Notes to the Financial Statements

NOTE 1: Other Revenue

30/06/05
Actual
$000

 

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

24,008

External Sales

25,584

22,438 23,431

1,279

Rents

1,491 974 974

157

Miscellaneous

173

86 93

25,752

Total other revenue

25,248 23,498 24,498


NOTE 2: Personnel Costs

30/06/05
Actual
$000

 

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

265,641

Salaries and wages

320,731 304,630 319,748
(9)

Retirement and long service leave

1,831 1,148 1,265
265,632

Total personnel costs

322,562 305,778 321,013


NOTE 3: Operating Costs

30/06/05
Actual
$000

 

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

8,917

Operating lease rentals

11,354

10,431 11,210

229

Audit fees to auditors for audit of the financial statements

240 240 240

161

Fees to auditors for other services provided

175

???

???

34,248

Facilities maintenance

43,684 33,956 34,788

47,475

Offender management costs

62,075 47,624 59,113

12,131

Computer costs

10,207 9,130 10,048

18,537

Contract management

11,741 11,522 11,794

21,698

Administration

28,172 35,128 43,970
21 Bad Debts 66

???

???

30,596

Other operating costs

18,182 29,713 17,330

(5,304)

Forestry revaluation/ (devaluation)

4,830

???

???

704

Loss on sale of fixed assets

848

???

???

169,392

Total operating costs

191,574 177,744*

188,493



Contract Management represents contracts with Chubb New Zealand Limited and the New Zealand Prisoners' Aid and Rehabilitation Society Incorporated.

Contract Management costs have reduced this financial year due to the Department taking over the running of the Auckland Regional Remand Prison from GEO Group Australia Pty Ltd.

* The amount reported to Treasury was $175,815.

NOTE 4: Depreciation

30/06/05
Actual
$000

 

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

32,007

Buildings

42,799

49,486 46,491

938

Leasehold improvements

1,239 860 860

2,870

Plant and equipment

2,866 5,140 5,140

799

Furniture and fittings

952 1,200 1,200

8,718

Computer equipment

11,214 9,000 9,000

3,499

Motor vehicles

3,422 3,100 3,100

48,831

Total depreciation charge

62,492 68,786 65,791


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 2006 was 8.0 percent per annum (2005: 8.0 percent).

NOTE 6: Other Expenses

30/06/05
Actual
$000

 

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

(11,559)

Revaluation ??? buildings

???

???

???

(11,559)

Total other expenses

???

???

???



The prior year actual represents the portion of the 30 June 2005 building revaluation which reverses the revaluation deficit of 30 June 2002.

NOTE 7: Taxpayers' Funds

Taxpayers??? Funds comprises two components:

General Funds

30/06/05
Actual
$000

 

Notes

30/06/06
Actual
$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

672,751

General funds as at 1 July

 

864,393 853,072 953,302

17,030

Net operating surplus/(deficit)

 

1,372

???

???

180,083

Capital contribution

 

318,547 418,870 393,547

197,113

 

319,919 418,870 393,547

(5,471)

Provision for repayment of surplus to the Crown

13

1,372

???

???

864,393

General funds as at 30 June

 

1,182,940 1,271,942 1,346,849


Revaluation Reserve

30/06/05
Total
Actual
$000

30/06/06
Livestock
$000

30/06/06
Land
$000

30/06/06
Buildings
$000

30/06/06
Total
Actual
$000

238

Balance brought forward

1,497

36,572

50,840

88,909

88,671

Revaluation changes at 30 June

303

???

???

303

88,909

Revaluation Reserve as at 30 June

1,800

36,572

50,840

88,212



NOTE 8: Debtors and Receivables

30/06/05
Actual
$000

 

30/06/06
Actual
$000

3,408

Trade debtors

2935

1,040

Other

1999

(322)

Provision for doubtful debts

(282)

707

GST receivable

-

4,833

Total debtors and receivables

4,652



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

30/06/05
Actual
$000

 

30/06/06
Actual
$000

 

Freehold land

 

-

At cost

221

11,840

At valuation

111,840
11,840

Land ??? net book value

112,061

 

Buildings

 

-

At cost

106,710

573,081

At valuation - 30 June 2005

573,081
-

Accumulated depreciation

(42,742)

573,081

Buildings ??? net book value

637,049

5,192

Leasehold improvements

 

9,162

At cost

10,939
3,970

Accumulated depreciation

4,974
5,192

Leasehold improvements ??? net book value

5,965

 

Forests

 

34,705

At valuation

30,822

Forests ??? net book value

30,822

 

Plant and equipment

 

31,771

At cost

31,966
19,569

Accumulated depreciation

(19,903)
12,202

Plant and equipment ??? net market value

12,063

 

Furniture and Fittings

 

7,749

At cost

7,895
4,940

Accumulated depreciation

5,418
2,809

Furniture and fittings ??? net book value

2,477

 

Computer equipment (incl software)

 

71,090

At cost

8,3521
(43,737)

Accumulated depreciation

(54,917)

Computer equipment ??? net book value

28,604

 

Motor vehicles

 

33,571

At cost

34,846
18,028

Accumulated depreciation

(19,991)
15,543

Motor vehicles ??? net book value

14,855

 

Items under construction

 

195,291

Buildings

511,719
8,360

Computer equipment

11,700
203,651

Items under construction ??? net book value

523,419

 

Total physical assets

 

1,076,620

At cost and valuation

1,515,260
(90,244)

Accumulated depreciation

(147,945)
986,376

Total carrying amount of physical assets

1,367,315


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 valuation of forests was undertaken by an independent registered valuer, P F Olsen and Company Limited, on 30 June 2006. This valuation was completed by T Vos, registered forestry consultant, NZIF.

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

NOTE 11: Creditors and Payables

30/06/05
Actual
$000

 

30/06/06
Actual
$000

33,138

Trade creditors

20,332
59,962

Accrued expenses

67,879
-

GST payable

392
93,100

Total creditors and payables

88,603


NOTE 12: Provisions

30/06/05
Total
Actual
$000

 

30/06/06
Total
Actual
$000

1,332

Balance brought forward

1,984

652

Additional provisions made during the year

2,293

???

Charged against provision for the year

(1,438)

1,984

Provisions as at 30 June 2,839


Provisions include an employee provision for the estimated cost of future work-related accident claims and 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

 

30/06/06
Actual
$000

5,471

Net surplus/(deficit)

1,372

-

Add: Other expenses (not for production of outputs)

???

5,471

Net surplus (deficit) from delivery of outputs

1,372

5,471

Total provision for repayment of surplus to the Crown

1,372



NOTE 14: Provision for Employee Entitlements

30/06/05
Actual
$000

 

30/06/06
Actual
$000

 

Current liabilities

 

10,738

Retirement and long service leave

12,187

22,778

Annual leave

26,316

33,516

Total current portion

38,503

 

Non-current liabilities

 

9,809

Retirement and long service leave

10,005

9,809

Total non-current portion

10,005

43,325

Total provision for employee entitlements

48,508


Aon New Zealand revalues the Department's non-current liabilities on a quarterly basis.

The major assumptions used in the 30 June 2006 valuation is that salary growth rates are 3.0% per annum and discount rates ranged from 5.77% to 6.54% per annum.

NOTE 15: Reconciliation of Net Surplus to Net Cash Flow from Operation Activities for the Year Ended 30 June 2006

30/06/05
Actual
$000

 

30/06/06
Actual

$000

30/06/06
Main
Estimates
$000

30/06/06
Supp.
Estimates
$000

17,030

Net surplus/(deficit)

1372

???

???

 

Add/(less) non-cash items

 

 

 

48,831

Depreciation

62492 68,786

52,726

(1,049)

Inc/(dec) in non-current employee entitlements

196

???

(960)

(17,015)

Inc/(dec) other non-cash items

4801

???

???

30,767

Total non-cash items

67489

68,786

51,766

 

Working capital movements

 

 

 

473

(Inc)/dec in receivables

181 31

(1,100)

12

(Inc)/dec in inventories

619

(394)

(162)

(309)

(Inc)/dec in prepayments

10 25

(7)

22,933

Inc/(dec) in creditors and payables

15058 (4)

(292)

2,490

Inc/(dec) in current employee entitlements

4987 11

1,915

25,599

Working capital movements ??? net

10519 (331)

354

???

Add/(less) investing activity items

???

???

???

42

Net loss/(gain) on sale of physical assets

848

???

???

42

Total investing activity items

848

???

???

73,438

Net cash flow from operating activities

59,190 68,455

65,791



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 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 2006 (30 June 2005: 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

Opening Taxpayer's Funds and Taxpayer Revaluation Reserves are higher due to the timing issues for the preparation of the 2005/06 Main Estimates. The 2004/05 revaluation of land and buildings was not originally included in the 2005/06 Main Estimates due to the timing of the preparation of the Main Estimates.

Capital contributions, cash and bank balances and general taxpayer's funds are lower than the Main Estimates due to the Department not taking up $75 million in capital appropriation in 2005/06. The Department did not require this capital funding due to delays in the commencement of the Department's infrastructure work at existing sites. The Department applied for an in-principle capital transfer so that this $75 million in funding has been transferred to the 2006/07 financial year when expenditure is to occur.

The increase in physical assets compared to the Main Estimates is due to additional investment in the Department's capital investment programme to add existing prisoner accommodation capacity. Additional work and cost escalations on the Otago Region Corrections Facility (ORCF) and Spring Hill Corrections Facility (SHCF) increased after the preparation of the Main Estimates. The Department self-funded a portion of these capital projects, out of cash generated from the depreciation funding.

Creditors and payables are significantly higher than the Main Estimates due to the increased capital works. This is primarily due to timing issues arising from when payments were made at the end of the financial year.

The Department's $4.830 million forestry revaluation expense is coded to the Prisoner Employment output class. Section 4 (2a) of the Public Finance Act states that the remeasurement of an asset or liability is not an expense under this section. The forestry revaluation loss recorded at 30 June 2006 represents the valuer's outlook for; logging plan, prices, costs, discount rates, and treatment of land cost.

NOTE 20: Post-balance Date Events

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