C.1 Financial Management Analysis

Management Discussion and Analysis

General Overview

Objectives

The Education and Training Directorate (the Directorate) works in partnership with students, parents and the community to ensure that every child in the ACT has access to the opportunity of an excellent education, irrespective of where they live, their personal circumstances or the school they attend. The Directorate works closely with parents, carers, and families as well as with government agencies, education and training providers, business and industry to position the ACT as the Education Capital: Leading the Nation.

Services of the Directorate include the provision of public school education, regulation of education and care services, registration of non-government schools and home education, and the planning and coordination of vocational education and training. The Directorate provided early intervention programs to children with developmental delay or disability until 31 December 2014. Early intervention programs transitioned to the National Disability Insurance Scheme from 1 January 2015.

High achievement for all students through connected and inclusive learning across all sectors of the education system is achieved through a focus on quality learning, inspirational teaching and leadership, high expectations and high performance, connecting with families and the community, and improvement and innovation in business systems.

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 are monitored by the Directorate's executive and senior management.

Key risks, including mitigation strategies, are identified below:

  • Failure to fully utilise the Directorate's workforce capabilities. The Directorate has mitigated this risk through training, documented policies and procedures and continued implementation of the performance management framework.
  • Failure of ICT infrastructure and the digital environment to meet the operational and business needs of the Directorate. The Directorate has mitigated this risk through the oversight of strategic planning and operational performance by the ICT Working Group.
  • Implementation of National Reforms including the National Disability Insurance Scheme. A whole of ACT Government governance structure has been established including a task-force on which the Directorate is represented. An internal steering committee has been established within the Directorate to operate during the pilot phase.
  • Compliance with legislative obligations is a priority for the Directorate. A legislative framework has been developed which includes guidance materials, monitoring and training for all Directorate staff.

Accounting Changes

There was one significant change to Australian Accounting Standards which impacted the Directorate's 2014‑15 Financial Statements. In summary:

  • The application of AASB 1055 Budgetary Reporting (AASB 1055) applies to annual reporting periods beginning on or after 1 July 2014. AASB 1055 requires the Directorate to disclose, for the reporting period:
    • The original budget figures as presented to the Legislative Assembly, in a form that is consistent with the Directorate annual financial statements; and
    • Explanations of major variations between actual amounts presented in the financial statements and the corresponding individual original budget amounts.

Directorate Financial Performance

The Directorate has managed its operations within the 2014-15 budgeted appropriation. During the financial year, the Directorate achieved savings targets and in addition, internally managed cost pressures associated with workers' compensation premium costs and increased enrolments.

The table below provides a summary of the financial operations based on the audited financial statements for 2013-14 and 2014-15.

Table C1.1: Net Cost of Services
Cost of services Actual
2014-15
$m
Amended Budget1
2014-15
$m
Actual
2013-14
$m
Total expenditure 698.7 715.8 691.3
Total own source revenue2 41.7 38.2 40.7
Net cost of services 657.0 677.6 650.6

Note 1. The Amended Budget incorporates the transfer of childcare centres and associated funding to the Chief Minister Treasury and Economic Development Directorate through a Section 16 Financial Instrument under the Financial Management Act 1996.
Note 2. Relates to Total Revenue excluding Government Payment for Outputs

Net Cost of Services

The Directorate's net cost of services for 2014-15 of $657.0 million was $20.6 million or 3.0 per cent lower than the 2014-15 amended budget. The lower than anticipated cost is primarily due to timing of course completions associated with the vocational education national partnership. This position was further reduced by lower than anticipated depreciation associated with the revaluation of the Directorate's assets in 2013-14, and delays in the scoping work for the new schools' ICT administration system.

The lower than anticipated net cost of services was partially offset by increased revenue from international students due to increased student numbers and higher employee benefits costs primarily due to a higher than budgeted rate used to estimate the present value of future long service leave payments.

In comparison to 2013-14, the net cost of services in 2014-15 increased by $6.4 million or 1.0 percent primarily relating to additional employee expenses associated with enterprise bargaining agreements for teaching and non-teaching staff and an increase in teacher numbers to meet enrolment growth.

Operating Result

In 2014-15, the operating deficit for the Directorate was $66.1 million and was $3.5 million or 5.0 percent lower than the amended budget and $8.5 million or 11.4 percent lower than 2013-14.

The lower than anticipated operating deficit against the amended budget primarily relates to increased revenue from international students due to increased student numbers, and lower than anticipated depreciation resulting from the revaluation of the Directorate's assets in 2013-14.

In comparison to 2013-14, the reduced operating deficit in 2014-15 of $8.5 million or 11.4 percent, primarily relates to higher revenue from international students associated with increased student numbers, and lower than anticipated depreciation resulting from the revaluation of the Directorate's assets in 2013-14. The improved position against the prior year was also due to higher Commonwealth revenue through the Universal Access to Early Childhood Education National Partnership.

Total Revenue

Components of Revenue

The Directorate's revenue for 2014-15 totalled $632.7 million. The main source of revenue for the Directorate is Government Payment for Outputs which provides 93% of the Directorate's Total Revenue.

Figure C1.1: Components of Revenue 2014-15

Figure C1.1: Components of Revenue 2014-15
Source: Education and Training Directorate Financial Statements.

The Directorate's revenue for 2014-15 was $13.6 million or 2.1 per cent lower than the amended budget. In comparison to the previous year, revenue increased by $15.9 million or 2.6%.

The lower than budgeted revenue is primarily due to later than anticipated course completions associated with the vocational education national partnership. This is partially offset by higher revenue associated with higher numbers of international students.

The increased revenue from 2013-14 is primarily due to additional funding received for increased wages associated with the enterprise agreements for teaching and non-teaching staff combined with increased funding for enrolment growth and Commonwealth grants.

Total Expenditure

Components of Expenditure

Expenditure for the Directorate totalled $698.7 million for 2014-15. As shown in Figure C1.2, the main components of expenditure are employee expenses, including superannuation, comprising 70 per cent of total expenditure, depreciation comprising 9 per cent of total expenditure and supplies and services and other expenses each comprising 9 per cent of total expenditure.

Figure C1.2: Components of Expenditure 2014-15

Figure C1.2: Components of Expenditure 2014-15
Source: Education and Training Directorate Financial Statements

In 2014-15, total expenditure was $17.1 million or 2.4 per cent lower than the amended budget primarily due to later than anticipated course completions associated with the vocational education national partnership. This position was further reduced by lower than anticipated depreciation associated with the revaluation of the Directorate's assets in 2013-14, and delays in the scoping work for the new schools ICT administration system.

The lower than anticipated expenditure was partially offset by increased costs associated with employee benefits due to a higher than budgeted rate used to estimate the present value of future long service leave payments and acceleration of repairs and maintenance works in schools.

Total expenditure was $7.4 million or 1.0 percent higher when compared to the previous year. The increase mainly represented additional costs associated with new enterprise agreements for teaching and non-teaching staff, enrolment growth, increased employee benefits and increased Commonwealth grants.

Table C1.2: Line Item Explanation of Significant Variances from the Amended Budget - Directorate Operating Statement
Significant variances from the amended budget
(Revenue)
Actual
2014-15
$m
Amended
Budget
2014-15
$m1
Variance
$m
Government payment for outputs2 591.0 608.0 (17.0)
User charges - ACT Government 0.5 0.6 (0.1)
User charges - non ACT Government3 17.6 15.9 1.7
Interest and distributions 1.5 1.4 0.1
Resources received free of charge4 0.6 0.4 0.2
Other revenue 5 21.5 20.0 1.5
Total Revenue 632.7 646.3 (13.6)
Significant variances from the amended budget
(Expenditure)
Actual
2014-15
$m
Amended
Budget
2014-15
$m
Variance
$m
Employee expenses6 426.3 420.8 5.5
Superannuation expenses 62.7 62.4 0.3
Supplies and services7 64.4 69.5 (5.1)
Depreciation8 60.5 67.5 (7.0)
Grants and purchased services9 21.1 31.9 (10.8)
Other 63.7 63.7 0.0
Total Expenses 698.7 715.8 (17.1)

Notes:
1. The Amended Budget incorporates the transfer of childcare centres and associated funding to the Chief Minister Treasury and Economic Development Directorate through a Section 16 Financial Instrument under the Financial Management Act 1996 on 31 January 2015.

2. Lower than anticipated Government Payments for Outputs primarily related to the later than anticipated course completions for the vocational education national partnership. The National Partnership funding was not drawn down and has been transferred to 2015-16.

3. Higher than anticipated revenue primarily related to increased international private students.
4. Higher than anticipated resources received free of charge relates to the ACT Government Solicitor's Office for legal services.
5. Higher than anticipated revenue mainly related to schools revenue associated with hire of facilities, subject contributions and voluntary contributions.
6. Higher than anticipated employee expense primarily related to a higher than budgeted rate used to estimate the present value of future long service leave payments, and increased long service leave accruals.
7. Lower than anticipated supplies and services expenditure mainly related to delays in the scoping of the new schools ICT administration system partially offset by accelerated maintenance works in schools.
8. Lower than anticipated depreciation is mainly due to the impact of the revaluation of the Directorate's assets in 2013-14. Forward estimates have been adjusted for this impact.
9. Lower than anticipated grants and purchased services primarily related to the timing of expenditure associated with the vocational education national partnership.

Financial Position

Total Assets

Components of Total Assets

The Directorate held 94 percent of its assets in property, plant and equipment including capital works in progress and 4 percent related to cash and cash equivalents, receivables and other current assets.

Figure C1.3: Total Assets as at 30 June 2015

Figure C1.3: Total Assets as at 30 June 2015
Source: Education and Training Directorate Financial Statements.

Comparison to Budget

In 2014-15, the Directorate's assets totalled $1,907.2 million, which was $162.1 million or 7.8 percent lower than the amended budget. The decrease was primarily due to the impact of the 2013-14 asset revaluation combined with later than anticipated expenditure associated with capital works projects. The delayed expenditure on capital works projects primarily resulted from changes to expected contract payment schedules.

This was partially offset by increased cash at bank as more cash was held for the 27th payroll to be paid in 2015-16.

In comparison to 2013-14, total assets decreased by $21.5 million or 1.1 percent primarily due to the impact of depreciation partially offset by the capitalisation of completed projects and increased cash held for the 27th payroll to be paid in 2015-16.

Financial Position

Components of Total Liabilities

The Directorate's liabilities comprised employee benefits, payables and other borrowings. The majority of the Directorate's liabilities related to employee benefits (92 percent) and payables and other liabilities (8 percent).

Figure C1.4: Total Liabilities as at 30 June 2015

Figure C1.4
Source: Education and Training Directorate Financial Statements.

As at 30 June 2015, the Directorate's liabilities totalled $163.5 million. This was $18.8 million or 13.0 percent higher than the amended budget primarily due to an increase in employee benefits associated with an increase in the rate used to estimate the present value of long service leave payments.

In comparison to 2013-14, total liabilities decreased by $1.6 million or 1.1 percent primarily associated with reduced ICT payables.

Current Assets to Current Liabilities

As at 30 June 2015, the Directorate's current assets were lower than its current liabilities. The Directorate does not consider this as a liquidity risk as 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 lower and can be paid with current assets. In addition, in the event of high termination levels requiring significant payment for leave balances, the Directorate is able to meet its obligations through section 16A of the Financial Management Act 1996.

Table C1.3: Line Item Explanation of Significant Variances from the Amended Budget - Directorate Balance Sheet


Significant Variance from budget
Current assets
Actual
2014-15
$m
Amended
Budget
2014-15
$m1
Variance
$m
Cash and cash equivalents 81.6 79.8 1.8
Receivables 5.1 4.7 0.4
Investments 0.3 0.3 0.0
Other Assets2 0.9 2.1 (1.2)
Significant Variance from budget
Non-current assets
Actual
2014-15
$m
Amended
Budget
2014-15
$m1
Variance
$m
Investment 1.9 1.8 0.1
Property, plant and equipment3 1,790.3 1,942.8 (152.5)
Intangible Assets4 2.6 0.4 2.2
Capital works in progress (WIP)5 24.5 37.3 (12.8)
Significant variance from budget
Current liabilities
Actual2014-15
$m
Amended Budget
2014-15
$m1
Variance
$m
Payables 6.3 4.1 2.2
Employee benefits6 137.8 123.6 14.2
Other 4.8 4.2 0.6
Significant variance from budget
Non-current liabilities
Actual
2014-15
$m
Amended Budget
2014-15
$m1
Variance
$m
Employee benefits 12.0 12.7 (0.7)
Other borrowings7 2.6 0.1 2.5

Notes:
1. The Amended Budget incorporates the transfer of childcare centres and associated funding to the Chief Minister Treasury and Economic Development Directorate through a Section 16 Financial Instrument under the Financial Management Act 1996 on 31 January 2015.
2. Primarily related to lower than anticipated vocational education prepayments.
3. Lower than budgeted property, plant and equipment is primarily due to the impact of the 2013-14 revaluation of the Directorate's land and building assets, and the transfer of capital works to 2015-16.
4. Mainly relates to capitalisation of the ACT Vocational Education and Training Administration Records System.
5. Lower due to the transfer of capital works to 2015-16, mainly associated with the Coombs P-6 School project, which remains on schedule to open in 2016.
6. Higher than anticipated employee benefits mainly associated with an increase in the discount rate used to calculate the estimates for long service leave and annual leave.
7.The higher than budgeted result is due to receipt of a loan from the Environment and Planning Directorate for sustainability projects.

Territorial Statement of Revenue and Expenses

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 C1.5: Sources of Territorial Revenue

Figure C1.5: Sources of Territorial revenue
Source: Education and Training Directorate Financial Statements.

Territorial revenue is 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 $250.1 million in 2014-15, which was $15.3 million or 6.5 per cent higher than budget. The higher than anticipated revenue primarily related to the inclusion of goods and services tax on Commonwealth Government grants on passed to non-government schools. Goods and services tax on Commonwealth Government grants was not included in the budget. The inclusion of the goods and services tax component of these grants was based on the advice of an external tax consultant received on 10 August 2015.

When compared to the same period last year, total revenue increased by $12.9 million or 5.4% primarily due to higher levels of general recurrent grants for non-government schools reflecting the impact of the implementation of the Schooling Resource Standard from 2014.

Territorial Expenditure

Territorial expenditure other than transfers of fees to the Territorial Banking Account comprised of grant payments to non-government schools ($250.1 million). Territorial expenditure in 2014-15 was $15.3 million or 6.5 per cent higher than budget. The higher than anticipated expenditure primarily related to the inclusion of goods and services tax on Commonwealth Government grants on passed to non-government schools. Goods and services tax on Commonwealth Government grants was not included in the budget. The inclusion of the goods and services tax component of these grants was based on the advice of an external tax consultant received on 10 August 2015.

Total expenditure increased by $12.9 million or 5.4% from the prior period mainly due to higher levels of general recurrent grants paid to non-government schools reflecting the impact of indexation and enrolment growth.

For more information contact:
Chief Finance Officer
Strategic Finance
Telephone: (02) 6205 5338