C.1 Financial Management Analysis

MANAGEMENT DISCUSSION AND ANALYSIS

GENERAL OVERVIEW

Objectives

The Directorate works in partnership with students, parents and the community to ensure that every child, young person and adult in the ACT will benefit from a high quality, accessible education, childcare and training system. The Directorate works closely 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.

The Directorate aims to lift student achievement through connected and inclusive learning across all sectors of the education system combined with a focus on quality learning; inspirational teaching and leadership; high expectations, high performance; connecting with families and the community; and business innovation and improvement.

Following changes to Administrative Arrangements, vocational education and training functions transferred to the Chief Minister, Treasury and Economic Development Directorate (CMTEDD) from 22 January 2016.

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:

  • Misalignment between school and organisational effort and expectations of government and community. The Directorate provides alignment through key strategic documents including the Directorate’s Strategic Plan 2014 - 17: Education Capital: Leading the Nation and the 2016 Action Plan. Strategic plans are clearly communicated to schools and the community, and schools are supported in ensuring alignment through system wide planning processes
  • Lack of organisational capability and capacity to implement complex reform programs. The Directorate has a strong project management culture; has rigorous project management around complex reform programs (such as project planning for the Schools for All reform program which includes an Independent Oversight Group) and has comprehensive corporate governance processes.
  • Ageing school infrastructure that is not ‘fit for purpose’. The Directorate conducts strategic asset management planning; provides timely advice to government about risks and associated remediation options and has focused investment on core issues - such as Heating, Ventilation and Air Conditioning (HVAC) and electrical works.
  • Information management systems unable to support good decision making and compliance obligations. The Directorate has a comprehensive set of frameworks, toolkits and manuals to support informed decision making and compliance.These include the People, Practice and Performance (a framework for performance and accountability), the School Legal Information Manual, Director-General’s Financial Instructions and the School Management Manual.
  • Workforce incapable to meet needs of modern and progressive education systems. The Directorate has a comprehensive professional development planning process in place and provides professional learning opportunities to staff. For example, all Directorate staff are required to have a professional development plan in place. Professional learning is provided through external sources and internally through online training modules. Teachers are provided 20 hours (at a minimum) of training accredited through the Teacher Quality Institute.

Accounting Changes

There were no significant accounting changes that impacted the 2015-16 financial statements.

Directorate Financial Performance

The Directorate has managed its operations within the 2015-16 budgeted appropriation. During the financial year, the Directorate achieved savings targets and internally managed cost pressures associated with increased enrolments including increases in numbers of students with a disability.

The table below provides a summary of the financial operations based on the audited financial statements for 2014-15 and 2015-16.

Table C1.1: NET COST OF SERVICES

  Actual
2015-16
$m
Amended Budget1
2015-16
$m
Actual
2014-15
$m
Total expenditure 729.2 740.0 698.7
Total own source revenue2 42.4 40.2 41.7
Net cost of services 686.8699.8657.0

Notes:
1The Amended Budget incorporates the transfer of vocational education and training functions to the Chief Minister Treasury and Economic Development Directorate through a Section 16 Financial Instrument under the Financial Management Act 1996.
2Relates to Total Revenue excluding Government Payment for Outputs.

Net Cost of Services

The Directorate’s net cost of services for 2015-16 of $686.8 million was $13.0 million or 1.9 per cent lower than the 2015-16 amended budget of $699.8 million. The lower than anticipated net cost is primarily due to lower than budgeted maintenance expenditure in 2015-16 due to early completion of some maintenance projects in May and June 2015 (2014-15) which reduced the amount of maintenance programmed in 2015-16, lower than anticipated depreciation, and delays in implementation of work associated with the schools’ administration system ICTproject.

This was partially offset by increased employee expenses resulting from a higher than budgeted rate used to estimate the present value of future long service leave payments.

In comparison to 2014 -15, the net cost of services in 2015-16 increased by $29.8 million or 4.5 per cent primarily related to additional employee expenses associated with the Teaching Staff Enterprise Agreement and Administrative and Other Staff Enterprise Agreement and an increase in teacher numbers to meet enrolment growth. This increase was partially offset by lower maintenance expenditure in 2015-16 due to early completion of some maintenance projects in May and June 2015 (2014-15) which reduced the amount of maintenance programmed in 2015-16.

Operating Result

In 2015-16, the operating deficit for the Directorate was $60.2 million and was $9.5 million or 13.7 per cent lower than the amended budget. The lower than anticipated operating deficit against the amended budget primarily related to lower than anticipated depreciation associated with full depreciation of a number of ICT assets, delays in implementation work associated with the schools’ administration system ICT project and lower than budgeted maintenance expenditure due to acceleration of works in 2014-15 which resulted in lower expenditure in 2015-16. The reduced expenditure was partially offset by higher than anticipated employee expenses resulting from a higher than budgeted rate used to estimate the present value of future long service leave payments.

In comparison to 2014-15, the reduced operating deficit in 2015-16 of $7.2 million or 10.6 per cent, mainly related to lower maintenance expenditure in 2015-16 due to early completion of some maintenance projects in 2014-15.

TOTAL REVENUE

Components of Revenue

The Directorate’s revenue for 2015 - 16 totalled $669.0 million. The main source of revenue for the Directorate is Government Payment for Outputs which provided 93.7 per cent of the Directorate’s Total Revenue.

Figure C1.1: Components of Revenue 2015-16

Figure showing components of Revenue 2015-16

Source: Education Directorate Financial Statements

The Directorate’s revenue for 2015-16 ($669.0 million) was materially in line with the amended budget ($670.3 million).In comparison to the previous year, revenue increased by $36.3 million or 5.7 per cent.

The increased revenue from 2014-15 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. These increases were partially offset by the transfer of vocational education and training functions to CMTEDD from 22 January 2016.

TOTAL EXPENSES

Components of Expenses

Expenses for the Directorate totalled $729.2 million for 2015-16.  As shown in Figure C1.2, the main component of expenses is employee expenses, including superannuation, comprising 72.9 per cent of total expenses.

Figure C1.2: Components of Expenditure 2015-16

Figure showing components of Expenditure 2015-16

Source: Education Directorate Financial Statements

In 2015-16, total expenses were $10.8 million or 1.5 per cent lower than the amended budget of $740.0 million primarily due to lower than anticipated depreciation associated with full depreciation of a number of ICT assets, and lower than budgeted maintenance expenditure due to early completion of works in 2014-15 which resulted in lower expenses in 2015-16.

The reduced expenses were partially offset by increased employee expenses resulting from a higher than budgeted rate used to estimate the present value of future long service leave payments.

Total expenses were $30.4 million or 4.4 per cent higher when compared to the previous year ($698.7 million). The increase mainly represents additional employee expenses associated with new enterprise agreements for teaching and non-teaching staff, enrolment growth and increased present value of employee benefits (primarily long service leave). The increase was partially offset by reduced grants expenditure associated with the transfer of vocational education and training functions to CMTEDD from 22 January 2016.

TABLE C1.2: LINE ITEM EXPLANATION OF SIGNIFICANT VARIANCES FROM THE AMENDED BUDGET - DIRECTORATE OPERATING STATEMENT

Significant variances from the amended budget Actual 2015 - 16$m Amended Budget 2015 - 16$m1 Variance $m
Revenue    
Government payment for outputs2 626.6 630.1 (3.5)
User charges – ACT Government 0.7 0.6 0.1
User charges – non ACT Government3 17.5 16.3 1.2
Interest and distributions 1.4 1.4 0.0
Resources received free of charge 0.6 0.5 0.1
Other revenue4 22.2 21.4 0.8
Total own source revenue2 42.4 40.2 41.7
Total Revenue 669.0670.3(1.3)
Significant variances from the amended budget Actual 2015 - 16$m Amended Budget 2015-16 $m Variance $m
Expenses    
Employee expenses5 466.6 458.6 8.0
Superannuation expenses6 65.3 69.0 (3.7)
Supplies and services7 58.2 72.5 (14.3)
Depreciation8 60.5 66.2 (5.7)
Grants and purchased services9 13.2 8.6 4.6
Other 65.4 65.1 0.3
Total Expenses 729.2740.0(10.8)

Notes:
1The Amended Budget incorporates the transfer of vocational education and training functions to CMTEDD through a Section 16 Financial Instrument under the Financial Management Act 1996 on 22 January 2016.
2Lower than anticipated Government Payments for Outputs primarily related to lower Commonwealth grants (Students First) and funds provided for superannuation expenses.
3Higher than anticipated revenue primarily related to increased number of international private students.
4Higher than anticipated revenue mainly related to schools revenue associated with payments from the French Government for the French Australia School program at Telopea Park School. In 2014-15 these payments were paid to the Directorate and recorded as User Charges – Non ACT Government. In 2015-16, a new operational agreement was entered into with French Government payments now made directly to the Telopea Park School and therefore recorded as Other Revenue.
5Higher than anticipated employee expenses primarily related to a higher than budgeted rate used to estimate the present value of future long service leave payments.
6Lower than budgeted superannuation expenses mainly related to lower than expected staff numbers in the superannuation schemes with higher contribution rates.
7Lower than anticipated supplies and services expenditure mainly related to delays in implementation work associated with the schools administration system ICT project and lower than budgeted maintenance costs in schools due to early completion of works in 2014-15.
8Lower than anticipated depreciation is mainly due to full depreciation of a number of significant ICT assets. Forward estimates have been adjusted for this impact.
9Higher than anticipated grants and purchased services primarily related to a National Disability Insurance Scheme (NDIS) grant payment of $2.3 million in the grants and purchased services budget as well as the rollover of funds partnership which is not included in the amended budget.

FINANCIAL POSITION

TOTAL ASSETS

Components of Total Assets

The Directorate held 95.2 per cent of its assets in property, plant and equipment including capital works in progress and 4.8 per cent related to cash and cash equivalents, receivables and other current assets.

FIGURE C1.3: TOTAL ASSETS AT 30 JUNE 2016

Figure showing total assets as at 30 June 2016

Source: Education Directorate Financial Statements

Comparison to Budget

At 30 June 2016, the Directorate’s assets totalled $1,895.4 million, which was materially in line with the amended budget.

In comparison to 30 June 2015, total assets decreased by $11.8 million or 0.6 per cent primarily due to the impact of depreciation partially offset by the capitalisation of completed projects.

TOTAL LIABILITIES

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 (90.1 per cent) and payables and other liabilities (9.9 per cent).

FIGURE C1.4: TOTAL LIABILITIES AT 30 JUNE 2016

Figure showing total liabilities as at 30 June 2016

Source: Education Directorate Financial Statements

At 30 June 2016, the Directorate’s liabilities totalled $164.3 million. This was $11.8 million or 7.7 per cent higher than the amended budget of $152.5 million 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 2014-15, total liabilities increased by $0.8 million or 0.5 per cent primarily due to an increase in employee benefits associated with a higher rate used to estimate the present value of long service leave payments.

CURRENT ASSETS TO CURRENT LIABILITIES

At 30 June 2016, the Directorate’s current assets ($85.8 million) were lower than its current liabilities ($147.9 million).
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 met 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 by seeking additional appropriation under Section16A of the Financial Management Act 1996.

TABLE C1.3: LINE ITEM EXPLANATION OF SIGNIFICANT VARIANCES FROM THE AMENDED BUDGET - DIRECTORATE BALANCE SHEET

Significant variances from the amended budget Actual
30 June 2016
$m
Amended Budget
30 June 2016
$m1
Variance
$m
Current assets    
Cash and cash equivalents2 80.8 70.6 10.2
Receivables 3.3 4.3 (1.0)
Investments 0.3 0.3 0.0
Other Assets 1.5 1.0 0.5
Non-current assets    
Investment 1.9 1.8 0.1
Property, plant and equipment and intangible assets
(including capital works in progress)3
1,807.6 1,816.6 (9.0)
Significant variances from the amended budget Actual
30 June 2016
$m
Amended Budget
30 June 2016
$m1
Variance
$m
Current liabilities    
Payables 4.5 4.7 (0.2)
Employee benefits4 136.1 126.2 9.9
Other 7.3 5.8 1.5
Non-current liabilities    
Employee benefits 12.1 13.8 (1.7)
Other borrowings5 4.4 2.1 2.3

Notes:
1The Amended Budget incorporates the transfer of vocational education and training functions to CMTEDD through a Section 16 Financial Instrument
under the Financial Management Act 1996 on 22 January 2016.
2Primarily related to higher cash held in schools associated with prepayments and increased administrative support and cash held for the schools
administration system ICT project.
3Lower than budgeted property, plant and equipment is primarily due to timing of completion of capital works projects and project savings.
4Higher than anticipated employee benefits mainly associated with a higher than anticipated rate used to estimate the present value of long service
leave and annual leave liabilities.
5The higher than budgeted result is due to additional loans granted by 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 showing sources of Territorial revenue

Source: Education 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 $260.0 million in 2015-16, which was $12.7 million or 5.1 per cent higher than budget of $247.3 million. 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 estimates.

When compared to the same period last year, total revenue increased by $9.9 million or 4.0 per cent primarily due to higher levels of general recurrent grants for non government schools reflecting the impact of increased Commonwealth and ACT Government grants in accordance with the National Education Reform Agreement:
Australian Capital Territory Bilateral Agreement’s ‘Schooling Resource Standard’.

TERRITORIAL EXPENSES

Territorial expenses primarily comprised of grant payments to non-government schools ($260.0 million). Territorial expenses in 2015-16 were $12.7 million or 5.1 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. When compared to the same period last year, total expenses increased by $9.9 million or 4.0 per cent primarily due to higher levels of general recurrent grants for non government schools reflecting the impact of increased Commonwealth and ACT Government grants in accordance with the National Education Reform Agreement: Australian Capital Territory Bilateral Agreement’s ‘Schooling Resource Standard’.

For more information contact:
Chief Finance Officer
Strategic Finance
(02) 6205 2685

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