Financial statements

Introduction

The Portable Long Service Benefits Authority is a government agency of the State of Victoria, established pursuant to an order by the Governor in Council under the Long Service Benefits Portability Act 2018. It is an administrative agency acting on behalf of the Crown. Its principal address is:

Portable Long Service Benefits Authority
Level 1, 56-60 King Street
Bendigo VIC 3550

Structure

1.1 Basis of preparation

1.1 Basis of preparation

Compliance information

This financial report of the Portable Long Service Benefits Authority (the Authority) is a general purpose financial report that consists of a Comprehensive Operating Statement, Balance Sheet, Cash Flow Statement, Statement of Changes in Equity and notes accompanying these statements. The Authority is a not-for-profit entity for the purpose of preparing the financial statements. Where appropriate, those Australian Accounting Standards (AASs) paragraphs applicable to not-for-profit entities have been applied.

The accrual basis of accounting has been applied in preparing these financial statements, whereby assets, liabilities, equity, income and expenses are recognised in the reporting period to which they relate, regardless of when cash is received or paid. This financial report has been prepared on a going concern basis.

The Authority administers three schemes which provide portability of long service benefits for registered workers in the Community Services Industry (Community Services), Contract Cleaning Industry (Contract Cleaning) and the Security Industry (Security) in Victoria. The Authority makes payments and keeps registers of employers and workers for the covered industries in accordance with the Long Service Benefits Portability Act 2018 (the Act).

The Authority’s primary stakeholders are the employers, workers and independent contractors engaged in the Community Services, Contract Cleaning and Security Industries in Victoria. The Authority’s financial statements are an aggregation of the financial statements of the administered schemes. The Authority has established separate funds for each administered scheme and funds are not cross-subsidised.

These financial statements were authorised for issue by the Governing Board of the Authority on 20 September 2022. The Authority’s reporting period is from 1 July 2021 to 30 June 2022. The reporting period for last year was from 1 July 2020 to 30 June 2021.

Accounting policies

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

Functional and presentation currency

These financial statements are in Australian dollars and the historical cost convention is used unless a different measurement basis is specifically disclosed in the note associated with the item measured on a different basis.

Classification between current and non-current

In the determination of whether an asset or liability is current or non-current, consideration is given to the time when each asset or liability is expected to be realised or paid. The asset or liability is classified as current if it is expected to be turned over within the next twelve months, being the Authority’s operational cycle.

Rounding

Unless otherwise stated, amounts in the report have been rounded to the nearest thousand dollars.

Accounting estimates

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in the preparation of these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience from the period and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Revisions to accounting estimates are recognised in the period in which the estimate is revised and also in future periods that are affected by the revision.

Judgements and assumptions made by management in applying AASs that have significant effects on the financial statements and estimates relate to:

• Employee benefits expense (Note 3.3); and
• Portable long service benefits expense (Note 3.4).
  

Introduction

This note presents the sources and amounts of income raised by the Authority and the accounting policies that are relevant for an understanding of the items reported in the financial statements.

Structure

2.1 Summary of income that funds the delivery of our services

2.2 Income from transactions

2.2.1 Contributions from employers and contractors

2.2.2 Government grants

2.2.3 Investment income

2.1 Summary of income that funds the delivery of our services

Income that funds the delivery of the Authority’s services is accounted for consistently with the requirements of the relevant accounting standards disclosed in the following notes.

2.2 Income from transactions

2.2.1 Contributions from employers and contractors

Revenue is recognised in the period to which the contributions relate. Employers and contractors registered with the Authority under a covered industry must submit a quarterly return and pay the Authority the levy payable for that quarter.

The levies applied to each industry are as per below:

• Community Services Industry 1.65%
• Contract Cleaning Industry 1.80%
• Security Industry 1.80%

2.2.2 Government grants

Income from grants is recognised when the Authority obtains control over the contribution. The Authority has determined that this grant income is recognised as income of not-for-profit entities in accordance with AASB 1058. Income is recognised when the Authority has an unconditional right to receive cash which usually coincides with raising of invoices by the Authority.

2.2.3 Investment income

Investment income is recognised by the Authority on an accrual basis.

Gains/losses arising from changes in the fair value of investments is disclosed in Note 4.

Introduction

This note provides information about how the Authority’s funding is applied in delivering services and outputs, and the accounting policies that are relevant for an understanding of the items reported in the financial statements.

Structure

3.1 Expenses incurred in the delivery of our services

3.2 Administration expenses

3.3 Employee benefits expense

3.3.1 Employee benefits in the comprehensive operating statement

3.3.2 Employee benefits in the balance sheet

3.4 Portable long service benefits expense

3.4.1 Portable long service benefits in the comprehensive operating statement

3.4.2 Portable long service benefits in the balance sheet

3.1 Expenses incurred in the delivery of our services

Expenses are recognised net of goods and services tax (GST).

3.2 Administration expenses

Administration expenses relate to costs incurred in administering the three schemes which provide portability of long service benefits for registered workers. These costs relate to the day to day information technology, office expenses and professional services.

3.3 Employee benefits expense

3.3.1 Employee benefits in the comprehensive operating statement

Employee benefits in the Comprehensive Operating Statement are a major component of administration expenses and include all costs related to employment, including salaries and wages, superannuation, leave entitlements and WorkCover payments. The majority of employee expenses in the Comprehensive Operating Statement are salaries and wages.

The amount recognised in the Comprehensive Operating Statement in respect of superannuation represents contributions made or due by the Authority to the relevant superannuation plans in respect to the services of the Authority’s staff. Superannuation contributions are made to the plans based on the relevant rules of each plan and any relevant compulsory superannuation requirements that the Authority is required to comply with.

3.3.2 Employee benefits in the balance sheet

Provision is made for benefits accruing to employees in respect of salaries and wages, annual leave and long service leave (LSL) for services rendered to the reporting date and recorded as an expense during the period the services are delivered.

Salaries and wages, annual leave and sick leave

Liabilities for salaries and wages (including non-monetary benefits, annual leave and on-costs) are recognised as part of the employee benefit provision as current liabilities, because the Authority does not have an unconditional right to defer settlement of these liabilities.

The liability for salaries and wages are recognised in the balance sheet at remuneration rates which are current at the reporting date. As the Authority expects the liabilities to be wholly settled within 12 months of reporting date, they are measured at undiscounted amounts.

The annual leave liability is classified as a current liability and measured at the undiscounted amount expected to be paid, as the Authority does not have an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

No provision has been made for sick leave as all sick leave is non-vesting and it is not considered probable that the average sick leave taken in the future will be greater than the benefits accrued in the future. As sick leave is nonvesting, an expense is recognised in the Comprehensive Operating Statement as it is taken.

Employment on-costs such as payroll tax, workers compensation and superannuation are not employee benefits. They are disclosed separately as a component of the provision for employee benefits when the entitlement to which they relate has occurred.

Long service leave

Unconditional LSL is disclosed as a current liability; even where the Authority does not expect to wholly settle the liability within 12 months because it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months.

The components of this current LSL liability are measured at:

• undiscounted value – if the Authority expects to wholly settle within 12 months; or
• present value – if the Authority does not expect to wholly settle within 12 months.

Conditional LSL is disclosed as a non-current liability. There is conditional right to defer the settlement of the entitlement until the employee has completed the required years of service. This non-current LSL is measured at present value.

Any gain or loss following revaluation of the present value of non-current LSL liability is recognised as a transaction, except to the extent that a gain or loss arises due to changes in bond interest rates for which it is then recognised as an ‘other economic flow’ in the net result.

3.4 Portable long service benefits expense

3.4.1 Portable long service benefits in the comprehensive operating statement

Portable long service benefits in the Comprehensive Operating Statement include all benefits, for each relevant scheme, for which a provision has been estimated for future payments to workers in each industry

3.4.2 Portable long service benefits in the balance sheet

Accrued portable long service benefits liability

The Authority accounts for the portable long service benefits liability under AASB 137 Provisions, Contingent Liabilities and Contingent Assets as a provision as it is a liability of uncertain timing or amount that satisfies the below conditions:

a) it has a present obligation as a result of a past event;
b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and
c) a reliable estimate can be made of the amount of the obligation.

The total provision for accrued long service benefits is estimated at the present value of all expected future payments which arise from the service of eligible workers up to the reporting date. The expected future payments are discounted based on the current market assessments of the time value of money and the risks specific to the liability. The liability is calculated by the Authority’s actuary using an actuarial valuation method that takes into account assumptions of rates of departure from the industry, mortality rates, increases in wages and rates of return on investment.

Accrued portable long service benefit is classified as a current liability where the Authority does not have an unconditional right to defer the settlement of the liability for at least 12 months. The remaining balance of the liability is classified as non-current. In the context of a statutory scheme, the current liability is calculated on a conservative basis making the assumption all workers with sufficient service to receive long service benefits leave the industry within the next 12 months and claim their entitlements. This includes entitlements resulting from recognised service with an employer prior to joining the Scheme.

Reconciliation of the provision for accrued long service benefits

Portable long service benefits recognition and measurement

At any time after completing 7 years of recognised service, a registered active worker for the Community Services, Contract Cleaning and Security Industry is entitled to an amount of portable long service benefit equal to 1/60th of the worker’s total period of recognised service less any period of long service leave taken during that period. Registered active workers in the relevant sectors are credited in the workers register for each hour of service worked in each service period after the worker’s registration day.

The Long Service Benefits Portability Act 2018 requires that actuarial investigations be undertaken to investigate the state and adequacy of the money and funds of the Authority at the request of the Governing Board and at least once every three years. An actuarial investigation was performed in August 2021.

The Authority recognises a total liability for accrued portable long service benefits based on an assessment performed by an independent actuary. The actuary estimates the liability using a cash flow projection model using a number of assumptions that are based on historical data and the current profile of the registered workers.

Accrued portable long service benefit liability

A summary of the demographic actuarial assumptions made for each industry include:

Note: YoS stands for Years of Service

For the purposes of the above valuations, the following number of workers were valued:

Commentary about the assumptions are provided below:

Exit Rates

The rate at which workers of different ages or years of service are expected to permanently leave the schemes due to exiting the industry, death, disability or retirement.

Leave Utilisation Rates

The future rates assumed for the taking of portable long service benefits whilst in service are based on experience investigations and analysis of similar portable schemes on the rate at which the workers have taken their portable long service benefits. The leave taking behaviour is modelled by determining either the actual days taken or the proportion of the actual taken portable long service benefit assumption relative to the portable long service balance at the start of each period, split by years of service.

Salary Inflation Rates

The long term general salary inflation is set at 2.5% p.a. for Community Services, Contract Cleaning and Security Industries. An allowance has also been made for promotional salary increases.

Additional assumptions that are applicable to all industries are provided below:

Rates of Accrual of Service

The rate of accrual of service is 1/60th as specified in the Act.

Discount Rates

The discount rate used to determine the present value of the portable long service benefits provisions is the expected return on assets. The scheme’s actuary regarded the expected return on assets is a reliable measure, according to AASB 137, of the time value of money for the portable long service benefits liabilities. The expected return on assets used as a discount rate, 5.5% p.a. is based on the long term return rate of the Authority’s investments in the Balanced Fund, provided by VFMC.

Expenses

In addition to accrued portable long service benefits, an allowance for the cost of settling the accrued liabilities has also been made. A unit cost for each worker (active and inactive) with an expense inflation has been applied for each worker while they have a balance.

Introduction

The Authority controls property, plant and equipment and other investments entrusted to be administered for the purpose of delivering its objectives to its stakeholders in line with its mission and values.

Structure

4.1 Total property, plant and equipment and vehicles

4.1.1 Total right-of-use assets: building and vehicles

4.1.2 Depreciation

4.1.3 Change in accounting policy - leases

4.2 Investments and other financial assets

4.2.1 Amounts recognised in profit and loss

4.1 Total property, plant and equipment and vehicles

Portable long service benefits in the Comprehensive Operating Statement include all benefits, for each relevant scheme, for which a provision has been estimated for future payments to workers in each industry.

The following table is a subset of property, plant and equipment and vehicles right-of-use assets.

4.1.1 Total right-of-use assets: building and vehicles

Portable long service benefits in the Comprehensive Operating Statement include all benefits, for each relevant scheme, for which a provision has been estimated for future payments to workers in each industry.

Initial recognition

Total property, plant and equipment and vehicles represent non-current physical assets comprising equipment and right-of-use assets used by the Authority in its operations. Items of property, plant and equipment are measured initially at cost and subsequently revalued at fair value less accumulated depreciation and impairment. Don’t make section smaller - prints lower

Items with a cost value in excess of $1,500 (2020-21: $1,500) and a useful life of more than one year are recognised as an asset. All other assets acquired are expensed. Assets acquired at no cost or for nominal consideration by the Authority are recognised at fair value at the date of acquisition.

The Authority recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost which comprises the initial amount of the lease liability adjusted for:

• any lease payments made at or before the commencement date; plus
• any initial direct costs incurred; and
• an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentive received.

Subsequent measurement

Property, plant and equipment as well as right-of-use assets under leases are subsequently measured at fair value less accumulated depreciation and impairment. Fair value is determined with regard to the asset’s highest and best use (considering legal or physical restrictions imposed on the asset, public announcements or commitments made in relation to the intended use of the asset). In addition, for right-of-use assets the net present value of the remaining lease payments is often the appropriate proxy for fair value of relevant right-of-use assets.

The Authority depreciates the right-of-use assets on a straight line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful life of the right-of-use assets are determined on the same basis as property, plant and equipment. The right-of-use assets are also subject to revaluation.

In addition, the right-of-use asset is periodically reduced by impairment losses, if any and adjusted for certain remeasurements of the lease liability.

4.1.2 Depreciation

All property, plant and equipment and other non-financial physical assets that have finite useful lives are depreciated. Depreciation is generally calculated on a straight line basis, at rates that allocate the asset’s value, less any estimated residual value, over its estimated useful life. Typical estimated useful lives for the different asset classes for current and prior years are included in the table below:

The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting period, and adjustments made where appropriate.

Right-of use assets are generally depreciated over the shorter of the asset’s useful life and the lease term. Where the Authority obtains ownership of the underlying leased asset or if the cost of the right-of-use asset reflects that the Authority will exercise a purchase option, the Authority depreciates the right-of-use asset overs its useful life.

4.2 Investments and other financial assets

Investments are held as units in wholesale pooled funds managed by an independent investment manager and the underlying portfolio includes cash deposits, fixed interest investments and equity investments. Investments are measured at fair value with any adjustments to the fair value recorded in the Comprehensive Operating Statement. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is based on quoted market prices of the underlying investments as at the reporting date. The quoted market price used is the current bid price.

The investment trusts are managed by Victoria Funds Management Corporation (VFMC). The investment manager allocates funds in the underlying trust portfolio amongst the asset classes below:

• Australian and International fixed interest;
• Australian and International equities;
• Australian and International credit markets; and
• Australian cash.

The Authority measures all its managed investment schemes at fair value through profit or loss.

4.2.1 Amounts recognised in profit and loss

During the year, the following (losses)/gains were recognised in profit or loss:

Introduction

This note sets out those other assets and liabilities that arise from the Authority’s operations.

Structure

5.1 Receivables

5.1.1 Movement in provision for impaired receivables

5.1.2 Ageing analysis of contractual receivables

5.2 Payables

5.2.1 Ageing analysis of contractual payables

5.1 Receivables

Receivables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Balance Sheet.

Receivables consist of:

Contractual receivables are classified as financial instruments and categorised as ‘financial assets at amortised costs’. They are initially recognised at fair value plus any directly attributable transaction costs. The Authority holds the contractual receivables with the objective to collect the contractual cash flows and therefore subsequently measured at amortised cost using the effective interest method, less any impairment.

Accrued investment income relates to the distribution of investment income from VFMC as at 30 June 2022 but received in July 2022.

Statutory receivables do not arise from contracts and are recognised and measured similarly to contractual receivables (except for impairment), but are not classified as financial instruments for disclosure purposes. The Authority applies AASB 9 for initial measurement of the statutory receivables and as a result statutory receivables are initially recognised at fair value plus any directly attributable transaction cost.

Accrued employer levy contributions relate to an estimate of employer contributions for the Apr-Jun 2022 quarterly return due 31 July 2022.

Employer levy receivables is the outstanding employer contribution invoices as at 30 June 2022.

Amounts recognised from the Victorian Government represent funding for all commitments incurred and are drawn from the Consolidated Fund as the commitments fall due.

Details about the Authority’s exposure to credit risk are set out in Note 7.1.4.

5.1.1 Movement in provision for impaired receivables

The Authority recognises an impairment where there is no reasonable expectation of recovering an amount owed by a debtor.

As at 30 June 2022, impaired receivables were as follows:

Nature and extent of risk arising from receivables

Refer to Note 7.1.4 for the nature and extent of risks arising from receivables.

5.1.2 Ageing analysis of contractual receivables

The ageing at 30 June 2022 includes accrued investment income. Statutory receivables and provision for impaired receivables are excluded.

Not past due and not impaired receivables relate to investment distributions from VFMC which were subsequently received in July 2022.

There are no financial assets that have had their terms renegotiated so as to prevent them from being past due or impaired, and they are stated at the carrying amounts as indicated.

5.2 Payables

Payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as a current asset or liability in the Balance Sheet.

Payables consists of:

Contractual payables are classified as financial instruments and measured at amortised cost.

The contractual payables are unsecured and are usually paid within 30 days of recognition.

Trade payables are obligations to pay for goods or services that have been acquired from suppliers in the ordinary course of business. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Accrued expenses are recognised when the Authority, as a result of a past event, has a present obligation that can be estimated reliably, and it is probable that a payment will be required to settle the obligation. The amount recognised as accrued expenses is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation.

5.2.1 Ageing analysis of contractual payables

The ageing at 30 June 2022 includes trade payables and accrued expenses. Statutory payables are excluded.

Introduction

This note provides information on the balances related to the financing of the Authority, including financial commitments at year-end. The Authority’s recurrent operations are generally financed from cash flows from operating activities (see Cash Flow Statement).

Structure

6.1 Borrowings

6.2 Leases

6.2.1 Right of use assets

6.2.2 Amounts recognised in the Comprehensive Operating Statement

6.2.3 Amounts recognised in the Cash Flow Statement

6.3 Cash flow information and balances

6.3.1 Reconciliation of net result for the period to cash flow from operating activities

6.4 Commitments for expenditure

6.4.1 Operating commitments

6.5 Reserves

6.1 Borrowings

6.2 Leases

The Authority leases office premises and motor vehicles. The lease contracts are typically made for fixed periods of 1-3 years.

6.2.1 Right of use assets

Right-of-use assets are presented in note 4.1.1.

6.2.2 Amounts recognised in the Comprehensive Operating Statement

The following amounts are recognised in the Comprehensive Operating Statement relating to leases:

6.2.3 Amounts recognised in the Cash Flow Statement

The following amounts are recognised in the Cash Flow Statement for the year ending 30 June 2022 relating to leases:

For any new contracts entered into, the Authority considers whether a contract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration’. To apply this definition the Authority assesses whether the contract meets three key evaluations which are whether:

• the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Authority and for which the supplier does not have substantive substitution rights;
• the Authority has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract and the Authority has the right to direct the use of the identified asset throughout the period of use; and
• the Authority has the right to take decisions in respect of ‘how and for what purpose’ the asset is used throughout the period of use. This policy is applied to contracts entered into, or changed, on or after 1 July 2019.

Separation of lease and non-lease components

At inception or on reassessment of a contract that contains a lease component, the lessee is required to separate out and account separately for non-lease components within a lease contract and exclude these amounts when determining the lease liability and right-of-use asset amount.

Recognition and measurement of leases as a lessee

Lease liability - initial measurement

The lease liability is initially measured at the present value of the lease payments unpaid at the commencement date, discounted using the interest rate implicit in the lease if that rate is readily determinable or the Authority’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability comprise the following:

• fixed payments (including in-substance fixed payments);
• variable payments based on an index or rate, initially measured using the index or rate as at the commencement date;
• amounts expected to be payable under a residual value guarantee; and
• payments arising from purchase and termination options reasonably certain to be exercised.

Lease Liability – subsequent measurement

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right of use asset is already reduced to zero.

Presentation of right-of-use assets and lease liabilities

The Authority presents right-of-use assets as ‘property plant equipment’ unless they meet the definition of investment property, in which case they are disclosed as ‘investment property’ in the balance sheet. Lease liabilities are presented as ‘borrowings’ in the balance sheet.

6.3 Cash flow information and balances

The following amounts are recognised in the Cash Flow Statement for the year ending 30 June 2022 relating to leases:

6.3.1 Reconciliation of net result for the period to cash flow from operating activities

The following amounts are recognised in the Cash Flow Statement for the year ending 30 June 2022 relating to leases:

Cash flows arising from operating activities are disclosed inclusive of GST.

6.4 Commitments for expenditure

6.4.1 Operating commitments

Commitments for future expenditure include operating commitments arising from contracts which are disclosed at their nominal value and inclusive of the GST payable. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the Balance Sheet.

Operating commitments in nominal values including GST as at 30 June 2022 totalled $1.040 million ($0.479 million in 2020-21). This amount is represented by one contract for the provision of licensed software, maintenance, support and cloud hosting managed services for a period of two years from 1 July 2022. Operating expenditure commitments under this contract are due and payable as follows:

6.5 Reserves

Valuation Model Assumption Risk: - The Portable Long Service Benefits Scheme commenced on 1 July 2019 and so as at balance sheet date, the Authority and its actuarial advisors have only 3 years of actual worker information available. As a result, the Authority has determined that a reserve for valuation model assumption risks is appropriate within the Community Services, Contract Cleaning and Security schemes.

The reserve will be reviewed periodically and revised annually at each balance sheet date.

Introduction

The Authority is exposed to risks from both its activities and external factors. In addition, it is often necessary to make judgements and estimates associated with recognition and measurement of items in the financial statements. This section presents information on the Authority’s financial instruments, contingent assets and liabilities.

Structure

7.1 Financial instruments specific disclosures

7.1.1 Categories of financial assets

7.1.2 Categories of financial liabilities

7.1.3 Financial instruments: categorisation

7.1.4 Financial risk management objectives and policies

7.2 Contingent assets and contingent liabilities

7.1 Financial instruments specific disclosures

Introduction

Financial instruments arise out of contractual agreements that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The Authority currently holds a range of financial instruments that are recorded in the financial statements where the carrying amounts are a reasonable approximation of fair value, either due to their short-term nature or with the expectation that they will be paid in full by the end of the 2022-23 reporting period.

Due to the nature of the Authority’s activities, certain financial assets and financial liabilities arise under statute rather than a contract (for example taxes, fines and penalties). Such assets and liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation

7.1.1 Categories of financial assets

Financial assets at amortised cost

Financial assets are measured at amortised costs if both of the following criteria are met and the assets are not designated as fair value through net result:

• the assets are held by the Authority to collect contractual cash flows; and
• the assets’ contractual terms give rise to cash flows that are solely payments of principal and interests.

These assets are initially recognised at fair value plus any directly attributable transaction costs and subsequently measured at amortised cost using the effective interest rate method less any impairment.

The Authority recognises the following assets in this category:

• cash and deposits; and
• receivables (excluding statutory receivables).

Financial assets at fair value through net result

Equity instruments that are held for trading as well as derivative instruments are classified as fair value through net result. Other financial assets are required to be measured at fair value through net result unless they are measured at amortised cost or fair value through other comprehensive income.

The Authority recognises its managed investments at fair value through net result.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• the rights to receive cash flows from the asset have expired; or
• the Authority retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass through’ arrangement; or
• the Authority has transferred its rights to receive cash flows from the asset and either:
  • has transferred substantially all the risks and rewards of the asset; or
  • has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Authority has neither transferred nor retained substantially all the risks and rewards or transferred control, the asset is recognised to the extent of the Authority’s continuing involvement in the asset.

7.1.2 Categories of financial liabilities

Financial liabilities at amortised cost

Financial liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, these financial instruments are measured at amortised cost with any difference between the initial recognised amount and the redemption value being recognised in the profit and loss over the period of the interest bearing liability, using the effective interest rate method. The Authority recognises the following liabilities in this category:

• trade payable and accrued expenses (excluding statutory payables); and
• borrowings (including lease liabilities).

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised as an ‘other economic flow’ in the Comprehensive Operating Statement.

7.1.3 Financial instruments: categorisation

The carrying amounts of the contractual financial assets and financial liabilities by category are disclosed below:

7.1.4 Financial risk management objectives and policies

The activities of the Authority expose it to a variety of financial risks, market risk, credit risk and liquidity risk. This note presents information about the Authority’s exposure to each of these risks, and the objectives, policies and processes for measuring and managing risk.

The Governing Board of the Authority has the overall responsibility for the establishment and oversight of the risk management framework. The overall risk management program seeks to minimise potential adverse effects on the financial performance of the Authority. The Authority uses different methods to measure different types of risk to which it is exposed. These methods include sensitivity analysis in the case of interest rate, other price risks and ageing analysis for credit.

Risk management is carried out by the Authority’s management under policies approved by the Governing Board. The Governing Board provides written principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risks, credit risk and non-derivative financial instruments, and investment of excess liquidity.

The main risks that the Authority is exposed to through its financial instruments are as follows:

(a) Credit risk

Credit risk is the risk of financial loss to the Authority as a result of an employer or counterparty to a financial instrument failing to meet its contractual obligations. Credit risk arises principally from receivables.

The Authority minimises concentrations of credit risk by undertaking transactions with a large number of employers who must pay a levy for eligible workers for portable long service benefits in the Community Services, Contract Cleaning and Security Industries. The Authority is not materially exposed to any individual debtor. The Authority’s is also exposed to credit risk in relation to financial instruments that are designated at fair value through net result. The maximum exposure at the end of the reporting period is the carrying amount of these investments. There has been no material change to the Authority’s credit risk profile in 2021-22.

(b) Market risk

Market risk is the risk that changes in market prices will affect the fair value or future cash flows of the Authority’s financial instruments. Market risk comprises of foreign exchange risk, interest rate risk and other price risk. The Authority’s exposures to market risk are primarily through equity price risk and interest rate risk. To a lesser extent there is exposure to foreign exchange risk and other price risk. The Authority’s exposure is outlined in Note 4.2.

Objectives, policies and processes used to manage these risks are disclosed in the paragraphs below:

(i) Interest rate risk

The Authority has minimal exposure to interest rate risk through its holding of other financial assets

ii) Other price risk

Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, whether these changes are caused by factors specific to the individual financial instrument or its issuer; or by factors affecting all similar financial instruments traded in the market. The price risk which the Authority is exposed to is significant and results from its investments. The Authority has investments which are managed by an independent investment manager, and includes exposure to listed and unlisted equities and property, fixed interest and other securities and instruments. The Authority’s investments fluctuate in value. The price fluctuations are caused by movements in the underlying investments of the portfolio.

To manage price risk, the investments are managed by VFMC who is the Authority’s independent professional investment manager. VFMC target a balanced portfolio allocation of assets based on direction from the Authority’s Governing Board. Actual allocations are permitted to deviate from the target allocation provided that they are within the set allocation ranges.

The investment fund seeks to match the weighted average return of the target indexes of the underlying funds before taking into account fund fees and expenses. The following table indicates the Authority’s exposure to price risk, by showing the estimated impact on the profit/(loss) and equity of the Authority of a +/- 15% movement in unit price of the fund in which the schemes have invested and therefore a +/- 15% in the value of the investments. The Authority considers a +/- 15% movement in markets to be reasonably foreseeable.

(c) Liquidity risk

Liquidity Risk is the risk that the Authority will not be able to meet its financial obligations as they fall due. The Authority’s policy is to settle financial obligations within 30 days and in the event of a dispute make payments within 30 days from the date of resolution.

The Authority manages liquidity risk by maintaining adequate reserves of cash and by continuously monitoring actual cash flows against forecast cash flows of the Authority.

7.1.4 Financial risk management objectives and policies

Contingent assets and contingent liabilities are not recognised in the Balance Sheet, but are disclosed and, if quantifiable, are measured at nominal value.

Contingent assets and liabilities are presented inclusive of GST receivable or payable respectively.

There were no material contingent assets or liabilities at 30 June 2022 (30 June 2021: $nil).

Introduction

This note provides information on other disclosures that impact the Authority.

Structure

8.1 Responsible persons

8.2 Remuneration of executives

8.3 Related parties

8.4 Events occurring after the balance date

8.5 Auditors remuneration

8.6 Correction of a prior period error

8.7 Australian Accounting Standards issued that are not yet effective

8.1 Responsible persons

In accordance with the Ministerial Directions issued by the Assistant Treasurer under the Financial Management Act 1994, the following disclosures are made regarding responsible persons for the reporting period.

The Minister’s remuneration and allowances is set by the Parliamentary Salaries and Superannuation Act 1968 and is reported within the State’s Annual Financial Report.

The following lists the responsible persons for the Authority during the year:

Remuneration

The number of Responsible Persons whose remuneration from the Authority was within the specified bands were as follows:

Remuneration received, or due and receivable, during 2021-22 by Responsible Persons including the Accountable Officer from the Authority in connection with the management of the Authority was $526,363 ($508,640 in 2020-21).

8.2 Remuneration of executives

The number of executive officers, other than the Minister and Accountable Officer listed in Note 8.1 and their total remuneration during the reporting period are shown in the table below. Total annualised employee equivalents provides a measure of full time equivalent executive officers over the reporting period.

Remuneration comprises employee benefits in all forms of consideration paid, payable or provided by the Authority, or on behalf of the Authority, in exchange for services rendered, and is disclosed in the following categories:

• Short-term employee benefits include amounts such as wages, salaries, annual leave, cashed out annual leave or sick leave that are usually paid or payable on a regular basis, as well as non-monetary benefits such as allowances and free or subsidised goods or services;
• Post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased;
• Other long-term benefits include long service leave, other long-service benefit or deferred compensation; and
• Termination benefits include payments made when employment is terminated before normal retirement date, or when an employee accepts an offer of benefits in exchange for the termination of employment.

During the year, the employment contract for the one executive officer engaged by the Authority was completed. No new contract was entered into.

⁽ⁱ⁾ No Executive Officers meet the definition of Key Management Personnel (KMP) of the Authority under AASB 124
Related Party Disclosures and as such, are not included in the related parties note disclosure (Note 8.3).

⁽ⁱⁱ⁾ Annualised employee equivalent is based on the time fraction worked over the reporting period.

8.3 Related Parties

The Authority is a wholly owned and controlled entity of the State of Victoria.

Related parties of the Authority include:

• All key management personnel and their close family members and personal business interests (controlled entities, joint ventures and entities they have significant influence over);
• All cabinet ministers and their close family members; and
• All departments and public sector entities that are controlled and consolidated into the whole of state consolidated financial statements.

All related party transactions have been entered into on an arm’s length basis.

Significant transactions with government-related entities

During the year, the Authority had the following government-related entity transactions (exclusive of GST):

Key management personnel

KMP (as defined in AASB 124 Related Party Disclosures) are those persons having authority and responsibility for planning, directing and controlling the activities of the Authority, directly or indirectly. KMP of the Authority includes the Portfolio Minister, all Directors and the Chief Executive Officer as listed under responsible persons in Note 8.1.

⁽ⁱ⁾ The Authority did not employ any KMPs as a contractor through an external service provider during the reporting period.
⁽ⁱⁱ⁾ The compensation detailed above excludes the salaries and benefits the Portfolio Minister receives.

Transactions with key management personnel and other related parties

Outside of normal citizen type transactions with the Authority, there were no related party transactions that involved key management personnel and their close family members.

No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

8.4 Events occurring after the balance date

There have been no matters and/or circumstances that have arisen since the end of the reporting period which significantly affect or may significantly affect the operations of the Authority, the results of those operations, or the state of affairs of the Authority in future financial years.

8.5 Auditors Remuneration

Auditors remuneration for auditing the financial statements of the Authority excluding GST for 2021-22 has been set at $35,700 ($35,000 in 2020-21) by the Victorian Auditor-General’s Office. No other benefits were received or are receivable by the Victorian Auditor-General’s Office.

8.6 Correction of a prior period error

During the current period, the Authority became aware of an error in the value of its investments and other financial assets. This error had the effect of overstating the value of investments and other financial assets as at 30 June 2021 by $5,228,000 and the net gain on financial instruments for the year ended 30 June 2021 by $4,692,000 ($536,000 in 2019-20). The error also had the effect of overstating the accumulated surplus as at 30 June 2021 by $5 228 000.

Each of the effected financial statements for the 2021 financial year have been restated, as shown in the tables below.

8.7 Australian Accounting Standards issued that are not yet effective

As at 30 June 2022, the following applicable standards and interpretations had been issued but were not mandatory for the financial year ending 30 June 2022. The Authority has not and does not intend to adopt these standards early.

The following accounting pronouncements are also issued but not effective for the 2021-22 reporting period. At this stage, the preliminary assessment suggests they may have insignificant impacts on public sector reporting.

• AASB 2020-3 Amendments to Australian Accounting Standards
  • Annual Improvements 2018-2020 and Other Amendments
• AASB 2021-2 Amendments to Australian Accounting Standards
  • Disclosure of Accounting Policies and Definitions of Accounting Estimates
• AASB 2021-5 Amendments to Australian Accounting Standards
  • Deferred Tax related to Assets and Liabilities arising from a Single Transaction
• AASB 2021-6 Amendments to Australian Accounting Standards
  • Disclosure of Accounting Policies: Tier 2 and other Australian Accounting Standards
• AASB 2021-7 Amendments to Australian Accounting Standards
  • Effective Date of Amendments to AASB 10 and AASB 128 and Editorial Corrections
    

Introduction

This note provides information relating to the Comprehensive Operating Statement and Balance Sheet for each Scheme that the Authority administers. These financial statements include Administration expenses which relates to the Authority’s cost to administer the Schemes. The Administration expense is calculated at 0.15% of Total Ordinary Pay within each Scheme and was determined at the time the Actuarial Report calculated the levy rates. When consolidated, the Administration expense is eliminated.

Structure

9.1 Community Services scheme

9.1.1 Comprehensive operating statement

9.1.2 Balance sheet

9.2 Contract Cleaning scheme

9.2.1 Comprehensive operating statement

9.2.2 Balance sheet

9.3 Security scheme

9.3.1 Comprehensive operating statement

9.3.2 Balance sheet

9.1 Community Services scheme

9.1.1 Comprehensive operating statement

9.1.2 Balance sheet

9.2 Contract Cleaning scheme

9.2.1 Comprehensive operating statement

9.2.2 Balance sheet

9.3 Security scheme

9.3.1 Comprehensive operating statement

9.3.2 Balance sheet