAR
BETWEEN
1 YEAR AND
5 YEARS
OVER
5 YEARS
2013
Creditors and Other Payables 33,642 33,642
Derivative Financial Instruments – Assets
Derivative Financial Instruments – Liabilities
2012
Creditors and Other Payables 32,258 32,258
Derivative Financial Instruments – Assets
Derivative Financial Instruments – Liabilities 21 21

23. 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
ACTUAL
2012
$000
ACTUAL
2013
$000
Loans and receivables
72,952 Cash and Cash Equivalents 50,858
15,472 Debtors and Other Receivables 17,346
88,424 Total Loans and Receivables 68,204
Fair Value Through Profit and Loss
21 Derivative Financial Instrument Liabilities
21 Total Fair Value Through Profit and Loss
Financial Liabilities Measured at Amortised Cost
32,258 Creditors and Other Payables 33,642

24. 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:

  1. Level 1 – Quoted market price – financial instruments with quoted prices for identical instruments in active markets.
  2. 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.
  3. 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
VALUATION TECHNIQUE
QUOTED MARKET PRICE
$000
OBSERVABLE INPUTS
$000
SIGNIFICANT NON-OBSERVABLE INPUTS
$000
2013
Financial Assets
Foreign Exchange Derivatives
Financial Liabilities
Foreign Exchange Derivatives
2012
Financial Assets
Foreign Exchange Derivatives
Financial Liabilities
Foreign Exchange Derivatives 21 21

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

25. 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 and the Public Finance Act 1989.

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

26. 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 $29.990m are outlined below.

Statement of Comprehensive Income – Variance between the Main Estimates and the Supplementary Estimates
REASON FOR BUDGET CHANGE $000
Expense transfers from 2011/12 to 2012/13 8,134
Expense transfers from 2012/13 to 2013/14 (1,660)
Retention of underspend from 2012/13 to 2013/14 (1,551)
New funding in 2012/13 12,964
All-of-Government ICT initiative (Result 10) 3,904
Transfer of Charities Commission functions to the Department of Internal Affairs 5,918
Increased demand for information technology services by other agencies 1,700
Increased demand for Kotui, a shared library management and resource discovery system 1,238
Insurance claims proceeds for the recovery of business continuity expenditure 874
Decrease in expenditure associated with All-of-Government Cloud Computing (2,714)
Other changes 1,183
Total Budget Change 29,990
Variance between Actual 2012/13 and the Supplementary Estimates
Other revenue

Other revenue is $5.493m lower than budgeted. This reflects lower provision of services to the Lottery Grants Board, lower gaming activity, lower than expected revenue from all of government products and reduced demand for passports.

Personnel costs

Personnel costs were less than budgeted by $10.544m due to lower than anticipated activity levels in Service Delivery and Operations and on-going vacancy levels in Information and Technology Services.

Other operating expenses

Other operating expenses were less than budgeted by $12.171m due to lower variable support costs resulting from reduced demand for passports and delays in a number of projects.

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 decrease in general funds between the Main Estimates and the Supplementary Estimates of $46.630m are outlined below.

Statement of Financial Position – Variance between the Main Estimates and the Supplementary Estimates
REASON FOR BUDGET CHANGE $000
Movement in opening balance, mainly due to deferred capital contribution (28,745)
Increase in capital contribution 1,964
Capital withdrawal in 2012/13 (15,000)
Movement in forecast net deficit for 2012/13 (4,849)
Total Budget Change (46,630)
Variance between Actuals and the Supplementary Estimates

Explanations for significant variances between actual and the Supplementary Estimates are outlined below.

Current assets

Cash and cash equivalents are above budget by $27.138m, mainly as a result of capital underspend of $12.0m and reduced operating expenditure, resulting in less cash required.

Non-Current assets

Property, plant and equipment is below budget by $2.5m primarily due to delays in the timing of capital expenditure.

Current Liabilities

Creditors and other payables are over budget by $5.557m primarily due to increased activity in June 2013.

Provision for repayment of surplus is $6.103m over budget as a result of the unbudgeted surplus.

Revenue received in advance is $1.111m under budget primarily as a result of incomplete citizenship applications.

Employee entitlements are $4.002m under budget as employees used up outstanding annual leave.

Equity

Taxpayers’ Funds were lower than budgeted by $10.370m due to the Department not needing to draw any capital funding during the year.

Memorandum accounts balances of $19.560m were not included in the budgeted financial position.

Revaluation reserves are $11.065m higher than budgeted primarily as a result of the increase in value of the National Library building following the completion of the upgrade project.

27. 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.

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