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NSW Audit Office - Financial Reports - 2007 - Volume 2 ...

  1. 1. AUDITOR-GENERAL’S REPORT FINANCIAL AUDITS Volume Two 2007 The Legislative Assembly The Legislative Council Parliament House Parliament House Sydney NSW 2000 Sydney NSW 2000 Pursuant to the Public Finance and Audit Act 1983, I present Volume Two of my 2007 Report. Peter Achterstraat Auditor-General Sydney May 2007
  2. 2. GUIDE TO USING THIS VOLUME This volume summarises the results of a number of our financial audits. We have attempted to adopt a ‘plain English’ style of writing. This is not always easy when describing technical issues, but we recognise the diversity of our readership and their needs. This Volume has three sections. Section One incorporates The Legislature. Section Two is divided into ministerial portfolios, each containing one or more government agencies. Each agency’s comment begins with a summary of our Audit Opinion. This is a key result of each audit. An ‘unqualified audit opinion’ means we are satisfied that the agency has prepared its financial report in accordance with Australian Accounting Standards (and other mandatory requirements). It also means we believe the report has no material errors and the scope of our audit has not been limited. If any of these aspects are not met we issue a ‘qualified audit opinion’ and explain why we did this. The next section outlines any Key Issues we identified during the audit. These are matters such as: significant findings or outcomes of the audit any major developments impacting on the agency’s role or activities key repeat findings recommendations to Parliament. The Audit Opinion and the Key Issues sections represent the more important findings. By targeting these sections, readers can quickly understand the major issues facing a particular agency, or glance through a number of reports to assess the financial health of a portfolio. Performance Issues cover key financial and operational statistics we have identified that help understand how well the agency is performing. Wherever possible we include comparisons with similar agencies interstate. The next two sections contain analysis of issues we identified during our audit. While many of these will include suggestions for improvement, these are not as significant as the issues outlined in the first two sections of the agency comment. Control Issues outline any shortcomings we have observed in the agency’s internal checking mechanisms. These mechanisms should exist to ensure the effective safeguard of assets and resources. Compliance Issues summarise whether the agency has complied with selected legislation and other relevant government requirements. Financial Information summarises the essential information from each agency’s financial report. While this is sufficient for a broad understanding of the agency’s financial position, readers can access more detailed financial statements in the agency's annual report or website. Agency Activities summarise the agency’s purpose, services, structure, relevant legislation, and its web address. While some ‘agency comments’ in this volume will have all of the headings outlined here, this will vary depending on the size of the organisation and the findings of our audit. The Agency Response appears where the head of an agency does not believe that the commentary in our Report adequately reflects the agency's position or actions taken. As we discuss our proposed comments with agency staff during the drafting process, few agencies ask for a formal response to be included. Section Three refers to Performance Audits tabled or in progress at the time of this report.
  3. 3. Contents Significant Items ................................................................................................. iii Services Provided by the Audit Office ....................................................................... v SECTION ONE – The Legislature Audit of Members’ Additional Entitlements ................................................................... 3 SECTION TWO – Commentary on Government Agencies Minister for Education and Training ............................................................................ 7 Technical Education Trust Funds........................................................................ 9 Universities Overview.................................................................................... 10 Charles Sturt University ................................................................................. 17 Macquarie University..................................................................................... 20 Southern Cross University ............................................................................... 26 The University of Sydney ................................................................................ 30 University of New England .............................................................................. 37 University of New South Wales......................................................................... 41 University of Newcastle ................................................................................. 55 University of Technology, Sydney...................................................................... 61 University of Western Sydney .......................................................................... 66 University of Wollongong................................................................................ 72 UNILINC Limited .......................................................................................... 78 Minister for Health ............................................................................................... 79 Health Administration Corporation ................................................................... 81 Minister for Lands ................................................................................................ 85 Wild Dog Destruction Board............................................................................. 87 Minister for Primary Industries ................................................................................. 89 Department of Primary Industries ..................................................................... 91 State Council of Rural Lands Protection Boards..................................................... 97 Trustees of the Farrer Memorial Research Scholarship Fund ..................................... 98 Wine Grapes Marketing Board .......................................................................... 99 Minister for Sport and Recreation............................................................................ 101 Newcastle International Sports Centre Trust ...................................................... 103 Parramatta Stadium Trust ............................................................................ 105 Minister for Water Utilities ................................................................................... 107 Cobar Water Board ..................................................................................... 109 i
  4. 4. Contents _______________________________________________________________________________________ Premier........................................................................................................... 111 Infrastructure Implementation Corporation ....................................................... 113 Trustees of the Anzac Memorial Building........................................................... 114 Treasurer......................................................................................................... 115 Crown Employees (NSW Fire Brigades Fire Fighting Staff Death and Disability) Superannuation Fund................................................................................... 117 SECTION THREE – Performance Auditing Performance Audit Reports Tabled in Parliament since Volume One of 2007 ........................ 121 Performance Audits in Progress .............................................................................. 123 APPENDICES Appendix 1: Audit and Audit-Related Services Requested by the Treasurer ........................ 127 Appendix 2: Financial Reports Received After Statutory Date (at 4 May 2007) .................... 128 Appendix 3: Financial Reports Not Received (at 4 May 2007) ......................................... 129 Appendix 4: Financial Reports Received but Audit Incomplete by Statutory Date (at 4 May 2007) ............................................................. 130 INDEX ............................................................................................................. 133 ii
  5. 5. Significant Items Page Macquarie University Internal audit’s preliminary assessment of certain financial management issues 20 within Macquarie International indicated some abnormalities with certain expenditures. A signed contract of employment for the former Vice Chancellor was not available. 20 The records maintained for artworks require significant improvement. During a 21 recent independent revaluation of artworks it was established that ownership could not be proven for a significant portion of the total value of the collection. The University of Sydney The valuation of the University’s cultural assets needs to be brought up to date. 30 ‘Excess’ annual leave balances held by academics and general staff continue to 30 grow. The University is still to complete its Business Continuity Plan. 30 University of New South Wales The University is currently reviewing the scope and operation, financing and other 41 arrangements for the development of the operation of its UNSW Asia campus in Singapore. The University is still awaiting a report from an independent investigator into 42 disciplinary action relating to the Co-Operative Research Centre for Eye Research and Technology (CRCERT), which has been wound up. University of Newcastle The University’s financial position continued to improve during 2006 with an 55 operating surplus of $33.5 million being achieved. The surplus reversed the trend of deficits over the previous six years. The University expects positive results to continue and has budgeted for an operating surplus of $15.3 million for 2007. iii
  6. 6. The Honourable Speaker and The Honourable President and Members of the Legislative Assembly Members of the Legislative Council SERVICES PROVIDED BY THE AUDIT OFFICE In our system of government, Parliament is supreme – all authority for governmental activity ultimately stems from Parliament. Government agencies are therefore accountable to Parliament for their use of the resources and powers conferred by Parliament. As part of its accountability arrangements, Parliament seeks assurance from an independent source – the Auditor-General – on key aspects of government performance and reporting. The purpose of this letter is to assist Parliament’s understanding of the Audit Office role. It is issued following an election or changes to Audit Office services. With the help of my Office I will continue to assist Parliament hold government accountable for its use of public resources. I will provide independent assurance that government agencies are performing, and accounting for their performance, in accordance with Parliament’s expectations. MEETING PARLIAMENT’S EXPECTATIONS Legislation provides for me to: audit the Treasurer’s Public Accounts and Total State Sector Accounts and the Statement of Budget Result and express an opinion on the financial reports audit the accounts of all NSW public sector agencies and express an opinion on their financial reports. We conduct over 400 of these audits each year, reviewing budget dependent general government sector agencies, statutory bodies, state owned corporations, universities and associated companies examine allegations of serious and substantial waste of public money under the Protected Disclosures Act 1994 conduct performance audits to examine the effectiveness, efficiency and economy of an agency’s operations, or an issue across a number of agencies provide audit or audit-related services to the Parliament, the Treasurer and Ministers at their request. A list of these services is provided as an appendix to this Volume and will be included in the final Volume of the Auditor-General’s Reports to Parliament each calendar year. v
  7. 7. Financial Report Audits The Audit Office undertakes its financial report audits in accordance with legislative requirements and Australian Auditing Standards. The main purpose of an audit is to add credibility to a financial report by providing an independent audit opinion. The audit opinion provides users of the financial report with reasonable assurance that it is free of material error and complies with legislation and applicable accounting standards. It does not: provide a guarantee of absolute accuracy in the financial report express a view on the adequacy of the organisation’s systems or the efficiency and effectiveness of their operations guarantee the organisation’s future viability. A financial report audit is a combination of systems checks and examination of a sample of transactions for all items in the financial report that are considered material or high risk in nature. These are items that, if materially misstated as a result of an error or fraud, could adversely affect the decision-making process of users of financial reports. An audit does not examine every transaction of an organisation, as this would be prohibitively expensive and time-consuming. It is also important to understand that the organisation’s management, not the auditor, is responsible for: maintaining adequate accounting records and preparing the financial report maintaining a system of internal controls to prevent or detect errors or irregularities. I recognise that, in the public sector, financial report audit opinions on their own will not meet Parliament’s expectations. Firstly, most public sector agencies are not established purely for financial (profit-making) reasons. They exist to provide services to the public. Their financial reports will provide only limited information about these services. Secondly, Parliament and the public have higher expectations of probity and proper conduct in public sector agencies. Accordingly, when conducting financial report audits, the Audit Office has regard to: agency performance wastage of public resources lack of probity or financial prudence in the management of public resources compliance by agencies with legislative requirements and government policies and procedures. vi
  8. 8. Performance Audits Our performance audits examine whether an agency is achieving what it set out to do, and whether it applied its resources economically, efficiently and within the law. An audit may cover the whole of an agency or one or more of its activities. It may also cover a single activity common across a number of agencies. Performance audits are exhaustive reviews and only cover a few topics each year. Performance audits comply with legislation and applicable Australian Auditing Standards. REPORTING I convey the results of my audits in a number of reports to the various ‘stakeholders’. Financial Report Audits Auditor-General’s Report to Parliament Auditor-General’s Reports to Parliament present the findings of my financial report audits of government agencies. These reports comment on high-level issues and on matters other than financial issues, reflecting the broader interests of Parliament. Minor matters are reported only where they are symptomatic of a larger problem or have not been addressed by the agency after we have raised them in previous years. I may also report on matters that arise from or relate to my audit or other functions. Reports are issued each year. The four main volumes are issued in May, October, November and December each year and cover the majority of Government agencies and the Total State Sector. Independent Audit Report to Parliament The Independent Audit Report expresses my opinion on an agency’s financial report and is included in the agency’s annual report. Annual reports are required by legislation to be presented to Parliament by the responsible Minister within four months of the agency’s financial year-end. The Independent Audit Report tells the reader whether the financial report complies with the Act (and other statutory requirements), applicable Australian Accounting Standards and other mandatory professional reporting requirements. A ‘qualification’ in the report means that the agency’s financial report does not comply with these requirements. Most Independent Audit Reports are ‘unqualified’. The Audit Office issues the Independent Audit Report no later than 10 weeks after receiving the financial report. Statutory Audit Reports to Boards and Ministers The Statutory Audit Report presents the results of the audit and any significant matters. It is issued to the Treasurer, the Minister and the head of the agency at the same time as the Independent Audit Report. vii
  9. 9. Client Service Reports to Agencies The Client Service Report is a summary of audit outcomes, usually addressed to the agency’s Audit Committee. This is only issued to large agencies, normally just before we issue the Independent Audit Report and Statutory Audit Report. Management Letters to Agencies A more detailed report is issued to heads of agencies on matters identified during the audit and may include recommendations for operational improvements. These matters are in addition to any ‘qualification’ in the Independent Audit Report. Performance Audit Reports A report on each performance audit is presented to Parliament, the Premier, the Treasurer, and the relevant Minister and agency heads. Procedural Fairness The Audit Office checks its draft reports with relevant agency staff to ensure factual accuracy. I also seek to ensure ‘procedural fairness’ or ‘natural justice’ by inviting Heads of agencies to submit a comment on our financial report audit findings for inclusion in my reports to Parliament. In respect of performance audits, agencies are given 28 days to respond to the report. When an agency responds to a performance audit, it is included in the report to Parliament. AUDIT FEES Agencies are charged for financial report audits. The fee is based on time and direct out-of-pocket expenses plus the goods and services tax where applicable. Any separate inspections or examinations under the Act are subject to an additional fee. Costs are recovered from Treasury for preparation of the Auditor-General’s Reports to Parliament. A contribution from Treasury covers approximately half the cost of performance audits. To check our efficiency we benchmark our costs against other Australian audit offices or the private sector accounting firms, to the extent that information is available from them. QUALITY Under section 48A of the Act, the Public Accounts Committee appoints a person to review the Audit Office at least once every three years. The review examines the auditing practices and standards of the Auditor-General. The last review was completed in August 2006. The next review is expected in 2009. The Audit Office’s financial and performance audit services are independently accredited as meeting the requirements of International Quality Standard ISO 9001. Peter Achterstraat Auditor-General viii
  10. 10. Section One The Legislature Audit of Members’ Additional Entitlements 1
  11. 11. Audit of Members’ Additional Entitlements AUDIT STATUS The audit of the Parliamentary Remuneration Tribunal’s (PRT) 2005 Determination is incomplete. At 2 April 2007, four Members have not submitted reconciliations for the annual Sydney Allowance. The Legislature is currently reconciling five Members’ annual Sydney allowance. KEY ISSUES Our key audit findings were: Late Claims The Legislature receives claims for a range of entitlements after the 60-day period allowed under the Determination. The submission of claims after the 60-day period increases the risk that Members might not have documentation to support their claims. RECOMMENDATIONS We recommend that: Members who claim the Sydney allowance annually submit their Sydney allowance reconciliations promptly Members submit their expenditure claim documentation within 60 days. DETAILED FINDINGS Sydney Allowance More Members receiving this entitlement annually submitted their reconciliations on time in 2005-06 than in the previous year. However, 47 per cent were still late. The status of annual reconciliations is as follows: Year ended 30 June Legislative Assembly Legislative Council 2006 2005 2006 2005 Members receiving entitlement on an annual basis 21 20 7 4 Members’ reconciliations submitted on time 14 11 1 1 Source: The Legislature Auditor-General’s Report to Parliament 2007 Volume Two ____________________________________________ 3
  12. 12. Audit of Members’ Additional Entitlements __________________________________________________________ Outstanding Debt and/or Reconciliations of Former Members The Legislature collected an outstanding debt of $8,000 relating to entitlements from a former member. Another former member’s 2003 Sydney Allowance reconciliation has been completed and settled in full. We commented on these matters in Volume One of the 2006 Auditor-General’s Report to Parliament. The Role of the PRT The PRT’s principal function is to determine ‘additional’ entitlements available to Members of Parliament. These additional entitlements fall into two categories: allowances: Electorate Allowance Sydney Allowance Committee Allowance fixed allocations: Electorate to Sydney travel Logistic Support Allocation Electorate Mailout Account for Members of the Legislative Assembly Electorate Charter Transport for Members of the Legislative Assembly Travelling allowance for Recognised Office Holders Equipment services and facilities the Legislature pays the additional entitlements where Members incur the actual costs. It can either reimburse the Member or pay third parties (eg travel providers) for services to the Member. The additional entitlements determined by the PRT are separate to: Members’ annual basic salaries, set by the Parliamentary Remuneration Act 1989 additional salaries paid to Ministers and certain other office holders, set out in Schedule 1 of the Act as varying percentages of their basic salaries expense allowances paid to Ministers and certain other office holders, set out in Schedule 1 of the Act as varying percentages of their basic salaries. Audit of Entitlements Each year we audit a sample of Members’ additional entitlements and their Sydney Allowances, in accordance with Australian Auditing Standards, to obtain reasonable assurance payments to Members comply with the provisions of the PRT Determination dated 29 June 2005. Our procedures include examination of evidence supporting individual Members’ claims. 4 ____________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  13. 13. Section Two Commentary on Government Agencies 5
  14. 14. Minister for Education and Training Technical Education Trust Funds Universities Overview Universities: Charles Sturt University Macquarie University Southern Cross University The University of Sydney University of New England University of New South Wales University of Newcastle University of Technology, Sydney University of Western Sydney University of Wollongong UNILINC Limited 7
  15. 15. Technical Education Trust Funds AUDIT OPINION The audit of the Trust’s financial statements for the year ended 31 December 2006 resulted in an unqualified Independent Audit Report. FINANCIAL INFORMATION Year ended 31 December 2006 2005 $’000 $’000 Revenue 25 17 Expenses 17 14 Profit 8 3 Net assets (at 31 December) 433 425 Revenue for the year consisted wholly of interest. Expenses were for awards presented to students. TRUST ACTIVITIES The Trust was established under the Technical Education Trust Funds Act 1967 and is responsible for investing trust moneys and awarding prizes to students undertaking courses of studies at NSW TAFE colleges. Auditor-General’s Report to Parliament 2007 Volume Two ____________________________________________ 9
  16. 16. Universities Overview There are ten universities established under State legislation providing higher education in New South Wales: Charles Sturt University University of New South Wales Macquarie University University of Newcastle Southern Cross University University of Technology, Sydney The University of Sydney University of Western Sydney University of New England University of Wollongong AUDIT OPINION The audits of the 2006 financial reports of all ten universities resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES Financial Performance The Australian Government’s Department of Education, Science and Training (DEST) has identified a number of benchmark indicators for the financial performance of universities. These measures include liquidity, diversity of revenue, employee benefits and on-costs and operating result. The aggregated tables on pages 13 to 15 detail these benchmarks. Liquidity DEST’s benchmark current ratio is based on the traditional formula of current assets divided by current liabilities. Because the definition of current liabilities has changed significantly under Australian Accounting Standards, we have adjusted the balance reported in each university’s financial report to present a more useful measure of their liquidity. The adjustment also allows us to present a ratio that is more consistent with DEST’s benchmark liquidity measure. Australian Accounting Standards require an entity to report all unconditional liabilities as current irrespective of when it expects to settle these liabilities. We have excluded those amounts and replaced them with the amount universities expect to settle in the next twelve months. For 2006, three of the ten universities (Charles Sturt University, University of New South Wales and University of Sydney) did not meet the DEST benchmark. DEST considers a liquidity ratio of less than 1.5 as being below its general better practice guidelines. As in 2005, no universities were above DEST’s upper benchmark of three. This indicates universities are not underutilising cash relative to their activities. However, another DEST guideline, the Annual Institutional Assessment Framework, suggests a current ratio of more than one is low risk, between 0.75 and one is medium risk, and less than or equal to 0.75 is high risk. Using this benchmark, Charles Sturt University and University of Sydney would be low risk and the University of New South Wales would be high risk. 10 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  17. 17. _____________________________________________________________________________Universities Overview Diversity of Revenue One way universities can reduce their financial risks is by diversifying their revenue sources. Each university has a different capacity to generate revenue. Their ability to do so depends on factors such as location, size, perceived standing and student profiles. Universities rely significantly on revenue from fees and charges. In recent years most universities have increased revenue from this source. However in 2006, only Southern Cross University and Macquarie University recorded an increase in the percentage of fees and charges compared with total operating revenue. Overall fees and charges as a percentage of operating revenue decreased from 27.9 per cent ($1.2 billion) in 2005 to 25.9 per cent ($1.2 billion) in 2006. Revenue from fee-paying overseas students increased by $19.1 million to $729 million in 2006. This represents 59.7 per cent of total fees and charges (59.4 per cent in 2005) and 15.5 per cent of total operating revenue (16.6 per cent). For individual universities, revenue from fee-paying overseas students as a percentage of total operating revenue ranged from five per cent for Charles Sturt University (4.7 per cent) to 29.4 per cent at the University of Technology Sydney (31.1 per cent). The other major sources of revenue are Australian Government grants and Higher Education Contributions (HECS) from the Australian Government and students. Australian Government grants as a percentage of operating revenue decreased slightly from 39 per cent ($1.7 billion) in 2005 to 38.7 per cent ($1.8 billion) in 2006. Although HECS from students rose from $615 million in 2005 to $679 million in 2006, as a percentage of operating revenue it remained constant at 14.4 per cent. Total operating revenue for universities rose to $4.7 billion ($4.3 billion). DEST expects Australian Government funding to be not much more than 50 per cent of operating revenue. All New South Wales universities continued to achieve this expectation. Employee Benefits and On-Costs DEST monitors the ability of universities to meet essential needs by measuring employee benefits and on-costs as a percentage of total revenue. Nine of the ten universities had employee benefits and on-costs within DEST’s good practice benchmark of 50 per cent to 70 per cent. The University of Sydney was marginally below the benchmark. Operating Result Although universities are not-for-profit organisations, DEST considers the operating result a useful measure of financial performance. Universities had a combined surplus of $376 million in 2006 ($194 million). The increase was largely due to the University of Newcastle, The University of Sydney and the University of Western Sydney recording significantly higher surpluses. More information on their performance is included in individual university comments within this Volume. All universities reported a surplus for 2006 (eight). As a proportion of operating revenues, the 2006 surpluses ranged from 1.7 per cent (University of New England) to 15.7 per cent (University of Sydney). Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 11
  18. 18. Universities Overview ____________________________________________________________________________ Operational Performance The ratio of equivalent full-time students to full-time equivalent academics (excluding staff not involved in teaching) is one indicator of education quality. From an academic perspective the lower the ratio the better. However, from a financial viewpoint a lower ratio may translate into higher total salaries and related costs. This may adversely impact financial performance benchmarks. At the date of preparing this Report, DEST statistics for 2006 were not available. Statistics for 2005 show the ratio for most jurisdictions decreased. New South Wales universities in aggregate recorded the third highest ratio of all jurisdictions (third highest in 2004). Their ratios ranged from 18.6 for the University of New South Wales to 34.3 for Charles Sturt University. Charles Sturt University advised us the student staff ratio is inflated because DEST calculations do not include all teaching staff accredited by the University. Charles Sturt University further advised that the ratio also excludes other staff closely associated with the learning and teaching process. Jurisdiction Number of EFT FTE Student : Academic Universities Students Academics Ratio 2005 2005 2005 2004 2003 New South Wales 10 199,057 7,733 25.7 26.0 26.9 Victoria 8 176,720 6,736 26.2 26.5 27.1 Queensland 7 129,998 4,644 28.0 29.1 28.5 South Australia 3 46,763 1,907 24.5 25.4 24.9 Western Australia 5 68,524 2,683 25.5 25.3 25.6 Tasmania 1 12,652 521 24.3 25.6 23.6 Northern Territory 1 2,931 158 18.6 16.8 27.3 Australian Capital Territory 2 19,406 879 22.1 22.3 22.7 Source: Australian Government Department of Education, Science and Training Aggregated Results of Operations, Financial Position and Performance Indicators As in previous years we have eliminated deferred income and deferred expenses for superannuation from the tables. As mentioned previously in this Report, the Australian Accounting Standards require an entity to report all unconditional liabilities as current irrespective of when it expects to settle the liability. We have excluded those amounts and replaced them with the amounts universities expect to settle in the next 12 months. The tables on the following pages aggregate the results of operations, financial positions and performance indicators for the universities and their controlled entities. 12 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  19. 19. _____________________________________________________________________________Universities Overview PERFORMANCE INFORMATION Charles Sturt Macquarie Southern Cross Sydney 2006 2005 2006 2005 2006 2005 2006 2005 $m $m $m $m $m $m $m $m Abridged Income Statements (year ended 31 December) Total revenue 261.1 235.7 415.7 390.0 119.6 110.0 1,211.0 1,033.9 Total expenses 244.7 222.3 399.9 367.0 114.3 108.7 1,020.5 923.6 Outside equity interest/other -- -- -- -- -- -- 0.1 (0.3) Operating result 16.4 13.4 15.8 23.0 5.3 1.3 190.6 110.0 Abridged Balance Sheets (at 31 December) Total assets 642.5 560.9 1,229.5 1,243.3 209.7 209.4 3,778.9 3,785.9 Total liabilities 138.4 152.5 281.3 325.6 43.3 48.2 654.4 785.3 Net assets 504.1 408.4 948.2 917.7 166.4 161.2 3,124.5 3,000.6 Performance Indicators (at 31 December) Current ratio (a) 1.2 1.5 1.7 1.8 2.2 2.0 1.3 2.2 Australian Government grants as a % of total revenue (b) 40.6 42.7 28.3 28.2 45.5 45.7 38.2 40.8 HECS as a % of total revenue (b) 22.4 22.0 12.3 13.0 22.2 22.0 10.2 11.3 Fees and charges as a % of total revenue (b) 17.2 18.0 45.3 43.5 15.5 15.3 18.4 19.5 Employee Benefits and on-costs as a % of total revenue (c) 58.9 59.3 57.0 54.3 57.3 59.4 49.0 53.3 Operating result as a % of total revenue (d) 6.3 5.7 3.8 5.9 4.4 1.2 15.7 10.6 Student numbers – EFT (’000)* nya 18,656 nya 19,891 nya 7,735 nya 36,024 Students per academic* nya 34.2 nya 28.7 nya 30.8 nya 22.5 Key: All data except ‘Student numbers’ and ‘Students per academic’ are based on the universities’ financial reports. They reflect the key indicators set out in the February 2000 Department of Education, Science and Training publication ‘Benchmarking: A Manual for Australian Universities’. That publication considers: (a) Current Ratio – an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three. (b) Diversity of Revenue – Universities should reduce financial risks from reduction or failure of an income source by having three or four major income sources with none below 5 per cent for any one source and preferably all above 15 per cent. Reliance on Australian Government funding should be decreasing, preferably to not much more than 50 per cent. (c) Employee Benefits and on-costs as a percentage of Total Revenue – Good practice is between 50 per cent and 70 per cent. (d) Operating Result as a percentage of Total Revenue – The essence of good practice is to have a reasonable safety margin that should be positive other than in exceptional years, the rationale for which should be reported in the university’s annual report. * Source: Australian Government Department of Education, Science and Training: Publications – Higher Education Statistics Collection. The academic numbers represent ‘Teaching Only’ and ‘Teaching and Research’ nya Not yet available Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 13
  20. 20. Universities Overview ____________________________________________________________________________ New England New South Wales Newcastle Technology, Sydney 2006 2005 2006 2005 2006 2005 2006 2005 $m $m $m $m $m $m $m $m Abridged Income Statements (year ended 31 December) Total revenue 191.0 186.1 947.1 882.9 383.7 344.3 426.1 407.6 Total expenses 189.4 187.1 925.1 869.1 348.2 351.6 407.1 394.1 Outside equity interest/other 1.6 -- -- (0.4) 0.4 -- -- -- Operating result 3.2 (1.0) 22.0 13.4 35.9 (7.3) 19.0 13.5 Abridged Balance Sheets (at 31 December) Total assets 379.4 396.2 1,958.1 1,992.6 969.7 873.3 1,143.1 1,105.5 Total liabilities 155.2 182.6 712.5 752.3 240.3 260.3 337.9 393.1 Net assets 224.2 213.6 1,245.6 1,240.3 729.4 613.0 805.2 712.4 Performance Indicators (at 31 December) Current ratio (a) 1.5 1.5 0.7 1.3 1.8 1.1 1.5 1.1 Australian Government grants as a % of total revenue (b) 47.9 46.5 39.1 40.2 42.8 44.3 31.7 31.6 HECS as a % of total revenue (b) 19.7 19.7 9.6 8.7 16.3 17.1 17.6 16.4 Fees and charges as a % of total revenue (b) 23.7 25.0 30.1 34.2 19.5 21.8 36.7 38.6 Employee Benefits and on-costs as a % of total revenue (c) 58.8 56.5 58.4 57.1 51.7 62.9 57.5 58.7 Operating result as % of total revenue (d) 1.7 (0.6) 2.3 1.5 9.4 (2.1) 4.5 3.3 Student numbers EFT (’000)* nya 9,772 nya 27,051 nya 17,605 nya 21,997 Students per academic* nya 22.9 nya 18.6 nya 25.4 nya 29.0 Key: All data except ‘Student numbers’ and ‘Students per academic’ are based on the universities’ financial reports. They reflect the key indicators set out in the February 2000 Department of Education, Science and Training publication ‘Benchmarking: A Manual for Australian Universities’. That publication considers: (a) Current Ratio – an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three. (b) Diversity of Revenue – Universities should reduce financial risks from reduction or failure of an income source by having three or four major income sources with none below 5 per cent for any one source and preferably all above 15 per cent. Reliance on Australian Government funding should be decreasing, preferably to not much more than 50 per cent. (c) Employee Benefits and on-costs as a percentage of Total Revenue – Good practice is between 50 per cent and 70 per cent. (d) Operating Result as a percentage of Total Revenue – The essence of good practice is to have a reasonable safety margin that should be positive other than in exceptional years, the rationale for which should be reported in the university’s annual report. * Source: Australian Government Department of Education, Science and Training: Publications – Higher Education Statistics Collection. The academic numbers represent ‘Teaching Only’ and ‘Teaching and Research’ nya Not yet available 14 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  21. 21. _____________________________________________________________________________Universities Overview Western Sydney Wollongong Total 2006 2005 2006 2005 2006 2005 $m $m $m $m $m $m Abridged Income Statements (year ended 31 December) Total revenue 405.9 363.2 350.4 326.5 4,713.2 4,280.2 Total expenses 363.1 354.2 323.4 308.5 4,335.7 4,086.2 Outside equity interest/other -- -- (2.0) 0.5 (1.5) (0.2) Operating result 42.8 9.0 25.0 18.5 376.0 193.8 Abridged Balance Sheets (at 31 December) Total assets 879.4 851.1 682.6 681.5 11,872.9 11,699.7 Total liabilities 150.1 173.4 168.8 204.1 2,882.1 3,277.3 Net assets 729.3 677.7 513.8 477.4 8,990.8 8,422.4 Performance Indicators (at 31 December) Current ratio (a) 1.7 1.4 2.7 2.1 1.4 1.6 Australian Government grants as a % of total revenue (b) 44.3 42.9 40.4 32.9 38.7 39.0 HECS as a % of total revenue (b) 26.3 24.7 13.5 13.1 14.4 14.4 Fees and charges as a % of total revenue (b) 17.3 19.0 32.4 35.4 25.9 27.9 Employee Benefits and on-costs as a % of total revenue (c) 55.1 61.9 51.1 51.1 54.4 56.6 Operating result as % of total revenue (d) 10.6 2.5 7.1 5.7 8.0 4.5 Student numbers EFT (’000)* nya 24,035 nya 16,291 nya 199,057 Students per academic* nya 32.7 nya 27.9 nya 25.7 Key: All data except ‘Student numbers’ and ‘Students per academic’ are based on the universities’ financial reports. They reflect the key indicators set out in the February 2000 Department of Education, Science and Training publication ‘Benchmarking: A Manual for Australian Universities’. That publication considers: (a) Current Ratio – an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three. (b) Diversity of Revenue – Universities should reduce financial risks from reduction or failure of an income source by having three or four major income sources with none below 5 per cent for any one source and preferably all above 15 per cent. Reliance on Australian Government funding should be decreasing, preferably to not much more than 50 per cent. (c) Employee Benefits and on-costs as a percentage of Total Revenue – Good practice is between 50 per cent and 70 per cent. (d) Operating Result as a percentage of Total Revenue – The essence of good practice is to have a reasonable safety margin that should be positive other than in exceptional years, the rationale for which should be reported in the university’s annual report. * Source: Australian Government Department of Education, Science and Training: Publications – Higher Education Statistics Collection. The academic numbers represent ‘Teaching Only’ and ‘Teaching and Research’ nya Not yet available Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 15
  22. 22. Universities Overview ____________________________________________________________________________ CONTROL ISSUES Our audits highlighted opportunities for universities to improve internal controls. These opportunities have been identified in letters we have issued or will be issuing to university management. We refer to more significant items in individual university comments within this Volume. COMPLIANCE ISSUES National Governance Protocols We tested each University’s compliance with the Australian Government’s National Governance Protocols for Public Higher Education Institutions. We generally found all Universities complied with the protocols. The Australian Government developed a set of National Governance Protocols for Public Higher Education Institutions under section 230-10 of the Higher Education Support Act 2003. The protocols aim to strengthen university governance by: increasing the responsibilities of university councils in overseeing commercial activities requiring councils to discharge their responsibilities in a transparent way, and ensuring the protection of the public interest. OTHER ISSUES Offshore Activities Universities continue to broaden their revenue sources by operating and investing in offshore activities. These opportunities may reduce some financial risks through diversifying revenue, however, they increase other operational, financial and reputation risks. To minimise the potential impacts of these risks each University needs to ensure its governance procedures continue to effectively identify and mitigate the risk exposures generated by their overseas operations and controlled entities. 16 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  23. 23. Charles Sturt University AUDIT OPINION The audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES (Comparative performance data on all universities appears in the ‘Universities Overview’ section earlier in this Volume. The information shown below is based on consolidated financial statements.) The University’s current ratio (a measure of its financial liquidity) was 1.2 at 31 December 2006, down from the previous year’s 1.5. At this level it is below the State’s average and the minimum level identified by the Australian Government’s Department of Education, Science and Training (DEST) ‘good practice’ parameters. The calculation of the current ratio excludes non-current investments of $99.8 million redeemable at short notice. Australian Government grants as a percentage of operating revenue decreased, from 42.7 per cent in 2005 to 40.6 per cent in 2006. This is above the State’s average of 38.7 per cent but continues to be within the DEST ‘good practice’ parameter. Employee benefits and on-costs as a percentage of operating revenue decreased from 59.3 per cent in 2005 to 58.9 per cent in 2006. This is higher than the State’s average of 54.4 per cent but within the DEST ‘good practice’ parameter. COMPLIANCE ISSUES We tested whether the University complied with the Australian Government’s National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. CONTROL ISSUES We identified certain opportunities for the University to improve existing procedures. We will further discuss them with University staff and where appropriate report them to management. The more significant areas related to the measurement of employee benefits, inventory records and accounts payable. OTHER ISSUES The University of Sydney’s Orange Campus was formally transferred to Charles Sturt University on 1 July 2006. The transfer arrangements included payment of $1.0 million to University of Sydney. The net assets transferred ($35.2 million) comprised land, buildings, plant, equipment, library collection, livestock (valued at $36.8 million) and acceptance of liabilities to employees totalling $1.6 million. The transfer of Orange Campus also resulted in control of Rural Australia Foundation Limited passing from the University of Sydney to Charles Sturt University (effective 31 December 2006). Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 17
  24. 24. Charles Sturt University___________________________________________________________________________ FINANCIAL INFORMATION The consolidated financial information includes the financial reports of the University and the following controlled entities: Mitchell Services Limited Rivservices Limited Olive Street Services Limited Charles Sturt Services Limited Charles Sturt Foundation Limited Charles Sturt University Foundation Trust Rural Australia Foundation Limited Campus Pre-School Incorporated Abridged Income Statements Year ended 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australian Government grants 106,111 100,735 106,111 100,735 Higher Education Contribution Scheme 58,387 51,763 58,387 51,763 Australian Government loan programs 12,643 6,916 12,643 6,916 Fees and charges 44,994 42,350 44,994 42,350 Other 39,752 34,006 33,318 23,784 Deferred income – superannuation (21,472) (2,191) (21,472) (2,191) TOTAL REVENUE 240,415 233,579 233,981 223,357 Employee benefits and on-costs 153,862 139,709 149,127 135,232 Depreciation 18,612 17,596 18,612 17,596 Other 72,968 65,132 72,043 59,866 Deferred expense – superannuation (21,472) (2,191) (21,472) (2,191) TOTAL EXPENSES 223,970 220,246 218,310 210,503 OPERATING RESULT 16,445 13,333 15,671 12,854 Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Government’s defined benefit superannuation plans. Because the Australian Government funds these movements they do not impact the operating result. Employee benefits and on-costs reflect increases in salary rates and the number of employees, largely due to the transfer of Orange Campus. 18 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  25. 25. ___________________________________________________________________________Charles Sturt University Abridged Balance Sheets At 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Current assets 37,482 37,756 35,870 37,063 Non-current assets 605,043 523,184 599,338 518,137 TOTAL ASSETS 642,525 560,940 635,208 555,200 Current liabilities 46,501 39,738 46,360 39,725 Non-current liabilities 91,872 112,623 91,848 112,623 TOTAL LIABILITIES 138,373 152,361 138,208 152,348 NET ASSETS 504,152 408,579 497,000 402,852 The increase in non-current assets is mainly due to the revaluation of land and buildings ($44.9 million) and the previously mentioned transfer of Orange Campus. UNIVERSITY ACTIVITIES The University is constituted under the Charles Sturt University Act 1989. It mainly: provides educational facilities of university standard provides distance education for students within New South Wales and elsewhere disseminates and increases knowledge and promotes scholarship confers degrees of Bachelor, Master and Doctor and awards diplomas and other certificates. For further information on the University, refer to www.csu.edu.au. CONTROLLED ENTITIES The six companies controlled by the University are limited by guarantee. Operating costs of Charles Sturt Foundation Limited (the Trustee of Charles Sturt University Foundation Trust) have been met by the Trust. The Trustee has no other transactions. With the exception of Rural Australia Foundation Limited, the four other companies do not impact on the consolidated operating result because the net costs of their operations are fully met by the University, ensuring nil operating results. The total expenditure of these four companies in 2006 was $4.8 million ($4.7 million in 2005). These companies do not own any property, plant and equipment and their liabilities are offset by receivables from the University. The operation of Charles Sturt Foundation Trust resulted in an operating surplus of $734,000 ($5.0 million, reflecting the transfer of dissolved Trusts). Net assets of the Trust were $7.1 million ($5.7 million). The increase is largely due to revaluation of investments ($681,000) and a contribution of $303,000 on 31 December 2006 from Rural Australia Foundation Limited (equivalent to the company’s net assets). Following the above mentioned contribution Rural Australia Foundation Limited reported a loss of $305,000 for the year. Campus Pre-School Incorporated reported a surplus of $42,000 ($31,000). The Pre-School’s net assets at 31 December 2006 were $11,000 (net deficiency of $31,000). Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 19
  26. 26. Macquarie University AUDIT OPINION The audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES (Comparative performance data on all universities appears in the ‘Universities Overview’ section earlier in this Volume. The information shown below is based on consolidated financial statements.) The University’s current ratio (a measure of its financial liquidity) was 1.7 at 31 December 2006. At this level it is higher than the State average of 1.4 and within the Australian Government’s Department of Education, Science and Training (DEST) ‘good practice’ parameters. Australian Government grants as a percentage of operating revenue for the year increased slightly to 28.3 (28.2 in 2005). This is significantly lower than the State’s average of 38.7 per sent and represents the lowest level of reliance on Australian Government grants of all universities. Employee benefits and on-costs as a percentage of operating revenue increased from 54.3 per cent in 2005 to 57 per cent. This is higher than the State’s average of 54.4 per cent but within the DEST ‘good practice’ parameter. COMPLIANCE ISSUES We tested whether the University complied with the Australian Government’s National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. OTHER ISSUES Macquarie International The University requested internal audit to conduct a preliminary assessment of certain financial management issues within Macquarie International. Based on the initial assessment, expenditures in travel and entertainment appeared excessive and not consistent with University policy; certain expenditures appeared to be personal in nature; and potential conflicts of interest were noted and it was unclear how they were considered or addressed. Internal audit has recommended further scrutiny and review. The Independent Commission Against Corruption has been advised of the initial assessment of the issues and the University has sought its advice on how to progress enquiries. Leave Paid to the Former Vice Chancellor A signed contract of employment for the former Vice Chancellor was not available. Consequently, we could not confirm certain termination payments to the conditions of employment. According to University records the former Vice Chancellor took only 30.5 hours of recreation leave during 19 years of service at Macquarie University and was paid for 2,504 hours (357 working days) recreation leave. The former Vice Chancellor was not considered part of the University’s 2003-2006 Enterprise Agreement which allows recreation leave to accumulate up to a maximum entitlement of 280 hours. 20 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  27. 27. _____________________________________________________________________________ Macquarie University Artwork Collection The records maintained for artworks require significant improvement. The artworks fixed asset register does not detail the individual works of art. The University maintains these details in a separate database which is not complete in all instances. In addition, there is no evidence of any formal reconciliation between the artworks fixed asset register and the database nor are regular stock counts conducted on the artworks. These matters will be included in a letter to management. The University recently had the artworks independently revalued. This resulted in a decrement in value of $465,000, which has been reflected in the financial report at 31 December 2006. During this revaluation process, it was established that ownership could not be proven for items making up a significant portion of the total value of the collection. However, there is sufficient evidence to indicate the University controls these assets for accounting purposes, and they have been included in the University’s assets at 31 December 2006, which is consistent with the accounting treatment in prior years. CONTROL ISSUES We identified opportunities for improvement to internal controls and have discussed them with University staff. These include: credit card policies and the expenditure acquittal process effective review of the reconciliation of inter company balances review of useful lives of assets fully written down but still in use long outstanding credit balances for student debtors. We will include these matters in a letter to management FINANCIAL INFORMATION The consolidated financial information includes the financial reports of the University and the following controlled entities: Macquarie Graduate School of Management Pty Limited Access Macquarie Limited Centre For Money, Banking And Finance Limited Australian Proteome Analysis Facility Ltd Learning Activity Management System International Pty Ltd Learning Activity Management System Foundation Limited Biotrack Australia Pty Ltd. Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 21
  28. 28. Macquarie University _____________________________________________________________________________ Abridged Income Statements Year ended 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australian Government grants 117,432 110,084 117,432 110,084 Higher Education Contribution Scheme 51,180 50,684 51,180 50,684 Fees and charges 188,462 169,519 172,968 154,748 Other 58,577 59,694 55,655 53,976 Deferred income – superannuation (38,490) 580 (38,490) 580 TOTAL REVENUE 377,161 390,561 358,745 370,072 Employee benefits and on-costs 236,720 211,646 212,992 188,742 Depreciation 26,245 24,613 25,666 24,042 Other 136,962 130,692 143,381 133,180 Deferred expense – superannuation (38,490) 580 (38,490) 580 TOTAL EXPENSES 361,437 367,531 343,549 346,544 OPERATING RESULT 15,724 23,030 15,196 23,528 Fees and charges increased mainly due to an additional $13.5 million in international fee paying students. Fees from overseas students were $111 million in 2006 ($97.9 million). Employee benefits and on-costs increased because of rises in award rates and higher staff levels. Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Government’s defined benefit superannuation plans. Because the Australian Government funds these movements, they do not impact the operating result. Abridged Balance Sheets At 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Current assets 179,676 178,848 174,998 169,069 Non-current assets 1,049,870 1,064,420 1,047,670 1,062,478 TOTAL ASSETS 1,229,546 1,243,268 1,222,668 1,231,547 Current liabilities 135,162 110,620 134,827 102,573 Non-current liabilities 146,156 214,957 145,524 214,185 TOTAL LIABILITIES 281,318 325,577 280,351 316,758 NET ASSETS 948,228 917,691 942,317 914,789 Non-current liabilities decreased largely as a result of a reduction in the deferred State superannuation liability of $39.3 million. 22 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  29. 29. _____________________________________________________________________________ Macquarie University UNIVERSITY ACTIVITIES The University is constituted under the Macquarie University Act 1989. It mainly: provides educational facilities at university standard establishes facilities to provide courses of study, gives instruction to and examines external students and provides courses of study or instruction at such levels of attainment as the University’s Council considers appropriate to meet the special requirements of industry, commerce, or any other section of the community disseminates knowledge and promotes scholarship confers degrees of Bachelor, Master and Doctor and awards diplomas and other certificates. For further information on the University, refer to www.mq.edu.au. CONTROLLED ENTITIES Macquarie Graduate School of Management Pty Limited (MGSM) MGSM is a company limited by shares. The company promotes management education and conducts educational programs and research in management. For further information on the School refer to www.gsm.mq.edu.au. Year ended 31 December 2006 2005 $'000 $'000 Revenue 27,611 26,420 Expenses 27,601 26,416 Profit 10 4 Net assets (at 31 December) 2,383 2,372 Access Macquarie Limited Access Macquarie Limited is a company limited by guarantee. The company provides project management services to assist University academics to bid for and manage applied research, consulting, testing and training projects for industry, government and the professions. For further information on the company refer to www.access.mq.edu.au. Year ended 31 December 2006 2005 $'000 $'000 Revenue 13,521 12,572 Expenses 13,556 11,805 (Loss)/profit (35) 767 Net assets (at 31 December) 3,791 3,826 Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 23
  30. 30. Macquarie University _____________________________________________________________________________ Centre for Money, Banking and Finance Limited (CMBF) CMBF is a company limited by guarantee. It provides consulting and educational services to the finance industry, administers courses on behalf of Macquarie University and makes donations to the University as the company may determine. Year ended 31 December 2006 2005 $'000 $'000 Revenue 2,072 1,752 Expenses 1,873 1,635 Profit 199 117 Net assets (at 31 December) 669 470 Australian Proteome Analysis Facility Ltd Australian Proteome Analysis Facility Ltd is a company limited by guarantee. It administers the Major National Research Facility, which provides high-level technology in proteomics to the Australian biotechnology community. Year ended 31 December 2006 2005 $'000 $'000 Revenue 919 839 Expenses 887 818 Profit 32 21 Net assets (at 31 December) 78 45 Learning Activity Management System (LAMS) International Pty Ltd LAMS International Pty Ltd is a company limited by shares, incorporated in February 2004. It develops and sells LAMS software and provides support services for deploying software. Macquarie University owns 55 per cent of the ordinary shares in the company. Year ended 31 December 2006 2005 $'000 $'000 Revenue 345 472 Expenses 556 1,072 Loss 211 600 Net assets (at 31 December) 787 576 The company continues to incur losses. Late in 2006 the company was restructured resulting in reduced staff costs and overheads. Macquarie University has agreed to provide continued financial support to ensure the company will be able to meet its debts as and when they fall due. 24 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  31. 31. _____________________________________________________________________________ Macquarie University Learning Activity Management System (LAMS) Foundation Limited The LAMS Foundation Limited is a company limited by guarantee, incorporated in February 2004. It manages research and development into LAMS software and the concept of learning Design. The Foundation collaborates with LAMS International to foster the adoption and implementation of LAMS across all education sectors. There were no financial transactions recorded for the year. Year ended 31 December 2006 2005 $'000 $'000 Revenue -- -- Expenses -- 207 Loss -- 207 Net assets (at 31 December) -- -- Biotrack Australia Pty Ltd Biotrack is a company limited by shares providing environmental monitoring and assessment services to government and private sector clients. It ceased trading during 2006. Year ended 31 December 2006 2005 $'000 $'000 Revenue 666 120 Expenses 133 400 Profit/(loss) 533 (280) Net assets (at 31 December) 27 (506) OTHER BODIES ASSOCIATED WITH THE UNIVERSITY Macquarie University Professorial Superannuation Scheme The Macquarie University Professorial Superannuation Scheme provides superannuation benefits for professorial staff and their dependants. It was closed to new members in 1987. The Scheme is not a controlled entity of the University. The liability for benefits payable under the Scheme was actuarially determined to be $17.6 million at 30 June 2004. The University provided $17.6 million to meet these emerging costs. Year ended 30 June 2006 2005 $'000 $'000 Net assets available to pay benefits at 1 July 5,702 5,903 Contributions and investment revenue 13,832 1,833 Other revenue 162 213 Benefits and expenses (1,379) (2,242) Income tax expense (178) (5) Net assets available to pay benefits at 30 June 18,139 5,702 Sydney Educational Broadcasting Limited (SEBL) Refer to the University of Technology, Sydney comment on page 65 for observations on SEBL. Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 25
  32. 32. Southern Cross University AUDIT OPINION The audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES (Comparative performance data on all universities appears in the ‘Universities Overview’ section earlier in this Volume. The information shown below is based on consolidated financial statements). The University’s current ratio (a measure of its financial liquidity) was 2.2 at 31 December 2006, slightly above the previous year’s two. At this level it is well above the State average of 1.4 and within the Australian Government’s Department of Education, Science and Training (DEST) ‘good practice’ parameters. Australian Government grants as a percentage of operating revenue decreased, from 45.7 per cent in 2005 to 45.5 per cent in 2006. The University has the second highest level of reliance on Australian Government grants of all universities and is significantly higher than the State’s average of 38.7 per cent. Nevertheless it is within the DEST ‘good practice’ parameter. Employee benefits and on-costs as a percentage of operating revenue decreased from 59.4 per cent in 2005 to 57.3 per cent in 2006. This is higher than the State’s average of 54.4 per cent but within the DEST ‘good practice’ parameter. CONTROL ISSUES We identified opportunities for improvements to internal controls and reported them to the University. COMPLIANCE ISSUES We tested whether the University complied with the Australian Government’s National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. FINANCIAL INFORMATION The consolidated financial report includes the financial results of the University and the following controlled entities: Norsearch Limited Australian Plant DNA Bank Limited Biobank Pty Limited 26 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  33. 33. _________________________________________________________________________ Southern Cross University Abridged Income Statements Year ended 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australian Government grants 54,386 50,244 54,386 50,244 Higher Education Contribution Scheme 26,596 24,178 26,596 24,178 Fees and charges 18,527 16,800 18,527 16,243 Other 20,082 18,753 20,012 16,250 Deferred income – superannuation (7,463) (53) (7,463) (53) TOTAL REVENUE 112,128 109,922 112,058 106,862 Employee benefits and on-costs 68,572 65,296 68,173 63,524 Depreciation 6,054 5,451 6,048 5,354 Other 39,659 37,903 39,491 37,155 Deferred expense – superannuation (7,463) (53) (7,463) (53) TOTAL EXPENSES 106,822 108,597 106,249 105,980 OPERATING RESULT 5,306 1,325 5,809 882 Australian Government Grants increased due to additional base funding of $3.7 million, reflecting budgeted increases in student numbers. Fees and charges increased by $2.2 million due to increased international student fees. Other revenue of the University increased by $3.7 million, due mainly to the transfer of the printery and environmental analysis laboratory from Norsearch Limited on 1 January 2006. Deferred income and deferred expense reflect movements in the actuarially assessed employee superannuation liability for employees who are members of a State Government defined benefit superannuation plan. Because the Australian Government funds these movements, they do not impact the operating result. Abridged Balance Sheets At 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Current assets 37,723 29,684 36,232 27,565 Non-current assets 171,965 179,681 165,522 172,815 TOTAL ASSETS 209,688 209,365 201,754 200,380 Current liabilities 25,311 16,547 25,106 14,885 Non-current liabilities 17,960 31,654 17,954 32,555 TOTAL LIABILITIES 43,271 48,201 43,060 47,440 NET ASSETS 166,417 161,164 158,694 152,940 Net assets increased by $5.3 million, largely due to an increase in cash of $5.2 million. Cash holdings increased partly due to a lower than budgeted Australian Government student load and reduced capital outlay. Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 27
  34. 34. Southern Cross University _________________________________________________________________________ UNIVERSITY ACTIVITIES The University is constituted under the Southern Cross University Act 1993. It mainly: provides educational facilities of university standard having particular regard to the needs of the north coast region of the State preserves, extends and disseminates knowledge through scholarship, research, creative works consultancy and internal and external teaching. For further information on the University, refer to www.scu.edu.au CONTROLLED ENTITIES Norsearch Limited Norsearch Limited is a company limited by guarantee. It is controlled by Southern Cross University and its operations consist of conferencing and continuing education. The company transferred its printery and environmental analysis laboratory to the University on 1 January 2006. Norsearch Limited is currently negotiating the acquisition of a number of business operations from the Southern Cross University Student Union. The operations are located at the Lismore Campus. Year ended 31 December 2006 2005 $’000 $’000 Revenue 1,200 4,404 Expenses 1,486 4,199 (Loss)/profit (286) 205 Net assets (at 31 December) 1,271 1,558 Revenue and expenses decreased due to the transfer of the majority of the company’s operations to the University from 1 January 2006. Australian Plant DNA Bank Limited Australian Plant DNA Bank Limited is a company limited by guarantee. It is controlled by Southern Cross University. The consolidated financial report of Australian Plant DNA Bank Limited includes the financial results of the company and its controlled entity, Biobank Pty Limited. Australian Plant DNA Bank Limited’s purpose is to maintain a bank of Australian native plant DNA and to perform related research and development. 28 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  35. 35. _________________________________________________________________________ Southern Cross University Year ended 31 December Consolidated Australian Plant DNA Bank Limited 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Revenue 2 26 2 26 Expenses 14 29 8 24 (Loss)/profit (12) (3) (6) 2 Net assets (at 31 December) 28 40 39 45 Revenue decreased due to less consulting fees being earned this year compared to the prior year. Biobank Pty Limited Biobank Pty Limited is a proprietary company limited by shares. It is controlled by Australian Plant DNA Bank Limited. Biobank Pty Limited’s purpose is to hold and maintain the DNA of native Australian plants and other species of economic significance. Year ended 31 December 2006 2005* $’000 $’000 Revenue -- -- Expenses 6 5 Loss 6 5 Net liabilities (at 31 December) 11 5 * period commencing 9 February 2005 OTHER BODIES ASSOCIATED WITH THE UNIVERSITY National Marine Science Centre Pty Ltd Refer to the University of New England comment on page 40 for observations on the National Marine Science Centre Pty Ltd. Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 29
  36. 36. The University of Sydney AUDIT OPINION The audit of the financial reports of the University and its controlled entities for the period or year ended 31 December 2006 resulted in unqualified Independent Audit Reports. The audit of the financial report of the Institute for Magnetic Resonance Research is still in progress. PERFORMANCE ISSUES (Comparative performance data on universities appears in the ‘Universities Overview’ section earlier in this Volume. The information shown below is based on consolidated financial statements.) The University’s current ratio (a measure of its financial liquidity) was 1.3 at 31 December 2006, a decrease on the previous year’s 2.2. It is marginally below the ‘good practice’ parameters set by the Australian Government’s Department of Education, Science and Training (DEST) and the State average of 1.4. Australian Government grants as a percentage of operating revenue decreased from 40.8 per cent in 2005 to 38.2 per cent in 2006. It is slightly lower than the State’s average of 38.7 per cent and within the DEST ‘good practice’ parameter. Employee Benefits and on-costs as a percentage of operating revenue decreased from 53.3 per cent in 2005 to 49 per cent in 2006. This is better than the State’s average of 54.4 per cent and the DEST ‘good practice’ parameters. CONTROL ISSUES We identified some opportunities for the improvement in accounting and administrative procedures and have reported them to management. These include: The University’s cultural assets have not been subject to recent comprehensive valuations. The last comprehensive valuation of the Macleay and Nicholson Museums was undertaken in 1998 and 1997 respectively while the University’s JB Power Art Collection was last valued in 1994. The University has applied a generic index in 2003 and again in 2006 to increase the value of these assets, however these adjusted values may not reflect the fair value at balance date. Comprehensive valuations will be undertaken in 2007 and 2008. The University is planning to review its research library collection for obsolete items in 2007. This may result in a significant accounting adjustment for these items in the 2007 financial report. In 2005 and 2006 we reported that the University began identifying and writing-off obsolete items of plant and equipment. Further work is required in 2007 to complete this process. Last year we reported that a significant number of academic and general staff held leave balances in excess of the maximum accrued leave entitlements allowed under the University’s leave policy. In 2006 these ‘excess” balances continued to increase. In May 2006, the University introduced provisions within separate staff agreements for academic and general staff to manage excess leave. The provisions require the University to notify relevant staff to reduce excess leave balances within a specified period. Leave not cleared within the timeframe would be forfeited unless special circumstances exist. We understand there has been no effective application of those provisions to date. We reported in previous years that the University had not completed a Business Continuity Plan. While there was further progress on this project in 2006, it is still to be finalised. 30 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two
  37. 37. __________________________________________________________________________ The University of Sydney COMPLIANCE ISSUES National Government Protocols for Public Higher Education Institutions We tested whether the University complied with the Australian Government’s National Government Protocols for Public Higher Education Institutions. The results of our testing was satisfactory. OTHER ISSUES Transfer of Orange Campus to Charles Sturt University The Orange Campus was formally transferred from the University of Sydney to Charles Sturt University (CSU) on 1 July 2006. The transfer included land, buildings, plant, equipment, library collection, livestock and inventory with a fair value of $36.8 million and reduced the University’s employee provisions by $1.8 million. CSU paid the University $1.0 million as consideration for the transfer of the Orange Campus, however, CSU acknowledged that the University combined book value of Orange Campus components is in excess of $10.0 million. CSU paid the University one dollar as consideration for the transfer of the Orange land. CSU has managed the campus since 1 January 2005. Legislation passed in 2006 formally enabled the transfer to take place. Capital Expenditure Program The University has a major capital expenditure program in place. The capital budget for 2007 to 2009 totals $659 million. It comprises three large capital development programs: ‘Campus 2010 and Building for the Future’ program; $185 million, ‘Campus 2025' program; $222 million and 'Teaching Hospital Development’ program; $77.5 million, and property acquisitions $39.5 million and other capital works $135 million. Under the ‘Campus 2010 and Building for the Future’ program the School of Information Technologies building was completed in March 2007 with a forecast total cost of $44.6 million. Construction commenced on two other major projects under the program, the Faculty of Law building ($93.0 million) in March 2007 and the Central Student Services building ($67.6 million) in November 2006. Both these projects are due for completion late in 2008. The ‘Campus 2025 Program' planning has commenced and proposes expenditures of $15.0 million for 2007, $61.0 million for 2008 and $146 million in 2009. The 'Teaching Hospital Development’ program includes expenditures of $38.5 million for 2007, $12.0 million for 2008 and $27.0 million in 2008. The program includes capital contributions for a major research and education facility at Royal North Shore Hospital and an education and research building at Nepean Hospital. Auditor-General’s Report to Parliament 2007 Volume Two ___________________________________________ 31
  38. 38. The University of Sydney __________________________________________________________________________ FINANCIAL INFORMATION The consolidated financial information includes the financial reports of the University and its controlled entities. Abridged Income Statements Year ended 31 December Consolidated University 2006 2005 2006 2005 $’000 $’000 $’000 $’000 Australian Government grants 462,595 421,503 462,595 421,503 Higher Education Contribution Scheme 123,366 117,017 123,366 117,017 Fees and charges 223,146 201,438 223,146 201,438 Other 401,945 293,910 401,380 292,329 Deferred income – superannuation (129,419) (11,863) (129,419) (11,863) TOTAL REVENUE 1,081,633 1,022,005 1,081,068 1,020,424 Employee benefits and on-costs 593,253 550,778 591,704 550,229 Depreciation 49,887 44,488 49,029 44,488 Other 377,314 328,626 376,351 327,626 Deferred expense – superannuation (129,419) (11,863) (129,419) (11,863) TOTAL EXPENSES 891,035 912,029 887,665 910,480 OPERATING RESULT 190,598 109,976 193,403 109,944 Fees and charges mainly comprised fee-paying overseas students $148 million ($137 million in 2005), fee-paying local students $30.4 million ($30.1 million), continuing education $11.2 million ($9.1 million), summer school fees $8.8 million ($1.5 million) and course fees $7.2 million ($7.1 million). Other income included investment income $116 million ($82.9 million), consulting and contract research income $105 million ($76.7 million), gain on disposal of assets $57.2 million ($9.3 million), contributions from organisations $31.5 million ($30.1 million) and donations and bequests $26.5 million ($28.4 million). Investment income increased mainly due to higher returns from managed funds in 2006. The gain on disposal of assets included $55.7 million recognised on sale of shares. Other expenses mainly comprised teaching and research grants $84.7 million ($63.9 million), scholarships, grants and prizes $55.7 million ($48.8 million), repairs and maintenance $35.5 million ($32.2 million), travel, related staff development and training $31.7 million ($26.8 million), consultants and contractors $26.4 million ($24.0 million) and bad and doubtful debts $6.5 million ($304,000). The increase in bad and doubtful debts of $6.2 million is mainly due to provisions provided for student union loans and a loan to the Institute of Magnetic Resonance Research. Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Government’s defined benefit superannuation plans. Because the Australian Government funds these movements, they do not have an impact on the operating result. The increase in deferred income and deferred expenses is mainly due to an increase in the discount rate used by the actuary from 5.3 per cent in 2005 to six per cent in 2006. 32 ___________________________________________ Auditor-General’s Report to Parliament 2007 Volume Two

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