B : Budgetary Variance Reporting
The following are explanations of events that have impacted on Finance's operations and activities for the year that were not provided for in the budget or otherwise included against relevant note disclosures. Users should note that a number of these items have been included in subsequent budgets. Budget numbers are sourced from Portfolio Budget Statements (PBS) for 2016–17 and are provided to the right of primary statements in italics to clearly distinguish them from actual results. Budgeted numbers are not audited.
Major variances are those deemed relevant to an analysis of Finance's performance by management and are not focussed merely on numerical differences between the actual and budgeted amounts. A note reference is included against the relevant primary statement/schedule line item which corresponds to the explanations provided below and elsewhere in the financial statements.
When providing explanations, Finance has identified the financial impact in relation to those key aggregates relevant to Finance's performance. Users should be aware that there will be consequential impacts on related statements i.e. a variance in the Statement of Comprehensive Income is likely to have consequential impacts in the Statement of Financial Position and the Cash Flow Statement.
The Statement of Financial Position budget for 2016–17 was prepared based on 2014–15 financial results, with adjustments for predicted or known movements at that time.
| Note Reference | Affected line Items | Variance Reporting |
| B1: Centralised Procurement | Centralised procurement expense and revenue Unearned revenue Trade receivables | Centralised procurement expense and revenue variances to budget are mainly due to contracts and variations relating to both VSA and IBNCS that were finalised after the budget was set. Unearned revenue and trade receivables variances against budget are primarily due to the 2017-18 IBNCS agency invoices being issued one month earlier compared to prior financial years. This change of procedure was done to ensure a smooth transfer of the relevant components of Finance's CPCSA from Finance to DTA in 2017-18. |
| B2: Property | Land Buildings Investment properties Gains Asset revaluation reserves Domestic property portfolio expenses Other provisions |
Property revaluation movements for 2016–17 include: - Revaluation gains in land and buildings largely due to Commonwealth Law Courts. Land increases impacted the Asset Revaluation Reserve while building gains were taken to Net Cost of Services to reverse prior year reductions. Other property movements during 2016–17 include: - Reclassification of John Gorton and Treasury land and buildings to investment property since Finance no longer occupies these premises. - Sale of properties as part of the divestment programme (net book value of assets disposed $18.9m) with related sale proceeds of $22.3m. Domestic property portfolio expenses are lower than budget due to expenses being classified as capital expenditure as well as budgeted works not undertaken on behalf of the Department of Immigration and Border Protection (DIBP) at Villawood. Other provisions variance to budget is mostly due to recognition of expenses to remediate Cox Peninsula offset by increases in remediation provision to reflect latest forecasts of costs. |
| B3: Insurance | Insurance claims expense Outstanding insurance claims liability |
Variance to budget is due to an increase in the expected cost of a prior year liability claim, partially reduced by lower than expected new property claims for the current year. Variance to budget is due to new claims liabilities, and changes in assumptions and experience for prior year claims, which exceeded claim payments. |
| B4: Restructure of administrative arrangements | Rendering of services revenue Intangibles |
During 2016–17, Finance had multiple restructure of administrative arrangement decisions that resulted in both functions assumed and functions relinquished. These restructures are not reflected in the PBS 2016–17 budget numbers. Please refer to Note C4: Restructuring for further details. Finance assumed responsibility for shared services functions from the Education and Employment portfolio departments on 1 December, now called the Service Delivery Office (SDO) and the Parliamentary Workflow System (PWS). Included in this transfer were Intangible assets of $4.4m for the SDO and $7.4m for PWS. Since shared services functions are cost recovered, rendering of services revenue for Finance has increased. |
| B5: Appropriation receivables | Special Account cash held in the OPA Special account capital receivable Other departmental undrawn |
Variance to budget is mainly due to project delays pushing expenditure to later years on major departmental projects, and an underspend relating to the Moorebank project not reflected in the 2016–17 budget. These funds are no longer required and are pending return to the Official Public Account (OPA). |
| B6: Ministerial & Parliamentary Services | Employee benefits Employee provisions Travel expenses |
Employee benefits and provisions variance to budget are chiefly due to a significant reduction in the provision for parliamentary retirement travel (formerly Life Gold Pass), as a consequence of the Royal Assent of the Parliamentary Entitlements Legislation Amendment Act 2017. This amendment in legislation included significant changes to parliamentary retirement travel. In addition, the decrease in the current year is caused by the reduction in the provision for Former Prime Ministers entitlements resulting from actuarial movements.These adjustments could not be predicted and therefore no allowance was made in the budget. Travel expenses variance to budget is mostly a result of the establishment of IPEA from 3 April 2017, with travel administration and processing one of the key functions that moved to IPEA. |
| B7: Superannuation | Superannuation expense Superannuation provisions | The Long Term Cost Report (LTCR) discount rate of 6% is used for budget purposes to reduce the volatility that would occur from year to year if the long-term government bond rate was used. Consistent with Australian Accounting Standards, the long-term government bond rate as at 30 June is used to calculate the superannuation liability and expense for the purpose of financial reporting. Any change in these rates for budget and financial reporting purposes significantly impacts on the superannuation provisions and superannuation expense. |
| B8: Investment funds | Distribution to portfolio special accounts. Net assets comprising: investment funds – loans and receivables and financial assets at FVPL offset by investment funds – financial liabilities and derivative liabilities |
The DCAF net asset balance is higher than originally budgeted due to National Partnership Agreement (NPA) negotiations continuing and as a consequence payments are yet to be made to the states and territories or the Commonwealth. |
| B9: Investments in Commonwealth Corporate entities | Commonwealth corporate entities | In 2016–17, the ASC Group was restructured with critical infrastructure assets consolidated into Australian Naval Infrastructure Pty Ltd (ANI) with 100 per cent of the shareholding transferring to the Commonwealth in March 2017. Finance on behalf of the Commonwealth also made equity investments in both companies ASC Pty Ltd (ASC) and ANI in exchange for additional shares in 2016–17. More information on the valuation methodology applied is detailed in Note D1.1 under 'Key judgements and estimates'. These decisions and adjustments to investment values were not reflected in the budget. |
