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Appendix 1 Management discussion and analysis (A5)


Appendix 1 Management discussion and analysis (A5)

A5 Management discussion and analysis

General overview

Objectives

The Directorate works in partnership with parents and the community to ensure students are supported and engaged to achieve their full potential. The Directorate will continue to work closely with the community to position the ACT as Australia's lifelong learning capital.

Services of the Directorate include the provision of public school education, preschool and early intervention education programs, registration of non-government schools, registration for home education, regulation of education and care services and the planning and coordination of vocational education and training. The Directorate aims to ensure that all young people in the ACT learn, thrive and are equipped with the skills to lead fulfilling, productive and responsible lives.

Risk management

The development of the Directorate's annual Strategic Risk Management and Audit Plan identified risks that could impact on the Directorate's operations and objectives. The key risks provided below are medium to long-term risks that require ongoing monitoring and attention by the Directorate's executive and senior management.

Key risks include:

Accounting issues

There was no significant change in the accounting standards applicable to the Directorate's 2012-13 financial statements.

Changes from administrative structure

In November 2012, the Directorate received the regulation of education and care services from the Community Services Directorate.

As part of the Administrative Arrangement Orders, the Directorate received $2.4 million for Government Payment for Outputs and $10.2 million for Capital Injection. In addition, the Directorate also received 33 childcare centres valued at $34.5 million. Total liabilities transferred were $0.4m providing a net asset position of $34.1 million.

For the purposes of the management discussion and analysis, the original budget was amended to incorporate the impact of the new administrative arrangements.

Directorate financial performance

The Directorate has managed its operations within the 2012-13 budgeted appropriation. During the financial year, the Directorate achieved savings targets and in addition, internally managed cost pressures associated with workers' compensation and insurance premiums.

The table below provides a summary of the financial operations based on the audited financial statements for 2011-12 and 2012-13.

Table A5.1: Net cost of services

 

Actual

2012-13

$m

Amended

Budget

2012-13
$m1

Actual

2011-12

$m

Total expenditure

656.9

661.5

627.4

Total own source revenue

37.9

40.4

37.2

Net cost of services

619.0

621.1

590.2

Source: Education and Training Directorate Financial Statements.
Note 1: The original budget was amended to reflect the change in administrative arrangement relating to the transfer of childcare regulation and policy received in 2012-13.

In 2012-13, the Directorate's net cost of services was $2.1 million or 0.3 percent below the amended budgeted cost. The lower than anticipated costs primarily related to the timing of school-based expenditure relating to National Partnership Programs for Literacy and Numeracy, Improving Teacher Quality and Low Socio-Economic Status. This position was further reduced by the revised Commonwealth grants to be received by the Directorate in 2013-14.

The lower than anticipated expenditure associated with the net cost of services was offset by increased depreciation associated with changes in the estimated useful lives of assets, which was understated in the 2012-13 Budget.

Net cost of services increased by $28.8 million or 4.9 percent from 2011-12, primarily relating to additional costs associated with enterprise bargaining agreements for teaching and non-teaching staff, an increase in teacher numbers to meet enrolment growth and increased depreciation associated with higher capital investment levels associated with new schools.

Operating deficit

The operating deficit for the Directorate in 2012-13 was $60.0 million and was $2.3 million or 3.6 percent lower than the amended budget and $14.2 million or 19.2 percent lower than 2011-12.

Figure A5.1: Operating result

Graph displaying the operating deficit for 2012-13.
Source: Education and Training Directorate Financial Statements.

The lower than expected operating deficit against the amended budget mainly related to the timing of school-based expenditure relating to National Partnership Programs for Literacy and Numeracy, Improving Teacher Quality and Low Socio-Economic Status as well as timing of expenditure associated with schools excursions. This was partially offset by increased depreciation costs associated with changes in the estimated useful lives of assets, which was understated in the 2012-13 Budget.

The decrease from 2011-12 primarily related to employee expenses associated with the present value of long service leave. This reduction was primarily due to a significant change in the 10 year Commonwealth bond rate which was used to calculate the carrying value of employee liabilities and contributed to a lower operating deficit in 2012-13 than 2011-12. The reduction was partially offset by increased depreciation due to high capital investment levels associated with new schools.

Revenue

Directorate's revenue totalled $597.0 million, which was $1.9 million or 0.3 percent lower than the amended budget. Revenue increased by $43.7 million or 7.9 percent in comparison to the previous financial year.

Figure A5.2: Revenue 2012-13

Graph showing the Directorate's revenue for 2012-13.
Source: Education and Training Directorate Financial Statements.

The lower than anticipated revenue of $1.9 million from the amended budget primarily related to revised Commonwealth grants associated with Improving Teacher Quality National Partnership Program funding from 2012-13 to 2013-14.

In comparison to 2011-12, the increase in funding was primarily associated with the enterprise bargaining agreements for teaching and non-teaching staff, funding transferred from 2011-12 relating to National Partnership Programs in particular relating to Productivity Places Program, Youth Attainment and Transitions, Improving Teacher Quality and Literacy and Numeracy combined with increased funding for enrolment growth. This was partially offset by savings initiatives.

Expenses

Expenditure for the Directorate totalled $656.9 million and comprised of employee costs, supplies and services, grants and purchased services, depreciation, schools and borrowing costs. As shown in Figure A5.3, employee related expenses including superannuation comprise 68.0 percent of the total expenditure.

Figure A5.3: Expenses 2012-13

Graph showing the Directorate's expenditure for 2012-13.
Source: Education and Training Directorate Financial Statements

In 2012-13, total expenditure was $4.6 million or 0.7 percent lower than the amended budget primarily due to timing of expenditure by schools mainly relating to National Partnership Programs for Literacy and Numeracy, Improving Teacher Quality and Low Socio-Economic Status and school excursions. This was partially offset by increased depreciation costs associated with changes in the useful lives of assets.

Total expenditure was $29.5 million or 4.7 percent higher when compared to the previous year. The increase mainly represented additional costs associated with new enterprise bargaining agreements for teaching and non-teaching staff, enrolment growth, higher levels of Commonwealth grants and increased depreciation due to high levels of capital investment associated with new schools.

Table A5.2: Line item explanation of significant variances from the amended budget – Directorate operating statement

Significant variances from the amended budget

Actual

2012-13

$m

Amended

Budget

2012-13
$m1

Variance

$m

Revenue

     

Government Payment for Outputs2

559.0

560.9

(1.9)

User charges – ACT Government

0.4

0.4

0.0

User charges – non ACT Government3

15.6

16.6

(1.0)

Interest4

1.3

1.5

(0.2)

Resources received free of charge

0.3

0.2

0.1

Other revenue5

20.3

19.1

1.2

Expenditure

     

Employee expenses6

385.9

387.4

(1.5)

Superannuation expenses

58.1

58.3

(0.2)

Supplies and services7

61.3

66.8

(5.5)

Depreciation8

65.3

57.8

7.5

Grants and purchased services9

26.1

28.3

(2.2)

Other10

60.1

62.8

(2.7)

Source: Education and Training Directorate Financial Statements.
Notes:
1. The original budget was amended to reflect the change in administrative arrangement relating to the transfer of childcare regulation and policy received in 2012-13.
2. Lower than anticipated Government Payments for Outputs primarily related to the cash re-profile of the Improving Teacher Quality National Partnership Program funding from 2012-13 to 2013-14 by the Commonwealth.
3. Lower than anticipated revenue primarily related to Commonwealth Own Purpose grants relating to Industry and Indigenous Skill Centres and Joint Group Training, which have been funded as National Partnership Programs in 2012-13. Funding for these programs was provided to the Directorate as government payments for outputs.
4. Lower than anticipated interest primarily related to reduced interest rates.
5. Higher than anticipated revenue mainly related to regulatory fees collected by the Teacher Quality Institute for teacher registration. Forward budget estimates were amended for this impact
6. Lower than anticipated expenditure primarily related to timing of filling staff positions.
7. Lower than anticipated expenditure related to Commonwealth National Partnership Programs, in particular, Improving Teacher Quality due to revised funding arrangements by the Commonwealth Government as well as transfer of funds into 2013-14.
8. Higher than anticipated depreciation mainly related to the impact associated with asset revaluation changes in useful lives. Forward budget estimates were adjusted for this impact.
9. Lower than anticipated grants and purchased services primarily related to timing of expenditure associated with the Vocational Educational and Skills Reform National Partnership.
10. Lower than anticipated expenditure mainly related to the timing of schools excursion expenditure as schools operate on a calendar year.

Total assets

The Directorate held 95.5 percent of its assets in property, plant and equipment and 4.5 percent related to cash and cash equivalents, capital works in progress, receivables and other current assets.

Figure A5.4: Total assets

Graph showing the Directorate's assets for 2012-13.
Source: Education and Training Directorate Financial Statements.

The Directorate's assets totalled $2,058.3 million in 2012-13, which was $33.2 million or 2.0 percent lower than the amended budget. This was primarily due to the deferral of childcare and school expansion capital projects to 2013-14 resulting from delays with completion of scoping and design work as well as savings in the delivery of Neville Bonner Primary School and Franklin Early Childhood School.

This was partially offset by increased cash due to the timing of expenditure associated with the Commonwealth Digital Education Revolution National Partnership as well as the timing of expenditure by schools primarily relating to other National Partnership Programs and school excursions.

In comparison to 2011-12, total assets increased by $78.7 million or 4.0 percent primarily due to the completion of new schools projects relating to Neville Bonner Primary School, Franklin Early Childhood School and Canberra College Performing Arts Centre. This was further combined with the transfer of childcare facilities from the Community Services Directorate as part of the administrative arrangement changes and higher levels of cash associated with timing of school-based payments.

Total liabilities

The Directorate's liabilities comprised of employee benefits, payables, finance leases and other borrowings. The majority of the Directorate's liabilities related to employee benefits (93.0 percent) and payables including other liabilities (7.0 percent).

Figure A5.5: Total liabilities

Graph showing the Directorate's liabilities for 2012-13.
Source: Education and Training Directorate Financial Statements.

The Directorate's liabilities totalled $138.4 million as at 30 June 2013. This was $11.7 million or 9.0 percent higher than the amended budget, primarily relating to an increase in employee benefits associated with the change in the rate used to calculate long service leave.

In comparison to the same period last year, total liabilities increased by $2.4 million or 1.8 percent primarily associated with employee benefits due to the impact of teaching and non-teaching enterprise bargaining agreements partially offset by a decrease in employee benefits associated with the change in rate used to calculate long service leave. The increase was also partially offset by a reduction in capital project accruals due to the completion of significant projects, in particular relating to new schools.

Current assets to current liabilities

As at 30 June 2013, the Directorate's current assets were lower than its current liabilities. The Directorate does not consider this as a liquidity risk as its cash needs are funded through appropriation from the ACT Government on a cash needs basis.

It is important to note that the Directorate's current liabilities primarily relate to employee benefits, and while the majority are classified under a legal entitlement as current, the estimated amount payable within 12 months is significantly smaller and can be achieved within current assets. In addition, in the event of usually high termination levels requiring significant payment for leave balances, the Directorate is able to meet this through section 16A of the Financial Management Act 1996.

Table A5.3: Line item explanation of significant variances from the amended budget - Directorate balance sheet

Significant Variance from budget

Actual

2012-13

$m

Amended Budget

2012-13
$m1

Variance

$m

Current assets

     

Cash and cash equivalents 2

64.2

42.1

22.1

Receivables 3

6.7

7.1

(0.4)

Other current assets 4

2.1

3.7

(1.6)

Non-current assets

     

Investment

1.8

1.8

-

Property, plant and equipment5

1,965.8

1,954.3

11.5

Capital works in progress (WIP) 6

17.6

82.6

(65.0)

Current liabilities

     

Payables 7

5.4

4.2

1.2

Finance leases

-

0.1

(0.1)

Employee benefits 8

116.7

107.4

9.3

Other

4.2

3.8

0.4

Non-current liabilities

     

Finances leases

0.1

0.1

-

Employee benefits 8

11.9

11.1

0.8

Other borrowings

0.1

0.0

0.1

Source: Education and Training Directorate Financial Statements.
Notes:
1. The amended budget was adjusted for the transfer associated with the Administrative Structure.
2. Higher than anticipated cash primarily related to the timing of expenditure associated with the Commonwealth Digital Education Revolution National Partnership and increased schools bank balances primarily relating to the timing of expenditure of National Partnerships Programs and school excursions.
3. Marginally lower than anticipated levels of receivable mainly related to the input tax credit from the Australian Taxation Office which was dependent on the level of expenditure in June.
4. Primarily related to the timing of prepayments in relation to vocational educational and training grants and copyright payments.
5. Higher than anticipated property, plant and equipment primarily related to the transfer of childcare facilities from the Community Services Directorate partially offset by savings in the delivery of Neville Bonner Primary School and Franklin Early Childhood School, combined with deferral of capital works activities relating to school expansion projects and childcare facilities due to delays in the completion of scoping and design works.
6. Lower than anticipated capital works in progress primarily related to the timing of completion of capital works projects. Projects capitalised in 2012-13 primarily related to Neville Bonner Primary School, Franklin Early Childhood School and Canberra College Performing Arts Centre. Projects currently in progress primarily relate to rectification and upgrade at Taylor Primary School, schools expansions projects, upgrade of early childhood facilities and ICT projects.
7. Higher than anticipated payables primarily related to general administration and capital works accruals due to the timing of invoice receipts.
8. Higher than anticipated employee benefits was mainly associated with the change in the rate used to calculate the estimates for long service leave.

Territorial revenue

Total income received included revenue for expenses on behalf of the Territory, primarily for the provision of grants to non-government schools.

Figure A5.6: Territorial revenue

Graph showing the Territory's revenue for 2012-13.
Source: Education and Training Directorate Financial Statements.

Territorial revenue mainly comprised of funding for non-government schools from the Commonwealth and ACT Governments. It also included ACT Government funding for the Secondary Bursary Scheme and Block Release Programs.

Territorial revenue totalled $202.8 million in 2012-13, which was $9.8 million or 4.6 percent lower than the budget. The lower than anticipated revenue primarily related to actual levels of Commonwealth grants passed on to non-government schools being below original Commonwealth Budget Estimates and transfer of Interest Subsidy Funds Scheme to 2013-14.

When compared to the same period last year, total revenue increased by $7.7 million or 4.0 percent mainly due to higher levels of general recurrent grants for
non-government schools reflecting the impact of indexation and enrolment growth.

Territorial expenditure

Territorial expenditure other than transfers of fees to the Territorial Banking Account comprised of grant payments to non-government schools ($202.2 million), the Secondary Bursary Scheme ($0.5 million) and Block Release grants ($0.05 million).

Lower than anticipated expenditure from the budget primarily related to the actual levels of Commonwealth grants passed on to non-government schools being below original Commonwealth Budget Estimates and the transfer of funds to 2013-14 for the Interest Subsidy Scheme.

Total expenditure increased by $7.7 million or 4.0 percent from the corresponding period last year mainly due to higher levels of general recurrent grants for
non-government schools reflecting the impact of indexation and enrolment growth.


For more information contact:
Executive Director
Corporate Services
Telephone: (02) 6205 2685