Annual Report 2002/2003

1 Overview

2 Statement of Service Performance for the Year Ended 30 June 2003

3 Financial Statements and Schedules: Non-Departmental

4 Financial Statements

5 Triple Bottom Line Progress

6 Management of the Ministry

7 Contact Information

4 Financial Statements

Performance indicators for the year ended 30 June 2003

View the performance indicators for the year ended 30 June 2003 (large table)

Statement of financial performance for the year ended 30 June 2003

View the statement of financial performance for the year ended 30 June 2003 (large table)

Statement of financial position as at 30 June 2003

View the statement of financial position as at 30 June 2003 (large table)

Statement of movements in taxpayers' funds for the year ended 30 June 2003

View the statement of movements in taxpayers' funds for the year ended 30 June 2003(large table)

Statement of cash flows for the year ended 30 June 2003

View the statement of cash flows for the year ended 30 June 2003(large table)

Reconciliation of net operating surplus to net cash flow from operating activities for the year ended 30 June 2003

Reconciliation of net operating surplus to net cash flow from operating activities for the year ended 30 June 2003(large table)

Statement of commitments as at 30 June 2003

The amounts disclosed below include amounts for both accommodation and operating leases in Wellington, Christchurch and Auckland.

Operating commitments include lease payments for premises, telephone contracts and maintenance contracts for its computer systems. All commitments are disclosed at current rental rates.

	30/06/2003 $000	30/06/2002 $000
Operating and accommodation lease commitments (GST exclusive)
Not later than one year	1,323	1,154
Later than one year but not later than two years	1,085	1,050
Later than two years but not later than five years	1,102	2,155
Later than five years	–	–
Total operating and lease commitments	3,510	4,359
Capital commitments	–	–
Total commitments	3,510	4,359

 

Statement of contingencies as at 30 June 2003

At 30 June 2003 there was one known quantifiable contingent liability, two non-quantifiable indemnities and no contingent assets or guarantees given under section 59 of the Public Finance Act 1989 in relation to the activities of the Ministry.

	30/06/2003 $000	30/06/2002 $000
Legal proceedings	50	50
Total contingent liabilities	50	50

Indemnities

The confidentiality agreement between the Crown and New Zealand Refining Company Limited (NZRC) includes an indemnity from the Crown to NZRC for actual loss or damage (including reasonable costs) suffered by NZRC as a result of unauthorised disclosure of information or any other breach of the confidentiality agreement. This indemnity applies to information disclosed as part of, or in the course of, the negotiations for the NZRC negotiated greenhouse agreement (NGA). The treatment of such information is now addressed by the NZRC NGA.

The NZRC NGA provides for the Crown to hold NZRC harmless from certain amounts resulting from the imposition of an emissions charge or certain other climate change initiatives.

Statement of unappropriated expenditure for the year ended 30 June 2003

Departmental appropriations

Departmental output classes were produced within appropriation (30 June 2002: no unappropriated expenditure).

Non-departmental appropriations

Non-departmental output classes and other expenses to be incurred by the Crown were produced within appropriation (30 June 2002: no unappropriated expenditure).

Statement of departmental expenditure and appropriations for the year ended 30 June 2003

View the statement of departmental expenditure and appropriations for the year ended 30 June 2003 (large table)

 

Statement of non-departmental expenditure and appropriations for the year ended 30 June 2003

View the statement of non-departmental expenditure and appropriations for the year ended 30 June 2003 (large table)

Statement of accounting policies for the year ended 30 June 2003

Reporting entity

The Ministry for the Environment is a Government department as defined in section 2 of the Public Finance Act 1989.

These are the financial statements of the Ministry for the Environment prepared pursuant to section 35 of the Public Finance Act 1989.

In addition, the Ministry has reported the Crown activities it administered.

Measurement system

The financial statements have been prepared on the basis of historical cost.

Accounting policies

The following particular accounting policies, which materially affect the measurement of financial results and financial position, have been applied.

(i) Budget and appropriation figures

The Budget and Appropriation Figures are those presented in the Budget Night Estimates (Main Estimates) and those amended by the Supplementary Estimates and any transfer made by Order in Council under section 5 of the Public Finance Act 1989 (Supplementary Estimates).

(ii) Revenue

The Ministry derived revenue through the provision of outputs to the Crown and for services to third parties. Such revenue is recognised when earned and is reported in the financial period to which it relates.

(iii) Cost allocation

The Ministry derived the costs of outputs using a cost allocation system, which is outlined below.

Cost allocation policy

Direct costs are charged directly to the Ministry’s outputs. Indirect costs are charged to outputs based on a primary cost driver of salaried full time equivalents.

Criteria for direct and indirect costs

'Direct costs' are those costs directly attributed to an output. 'Indirect costs' are those costs that cannot be directly associated with a specific output.

Direct costs assigned to outputs

All direct operating costs are charged directly to outputs. Direct personnel costs are charged on the basis of the full time equivalents that are directly attributable to an output. For the year ended 30 June 2003, direct costs accounted for 69% of the Ministry’s costs (2002: 72%).

Indirect costs assigned to outputs

All indirect costs are assigned to outputs on a percentage basis calculated on the number of full time equivalents per output. For the year ended 30 June 2003, indirect costs accounted for 31% of the Ministry’s costs (2002: 28%).

(iv) Debtors and receivables

Debtors and receivables are recorded at estimated realisable value, after providing for doubtful debts.

(v) Operating leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased items are classified as operating leases. Operating lease expenses are recognised on a systematic basis over the period of the lease.

(vi) Plant and equipment

All fixed assets are recorded at cost less accumulated depreciation. Fixed assets are recognised as individual items costing $2,000 (GST exclusive) or more, which have a useful life greater than one year.

(vii) Depreciation

Depreciation of fixed assets is calculated on a straight-line basis so as to allocate the cost of the assets, over their useful lives.

The estimated useful lives of the assets are:

	Depreciation rate (%)	Useful life (Years)
Furniture and fittings	20	5
Motor vehicles	25	4
Office equipment	20	5
Computer software	33	3
Computer hardware	33	3

 

The cost of leasehold improvements (included in furniture and fittings) is capitalised and depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, whichever is shorter. Items classified as furniture and fittings but not deemed to be part of leasehold improvements are depreciated over their useful lives.

Losses and gains on disposal of fixed assets are taken into account in determining the operating result for the year.

(viii) Employee entitlements

Provision is made in respect of the Ministry’s liability for annual leave, retention/refresher leave, long-service leave and retirement leave. Annual leave has been calculated on an actual entitlement basis at current values of pay. All annual leave is expected to be settled within 12 months of the reporting date.

Long service leave, retention/refresher leave and retirement leave have been calculated on an actuarial basis, based on the present value of expected future entitlements. These have been provided for as long term liabilities on the statement of financial position.

(ix) Statement of cash flows

Cash means cash balances on hand and cash held in bank accounts.

Operating activities include cash received from all income sources of the Ministry and record the cash payments made for the supply of goods and services.

Investing activities are those activities relating to the acquisition and disposal of non-current assets.

Financing activities comprise capital injections by, or repayment of capital to, the Crown.

(x) Financial instruments

The Ministry for the Environment is party to financial instrument arrangements as part of its normal operations. All financial instruments are recognised in the Statement of Financial Position and all revenues and expenses relating to financial instruments are recognised in the Statement of Financial Performance. The Ministry for the Environment has not entered into any off-balance sheet transactions.

The following methods and assumptions were used to value each class of financial instrument:

• accounts receivable are recorded at expected realisable value
• all other financial instruments including cash and bank and accounts payable are recognised at their estimated fair value.

(xi) Goods and Services Tax (GST)

All statements are GST exclusive, except where otherwise stated. Creditors and Payables and Debtors and Receivables in the Statement of Financial Position are stated inclusive of GST. GST payable at balance date is included in Creditors and Payables.

(xii) Taxation

The Ministry is exempt from income tax in terms of the Income Tax Act 1994. Accordingly, no charge for income tax has been provided for.

(xiii) Commitments

Future expenses and liabilities to be incurred on contracts that have been entered into at balance date are disclosed as commitments at the point a contractual obligation arises, to the extent that they are equally unperformed obligations.

(xiv) Contingencies

Contingent liabilities and contingent assets are disclosed at the point at which the contingency is evident.

(xv) Taxpayers’ funds

Taxpayers’ funds is the Crown’s net investment in the Ministry.

(xvi) Changes in accounting policies

The Ministry has changed its accounting policy for the allocation of direct and indirect costs. A primary cost driver of salaried full time equivalents has been used. As 99% of Ministry staff can be directly attributed to an output class by using full time equivalents, the simplification of the cost allocation policy has not had a significant effect in dollar terms.

The Ministry has also changed its accounting policy for the valuation of office equipment by removing the 20% residual value, as a result of this change depreciation for the year increased by $62,535.

There have been no other changes in accounting policies since the date of the last audited financial statements.

All policies have been applied on a basis consistent with other years.

Notes to the financial statements for the year ended 30 June 2003

1. Other revenue

Actual 30/06/2002 $000		Actual 30/06/2003 $000	Main estimates 30/06/2003 $000	Supplementary estimates 30/06/2003 $000
19	Departmental	0	5	0
76	Publication sales	7	20	10
5	Gain on sale of fixed assets	13	5	5
100	Total other revenue	20	30	15

2. Interest revenue

During the 2001/02 year the Ministry invested surplus cash with the New Zealand Debt Management Office and earned interest at variable rates. This facility was terminated by the Minister of Finance on 2 October 2001.

3. Personnel costs

Personnel costs include expenditure and provisions for salaries, wages, annual leave, retirement, long service and retention/refresher leave.

4. Operating expenses

View operating expenses (large table)

5. Depreciation

View depreciation (large table)

6. Capital charge

The Ministry pays a capital charge to the Crown on its average Taxpayers’ Funds as at 31 December and 30 June each year. The capital charge rate for the year ended 30 June 2003 was 8.5% (2002: 9%).

7. Debtors and receivables

	Actual 30/06/2003 $000	Actual 30/06/2002 $000
Trade debtors	24	211
Less provision for doubtful debts	-	-
Total debtors and receivables	24	211

8. Fixed assets

View fixed assets (large table)

9. Creditors and payables

	Actual 30/06/2003 $000	Actual 30/06/2002 $000
Trade creditors and accruals	3,359	3,878
GST	770	(38)
Total creditors and payables	4,129	3,840

10. Employee entitlements

	Actual 30/06/2003 $000	Actual 30/06/2002 $000
Current employee entitlements
Annual leave	610	438
Total current employee entitlements	610	438
Non-current employee entitlements
Retirement, long service and retention/refresher leave	428	284
Total non-current employee entitlements	428	284
Total employee entitlements	1,038	722

11. Provision for repayment of surplus to the Crown

The balance in the provision for repayment of surplus to the Crown for the current year is the gain on sale of fixed assets and surplus from operations.

12. Financial instruments

The Ministry is party to financial instrument arrangements as part of its everyday operations. These include instruments such as bank balances, investments, accounts receivable and accounts payable.

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Ministry, causing the Ministry to incur a loss. In the normal course of business, the Ministry incurs credit risk from accounts receivable and transactions with financial institutions.

The Ministry does not require collateral or other security to support financial instruments with credit risk, as the Ministry deals with financial institutions which have high credit ratings. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

Fair value

The fair value of all financial instruments is equivalent to the carrying amount disclosed in the Statement of Financial Position.

Currency and interest rate risk

Currency risk is the risk that debtors and creditors due in foreign currency will fluctuate because of changes in foreign exchange rates. The Ministry has no significant exposure to currency risk on its financial instruments.

Interest rate risk is the risk that the Ministry’s return on the funds it has invested will fluctuate due to changes in market interest rates. Under section 46 of the Public Finance Act the Ministry cannot raise a loan without Ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure on funds borrowed.

The Ministry has no significant exposure to interest rate risk on its financial instruments.

13. Contingencies

The Ministry does not have any contingent assets as at 30 June 2003 (2002: nil).

Contingent liabilities are disclosed separately in the Statement of Contingencies.

14. Major budget variations

The Ministry had very few significant variances. Listed below are the major variances measured against the Mains Estimates.

(i) Statement of financial performance

The Ministry received crown revenue to 30 June 2003 of $3.1 million more than the Mains Estimates due to the transfer of the Climate Change Office from Vote: Prime Minister and Cabinet.

(ii) Statement of financial position

	Actual 30/06/2003 $000	Main estimates 30/06/2003 $000	Variance $000
Bank	7,794	3,040	4,754
Creditors and accruals	4,129	2,890	1,239

The Ministry had a higher bank balance (than budgeted) for two reasons. Firstly, due to the lesser than budgeted operating expenditure and secondly because of the higher than budgeted creditors and accruals.

15. Subsequent events

No significant events, which would materially affect the financial statements, occurred between 30 June 2003 and the date of signing the financial statements (2002: nil).

16. Related party transactions

The Ministry is a wholly owned entity of the Crown. The Government significantly influences the roles of the Ministry as well as being its major source of revenue.

The Ministry enters into numerous transactions with government departments, Crown agencies and state-owned enterprises. These transactions are not considered to be related party transactions.

Apart from those transactions described above, the Ministry has not entered into any related party transactions.

Statement of Responsibility

In terms of sections 35 and 37 of the Public Finance Act 1989, I am responsible, as Chief Executive of the Ministry for the Environment, for the preparation of the Ministry’s financial statements and the judgements made in the process of producing those statements.

I have the responsibility of establishing and maintaining, and I have established and maintained, a system of internal control procedures that provide reasonable assurance as to the integrity and reliability of financial reporting.

In my opinion, these financial statements fairly reflect the financial position and operations of the Ministry for the year ended 30 June 2003.

Barry Carbon
Chief Executive
31 August 2003

Countersigned by:

Fiona CM Morgan
Finance and Corporate Business Manager
31 August 2003

Report of the Auditor-General

To the readers of the financial statements of the Ministry for the Environment for the year ended 30 June 2003

We have audited the financial statements of the Ministry for the Environment, comprising the Statement of Service Performance, Non-Departmental Statement of Accounting Policies, Non-Departmental Crown Revenue and Receipts, Non-Departmental Schedule of Expenses, Non-Departmental Schedule of Assets, Non-Departmental Schedule of Liabilities, Non-Departmental Statement of Commitments, Non-Departmental Statement of Contingencies, Performance Indicators, Statement of Financial Performance, Statement of Financial Position, Statement of Movements in Taxpayers’ Funds, Statement of Cash Flows, Reconciliation of Net Operating Surplus to Net Cash Flow from Operating Activities, Statement of Commitments, Statement of Contingencies, Statement of Unappropriated Expenditure, Statement of Departmental Expenditure and Appropriations, Statement of Non Departmental Expenditure and Appropriations, Statement of Accounting Policies, and Notes 1 to 16 to the Financial Statements.

The financial statements provide information about the past financial and service performance of the Ministry for the Environment and its financial position as at 30 June 2003. This information is stated in accordance with the accounting policies set out in the Statement of Accounting Policies.

Responsibilities of the Chief Executive

The Public Finance Act 1989 requires the Chief Executive to prepare financial statements in accordance with generally accepted accounting practice in New Zealand that fairly reflect the financial position of the Ministry for the Environment as at 30 June 2003, the results of its operations and cash flows and service performance achievements for the year ended on that date.

Auditor's responsibilities

Section 15 of the Public Audit Act 2001 and section 38(1) of the Public Finance Act 1989 require the Auditor-General to audit the financial statements presented by the Chief Executive. It is the responsibility of the Auditor-General to express an independent opinion on the financial statements and report that opinion to you.

The Auditor-General has appointed Ajay Sharma, of Audit New Zealand, to undertake the audit.

Basis of opinion

An audit includes examining, on a test basis, evidence relevant to the amounts and disclosures in the financial statements. It also includes assessing:

• the significant estimates and judgements made by the Chief Executive in the preparation of the financial statements; and
• whether the accounting policies are appropriate to the Ministry for the Environment’s circumstances, consistently applied and adequately disclosed.

We conducted our audit in accordance with the Auditing Standards published by the Auditor General, which incorporate the Auditing Standards issued by the Institute of Chartered Accountants of New Zealand. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements.

We have carried out an assurance related assignment for the Ministry for the Environment involving the accurate reporting of Resource Management Act data provided by Local Authorities. Other than this assignment and in our capacity as auditor acting on behalf of the Auditor-General, we have no relationship with or interests in the Ministry for the Environment.

Qualified opinion

As stated in the Non-Departmental Statement of Accounting Policies, under Land Holdings, the Ministry for the Environment has not recognised certain land holdings and any associated liabilities, in the non-departmental schedules. Non-recognition of the land holdings is a departure from Financial Reporting Standard No.3: Accounting for Property, Plant & Equipment, which requires the items that meet the asset recognition criteria must be recognised. In addition, the Ministry for the Environment has not provided for any obligations that have arisen from the ownership of these land holdings. This is a departure from Financial Reporting Standard No 15: Provisions, Contingent Liabilities and Contingent Assets, which requires that such obligations must be recognised. The effect of these departures is to misstate the schedules of non-departmental assets and liabilities. Any adjustment to these schedules would have a consequential effect on the schedules of non-departmental revenue and expenditure.

In respect of the above items alone we have not obtained all the information and explanation that we have required.

In our opinion except for the effect of not recognising value of land holdings and any associated obligations in the non-departmental schedules, as outlined above, the financial statements of the Ministry for the Environment:

• comply with generally accepted accounting practice in New Zealand; and
• fairly reflect:
  • The Ministry for the Environment’s financial position as at 30 June 2003;
  • the results of its operations and cash flows for the year ended on that date; and
  • its service performance achievements in relation to the performance targets and other measures set out in the forecast financial statements for the year ended on that date.

Our audit was completed on 30 September 2003 and our qualified opinion is expressed as at that date.

Ajay Sharma
Audit New Zealand
On behalf of the Auditor-General
Wellington, New Zealand