Part five | Financial statements – departmental

Comprehensive Income

Statement of Comprehensive Income

for the year ended 30 June 2010

Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
	Revenue
98,348	Crown		109,526	119,320	109,526
119,669	Third Parties	2	126,138	126,954	126,656
865	Gain on Sale of Property, Plant and Equipment		33	0	0
218,882	Total Revenue		235,697	246,274	236,182
	Expenses
112,530	Personnel	3	119,701	127,233	121,350
86,067	Operating	4	86,762	103,176	99,108
9,526	Depreciation and Amortisation	10,11	15,832	14,287	13,993
3,490	Capital Charge	5	5,646	5,512	5,665
211,613	Total Expenses	23	227,941	250,208	240,116
7,269	Net Surplus/(Deficit)		7,756	(3,934)	(3,934)
	Other Comprehensive Income
0	Revaluation Gain	10	0	0	0
7,269	Total Comprehensive Income		7,756	(3,934)	(3,934)

Explanation of significant variances against budget are detailed in note 22.

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

Financial Position

Statement of Financial Position

as at 30 June 2010

Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
	Assets
	Current Assets
37,410	Cash and Cash Equivalents	6	42,843	36,024	27,664
4,467	Accounts Receivable	7	3,592	3,946	4,238
1,604	Inventories	8	1,444	1,382	1,210
131	Prepayments		463	164	1,002
2	Derivative Financial Instruments	9	0	0	0
43,614	Total Current Assets		48,342	41,516	34,114
	Non Current Assets
30,571	Property, Plant and Equipment	10	28,386	26,168	28,893
31,354	Intangible Assets	11	53,338	61,079	56,206
61,925	Total Non Current Assets		81,724	87,247	85,099
105,539	Total Assets		130,066	128,763	119,213
	Liabilities and Taxpayers’ Funds
	Current Liabilities
21,059	Accounts Payable	12	19,288	19,904	18,308
1,166	Provisions	13	1,600	1,049	1,267
7,034	Revenue Received in Advance	14	5,490	7,616	6,764
6,368	Employee Entitlements	15	7,924	6,458	6,895
1,059	Finance Lease	16	1,322	0	1,322
7,267	Provision for Repayment of Surplus	17	7,777	0	0
0	Derivative Financial Instruments	9	21	0	0
43,953	Total Current Liabilities		43,422	35,027	34,556
	Non Current Liabilities
1,157	Employee Entitlement	15	1,124	697	1,239
5,549	Finance Lease	16	4,515	0	4,227
6,706	Total Non Current Liabilities		5,639	697	5,466
50,659	Total Liabilities		49,061	35,724	40,022
	Taxpayers’ Funds
52,431	General Funds	17	79,297	89,665	76,742
2,449	Revaluation Reserve	17	1,708	3,374	2,449
54,880	Total Taxpayers’ Funds		81,005	93,039	79,191
105,539	Total Liabilities and Taxpayers’ Funds		130,066	128,763	119,213

Explanation of significant variances against budget are detailed in note 22.

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

Movements in Taxpayers’ Funds

Statement of Movements in Taxpayers’ Funds

for the year ended 30 June 2010

Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
7,269	Total Comprehensive Income		7,756	(3,934)	(3,934)
(925)	Increase/(decrease) in Revaluation Reserve	17	(741)	0	0
6,344	Total Recognised Revenue and Expenses		7,015	(3,934)	(3,934)
(7,267)	Provision for Repayment of Surplus	17	(7,777)	0	0
234	Other Movements in Taxpayers Funds	17	0	0	0
0	Transfers between Government Departments	17	15,404	0	0
0	Transfers to Crown		(1,360)	0	0
9,159	Capital Contribution	17	12,843	31,502	28,247
8,470	Movement in Taxpayers’ Funds for the year		26,125	27,568	24,313
46,410	Taxpayers’ Funds as at 1 July		54,880	65,471	54,878
54,880	Taxpayers’ Funds as at 30 June		81,005	93,039	79,191

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

Cash Flows

Statement of Cash Flows

for the year ended 30 June 2010

Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
	Cash Flows from Operating Activities
	Cash was Provided from:
98,348	Supply of Outputs to the Crown		109,526	119,320	109,526
117,976	Supply of Outputs to Third Parties		125,469	127,388	126,839
216,324			234,995	246,708	236,365
	Cash was Disbursed to:
(192,393)	Costs of Producing Outputs		(206,410)	(227,525)	(216,120)
(3,490)	Capital Charge		(5,646)	(5,512)	(5,665)
(195,883)			(212,056)	(233,037)	(221,785)
20,441	Net Cash Flows from Operating Activities		22,939	13,671	14,580
	Cash Flows from Investing Activities
	Cash was Provided from:
2,111	Sale of Property, Plant and Equipment		660	3,610	573
	Cash was Disbursed to:
(19,864)	Purchase of Intangibles	10	(17,381)	(25,423)	(27,522)
(8,611)	Purchase of Property, Plant and Equipment	11	(5,590)	(10,155)	(4,264)
(26,364)	Net Cash Flows from Investing Activities		(22,311)	(31,968)	(31,213)
	Cash Flows from Financing Activities
	Cash was Provided from:
9,159	Capital Contribution	17	12,843	16,102	14,156
	Cash was Disbursed to:
(8,330)	Repayment of Net Surplus	17	(7,267)	(1,789)	(7,269)
0	Payment of Finance Lease		(771)	0	0
829	Net Cash Flows from Financing Activities		4,805	14,313	6,887
(5,094)	Net Increase/(Decrease) in Cash Held		5,433	(3,984)	(9,746)
42,504	Add Opening Cash		37,410	40,008	37,410
37,410	Closing Cash and Cash Equivalents		42,843	36,024	27,664

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

Net Surplus to Net Cash Flow from Operating Activities

Reconciliation of Total Comprehensive Income to Net Cash Flow from Operating Activities for the year ended 30 June 2010

Actual 2008/09 $000		Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
7,269	Total Comprehensive Income	7,756	(3,934)	(3,934)
	Add/(Deduct) Non Cash Items
9,526	Depreciation and Amortisation	15,832	14,287	13,993
0	Revaluation Losses/(Gains) on Properties	0	0	0
(2)	Net Losses/(Gains) on Derivative Financial Instruments	21	0	0
(17)	Net Foreign Exchange Losses/(Gains)	18	0	0
9,507		15,871	14,287	13,993
	Add/(Deduct) Movements in Working Capital Items
(492)	(Increase)/Decrease in Accounts Receivable	875	434	229
691	(Increase)/Decrease in Inventories	160	122	394
138	(Increase)/Decrease in Prepayments	(332)	50	(871)
4,294	Increase/(Decrease) in Accounts Payable	(1,771)	2,837	4,329
117	Increase /(Decrease) in Provisions	434	0	101
(1,201)	Increase/(Decrease) in Revenue Received in Advance	(1,544)	(563)	(270)
832	Increase /(Decrease) in Employee Entitlements	1,523	437	609
4,379		(655)	3,317	4,521
	Add/(Deduct) Items Classified as Investing Activities
(714)	Loss/(Gain) on Sale of Property, Plant and Equipment	(33)	1	0
(714)		(33)	1	0
20,441	Net Cash Flows From Operating Activities	22,939	13,671	14,580

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

Commitments

Statement of Commitments

as at 30 June 2010

Actual 2008/09 $000		Actual 2009/10 $000
	Capital Commitments
	Capital Contracts for Goods and Services
9,287	Less than one year	11,094
0	One to two years	4,756
0	Two to five years	167
9,287	Total Capital Goods and Services Commitments	16,017
	Operating Commitments
	Non-Cancellable Accommodation Leases
9,779	Less than one year	9,131
8,036	One to two years	6,075
7,701	Two to five years	3,630
989	Over five years	614
26,505	Total Accommodation Commitments	19,450
	Other Non-Cancellable Leases
8,592	Less than one year	10,424
6,524	One to two years	7,076
4,893	Two to five years	611
20,009	Total Other Lease Commitments	18,111
	Non-Cancellable Contracts for Goods and Services
5,729	Less than one year	244
1	One to two years	2
5,730	Total Goods and Services Commitments	246
61,531	Total Commitments	53,824

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

Capital Commitments

Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and equipment and intangible assets that have not been paid for, or not recognised as a liability, at the balance sheet date. The Capital commitments for 2009/10 relate to the Passport System Redevelopment Project and for 2008/09 to the Passport Personalisation project.

Non-Cancellable Lease Commitments

The Department leases property, plant and equipment in the normal course of its business. The majority of the leases are for premises, vehicles, office equipment and electronic monitoring of non-casino gaming machines. The non-cancellable leasing period for these leases varies.

Non-Cancellable Contracts for Goods and Services

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

Contingent Assets and Liabilities

Statement of Contingent Assets and Liabilities

as at 30 June 2010

Quantified Contingent Liabilities

Actual 2008/09 $000		Actual 2009/10 $000
	Legal Proceedings and Disputes
215	Legal Disputes	144
0	Customs Duties	268
215	Total Contingent Liabilities	412

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

Unquantified Contingent Liabilities

Year Ended 30 June 2010

There are two personal grievance cases pending against the Department that cannot be reliably quantified due to uncertainty around the outcomes. Management believe the resolution of these cases will not have a materially adverse effect on the financial statements of the Department. (2008/09: Nil)

Contingent Assets

The Department has no contingent assets. (2008/09: Nil)

Unappropriated Expenditure

Statement of Unappropriated Expenditure

for the year ended 30 June 2010

There was no Unappropriated Expenditure for the year ended 30 June 2010. (2008/09: Nil)

Memorandum Accounts

Memorandum Accounts

for the year ended 30 June 2010

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

	Opening Balance 2009/10 $000	Movement During 2009/10 $000	Closing Balance 2009/10 $000
New Zealand Gazette	361	108	469
Use of facilities and access to Lake Taupo by boat users	2	(47)	(45)
Passport products	5,572	3,885	9,457
Citizenship products	444	(1,934)	(1,490)
Marriage products	61	(478)	(417)
Issue of Birth, Death and Marriage certifications and other products	3,259	(1,754)	1,505
Administration of non-casino gaming	(6,961)	685	(6,276)

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

The memorandum accounts were established on 30 June 2002.

Action Taken to Address Surpluses and Deficits

New Zealand Gazette

The cost of publishing and distributing the New Zealand Gazette is recovered through third party fees.  Fees will be reviewed once the costs of a project to improve the New Zealand Gazette’s online capability have been fully scoped. The planning phase for this project is underway and is due to be completed by October 2010.

Use of Facilities and Access to Lake Taupo by Boat Users

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. In 2009/10, lower levels of fees were recovered due to adverse weather conditions and the economic environment.

Passport Products

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

The Passport Redevelopment Programme that is expected to be completed in 2011/12 will replace ageing technology, improve process integrity, and implement a new robust system to handle the progressive increase in passport application volumes resulting from the move to a five-year passport announced in 2005. The new computer system and associated business processes is expected to be funded within the existing fees and constraints of the memorandum account balance. The commencement of the 5 year passports renewal cycle will see more passport volumes start to increase steadily until 2014/15 when the 5-year renewal cycle takes full effect. The 2009/10 movement reflected the timing of expenditure on Passport Redevelopment Programme developments and higher revenue than forecast.

The memorandum account surplus is expected to reduce as passport developments are implemented. Passport fees will be reviewed following the completion of the Passport Redevelopment Programme in 2011/12.

Citizenship Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. The current fees schedule was approved with effect from 1 September 2003. The balance in this account in recent years has been affected by fluctuating volumes and legislative changes. The negative movement in 2009/10 reflected legislative changes which increased the citizenship eligibility qualifying period from 3 to 5 years of permanent residence. Citizenship systems, processes and costs are currently being reviewed as part of the Department’s Performance and Productivity Improvement Programme and Machinery of Government changes affecting the Department. Citizenship fees will be reviewed in 2011/12 and will incorporate the results of the foregoing initiatives and the impact of volume changes.

Marriage Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon.  The current fees schedule was approved with effect from 1 September 2003 to recover full costs. The adverse movement in 2009/10 is expected to continue in 2010/11 and reflects higher costs since fees were last reviewed. Marriage systems, processes and costs are currently being reviewed as part of the Department’s Performance and Productivity Improvement Programme and Machinery of Government changes affecting the Department. Marriage product fees will be reviewed in 2011/12 and will incorporate the results of the foregoing initiatives and the impact of volume changes.

Births, Deaths and Marriages Certificates, and Other Products

The purpose of this account is to support a strategy to stabilise fees based on full cost recovery over a four to five year planning horizon. This strategy includes the introduction of new technologies that allow greater access by applicants through the Internet.  The current fees schedule was approved with effect from 1 September 2003 to recover full costs.  The adverse movement in 2009/10, which is expected to continue in 2010/11, reflects additional expenditure associated with the implementation of the Births, Deaths, Marriages and Relationships Registration legislation. Accordingly, the accumulated surplus is expected to decline further. Births, Deaths and Marriages systems, processes and costs are currently being reviewed as part of the Department’s Performance and Productivity Improvement Programme and Machinery of Government changes affecting the Department. Births, Deaths and Marriages Certificates, and Other Products fees will be reviewed in 2011/12 and will incorporate the results of the foregoing initiatives and the impact of volume changes.

Administration of Non-casino Gaming

Fees established to recover the cost of administration and regulation of non-casino gaming are reflected in gaming machine fees, licence fees and similar charges for differing types of gaming activity, in addition to charges relating to the electronic monitoring of non-casino gaming machines. The accumulated deficit resulted from uncertainties surrounding the introduction of the Gambling Act 2003 and the electronic monitoring system in 2006, in particular around volumes and activity. The current fees schedule was approved with effect from 1 February 2008, and a further review is planned in 2011 due to permanent reductions to the bases of revenue recovery for gaming machines and associated activity.

Departmental Expenditure Appropriations

Statement of Departmental Expenditure and Capital Appropriations for the year ended 30 June 2010

Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
	Appropriations for Output Expenses
	Vote Community and Voluntary Sector
	Multi-Class Output Appropriation
	Community and Voluntary Sector Services
1,687	Policy Advice – Community		1,610	1,712	1,712
14,438	Administration of Grants		14,508	15,117	14,941
5,123	Community Advisory Services		5,308	5,328	5,347
21,248	Total Community and Voluntary Sector Services		21,426	22,157	22,000
21,248	Total Vote Community and Voluntary Sector		21,426	22,157	22,000
	Vote Emergency Management
	Multi-Class Output Appropriation
	Emergency Management Services
927	Policy Advice – Emergency Management		846	974	880
5,621	Support Services, Information and Education		5,458	5,800	6,220
3,985	Management of National Emergency Readiness, Response and Recovery		3,875	4,275	4,394
10,533	Total Emergency Management Services		10,179	11,049	11,494
10,533	Total Vote Emergency Management		10,179	11,049	11,494
	Vote Internal Affairs
	Multi-Class Output Appropriation
	Policy and Advisory Services
4,760	Policy Advice- Internal Affairs		4,021	4,324	4,668
4,444	Information and Advisory Services		2,816	3,010	3,609
9,204	Total Policy and Advisory Services		6,837	7,334	8,277
	Departmental Output Expenses
0	Anti-Money Laundering and Countering Financing of Terrorism		353	0	967
0	Government Technology Services		11,511	23,955	12,515
84,704	Identity Services		96,484	92,109	99,876
25,166	Regulatory Services		24,910	25,929	25,925
5,670	Services for Ethnic Affairs		5,651	5,520	5,916
834	Contestable Services *		818	899	908
125,578	Total Vote Internal Affairs		146,564	155,746	154,384
Actual 2008/09 $000		Note	Actual 2009/10 $000	Main Estimates 2009/10 $000	Supp. Estimates 2009/10 $000
	Vote Local Government
	Multi-Class Output Appropriation
	Services for Local Government
7,741	Policy Advice – Local Government		7,258	7,167	7,427
5,080	Information, Support and Regulatory Services – Local Government		4,067	4,057	4,115
12,821	Total Services for Local Government		11,325	11,224	11,542
	Departmental Output Expenses
232	Implementation of Auckland Governance Reforms		379	9,144	566
13,053	Total Vote Local Government		11,704	20,368	12,108
	Vote Ministerial Services
	Departmental Output Expenses
30,154	Support Services to Members of the Executive		26,758	28,168	27,111
3,912	Visits and Official Events Co-ordination		4,472	4,437	4,736
7,653	VIP Transport		7,178	7,921	7,921
41,719	Total Vote Ministerial Services		38,408	40,526	39,768
	Vote Racing
	Departmental Output Expenses
195	Policy Advice – Racing		246	362	362
195	Total Vote Racing		246	362	362
212,326	Total Department Appropriation for Output Expenses	22	228,527	250,208	240,116
	Appropriation for Capital Expenditure
35,082	Vote: Department of Internal Affairs		22,974	35,578	31,786
35,082	Total Department Appropriation for Capital Expenditure		22,974	35,578	31,786
247,408	Total Department Appropriations		251,501	285,786	271,902

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

Notes to the Financial Statements

Notes to the Financial Statements

for the year ended 30 June 2010

Note 1

Statement of Accounting Policies

Reporting Entity

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

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

Integration with National Library, Archives New Zealand

As a result of an announcement made on 25 March 2010 the Department of Internal Affairs is currently undertaking a process to integrate with the National Library and Archives New Zealand. This will result in the carrying balances for these entities’ assets and liabilities being transferred to the Department of Internal Affairs during the course of the 2010/11 financial year.

No adjustments have been made within the Department of Internal Affairs accounts for the integration as the carrying value of the assets and liabilities are not expected to be materially different from the current residual value.

At the time of preparing the accounts no disestablishment date for the National Library and Archives New Zealand has been set.

Transfer of Government Technology Service from State Services Commission

On 1 July 2009 the assets and Liabilities of the Government Technology Service unit were transferred from State Services Commission to the Department of Internal Affairs. This had an effect on the Department’s accounts of increasing: fixed assets by $14.091 million, current assets by $4.390 million, current Liabilities by $3.077 million and taxpayer equity by $15.404 million.

Reporting Period

The reporting period for these financial statements is the year ended 30 June 2010. The financial statements were authorised for issue by the Chief Executive of the Department on 30 September 2010.

Basis of preparation

Statement of Compliance

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

Budget Figures

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

Changes in accounting policies

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 are amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

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:

Provision for Doubtful Debts

Note 7 includes a provision for doubtful debts on accounts receivable as at 30 June 2010. The provision is determined by using percentage of potential doubtful debts over reported period ranges based on past history for the Department and review of the accounts receivable balances held.

Long Service, Sick and Retirement Leave

Note 15 provides details of valuation of long service, sick and retirement leave. The long service and retirement valuation have been calculated by an independent valuer and includes the use of discount rates and inflationary estimates to determine the final valuations.

Finance Leases

The Department has exercised its judgement on the appropriate classification of equipment leases and has determined one lease arrangement to be a finance lease as identified in Note 16. To determine if a lease arrangement is a finance lease or an operating lease requires judgement as to whether the arrangement transfers substantially all the risks and rewards of ownership to the Department. Judgement is involved in determining the fair value of the leased asset, useful life and discount rate to calculate the present value of the minimum lease payments.

Effects from accounting standard adoption

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

NZ IAS 1 Presentation of Financial Statements (Revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (Issued 2004). The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and introduces a statement of comprehensive income. The statement of comprehensive income will enable readers to analyse changes in equity resulting from non-owner changes separately from transactions with owners. The Department has decided to prepare a single Statement of Comprehensive Income for the year ended 30 June 2010 under the revised standard.

Financial statement information for the year ended 30 June 2009 has been restated accordingly. Items of other comprehensive income presented in the statement of comprehensive income were previously recognised directly in the statement of changes in equity.

Amendments to NZ IFRS 7 Financial Instruments: Disclosures. The amendments introduce a three-level fair value disclosure hierarchy that distinguishes fair value measurements by the significance of valuation inputs used. A maturity analysis of financial assets is also required to be prepared if this information is necessary to enable users of the financial statements to evaluate the nature and extent of liquidity risk. The Department has elected to disclose both current and comparative information for the fair value disclosure hierarchy disclosures.

Standards, amendments, and interpretations issued that are not yet effective and have not been early adopted

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

NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following 3 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.

NZ IAS 24 Related Party Disclosures (Revised 2009) replaces NZ IAS 24 Related Party Disclosures (Issued 2004). The revised standard simplifies the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. The Department has not yet assessed the effect of the new standard and expects it will not be early adopted.

Functional and presentation currency

The functional currency of the Department is New Zealand dollars.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($000).

Significant accounting policies

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

The following particular accounting policies have been applied:

Revenue

Revenue 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.

Revenue Received in Advance

Revenue is recognised in Statement of Financial Position as a liability when the revenue has been received but does meet the criteria for recognition as revenue in the Statement of 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.

Cost Allocation

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

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

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

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

For the year ended 30 June 2010, direct costs accounted for 85% of the Department’s costs (2008/09: 83%). Direct costs include personnel, operating, capital charge, accommodation and depreciation.

Financial Instruments

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

Financial Assets

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

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

Financial Liabilities

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

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

Foreign Currency

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

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

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 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.

Property, Plant and Equipment

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

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

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

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

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

Classes of property, plant and equipment that are revalued, are revalued at least every five years or whenever the carrying amount differs materially to fair value. Unrealised gains and losses arising from changes in the value of property, plant and equipment are recognised as at balance date. To the extent that a gain reverses a loss previously charged to the Statement of 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.

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.

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

Depreciation

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

Buildings	33–50 Years
Plant and Equipment	5–20 Years
Furniture and Fittings	5–10 Years
Office Equipment	5–10 Years
Motor Vehicles	3–6 Years
IT Equipment	3–5 Years

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

Land and antiques and works of art are not depreciated.

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

Intangible Assets

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

Intangible assets with finite lives are subsequently recorded at cost less any amortisation and impairment losses. Amortisation is charged to the Statement of Comprehensive Income on a straight-line basis over the useful life of the asset. Typically, the estimated useful lives of these intangible assets (Software) is 3–7 years. One exception is Births, Deaths and Marriages Historical Records Databases which are depreciated over 10 years.

Realised gains and losses arising from disposal of intangible assets are recognised in the Statement of 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 of non-current assets

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

Finance Leases

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

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

Operating Leases

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

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

Employee Entitlements

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

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

Other Liabilities and Provisions

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

Commitments

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

Contingent Assets and Liabilities

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

Taxation

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

Goods and Services Tax (GST)

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

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

Commitments and contingencies are disclosed exclusive of GST.

Taxpayers’ Funds

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

Note 2

Revenue Third Parties

Actual 2008/09 $000		Actual 2009/10 $000
53,391	Passport Fees	60,909
9,922	Citizenship Fees	7,963
10,620	Birth, Death, Marriage and Civil Union Fees	10,283
17,501	Gaming Licences	17,231
5,384	Casino Operators’ Levies	5,244
7,004	VIP Transport	6,630
9,711	Recovery from New Zealand Lottery Grants Board	10,027
1,096	New Zealand Gazette	1,013
0	e-Government Development & Operations	1,183
5,040	Other	5,655
119,669	Total Revenue Third Parties	126,138

Note 3

Personnel Costs

Actual 2008/09 $000		Actual 2009/10 $000
106,967	Salaries, Wages and Contractors	113,729
2,310	Employer Contribution to defined contribution plans	2,671
835	Increase/(decrease) in employee entitlements	965
2,418	Other Personnel Costs	2,336
112,530	Total Personnel	119,701

Note 4

Operating Expenses

Actual 2008/09 $000		Actual 2009/10 $000
9,626	Agency Fees	10,157
11,530	Computer Costs	15,023
3,308	Consultants	3,600
15,120	Inventory Costs	13,669
12,938	Office Expenses	12,415
3,200	Professional Fees	4,534
2,411	Publicity and Promotion	2,182
11,468	Rental and Leasing Costs	11,409
2,523	Staff Development	2,370
4,591	Travel Expenses	4,400
185	Fee for Audit of Financial Statements	195
45	Fees to Auditors for Other Services Provided	98
17	Increase/(Decrease) in Provision for Doubtful Debts	(19)
151	Loss on Sale of Property, Plant and Equipment	0
0	Interest on Finance Leases	156
(17)	Realised Foreign Exchange Losses/(Gains)	18
(2)	Unrealised Foreign Exchange Losses/(Gains)	21
8,973	Other Departmental Operating Costs	6,534
86,067	Total Operating Expenses	86,762

Note 5

Capital Charge

The Crown imposes a capital charge on the Department’s taxpayers’ funds as at 30 June and 31 December each year. The capital charge rate in 2009/10 was 7.5% (2008/09: 7.5%).

Note 6

Cash and Cash Equivalents

Actual 2008/09 $000		Actual 2009/10 $000
37,019	New Zealand Bank Accounts	41,665
	Overseas Bank Accounts
372	Sydney	814
19	London	364
37,410	Total Cash and Cash Equivalents	42,843

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

Note 7

Accounts Receivable

Actual 2008/09 $000		Actual 2009/10 $000
4,504	Trade Receivables	3,610
(37)	Less Provision for Doubtful Debts	(18)
4,467	Total Accounts Receivable	3,592

The carrying value of trade receivables approximates their fair value.

As at 30 June 2010 and 2009, all overdue receivables have been assessed for impairment and appropriate provisions applied, as detailed below.

	Actual 2008/09				Actual 2009/10
Gross $000	Impairment $000	Net $000		Gross $000	Impairment $000	Net $000
4,122	(25)	4,097	Not past due	3,514	(16)	3,498
310	(3)	307	Past due 1–30 days	84	(1)	83
43	(2)	41	Past due 31–60 days	8	0	8
15	(5)	10	Past due 61–90 days	1	0	1
14	(2)	12	Past due > 91 days	3	(1)	2
4,504	(37)	4,467	Total	3,610	(18)	3,592

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

Movements in the provision for doubtful debts are as follows:

Actual 2008/09 $000		Actual 2009/10 $000
27	Balance at 1 July	37
17	Additional Provisions made during the year	(19)
(7)	Trade Receivables written off	0
37	Provision for doubtful debts	18

Note 8

Inventories

Actual 2008/09 $000		Actual 2009/10 $000
	Passports
18	Stock on hand	12
691	Work in Progress	773
	Visits and Ceremonials
21	Liquor	0
	Civil Defence and Emergency Management
20	Guides to National CDEM Plan	20
	Birth, Death and Marriage Certificates
22	Stock on hand	24
	Citizenship
79	Stock on hand	49
753	Work in Progress	566
1,604	Total Inventories	1,444

The carrying amount of inventories held for distribution that are measured at current replacement cost as at 30 June 2010 amounted to $Nil. (2008/09: $Nil)

The liquor stocks held by the Visits and Ceremonials Office were sold in May 2010.

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

Note 9

Derivative Financial Instruments

The notional principal amounts of the outstanding forward exchange contracts at 30 June 2010 were Australian dollars $1,650,000 (2008/09: $1,350,000) and UK Sterling £120,000 (2008/09: £120,000).

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

Note 10

Property, Plant and Equipment

2009/10

Cost or Valuation	Balance 1 July $000	Additions $000	Revalu-ations $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Land	5,350	0	(723)	0	0	(977)	3,650
Buildings	3,397	0	(18)	0	0	(407)	2,972
Lease Improvements	10,060	868	0	(123)	110	0	10,915
Antiques and Works of Art	456	0	0	0	0	0	456
Furniture and Fittings	639	175	0	(31)	0	200	983
Office Equipment	1,198	74	0	(262)	29	17	1,056
Motor Vehicles	6,628	629	0	(693)	0	0	6,564
Plant and Equipment	1,028	11	0	(153)	0	0	886
IT Equipment	11,094	3,833	0	(785)	(1,501)	4,199	16,840
Leased Assets	6,608	0	0	0	0	0	6,608
Total Cost	46,458	5,590	(741)	(2,047)	(1,362)	3,032	50,930

Accumulated Depreciation	Balance 1 July $000	Additions $000	Revalu-ations $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Buildings	98	97	0	0	0	(26)	169
Lease Improvements	5,328	2,313	0	(123)	0	0	7,518
Furniture and Fittings	420	94	0	(23)	0	84	575
Office Equipment	840	168	0	(262)	0	10	756
Motor Vehicles	1,419	1,044	0	(416)	0	0	2,047
Plant and Equipment	745	106	0	(153)	0	0	698
IT Equipment	7,037	2,462	0	(239)	(1)	751	10,010
Leased Assets	0	771	0	0	0	0	771
Total Accumulated Depreciation	15,887	7,055	0	(1,216)	(1)	819	22,544

2008/09

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

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

	Actual 2008/09		Carrying Values		Actual 2009/10
Cost or Valuation $000	Accumulated Depreciation $000	Carrying Value $000		Cost or Valuation $000	Accumulated Depreciation $000	Carrying Value $000
5,350	0	5,350	Land at valuation	3,650	0	3,650
3,397	(98)	3,299	Buildings	2,972	(169)	2,803
10,060	(5,328)	4,732	Lease Improvements	10,915	(7,518)	3,397
456	0	456	Antiques and Works of Art	456	0	456
639	(420)	219	Furniture and Fittings	983	(575)	408
1,198	(840)	358	Office Equipment	1,056	(756)	300
6,628	(1,419)	5,209	Motor Vehicles	6,564	(2,047)	4,517
1,028	(745)	283	Plant and Equipment	886	(698)	188
11,094	(7,037)	4,057	IT Equipment	16,840	(10,010)	6,830
6,608	0	6,608	Leased Assets	6,608	(771)	5,837
46,458	(15,887)	30,571	Total Property, Plant and Equipment	50,930	(22,544)	28,386

Leased Assets

The net carrying amount of the leased assets (Passport Printers) held under finance lease is $5,837,000 (2008/09: $6,608,000).

Revaluation Movement

The 2009/10 revaluation movement is a result of the transfer of one Ministerial Property from the Department to Non Department. In 2008/09 the revaluation movement relates to the revaluation of Lake Taupo buildings, $13,000, and the sale of a Ministerial Property ($938,000).

Refer to note 17 c for the movement through the revaluation reserve.

Land and Buildings

Ministerial Properties

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

Lake Taupo

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

Antiques and Works of Art

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

Revaluation Movement

	Land	Buildings	Antiques & Works of Art	Total
Revaluation Movement	(723)	(18)	0	(741)
allocated to:
Revaluation Reserve	0	0	0	0
Reversal of Reserve associated with disposed assets	(723)	(18)	0	(741)

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

Capital Work in Progress

The total amount of property, plant and equipment in the course of construction is $14,000 (2008/09: $7,767,000). The property, plant and equipment in the course of construction in 2009 included the total assets held under the finance lease.

Impairments Losses

There were no impairment losses (2008/09: $Nil)

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.

Note 11

Intangible Assets

2009/10
Cost	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Total Intangibles Assets	53,797	17,381	(125)	1,278	15,385	87,716
Accumulated Amortisation	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Total Intangibles Assets	22,443	8,777	(125)	0	3,283	34,378
2008/09
Cost	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Total Intangibles Assets	35,767	19,864	(1,760)	(74)	0	53,797
Accumulated Amortisation	Balance 1 July $000	Additions $000	Disposals $000	Reclassed $000	Transfers $000	Balance 30 June $000
Total Intangibles Assets	19,048	5,121	(1,726)	0	0	22,443

Actual 2008/09			Carrying Values	Actual 2009/10
Cost or Valuation $000	Accumulated Amortisation $000	Carrying Value $000		Cost or Valuation $000	Accumulated Amortisation $000	Carrying Value $000
53,797	(22,443)	31,354	Total Intangibles Assets	87,716	(34,378)	53,338

Capital Work in Progress

The total amount of intangibles in the course of construction is $18,926,000 (2008/09: $15,451,000).

Impairments Losses

There were no impairment losses (2008/09: $Nil)

Restrictions of Title

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

Note 12

Accounts Payable

Actual 2008/09 $000		Actual 2009/10 $000
8,012	Accounts Payable	6,193
10,527	Accrued Expenses	10,493
1,575	Accrued Salaries	2,214
945	GST Payable	388
21,059	Total Accounts Payable	19,288

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

Note 13

Provisions

Actual 2008/09				Actual 2009/10
Lease Make Good $000	Other $000	Total $000		Lease Make Good $000	Other $000	Total $000
0	1,049	1,049	Opening Balance	0	1,166	1,166
0	302	302	Additional provisions made during the year	320	471	791
0	(185)	(185)	Charge against provision for the year	0	(338)	(338)
0	0	0	Unused provisions reversed	0	(19)	(19)
0	1,166	1,166	Closing Balance	320	1,280	1,600

Lease Make Good Provision

In respect of a number of Department’s leased properties, the Department is required at the expiry of the lease term to restore the properties to agreed conditions repairing any damages to the properties and removing any fixtures and fittings installed by the Department.

Other Provision

A staff development programme is the major component of the ‘Other’ Provision.

Note 14

Revenue Received in Advance

Actual 2008/09 $000		Actual 2009/10 $000
4,065	Identity Products	3,250
53	New Zealand Gazette	49
2,848	Licensing Fees	2,120
68	National Dogs Database	71
7,034	Total Revenue Received in Advance	5,490

Note 15

Employee Entitlements

Actual 2008/09 $000		Actual 2009/10 $000
	Current
5,712	Annual Leave	6,720
189	Sick Leave	239
467	Long Service and Retirement Leave	965
6,368	Total Current Entitlements	7,924
	Long Term
1157	Long Service and Retirement Leave	1,124
7,525	Total Employee Entitlements	9,048

Long service, retirement leave and sick leave are calculated on an actuarial basis. The portion not considered payable in the next twelve months is recognised as a term liability. The current portion is recognised as a current liability. The assessment was undertaken for each employee as at 31 December 2009. Actuarial services were provided by Mercer Human Resource Consulting Ltd. The report was prepared by Paul Dalebroux, Fellow of the New Zealand Society of Actuaries.

Note 16

Finance Lease

Actual 2008/09 $000		Actual 2009/10 $000
	Minimum Lease Payments Payable
1,589	Not later than one year	1,589
6,356	Later than one year and not later than five years	5,429
7,945	Total Minimum Lease Payments	7,018
(1,337)	Future Finance Charges	(1,181)
6,608	Present Value of Minimum Lease Payments Payable	5,837
1,059	Not later than one year	1,322
5,549	Later than one year and not later than five years	4,515
6,608	Total Present Value of Minimum Lease Payments	5,837
	Represented by:
1,059	Current	1,322
5,549	Non-current	4,515
6,608		5,837

Description of leasing arrangements

The Department has entered into a finance lease for the supply of specialist printing equipment required for printing passport books. The net carrying amount of the leased assets is shown within Note 10 Property, Plant and Equipment.

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

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

Note 17

Movements In Taxpayers’ Funds

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

a) Provision for Repayment of Surplus

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

Actual 2008/09 $000		Actual 2009/10 $000
7,269	Total Comprehensive Income	7,756
(2)	Unrealised Foreign Exchange Losses/(Gains)	21
7,267	Provision for Repayment of Surplus	7,777

b) General Funds

Actual 2008/09 $000		Actual 2009/10 $000
43,036	Opening Balance	52,431
7,269	Total Comprehensive Income	7,756
9,159	Capital Contribution	12,843
234	Other Movements	0
0	Transfers between Government Departments	15,404
0	Transfer to Crown	(1,360)
(7,267)	Provision for Repayment of Surplus	(7,777)
52,431	Closing Balance	79,297

c) Revaluation Reserve

Actual 2008/09				Actual 2009/10
Opening Balance $000	Revalu-ation Movement $000	Closing Balance $000		Opening Balance $000	Revalu-ation Movement $000	Closing Balance $000
2,872	(705)	2,167	Land	2,167	(723)	1,444
268	(220)	48	Buildings	48	(18)	30
234	0	234	Antiques and Works of Art	234	0	234
3,374	(925)	2,449	Total Revaluation Reserve	2,449	(741)	1,708

The 2009/10 revaluation movement is a result of the transfer of one Ministerial Property from the Department to Non Department. In 2008/09 the revaluation movement relates to the revaluation of Lake Taupo buildings, $13,000, and the sale of a Ministerial Property ($938,000).

d) Capital Contribution

Actual 2008/09 $000		Actual 2009/10 $000
1,700	Passport System Redevelopment	6,000
0	Government Technology Services	4,443
0	Backup Emergency Operations Facilities	2,400
3,019	IT Infrastructure	0
2,010	Securing and Protecting New Zealander’s Identity Information	0
2,000	Development of Evidence of Identity Technical Infrastructure	0
250	Anti-Spam Regulation	0
180	BDM Registration Amendment Bill	0
9,159	Total Capital Contribution	12,843

Note 18

Financial Instruments

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

a) Currency Risk

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

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

Sensitivity Analysis

At 30 June 2010, if the New Zealand dollar had weakened or strengthened by 5% against the Australian dollar with all other variables held constant, the surplus for the year would have been $96,000 higher or $106,000 lower (2008/09 $79,000 higher or $88,000 lower). This movement is attributable to the foreign exchange gains/losses on translation of Australian dollar denominated derivative financial instruments.

At 30 June 2010, if the New Zealand dollar had weakened or strengthened by 5% against UK Sterling with all other variables held constant, the surplus for the year would have been $12,000 higher or $14,000 lower (2008/09 $15,000 higher or $16,000 lower). This movement is attributable to the foreign exchange gains/losses on translation of UK Sterling denominated derivative financial instruments.

b) Interest Rate Risk

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

Under section 46 of the Public Finance Act 1989, the Department cannot raise a loan without approval of the Minister of Finance. Equipment leases are identified as finance leases in accordance with NZ IAS 17 Leases. The Department has received the Minister of Finance approval for these leases. The fixed interest rate on the term of these leases reduces the exposure on borrowed funds.

c) Credit Risk

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

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

The Department banks with Treasury approved financial institutions.

The Department holds cash with Westpac. Westpac is part of the Crown Retail Deposit Guarantee Scheme and so all deposits up to $1.000 million 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.

d) Maximum exposures to credit risk:

Actual 2008/09 $000		Actual 2009/10 $000
37,388	Cash and Cash Equivalents	42,810
4,467	Accounts Receivable	3,592
41,855	Total	46,402

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

e) Liquidity risk

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

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

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

	Total $000	Less than 6 months $000	Between 6 months and 1 year $000	Between 1 year and 5 years $000	Over 5 years $000
2009/10
Accounts Payable	19,288	19,288	0	0	0
Derivative Financial Instruments	21	21	0	0	0
2008/09
Accounts Payable	21,059	21,059	0	0	0
Derivative Financial Instruments	0	0	0	0	0

f) Nominal Value

The Department has six foreign exchange forward contracts with a nominal value of $2.262 million (2008/09: six contracts valued at $1.983 million).

Note 19

Categories of Financial Instruments

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

Actual 2008/09 $000		notes	Actual 2009/10 $000
	Loans and receivables
37,410	Cash and Cash Equivalents	5	42,843
4,467	Accounts Receivable	6	3,592
41,877	Total loans and receivables		46,435
	Fair value through profit and loss
2	Derivative financial instrument liabilities		(21)
	Financial liabilities measured at amortised cost
(21,059)	Accounts Payable	11	(19,288)

Note 20

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 instrument with quoted prices for similar instruments in active market 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.

		Valuation Technique
	Total $000	Quoted Market Price $000	Observable Inputs $000	Significant Non-observable Inputs 000
2009/10
Financial Assets
Foreign Exchange Derivatives	0	0	0	0
Financial Liabilities
Foreign Exchange Derivatives	21	0	21	0
2008/09
Financial Assets
Foreign Exchange Derivatives	2	0	2	0
Financial Liabilities
Foreign Exchange Derivatives	0	0	0	0

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

Note 21

Capital Management

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

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

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

Note 22

Explanation of significant variances against budget

Statement of Comprehensive Income

Variance Main Estimates to the Supplementary Estimates

The primary factors contributing to the decrease in expense budgets between the Main Estimates and the Supplementary Estimates of $10.092 million include:

	$million
expense transfers from 2008/09 to 2009/10	6.375
expense transfers from 2009/10 to 2009/11	( 6.500)
new funding in 2009/10	1.985
transfers to non-departmental appropriations	(10.821)
decreased demand for passport and citizenship products	( 1.478)

For more detail of the changes in budgets between the Main Estimates and the Supplementary Estimates see Part Four Statement of Service Performance.

Variance between Actual 2009/10 and the Supplementary Estimates

Actual expenditure was 5% lower than the Supplementary Estimates. The overall under-expenditure of $12.175 million is attributable to the impact of two factors:

	$million
i. in-principle expense transfers	3.536
ii. lower expenditure across the Department	8.639

The lower level of expenditure across the Department of $8.639 million is primarily attributable to:

Identity products ($3.139 million)

There was a reduction in activity on projects and lower business as usual (production and overhead) expenditure, specifically in passports ($1.639 million), citizenship ($0.700 million) and Birth, Death and Marriages ($0.800 million).

Listening and Assistance Service ($0.605 million)

Use of the service was lower than expected.

Reduction in third-party related expenditure, ($1.347 million)

A reduction in demand for VIP Transport ($0.779 million), Language Line ($0.242 million), Lottery Grants Board ($0.250 million) and Translation Services ($0.076 million), all of which are partially offset by decreases in revenue.

Aggregated across-department under expenditure – ($3.548 million)

This balance of under expenditure reflects a wide range of less significant factors across all areas of the Department, in particular vacancies, legal costs, lower costs due to the cancellation or postponement of some guests of government visits and savings due to efficiencies and productivity initiatives.

The changes between Supplementary Estimates and actual expenditure are further detailed by output expense in Part Four Statement of Service Performance.

Statement of Financial Position

Explanations for significant variances above 5% between Actual and Main Estimates for 2009/10 are as follows:

The primary factors contributing to the decrease in general funds between the Main Estimates and the Supplementary Estimates of $12.923 million include:

	$million
a correction to the forecast cash balance at 1 July 2009 used in the Mains Estimates, which assumed the drawdown of additional capital injections in 2008/09	9.902
a reduction in the capital injection in 2009/10	1.946
a reduction in the non-cash transfer from the State Services Commission	1.309

The increase in the Finance Leases between the Main Estimates and the Supplementary Estimates reflects the recognition of the finance lease for the passport printers.

General Funds at 30 June 2010 were 3% higher than the Supplementary Estimates due to the actual net surplus against a budgeted deficit, partially offset by a lower level of capital injection in 2009/10 than forecast.

Cash and Cash Equivalents were 55% higher than the Supplementary Estimates due to the higher level of surplus and General Funds than forecast partially offset by lower Intangible Assets. Intangible assets were 5% lower than the Supplementary Estimates due to the timing of expenditure on the redevelopment of the Passport System.

Note 23

Reconciliation between Total Operating Expenses and Total Appropriations

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

Actual 2008/09 $000		Actual 2009/10 $000
211,613	Total Operating Expenses in Statement of Comprehensive Income	227,941
(32)	Gain on Sale of Property, Plant and Equipment	0
745	Intra-entity Expenditure	586
212,326	Total Appropriations in Statement of Departmental Appropriations and Expenditure	228,527

Note 24

Related Parties

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

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

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

Key Management Personnel Compensation

Actual 2008/09 $000		Actual 2009/10 $000
2,274	Salaries and other Short-Term Employee Benefits	2,579
94	Post-employment Benefits	89
12	Other Long -Term Benefits	35
2,380	Total Key Management Personnel Compensation	2,703

Key management personnel include the Chief Executive and the nine members (eight members in 2008/09) of the Executive Leadership Team. The new position of General Manager, Government Technology Services has now been included in 2009/10.

Key management personnel compensation excludes the remuneration and other benefits of the responsible ministers for the Departments namely, Hon Nathan Guy, Hon John Key, Hon Pansy Wong, Hon Tariana Turia, Hon Rodney Hide 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.

Note 25

Significant Events after balance date

No adjustments have been made within the accounts for any potential losses resulting from the 7.1 Canterbury Earthquake on September 4 2010. While damages have not as yet been quantified they are not expected to materially effect the current residual value of the Departments Assets.

As a result of the earthquake Cabinet have agreed to contribute $5.000 million to a Joint Mayoral Relief Fund. This fund will be managed externally through the Christchurch City Council, Selwyn District Council and the Waimakariri District Councils. This contribution is made by way of a non departmental appropriation in the 2010/11 financial year.

There is a possibility that further unquantifiable expenditure remains at this stage.

Departmental Financial Results

Summary of Departmental Financial Results

Actual 2008/09		Unit	Actual 2009/10
	Working Capital
0.85:1	Liquid Ratio		0.99:1
0.99:1	Current Ratio		1.11:1
11	Average Debtors Outstanding	days	10
22	Average Creditors Outstanding	days	23
	Resource Utilisation
	Physical Assets:
58.67	Physical Assets as % of Total Assets	%	62.83
45.98	Additions as % of Physical Assets	%	28.11
54,880	Taxpayers’ Funds: Level at year-end	$000	81,005
52.00	Taxpayers’ Funds as % of Total Assets	%	62.28