Notes to the Financial Statements

NOTE 1: Other Revenue

30/06/04
Actual
$000

 

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

15,076

Timber and livestock

16,227

15,578

18,730

1,257

Rents

1,279

1,009

1,009

9,261

Prison industry sales

7,781

6,391

6,582

158

Miscellaneous

157

520

177

25,752

Total other revenue

25,444

23,498

26,498



NOTE 2: Personnel Costs

30/06/04
Actual
$000

 

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

237,252

Salaries and wages

265,641

259,917

279,687

3,697

Retirement and long service leave

(9)

871

853

240,949

Total personnel costs

265,632

260,788

280,540



Retirement and long service leave for 2004/05 has decreased due to a change in the discount rates used. This change occurred during the annual revaluation of employee entitlements performed by Aon New Zealand.

NOTE 3: Operating Costs

30/06/04
Actual
$000

 

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

8,061

Operating lease rentals

8,917

9,455

9,924

218

Audit fees to auditors for audit of the financial statements

229

218

229

188

Fees to auditors for other services provided

161

28,710

Facilities maintenance

34,248

27,576

28,622

38,271

Offender management costs

47,475

42,215

48,664

13,491

Computer costs

12,131

16,477

12,220

16,299

Contract management

18,537

18,317

18,447

17,684

Administration

21,698

24,601

28,439

24,052

Other operating costs

30,596

24,687

25,657

Forestry revaluation

(5,304)

3,588

Write down of fixed assets

704

150,562

Total operating costs

169,392

163,546

172,202



Contract Management represents contracts with GEO New Zealand Pty Limited, Chubb New Zealand Limited and the New Zealand Prisoners’ Aid and Rehabilitation Society Incorporated.

The Department has reclassified some of its administration costs to facilities maintenance, offender management and other operating costs to more accurately reflect the nature of why these costs were incurred. The 2003/04 comparatives have been re-aligned accordingly.

NOTE 4: Depreciation

30/06/04
Actual
$000

 

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

28,589

Buildings

32,007

34,559

34,476

628

Leasehold improvements

938

850

850

2,812

Plant and equipment

2,870

4,300

4,600

747

Furniture and fittings

799

900

900

8,137

Computer equipment

8,718

9,000

9,000

3,598

Motor vehicles

3,499

2,900

2,900

44,511

Total depreciation charge

48,831

52,509

52,726



NOTE 5: Capital Charge

The Department pays a capital charge to the Crown on its taxpayers’ funds as at 30 June and 31 December each year.

The capital charge rate for the year ended 30 June 2005 was 8.0 percent per annum (2004: 8.5 percent).

NOTE 6: Other Expenses

30/06/04
Actual
$000

 

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

Revaluation — buildings

(11,559)

7,697

Revaluation — forests

7,697

Total other expenses

(11,559)



This represents the portion of the 30 June 2005 revaluation which reverses the revaluation deficit of 30 June 2002.

The effect of the forestry revaluation as at 30 June 2005 is reflected in Note 3: Operating Costs.

NOTE 7: Taxpaters' Funds

Taxpayers’ Funds comprises two components:

General Funds

30/06/04
Actual
$000

 

Notes

30/06/05
Actual
$000

30/06/05
Main
Estimates
$000

30/06/05
Supp.
Estimates
$000

610,339

General funds as at 1 July

 

672,751

676,271

672,751

(6,446)

Net operating surplus/(deficit)

 

17,030

69,761

Capital contribution

 

180,083

138,683

180,083

63,315

 

197,113

138,683

180,083

(1,251)

Provision for repayment of surplus to the Crown

13

(5,471)

348

Asset/liability transfers between the Department and the Crown

 

672,751

General funds as at 30 June

 

864,393

814,954

852,834



Revaluation Reserve

30/06/04
Total
Actual
$000

30/06/05
Livestock
$000

30/06/05
Land
$000

30/06/05
Buildings
$000

30/06/05
Total
Actual
$000

218

Balance brought forward

238

238

20

Revaluation changes at 30 June

1,259

36,572

50,840

88,671

238

Revaluation Reserve as at 30 June

1,497

36,572

50,840

88,909



NOTE 8: Debtors and Receivables

30/06/04
Actual
$000

 

30/06/05
Actual
$000

5,149

Trade debtors

3,408

481

Other

1,040

(324)

Provision for doubtful debts

(322)

GST receivable

707

5,306

Total debtors and receivables

4,833



NOTE 9: Investments

The increase in investments is primarily due to the issue of shares by the Fonterra Co-operative Group Ltd to Corrections Inmate Employment in lieu of dividends. In order to continue business with the Fonterra Co-operative Group Ltd, Corrections Inmate Employment must hold shares given to it by that group.

NOTE 10: Physical Assets

30/06/04
Actual
$000

 

30/06/05
Actual
$000

 

Freehold land

 

574

At cost

74,375

At valuation

111,840

74,949

Land – net book value

111,840

 

Buildings

 

82,744

At cost

344,576

At valuation

573,081

(55,524)

Accumulated depreciation

371,796

Buildings – net book value

573,081

 

Leasehold improvements

 

7,606

At cost

9,162

(3,377)

Accumulated depreciation

(3,970)

4,229

Leasehold improvements – net book value

5,192

 

Forests

 

29,401

At valuation

34,705

29,401

Forests – net book value

34,705

 

Plant and equipment

 

29,812

At cost

31,771

(18,421)

Accumulated depreciation

(19,569)

11,391

Plant and equipment – net book value

12,202

 

Furniture and Fittings

 

6,573

At cost

7,749

(4,342)

Accumulated depreciation

(4,940)

2,231

Furniture and fittings – net book value

2,809

 

Computer equipment (incl software)

 

65,726

At cost

71,090

(40,035)

Accumulated depreciation

(43,737)

25,691

Computer equipment – net book value

27,353

 

Motor vehicles

 

31,140

At cost

33,571

(16,999)

Accumulated depreciation

(18,028)

14,141

Motor vehicles – net book value

15,543

 

Items under construction

 

113,474

Buildings

195,291

4,879

Computer equipment

8,360

118,353

Items under construction – net book value

203,651

 

Total physical assets

 

790,880

At cost and valuation

1,076,620

(138,698)

Accumulated depreciation

(90,244)

652,182

Total carrying amount of physical assets

986,376



Freehold land and buildings were valued at fair value as at 30 June 2005 by an independent registered valuer, valuersnet.NZ. This valuation was completed by M W Lauchlan ANZIV SNZPI.

The annual valuation of forests was undertaken by an independent registered valuer, P F Olsen and Company Limited, on 30 June 2005. This valuation was completed by T Vos, registered forestry consultant, New Zealand Institute of Forestry.

The land holdings of the Department are subject to general Treaty of Waitangi claims. No reduction in value has been recognised in these financial statements but there may be restrictions on the Department disposing of the holdings except under Treaty claims procedures.

NOTE 11: Creditors and Payables

30/06/04
Actual
$000

 

30/06/05
Actual
$000

12,232

Trade creditors

33,138

21,202

Accrued expenses

59,962

3,058

GST payable

36,492

Total creditors and payables

93,100



NOTE 12: Provisions

30/06/04
Total
Actual
$000

 

30/06/05
Total
Actual
$000

1,201

Opening balance

1,332

131

Additional provisions made during the year

652

Charged against provision for the year

Unused amounts reversed during the year

Discounting changes

1,332 Closing balance 1,984



Provisions include an employee provision for the estimated cost of future work-related accident claims, ACC residual levies for ongoing entitlement costs for claims prior to 30 June 1999 and a restructuring provision.

NOTE 13: Provision for Repayment of Surplus to the Crown

30/06/05
Actual
$000

 

30/06/04
Actual
$000

(6,446)

Net surplus/(deficit)

5,471

7,697

Add: Other expenses (not for production of outputs)

1,251

Net surplus from delivery of outputs

5,471

1,251

Total provision for repayment of surplus to the Crown

5,471



NOTE 14: Provision for Employee Entitlements

30/06/04
Actual
$000

 

30/06/05
Actual
$000

 

Current liabilities

 

9,831

Retirement and long service leave

10,738

21,195

Annual leave

22,778

31,026

Total current portion

33,516

 

Non-current liabilities

 

10,858

Retirement and long service leave

9,809

10,858

Total non-current portion

9,809

41,884

Total provision for employee entitlements

43,325



Aon New Zealand revalued the non-current retiring leave portion of employee entitlements as at 31 August 2004. The Department applied the new rates from this revaluation to the non-current long service leave portion of employee entitlements.

The major assumptions used in this review are that salary growth rates are 3.0 percent per annum, and discount rates ranged from 6.18 percent to 6.21 percent per annum.

NOTE 15: Reconciliation of Net Surplus to Net Cash Flow from Operation Activities for the Year Ended 30 June 2005

30/06/04
Actual
$000

 

30/06/05
Actual
Estimates
$000

30/06/05
Main
$000

30/06/05
Supp.
Estimates
$000

(6,446)

Net surplus/(deficit)

17,030

 

Add/(less) non-cash items

 

 

 

44,511

Depreciation

48,831

52,509

52,726

2,022

Inc/(dec) in non-current employee entitlements

(1,049)

(960)

11,086

Inc/(dec) other non-cash items

(17,015)

57,619

Total non-cash items

30,767

52,509

51,766

 

Working capital movements

 

 

 

(1,000)

(Inc)/dec in receivables

473

(1,100)

(426)

(Inc)/dec in inventories

12

(162)

254

(Inc)/dec in prepayments

(309)

(7)

(3,509)

Inc/(dec) in creditors and payables

22,933

(292)

4,806

Inc/(dec) in current employee entitlements

2,490

1,915

125

Working capital movements – net

25,599

354

Add/(less) investing activity items

(36)

Net loss/(gain) on sale of physical assets

42

(36)

Total investing activity items

42

51,262

Net cash flow from operating activities

73,438

52,509

52,120



NOTE 16: Financial Instruments

The Department is party to financial instrument arrangements as part of its everyday operations. These include instruments such as bank balances, investments, accounts receivable and trade creditors.

Cash
The Department did not enter into any forward exchange contracts during the financial year.

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. In the normal course of business, the Department incurs credit risk from trade debtors, and transactions with financial institutions.

The Department does not require any collateral or security to support financial instruments with financial institutions that the Department deals with, as these entities have high credit ratings. For its other financial instruments, the Department does not have significant concentrations of credit risk.

Fair Value
The fair value of all financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

Currency Risk
Currency risk is the risk that debtors and creditors due in foreign currency will fluctuate because of changes in foreign exchange rates.

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 investments or the cost of borrowing. The Department has no significant exposure to interest rate risk on its financial instruments.

Under section 46 of the Public Finance Act 1989, the Department cannot raise a loan without Ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure for funds borrowed.

NOTE 17: Contingencies

The Department does not have any contingent assets as at 30 June 2005 (30 June 2004: nil).

Contingent liabilities are separately disclosed in the Statement of Contingent Liabilities.

NOTE 18: Related Party Information

The Department is a wholly owned entity of the Crown. The Government significantly influences the roles of the Department as well as being its major source of revenue.

The Department enters into numerous transactions with other government departments, Crown agencies and state-owned enterprises on an ‘arm’s length’ basis. Where those parties are acting in the course of their normal dealings with the Department, related party disclosures have not been made for transactions of this nature.

Apart from those transactions described above, the Department has not entered into any related party transactions.

NOTE 19: Major Budget Variations

Statement of Financial Performance, Statement of Financial Position, Statement of Cash Flows and Statement of Departmental Expenditure and Appropriations

Revenue Crown, operating and personnel costs are less than projected in the Supplementary Estimates process due to actual prisoner numbers being less than forecast. In addition, the Department also had recruitment difficulties in 2004/05 that impacted on the amount of training provided and associated staff costs.

General funds, physical assets and net cash flows from financing activities is more than projected in the Main Estimates process due to additional capital being appropriated to construct 493 beds on existing sites.

Physical assets and revaluation reserves are more than projected in the Main Estimates process due to an increase in the value of land, buildings and forests.

The increase in cash is offset by the increase in Creditors and Payables. This is primarily due to timing issues arising from when payments were made at the end of the financial year.

The Inmate Employment output class is $9.7 million under appropriation of which $5.3 million is due to forestry revaluation as at 30 June 2005 and the remainder is due to higher cost offsets as a result of higher than expected internal sales.

NOTE 20: Post-balance Date Events

There were no post-balance date events that required adjustment to the financial statements.