1. AUDITOR-GENERALS REPORTFINANCIAL AUDITSVolume Two 2007 The Legislative Assembly The Legislative Council Parliament House Parliament House Sydney NSW 2000Sydney NSW 2000 Pursuant to the Public Finance and Audit Act 1983, I present Volume Two of my 2007 Report. Peter Achterstraat Auditor-General Sydney May 2007

2. GUIDE TO USING THIS VOLUMEThis volume summarises the results of a number of our financial audits.We have attempted to adopt a plain English style of writing. This is not always easy when describing technical issues, but we recognise the diversity of our readership and their needs.This Volume has three sections. Section One incorporates The Legislature.Section Two is divided into ministerial portfolios, each containing one or more government agencies. Each agencys comment begins with a summary of our Audit Opinion. This is a key result of each audit. An unqualified audit opinion means we are satisfied that the agency has prepared its financial report in accordance with Australian Accounting Standards (and other mandatory requirements). It also means we believe the report has no material errors and the scope of our audit has not been limited. If any of these aspects are not met we issue a qualified audit opinion and explain why we did this.The next section outlines any Key Issues we identified during the audit. These are matters such as:significant findings or outcomes of the audit any major developments impacting on the agencys role or activities key repeat findings recommendations to Parliament.The Audit Opinion and the Key Issues sections represent the more important findings. By targeting these sections, readers can quickly understand the major issues facing a particular agency, or glance through a number of reports to assess the financial health of a portfolio.Performance Issues cover key financial and operational statistics we have identified that help understand how well the agency is performing. Wherever possible we include comparisons with similar agencies interstate.The next two sections contain analysis of issues we identified during our audit. While many of these will include suggestions for improvement, these are not as significant as the issues outlined in the first two sections of the agency comment.Control Issues outline any shortcomings we have observed in the agencys internal checking mechanisms. These mechanisms should exist to ensure the effective safeguard of assets and resources.Compliance Issues summarise whether the agency has complied with selected legislation and other relevant government requirements.Financial Information summarises the essential information from each agencys financial report. While this is sufficient for a broad understanding of the agencys financial position, readers can access more detailed financial statements in the agency's annual report or website.Agency Activities summarise the agencys purpose, services, structure, relevant legislation, and its web address.While some agency comments in this volume will have all of the headings outlined here, this will vary depending on the size of the organisation and the findings of our audit.The Agency Response appears where the head of an agency does not believe that the commentary in our Report adequately reflects the agency's position or actions taken. As we discuss our proposed comments with agency staff during the drafting process, few agencies ask for a formal response to be included.Section Three refers to Performance Audits tabled or in progress at the time of this report. 3. ContentsSignificant Items ................................................................................................. iii Services Provided by the Audit Office ....................................................................... v SECTION ONE The Legislature Audit of Members Additional Entitlements ................................................................... 3 SECTION TWO Commentary on Government Agencies Minister for Education and Training ............................................................................ 7Technical Education Trust Funds........................................................................ 9Universities Overview.................................................................................... 10Charles Sturt University ................................................................................. 17Macquarie University..................................................................................... 20Southern Cross University ............................................................................... 26The University of Sydney ................................................................................ 30University of New England .............................................................................. 37University of New South Wales......................................................................... 41University of Newcastle ................................................................................. 55University of Technology, Sydney...................................................................... 61University of Western Sydney .......................................................................... 66University of Wollongong................................................................................ 72UNILINC Limited .......................................................................................... 78Minister for Health ............................................................................................... 79Health Administration Corporation ................................................................... 81Minister for Lands ................................................................................................ 85Wild Dog Destruction Board............................................................................. 87Minister for Primary Industries ................................................................................. 89Department of Primary Industries ..................................................................... 91State Council of Rural Lands Protection Boards..................................................... 97Trustees of the Farrer Memorial Research Scholarship Fund ..................................... 98Wine Grapes Marketing Board .......................................................................... 99Minister for Sport and Recreation............................................................................ 101Newcastle International Sports Centre Trust ...................................................... 103Parramatta Stadium Trust ............................................................................ 105Minister for Water Utilities ................................................................................... 107Cobar Water Board ..................................................................................... 109 i 4. Contents _______________________________________________________________________________________ Premier........................................................................................................... 111Infrastructure Implementation Corporation ....................................................... 113Trustees of the Anzac Memorial Building........................................................... 114Treasurer......................................................................................................... 115Crown Employees (NSW Fire Brigades Fire Fighting Staff Death and Disability)Superannuation Fund................................................................................... 117SECTION THREE Performance Auditing Performance Audit Reports Tabled in Parliament since Volume One of 2007 ........................ 121 Performance Audits in Progress .............................................................................. 123 APPENDICES Appendix 1: Audit and Audit-Related Services Requested by the Treasurer ........................ 127 Appendix 2: Financial Reports Received After Statutory Date (at 4 May 2007) .................... 128 Appendix 3: Financial Reports Not Received (at 4 May 2007) ......................................... 129 Appendix 4: Financial Reports Received but Audit Incomplete by Statutory Date (at 4 May 2007) ............................................................. 130 INDEX ............................................................................................................. 133 ii 5. Significant Items Page Macquarie UniversityInternal audits preliminary assessment of certain financial management issues 20 within Macquarie International indicated some abnormalities with certain expenditures.A signed contract of employment for the former Vice Chancellor was not available.20The records maintained for artworks require significant improvement. During a21 recent independent revaluation of artworks it was established that ownership could not be proven for a significant portion of the total value of the collection.The University of SydneyThe valuation of the Universitys cultural assets needs to be brought up to date.30Excess annual leave balances held by academics and general staff continue to 30 grow.The University is still to complete its Business Continuity Plan.30University of New South WalesThe University is currently reviewing the scope and operation, financing and other 41 arrangements for the development of the operation of its UNSW Asia campus in Singapore.The University is still awaiting a report from an independent investigator into42 disciplinary action relating to the Co-Operative Research Centre for Eye Research and Technology (CRCERT), which has been wound up.University of NewcastleThe Universitys financial position continued to improve during 2006 with an 55 operating surplus of $33.5 million being achieved. The surplus reversed the trend of deficits over the previous six years. The University expects positive results to continue and has budgeted for an operating surplus of $15.3 million for 2007. iii 6. The Honourable Speaker andThe Honourable President andMembers of the Legislative Assembly Members of the Legislative CouncilSERVICES PROVIDED BY THE AUDIT OFFICEIn our system of government, Parliament is supreme all authority for governmental activity ultimately stems from Parliament. Government agencies are therefore accountable to Parliament for their use of the resources and powers conferred by Parliament.As part of its accountability arrangements, Parliament seeks assurance from an independent source the Auditor-General on key aspects of government performance and reporting.The purpose of this letter is to assist Parliaments understanding of the Audit Office role. It is issued following an election or changes to Audit Office services.With the help of my Office I will continue to assist Parliament hold government accountable for its use of public resources. I will provide independent assurance that government agencies are performing, and accounting for their performance, in accordance with Parliaments expectations. MEETING PARLIAMENTS EXPECTATIONSLegislation provides for me to:audit the Treasurers Public Accounts and Total State Sector Accounts and the Statement of Budget Result and express an opinion on the financial reports audit the accounts of all NSW public sector agencies and express an opinion on their financial reports. We conduct over 400 of these audits each year, reviewing budget dependent general government sector agencies, statutory bodies, state owned corporations, universities and associated companies examine allegations of serious and substantial waste of public money under the Protected Disclosures Act 1994 conduct performance audits to examine the effectiveness, efficiency and economy of an agencys operations, or an issue across a number of agencies provide audit or audit-related services to the Parliament, the Treasurer and Ministers at their request. A list of these services is provided as an appendix to this Volume and will be included in the final Volume of the Auditor-Generals Reports to Parliament each calendar year.v 7. Financial Report Audits The Audit Office undertakes its financial report audits in accordance with legislativerequirements and Australian Auditing Standards. The main purpose of an audit is to add credibility to a financial report by providing anindependent audit opinion. The audit opinion provides users of the financial report with reasonable assurance that itis free of material error and complies with legislation and applicable accountingstandards. It does not: provide a guarantee of absolute accuracy in the financial reportexpress a view on the adequacy of the organisations systems or the efficiencyand effectiveness of their operationsguarantee the organisations future viability. A financial report audit is a combination of systems checks and examination of a sampleof transactions for all items in the financial report that are considered material or highrisk in nature. These are items that, if materially misstated as a result of an error orfraud, could adversely affect the decision-making process of users of financial reports.An audit does not examine every transaction of an organisation, as this would beprohibitively expensive and time-consuming. It is also important to understand that the organisations management, not the auditor,is responsible for: maintaining adequate accounting records and preparing the financial reportmaintaining a system of internal controls to prevent or detect errors orirregularities. I recognise that, in the public sector, financial report audit opinions on their own will notmeet Parliaments expectations. Firstly, most public sector agencies are not establishedpurely for financial (profit-making) reasons. They exist to provide services to the public.Their financial reports will provide only limited information about these services. Secondly, Parliament and the public have higher expectations of probity and properconduct in public sector agencies. Accordingly, when conducting financial report audits, the Audit Office has regard to: agency performancewastage of public resourceslack of probity or financial prudence in the management of public resourcescompliance by agencies with legislative requirements and government policiesand procedures. vi 8. Performance AuditsOur performance audits examine whether an agency is achieving what it set out to do, and whether it applied its resources economically, efficiently and within the law. An audit may cover the whole of an agency or one or more of its activities. It may also cover a single activity common across a number of agencies.Performance audits are exhaustive reviews and only cover a few topics each year.Performance audits comply with legislation and applicable Australian Auditing Standards. REPORTINGI convey the results of my audits in a number of reports to the various stakeholders.Financial Report AuditsAuditor-Generals Report to ParliamentAuditor-Generals Reports to Parliament present the findings of my financial report audits of government agencies. These reports comment on high-level issues and on matters other than financial issues, reflecting the broader interests of Parliament. Minor matters are reported only where they are symptomatic of a larger problem or have not been addressed by the agency after we have raised them in previous years. I may also report on matters that arise from or relate to my audit or other functions.Reports are issued each year. The four main volumes are issued in May, October, November and December each year and cover the majority of Government agencies and the Total State Sector.Independent Audit Report to ParliamentThe Independent Audit Report expresses my opinion on an agencys financial report and is included in the agencys annual report. Annual reports are required by legislation to be presented to Parliament by the responsible Minister within four months of the agencys financial year-end.The Independent Audit Report tells the reader whether the financial report complies with the Act (and other statutory requirements), applicable Australian Accounting Standards and other mandatory professional reporting requirements. A qualification in the report means that the agencys financial report does not comply with these requirements. Most Independent Audit Reports are unqualified.The Audit Office issues the Independent Audit Report no later than 10 weeks after receiving the financial report.Statutory Audit Reports to Boards and MinistersThe Statutory Audit Report presents the results of the audit and any significant matters. It is issued to the Treasurer, the Minister and the head of the agency at the same time as the Independent Audit Report. vii 9. Client Service Reports to Agencies The Client Service Report is a summary of audit outcomes, usually addressed to theagencys Audit Committee. This is only issued to large agencies, normally just before weissue the Independent Audit Report and Statutory Audit Report. Management Letters to Agencies A more detailed report is issued to heads of agencies on matters identified during theaudit and may include recommendations for operational improvements. These mattersare in addition to any qualification in the Independent Audit Report. Performance Audit Reports A report on each performance audit is presented to Parliament, the Premier, theTreasurer, and the relevant Minister and agency heads. Procedural Fairness The Audit Office checks its draft reports with relevant agency staff to ensure factualaccuracy. I also seek to ensure procedural fairness or natural justice by inviting Heads ofagencies to submit a comment on our financial report audit findings for inclusion in myreports to Parliament. In respect of performance audits, agencies are given 28 days torespond to the report. When an agency responds to a performance audit, it is included inthe report to Parliament.AUDIT FEES Agencies are charged for financial report audits. The fee is based on time and directout-of-pocket expenses plus the goods and services tax where applicable. Any separateinspections or examinations under the Act are subject to an additional fee. Costs are recovered from Treasury for preparation of the Auditor-Generals Reports toParliament. A contribution from Treasury covers approximately half the cost ofperformance audits. To check our efficiency we benchmark our costs against other Australian audit offices orthe private sector accounting firms, to the extent that information is available fromthem.QUALITY Under section 48A of the Act, the Public Accounts Committee appoints a person toreview the Audit Office at least once every three years. The review examines theauditing practices and standards of the Auditor-General. The last review was completedin August 2006. The next review is expected in 2009. The Audit Offices financial and performance audit services are independently accreditedas meeting the requirements of International Quality Standard ISO 9001.Peter AchterstraatAuditor-Generalviii 10. Section One The Legislature Audit of Members Additional Entitlements 1 11. Audit of Members Additional EntitlementsAUDIT STATUSThe audit of the Parliamentary Remuneration Tribunals (PRT) 2005 Determination is incomplete. At 2 April 2007, four Members have not submitted reconciliations for the annual Sydney Allowance. The Legislature is currently reconciling five Members annual Sydney allowance. KEY ISSUESOur key audit findings were:Late ClaimsThe Legislature receives claims for a range of entitlements after the 60-day period allowed under the Determination.The submission of claims after the 60-day period increases the risk that Members might not have documentation to support their claims. RECOMMENDATIONSWe recommend that:Members who claim the Sydney allowance annually submit their Sydney allowance reconciliations promptly Members submit their expenditure claim documentation within 60 days. DETAILED FINDINGSSydney AllowanceMore Members receiving this entitlement annually submitted their reconciliations on time in 2005-06 than in the previous year. However, 47 per cent were still late.The status of annual reconciliations is as follows:Year ended 30 JuneLegislative AssemblyLegislative Council2006200520062005 Members receiving entitlement on an annual basis 21 2074 Members reconciliations submitted on time 14 1111 Source: The Legislature Auditor-Generals Report to Parliament 2007 Volume Two ____________________________________________ 3 12. Audit of Members Additional Entitlements __________________________________________________________Outstanding Debt and/or Reconciliations of Former MembersThe Legislature collected an outstanding debt of $8,000 relating to entitlements from a former member.Another former members 2003 Sydney Allowance reconciliation has been completed and settled in full.We commented on these matters in Volume One of the 2006 Auditor-Generals Report to Parliament.The Role of the PRTThe PRTs principal function is to determine additional entitlements available to Members of Parliament.These additional entitlements fall into two categories:allowances: Electorate Allowance Sydney Allowance Committee Allowance fixed allocations: Electorate to Sydney travel Logistic Support Allocation Electorate Mailout Account for Members of the Legislative Assembly Electorate Charter Transport for Members of the Legislative Assembly Travelling allowance for Recognised Office Holders Equipment services and facilities the Legislature pays the additional entitlements where Members incur the actual costs. It can either reimburse the Member or pay third parties (eg travel providers) for services to the Member.The additional entitlements determined by the PRT are separate to:Members annual basic salaries, set by the Parliamentary Remuneration Act 1989 additional salaries paid to Ministers and certain other office holders, set out in Schedule 1 of the Act as varying percentages of their basic salaries expense allowances paid to Ministers and certain other office holders, set out in Schedule 1 of the Act as varying percentages of their basic salaries.Audit of EntitlementsEach year we audit a sample of Members additional entitlements and their Sydney Allowances, in accordance with Australian Auditing Standards, to obtain reasonable assurance payments to Members comply with the provisions of the PRT Determination dated 29 June 2005. Our procedures include examination of evidence supporting individual Members claims. 4 ____________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 13. Section Two Commentary on Government Agencies 5 14. Minister for Education and TrainingTechnical Education Trust FundsUniversities OverviewUniversities:Charles Sturt UniversityMacquarie UniversitySouthern Cross University The University of Sydney University of New England University of New South WalesUniversity of Newcastle University of Technology, SydneyUniversity of Western Sydney University of WollongongUNILINC Limited 7 15. Technical Education Trust FundsAUDIT OPINIONThe audit of the Trusts financial statements for the year ended 31 December 2006 resulted in an unqualified Independent Audit Report. FINANCIAL INFORMATION Year ended 31 December 2006 2005 $000$000Revenue2517Expenses 1714Profit8 3Net assets (at 31 December) 433 425Revenue for the year consisted wholly of interest. Expenses were for awards presented to students. TRUST ACTIVITIESThe Trust was established under the Technical Education Trust Funds Act 1967 and is responsible for investing trust moneys and awarding prizes to students undertaking courses of studies at NSW TAFE colleges. Auditor-Generals Report to Parliament 2007 Volume Two ____________________________________________ 9 16. Universities OverviewThere are ten universities established under State legislation providing higher education in New South Wales:Charles Sturt University University of New South Wales Macquarie University University of Newcastle Southern Cross UniversityUniversity of Technology, Sydney The University of Sydney University of Western Sydney University of New EnglandUniversity of Wollongong AUDIT OPINIONThe audits of the 2006 financial reports of all ten universities resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUESFinancial PerformanceThe Australian Governments Department of Education, Science and Training (DEST) has identified a number of benchmark indicators for the financial performance of universities. These measures include liquidity, diversity of revenue, employee benefits and on-costs and operating result. The aggregated tables on pages 13 to 15 detail these benchmarks.LiquidityDESTs benchmark current ratio is based on the traditional formula of current assets divided by current liabilities. Because the definition of current liabilities has changed significantly under Australian Accounting Standards, we have adjusted the balance reported in each universitys financial report to present a more useful measure of their liquidity. The adjustment also allows us to present a ratio that is more consistent with DESTs benchmark liquidity measure.Australian Accounting Standards require an entity to report all unconditional liabilities as current irrespective of when it expects to settle these liabilities. We have excluded those amounts and replaced them with the amount universities expect to settle in the next twelve months.For 2006, three of the ten universities (Charles Sturt University, University of New South Wales and University of Sydney) did not meet the DEST benchmark. DEST considers a liquidity ratio of less than 1.5 as being below its general better practice guidelines. As in 2005, no universities were above DESTs upper benchmark of three. This indicates universities are not underutilising cash relative to their activities.However, another DEST guideline, the Annual Institutional Assessment Framework, suggests a current ratio of more than one is low risk, between 0.75 and one is medium risk, and less than or equal to 0.75 is high risk. Using this benchmark, Charles Sturt University and University of Sydney would be low risk and the University of New South Wales would be high risk. 10 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 17. _____________________________________________________________________________Universities OverviewDiversity of RevenueOne way universities can reduce their financial risks is by diversifying their revenue sources. Each university has a different capacity to generate revenue. Their ability to do so depends on factors such as location, size, perceived standing and student profiles.Universities rely significantly on revenue from fees and charges. In recent years most universities have increased revenue from this source. However in 2006, only Southern Cross University and Macquarie University recorded an increase in the percentage of fees and charges compared with total operating revenue. Overall fees and charges as a percentage of operating revenue decreased from 27.9 per cent ($1.2 billion) in 2005 to 25.9 per cent ($1.2 billion) in 2006.Revenue from fee-paying overseas students increased by $19.1 million to $729 million in 2006. This represents 59.7 per cent of total fees and charges (59.4 per cent in 2005) and 15.5 per cent of total operating revenue (16.6 per cent). For individual universities, revenue from fee-paying overseas students as a percentage of total operating revenue ranged from five per cent for Charles Sturt University (4.7 per cent) to 29.4 per cent at the University of Technology Sydney (31.1 per cent).The other major sources of revenue are Australian Government grants and Higher Education Contributions (HECS) from the Australian Government and students. Australian Government grants as a percentage of operating revenue decreased slightly from 39 per cent ($1.7 billion) in 2005 to 38.7 per cent ($1.8 billion) in 2006. Although HECS from students rose from $615 million in 2005 to $679 million in 2006, as a percentage of operating revenue it remained constant at 14.4 per cent. Total operating revenue for universities rose to $4.7 billion ($4.3 billion).DEST expects Australian Government funding to be not much more than 50 per cent of operating revenue. All New South Wales universities continued to achieve this expectation.Employee Benefits and On-CostsDEST monitors the ability of universities to meet essential needs by measuring employee benefits and on-costs as a percentage of total revenue. Nine of the ten universities had employee benefits and on-costs within DESTs good practice benchmark of 50 per cent to 70 per cent. The University of Sydney was marginally below the benchmark.Operating ResultAlthough universities are not-for-profit organisations, DEST considers the operating result a useful measure of financial performance.Universities had a combined surplus of $376 million in 2006 ($194 million). The increase was largely due to the University of Newcastle, The University of Sydney and the University of Western Sydney recording significantly higher surpluses. More information on their performance is included in individual university comments within this Volume.All universities reported a surplus for 2006 (eight). As a proportion of operating revenues, the 2006 surpluses ranged from 1.7 per cent (University of New England) to 15.7 per cent (University of Sydney). Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 11 18. Universities Overview ____________________________________________________________________________Operational PerformanceThe ratio of equivalent full-time students to full-time equivalent academics (excluding staff not involved in teaching) is one indicator of education quality. From an academic perspective the lower the ratio the better. However, from a financial viewpoint a lower ratio may translate into higher total salaries and related costs. This may adversely impact financial performance benchmarks.At the date of preparing this Report, DEST statistics for 2006 were not available. Statistics for 2005 show the ratio for most jurisdictions decreased. New South Wales universities in aggregate recorded the third highest ratio of all jurisdictions (third highest in 2004). Their ratios ranged from 18.6 for the University of New South Wales to 34.3 for Charles Sturt University. Charles Sturt University advised us the student staff ratio is inflated because DEST calculations do not include all teaching staff accredited by the University. Charles Sturt University further advised that the ratio also excludes other staff closely associated with the learning and teaching process. Jurisdiction Number of EFT FTE Student : Academic UniversitiesStudents AcademicsRatio 20052005 2005 2004 2003New South Wales 10199,0577,73325.7 26.0 26.9Victoria 8176,7206,73626.2 26.5 27.1Queensland 7129,9984,64428.0 29.1 28.5South Australia3 46,7631,90724.5 25.4 24.9Western Australia5 68,5242,68325.5 25.3 25.6Tasmania 1 12,65252124.3 25.6 23.6Northern Territory 12,93115818.6 16.8 27.3Australian Capital Territory 2 19,40687922.1 22.3 22.7 Source: Australian Government Department of Education, Science and TrainingAggregated Results of Operations, Financial Position and Performance IndicatorsAs in previous years we have eliminated deferred income and deferred expenses for superannuation from the tables.As mentioned previously in this Report, the Australian Accounting Standards require an entity to report all unconditional liabilities as current irrespective of when it expects to settle the liability. We have excluded those amounts and replaced them with the amounts universities expect to settle in the next 12 months.The tables on the following pages aggregate the results of operations, financial positions and performance indicators for the universities and their controlled entities. 12 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 19. _____________________________________________________________________________Universities OverviewPERFORMANCE INFORMATION Charles SturtMacquarieSouthern Cross Sydney 2006 20052006 2005 20062005 2006 2005 $m $m$m $m $m$m $m $m Abridged Income Statements (year ended 31 December)Total revenue261.1 235.7 415.7390.0 119.6110.0 1,211.01,033.9 Total expenses 244.7 222.3 399.9367.0 114.3108.7 1,020.5923.6 Outside equity interest/other-- -------- -- 0.1(0.3) Operating result 16.4 13.415.823.0 5.31.3190.6 110.0Abridged Balance Sheets (at 31 December)Total assets 642.5 560.9 1,229.5 1,243.3209.7209.4 3,778.93,785.9 Total liabilities138.4 152.5 281.3 325.6 43.3 48.2 654.4785.3 Net assets 504.1 408.4 948.2 917.7166.4161.2 3,124.53,000.6Performance Indicators (at 31 December)Current ratio (a)1.2 1.51.71.8 2.22.0 1.32.2 Australian Government grants as a % of total revenue (b)40.6 42.728.328.2 45.5 45.7 38.2 40.8 HECS as a % of total revenue (b)22.4 22.012.313.0 22.2 22.0 10.2 11.3 Fees and charges as a % of total revenue (b)17.2 18.045.343.5 15.5 15.3 18.4 19.5 Employee Benefits and on-costs as a % of total revenue (c) 58.9 59.357.054.3 57.3 59.4 49.0 53.3 Operating result as a % of total revenue (d)6.3 5.73.85.9 4.41.215.7 10.6 Student numbers EFT (000)* nya18,656nya 19,891 nya7,735nya36,024 Students per academic* nya 34.2 nya28.7nya 30.8nya 22.5 Key: All data except Student numbers and Students per academic are based on the universities financial reports. They reflect the key indicators set out in the February 2000 Department of Education, Science and Training publication Benchmarking: A Manual for Australian Universities. That publication considers: (a)Current Ratio an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three. (b)Diversity of Revenue Universities should reduce financial risks from reduction or failure of an incomesource by having three or four major income sources with none below 5 per cent for any one source andpreferably all above 15 per cent. Reliance on Australian Government funding should be decreasing,preferably to not much more than 50 per cent. (c)Employee Benefits and on-costs as a percentage of Total Revenue Good practice is between 50 per centand 70 per cent. (d)Operating Result as a percentage of Total Revenue The essence of good practice is to have a reasonablesafety margin that should be positive other than in exceptional years, the rationale for which should bereported in the universitys annual report. *Source: Australian Government Department of Education, Science and Training: Publications HigherEducation Statistics Collection. The academic numbers represent Teaching Only and Teaching andResearchnya Not yet available Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 13 20. Universities Overview ____________________________________________________________________________ New EnglandNew South WalesNewcastle Technology, Sydney 20062005 20062005 2006 20052006 2005 $m$m $m$m $m $m$m $m Abridged Income Statements (year ended 31 December)Total revenue191.0186.1 947.1882.9 383.7344.3426.1407.6 Total expenses 189.4187.1 925.1869.1 348.2351.6407.1394.1 Outside equity interest/other1.6 -- --(0.4)0.4 -- -- -- Operating result3.2(1.0)22.0 13.435.9(7.3)19.0 13.5Abridged Balance Sheets (at 31 December)Total assets 379.4396.2 1,958.11,992.6 969.7873.31,143.1 1,105.5 Total liabilities155.2182.6 712.5752.3 240.3260.3337.9 393.1 Net assets 224.2213.6 1,245.61,240.3 729.4613.0805.2 712.4Performance Indicators (at 31 December)Current ratio (a) 1.51.5 0.71.3 1.8 1.1 1.51.1 Australian Government grants as a % of total revenue (b) 47.9 46.5 39.1 40.242.844.3 31.7 31.6 HECS as a % of total revenue (b) 19.7 19.79.68.716.317.1 17.6 16.4 Fees and charges as a % of total revenue (b)23.7 25.0 30.1 34.219.521.8 36.7 38.6 Employee Benefits and on-costs as a % of total revenue (c) 58.8 56.5 58.4 57.151.762.9 57.5 58.7 Operating result as % of total revenue (d) 1.7(0.6) 2.31.5 9.4(2.1)4.53.3 Student numbers EFT (000)*nya9,772nya27,051nya17,605nya 21,997 Students per academic* nya 22.9nya18.6nya25.4nya 29.0Key: All data except Student numbers and Students per academic are based on the universities financial reports.They reflect the key indicators set out in the February 2000 Department of Education, Science and Trainingpublication Benchmarking: A Manual for Australian Universities. That publication considers:(a)Current Ratio an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three.(b)Diversity of Revenue Universities should reduce financial risks from reduction or failure of an income source by having three or four major income sources with none below 5 per cent for any one source and preferably all above 15 per cent. Reliance on Australian Government funding should be decreasing, preferably to not much more than 50 per cent.(c)Employee Benefits and on-costs as a percentage of Total Revenue Good practice is between 50 per cent and 70 per cent.(d)Operating Result as a percentage of Total Revenue The essence of good practice is to have a reasonable safety margin that should be positive other than in exceptional years, the rationale for which should be reported in the universitys annual report.*Source: Australian Government Department of Education, Science and Training: Publications Higher Education Statistics Collection. The academic numbers represent Teaching Only and Teaching and ResearchnyaNot yet available 14 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 21. _____________________________________________________________________________Universities OverviewWestern SydneyWollongongTotal20062005 2006 2005 20062005$m$m $m $m $m$m Abridged Income Statements (year ended 31 December)Total revenue 405.9363.2 350.4326.5 4,713.2 4,280.2 Total expenses363.1354.2 323.4308.5 4,335.7 4,086.2 Outside equity interest/other -- -- (2.0) 0.5 (1.5)(0.2) Operating result42.89.025.0 18.5 376.0 193.8Abridged Balance Sheets (at 31 December)Total assets879.4851.1 682.6681.5 11,872.911,699.7 Total liabilities 150.1173.4 168.8204.1 2,882.13,277.3 Net assets729.3677.7 513.8477.4 8,990.88,422.4 Performance Indicators (at 31 December)Current ratio (a)1.71.4 2.72.11.41.6 Australian Government grants as a % of total revenue (b) 44.3 42.940.4 32.938.739.0 HECS as a % of total revenue (b) 26.3 24.713.5 13.114.414.4 Fees and charges as a % of total revenue (b)17.3 19.032.4 35.425.927.9 Employee Benefits and on-costs as a % of total revenue (c) 55.1 61.951.1 51.154.456.6 Operating result as % of total revenue (d) 10.62.5 7.15.78.04.5 Student numbers EFT (000)*nya24,035nya16,291nya199,057 Students per academic* nya32.7nya27.9nya 25.7Key: All data except Student numbers and Students per academic are based on the universities financial reports.They reflect the key indicators set out in the February 2000 Department of Education, Science and Trainingpublication Benchmarking: A Manual for Australian Universities. That publication considers:(a)Current Ratio an indicator of liquidity. Good practice is a ratio of more than 1.5 to less than three.(b)Diversity of Revenue Universities should reduce financial risks from reduction or failure of an income source by having three or four major income sources with none below 5 per cent for any one source and preferably all above 15 per cent. Reliance on Australian Government funding should be decreasing, preferably to not much more than 50 per cent.(c)Employee Benefits and on-costs as a percentage of Total Revenue Good practice is between 50 per cent and 70 per cent.(d)Operating Result as a percentage of Total Revenue The essence of good practice is to have a reasonable safety margin that should be positive other than in exceptional years, the rationale for which should be reported in the universitys annual report.*Source: Australian Government Department of Education, Science and Training: Publications Higher Education Statistics Collection. The academic numbers represent Teaching Only and Teaching and Research nyaNot yet available Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 15 22. Universities Overview ____________________________________________________________________________CONTROL ISSUESOur audits highlighted opportunities for universities to improve internal controls. These opportunities have been identified in letters we have issued or will be issuing to university management. We refer to more significant items in individual university comments within this Volume. COMPLIANCE ISSUESNational Governance ProtocolsWe tested each Universitys compliance with the Australian Governments National Governance Protocols for Public Higher Education Institutions. We generally found all Universities complied with the protocols.The Australian Government developed a set of National Governance Protocols for Public Higher Education Institutions under section 230-10 of the Higher Education Support Act 2003. The protocols aim to strengthen university governance by:increasing the responsibilities of university councils in overseeing commercial activities requiring councils to discharge their responsibilities in a transparent way, and ensuring the protection of the public interest. OTHER ISSUESOffshore ActivitiesUniversities continue to broaden their revenue sources by operating and investing in offshore activities. These opportunities may reduce some financial risks through diversifying revenue, however, they increase other operational, financial and reputation risks. To minimise the potential impacts of these risks each University needs to ensure its governance procedures continue to effectively identify and mitigate the risk exposures generated by their overseas operations and controlled entities. 16 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 23. Charles Sturt UniversityAUDIT OPINIONThe audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES(Comparative performance data on all universities appears in the Universities Overview section earlier in this Volume. The information shown below is based on consolidated financial statements.)The Universitys current ratio (a measure of its financial liquidity) was 1.2 at 31 December 2006, down from the previous years 1.5. At this level it is below the States average and the minimum level identified by the Australian Governments Department of Education, Science and Training (DEST) good practice parameters. The calculation of the current ratio excludes non-current investments of $99.8 million redeemable at short notice.Australian Government grants as a percentage of operating revenue decreased, from 42.7 per cent in 2005 to 40.6 per cent in 2006. This is above the States average of 38.7 per cent but continues to be within the DEST good practice parameter.Employee benefits and on-costs as a percentage of operating revenue decreased from 59.3 per cent in 2005 to 58.9 per cent in 2006. This is higher than the States average of 54.4 per cent but within the DEST good practice parameter. COMPLIANCE ISSUESWe tested whether the University complied with the Australian Governments National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. CONTROL ISSUESWe identified certain opportunities for the University to improve existing procedures. We will further discuss them with University staff and where appropriate report them to management. The more significant areas related to the measurement of employee benefits, inventory records and accounts payable. OTHER ISSUESThe University of Sydneys Orange Campus was formally transferred to Charles Sturt University on 1 July 2006. The transfer arrangements included payment of $1.0 million to University of Sydney. The net assets transferred ($35.2 million) comprised land, buildings, plant, equipment, library collection, livestock (valued at $36.8 million) and acceptance of liabilities to employees totalling $1.6 million.The transfer of Orange Campus also resulted in control of Rural Australia Foundation Limited passing from the University of Sydney to Charles Sturt University (effective 31 December 2006). Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 17 24. Charles Sturt University___________________________________________________________________________FINANCIAL INFORMATIONThe consolidated financial information includes the financial reports of the University and the following controlled entities:Mitchell Services Limited Rivservices Limited Olive Street Services Limited Charles Sturt Services Limited Charles Sturt Foundation Limited Charles Sturt University Foundation Trust Rural Australia Foundation Limited Campus Pre-School IncorporatedAbridged Income Statements Year ended 31 December ConsolidatedUniversity20062005 2006 2005$000 $000$000$000Australian Government grants 106,111 100,735106,111 100,735Higher Education Contribution Scheme58,38751,763 58,38751,763Australian Government loan programs 12,643 6,916 12,643 6,916Fees and charges44,99442,350 44,99442,350Other 39,75234,006 33,31823,784Deferred income superannuation (21,472) (2,191) (21,472) (2,191)TOTAL REVENUE240,415 233,579233,981 223,357 Employee benefits and on-costs 153,862 139,709149,127 135,232Depreciation18,61217,596 18,61217,596Other 72,96865,132 72,04359,866Deferred expense superannuation(21,472) (2,191) (21,472) (2,191)TOTAL EXPENSES 223,970 220,246218,310 210,503 OPERATING RESULT16,44513,333 15,671 12,854Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Governments defined benefit superannuation plans. Because the Australian Government funds these movements they do not impact the operating result.Employee benefits and on-costs reflect increases in salary rates and the number of employees, largely due to the transfer of Orange Campus. 18 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 25. ___________________________________________________________________________Charles Sturt UniversityAbridged Balance Sheets At 31 DecemberConsolidatedUniversity200620052006 2005$000 $000 $000$000Current assets37,48237,75635,87037,063Non-current assets 605,043 523,184 599,338 518,137TOTAL ASSETS 642,525 560,940 635,208 555,200 Current liabilities 46,50139,73846,36039,725Non-current liabilities 91,872 112,62391,848 112,623TOTAL LIABILITIES138,373 152,361 138,208 152,348 NET ASSETS 504,152 408,579 497,000 402,852The increase in non-current assets is mainly due to the revaluation of land and buildings ($44.9 million) and the previously mentioned transfer of Orange Campus.UNIVERSITY ACTIVITIESThe University is constituted under the Charles Sturt University Act 1989. It mainly:provides educational facilities of university standard provides distance education for students within New South Wales and elsewhere disseminates and increases knowledge and promotes scholarship confers degrees of Bachelor, Master and Doctor and awards diplomas and other certificates.For further information on the University, refer to www.csu.edu.au. CONTROLLED ENTITIESThe six companies controlled by the University are limited by guarantee. Operating costs of Charles Sturt Foundation Limited (the Trustee of Charles Sturt University Foundation Trust) have been met by the Trust. The Trustee has no other transactions.With the exception of Rural Australia Foundation Limited, the four other companies do not impact on the consolidated operating result because the net costs of their operations are fully met by the University, ensuring nil operating results. The total expenditure of these four companies in 2006 was $4.8 million ($4.7 million in 2005). These companies do not own any property, plant and equipment and their liabilities are offset by receivables from the University.The operation of Charles Sturt Foundation Trust resulted in an operating surplus of $734,000 ($5.0 million, reflecting the transfer of dissolved Trusts). Net assets of the Trust were $7.1 million ($5.7 million). The increase is largely due to revaluation of investments ($681,000) and a contribution of $303,000 on 31 December 2006 from Rural Australia Foundation Limited (equivalent to the companys net assets).Following the above mentioned contribution Rural Australia Foundation Limited reported a loss of $305,000 for the year.Campus Pre-School Incorporated reported a surplus of $42,000 ($31,000). The Pre-Schools net assets at 31 December 2006 were $11,000 (net deficiency of $31,000). Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 19 26. Macquarie UniversityAUDIT OPINIONThe audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES(Comparative performance data on all universities appears in the Universities Overview section earlier in this Volume. The information shown below is based on consolidated financial statements.)The Universitys current ratio (a measure of its financial liquidity) was 1.7 at 31 December 2006. At this level it is higher than the State average of 1.4 and within the Australian Governments Department of Education, Science and Training (DEST) good practice parameters.Australian Government grants as a percentage of operating revenue for the year increased slightly to 28.3 (28.2 in 2005). This is significantly lower than the States average of 38.7 per sent and represents the lowest level of reliance on Australian Government grants of all universities.Employee benefits and on-costs as a percentage of operating revenue increased from 54.3 per cent in 2005 to 57 per cent. This is higher than the States average of 54.4 per cent but within the DEST good practice parameter. COMPLIANCE ISSUESWe tested whether the University complied with the Australian Governments National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. OTHER ISSUESMacquarie InternationalThe University requested internal audit to conduct a preliminary assessment of certain financial management issues within Macquarie International. Based on the initial assessment, expenditures in travel and entertainment appeared excessive and not consistent with University policy; certain expenditures appeared to be personal in nature; and potential conflicts of interest were noted and it was unclear how they were considered or addressed. Internal audit has recommended further scrutiny and review. The Independent Commission Against Corruption has been advised of the initial assessment of the issues and the University has sought its advice on how to progress enquiries.Leave Paid to the Former Vice ChancellorA signed contract of employment for the former Vice Chancellor was not available. Consequently, we could not confirm certain termination payments to the conditions of employment. According to University records the former Vice Chancellor took only 30.5 hours of recreation leave during 19 years of service at Macquarie University and was paid for 2,504 hours (357 working days) recreation leave. The former Vice Chancellor was not considered part of the Universitys 2003-2006 Enterprise Agreement which allows recreation leave to accumulate up to a maximum entitlement of 280 hours. 20 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 27. _____________________________________________________________________________ Macquarie UniversityArtwork CollectionThe records maintained for artworks require significant improvement. The artworks fixed asset register does not detail the individual works of art. The University maintains these details in a separate database which is not complete in all instances. In addition, there is no evidence of any formal reconciliation between the artworks fixed asset register and the database nor are regular stock counts conducted on the artworks. These matters will be included in a letter to management.The University recently had the artworks independently revalued. This resulted in a decrement in value of $465,000, which has been reflected in the financial report at 31 December 2006. During this revaluation process, it was established that ownership could not be proven for items making up a significant portion of the total value of the collection. However, there is sufficient evidence to indicate the University controls these assets for accounting purposes, and they have been included in the Universitys assets at 31 December 2006, which is consistent with the accounting treatment in prior years. CONTROL ISSUESWe identified opportunities for improvement to internal controls and have discussed them with University staff. These include:credit card policies and the expenditure acquittal process effective review of the reconciliation of inter company balances review of useful lives of assets fully written down but still in use long outstanding credit balances for student debtors.We will include these matters in a letter to management FINANCIAL INFORMATIONThe consolidated financial information includes the financial reports of the University and the following controlled entities:Macquarie Graduate School of Management Pty Limited Access Macquarie Limited Centre For Money, Banking And Finance Limited Australian Proteome Analysis Facility Ltd Learning Activity Management System International Pty Ltd Learning Activity Management System Foundation Limited Biotrack Australia Pty Ltd. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 21 28. Macquarie University _____________________________________________________________________________Abridged Income Statements Year ended 31 DecemberConsolidated University 200620052006 2005 $000 $000 $000$000Australian Government grants117,432 110,084 117,432 110,084Higher Education Contribution Scheme 51,18050,68451,18050,684Fees and charges188,462 169,519 172,968 154,748Other58,57759,69455,65553,976Deferred income superannuation(38,490)580 (38,490)580TOTAL REVENUE 377,161 390,561 358,745 370,072 Employee benefits and on-costs236,720 211,646 212,992 188,742Depreciation 26,24524,61325,66624,042Other 136,962 130,692 143,381 133,180Deferred expense superannuation (38,490)580 (38,490)580TOTAL EXPENSES361,437 367,531 343,549 346,544 OPERATING RESULT 15,72423,03015,196 23,528Fees and charges increased mainly due to an additional $13.5 million in international fee paying students. Fees from overseas students were $111 million in 2006 ($97.9 million).Employee benefits and on-costs increased because of rises in award rates and higher staff levels.Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Governments defined benefit superannuation plans. Because the Australian Government funds these movements, they do not impact the operating result.Abridged Balance Sheets At 31 DecemberConsolidated University 200620052006 2005 $000 $000 $000$000Current assets 179,676178,848 174,998 169,069Non-current assets 1,049,8701,064,420 1,047,670 1,062,478TOTAL ASSETS 1,229,5461,243,268 1,222,668 1,231,547 Current liabilities 135,162 110,620 134,827 102,573Non-current liabilities 146,156 214,957 145,524 214,185TOTAL LIABILITIES 281,318 325,577 280,351 316,758 NET ASSETS948,228 917,691 942,317 914,789Non-current liabilities decreased largely as a result of a reduction in the deferred State superannuation liability of $39.3 million. 22 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 29. _____________________________________________________________________________ Macquarie UniversityUNIVERSITY ACTIVITIESThe University is constituted under the Macquarie University Act 1989. It mainly:provides educational facilities at university standard establishes facilities to provide courses of study, gives instruction to and examines external students and provides courses of study or instruction at such levels of attainment as the Universitys Council considers appropriate to meet the special requirements of industry, commerce, or any other section of the community disseminates knowledge and promotes scholarship confers degrees of Bachelor, Master and Doctor and awards diplomas and other certificates.For further information on the University, refer to www.mq.edu.au. CONTROLLED ENTITIESMacquarie Graduate School of Management Pty Limited (MGSM)MGSM is a company limited by shares. The company promotes management education and conducts educational programs and research in management. For further information on the School refer to www.gsm.mq.edu.au. Year ended 31 December 20062005 $'000 $'000Revenue 27,61126,420Expenses27,60126,416Profit10 4Net assets (at 31 December)2,383 2,372Access Macquarie LimitedAccess Macquarie Limited is a company limited by guarantee. The company provides project management services to assist University academics to bid for and manage applied research, consulting, testing and training projects for industry, government and the professions. For further information on the company refer to www.access.mq.edu.au. Year ended 31 December 20062005 $'000 $'000Revenue 13,52112,572Expenses13,55611,805(Loss)/profit(35)767Net assets (at 31 December)3,791 3,826 Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 23 30. Macquarie University _____________________________________________________________________________Centre for Money, Banking and Finance Limited (CMBF)CMBF is a company limited by guarantee. It provides consulting and educational services to the finance industry, administers courses on behalf of Macquarie University and makes donations to the University as the company may determine. Year ended 31 December 20062005 $'000 $'000Revenue 2,0721,752Expenses1,8731,635Profit199117Net assets (at 31 December) 669470Australian Proteome Analysis Facility LtdAustralian Proteome Analysis Facility Ltd is a company limited by guarantee. It administers the Major National Research Facility, which provides high-level technology in proteomics to the Australian biotechnology community. Year ended 31 December 20062005 $'000 $'000Revenue 919 839Expenses887 818Profit 3221Net assets (at 31 December)7845Learning Activity Management System (LAMS) International Pty LtdLAMS International Pty Ltd is a company limited by shares, incorporated in February 2004. It develops and sells LAMS software and provides support services for deploying software. Macquarie University owns 55 per cent of the ordinary shares in the company. Year ended 31 December 20062005 $'000 $'000Revenue 345472Expenses5561,072Loss211600Net assets (at 31 December) 787576The company continues to incur losses. Late in 2006 the company was restructured resulting in reduced staff costs and overheads. Macquarie University has agreed to provide continued financial support to ensure the company will be able to meet its debts as and when they fall due. 24 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 31. _____________________________________________________________________________ Macquarie UniversityLearning Activity Management System (LAMS) Foundation LimitedThe LAMS Foundation Limited is a company limited by guarantee, incorporated in February 2004. It manages research and development into LAMS software and the concept of learning Design. The Foundation collaborates with LAMS International to foster the adoption and implementation of LAMS across all education sectors. There were no financial transactions recorded for the year. Year ended 31 December 20062005 $'000 $'000Revenue ----Expenses--207Loss--207Net assets (at 31 December) ----Biotrack Australia Pty Ltd Biotrack is a company limited by shares providing environmental monitoring and assessment services to government and private sector clients. It ceased trading during 2006. Year ended 31 December 20062005 $'000 $'000Revenue 666120Expenses133400Profit/(loss) 533 (280)Net assets (at 31 December)27 (506) OTHER BODIES ASSOCIATED WITH THE UNIVERSITYMacquarie University Professorial Superannuation SchemeThe Macquarie University Professorial Superannuation Scheme provides superannuation benefits for professorial staff and their dependants. It was closed to new members in 1987. The Scheme is not a controlled entity of the University.The liability for benefits payable under the Scheme was actuarially determined to be $17.6 million at 30 June 2004. The University provided $17.6 million to meet these emerging costs. Year ended 30 June 20062005 $'000 $'000Net assets available to pay benefits at 1 July5,7025,903Contributions and investment revenue 13,8321,833Other revenue 162213Benefits and expenses(1,379)(2,242)Income tax expense (178)(5)Net assets available to pay benefits at 30 June18,1395,702Sydney Educational Broadcasting Limited (SEBL)Refer to the University of Technology, Sydney comment on page 65 for observations on SEBL. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 25 32. Southern Cross UniversityAUDIT OPINIONThe audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES(Comparative performance data on all universities appears in the Universities Overview section earlier in this Volume. The information shown below is based on consolidated financial statements).The Universitys current ratio (a measure of its financial liquidity) was 2.2 at 31 December 2006, slightly above the previous years two. At this level it is well above the State average of 1.4 and within the Australian Governments Department of Education, Science and Training (DEST) good practice parameters.Australian Government grants as a percentage of operating revenue decreased, from 45.7 per cent in 2005 to 45.5 per cent in 2006. The University has the second highest level of reliance on Australian Government grants of all universities and is significantly higher than the States average of 38.7 per cent. Nevertheless it is within the DEST good practice parameter.Employee benefits and on-costs as a percentage of operating revenue decreased from 59.4 per cent in 2005 to 57.3 per cent in 2006. This is higher than the States average of 54.4 per cent but within the DEST good practice parameter. CONTROL ISSUESWe identified opportunities for improvements to internal controls and reported them to the University. COMPLIANCE ISSUESWe tested whether the University complied with the Australian Governments National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. FINANCIAL INFORMATIONThe consolidated financial report includes the financial results of the University and the following controlled entities:Norsearch Limited Australian Plant DNA Bank Limited Biobank Pty Limited 26 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 33. _________________________________________________________________________ Southern Cross UniversityAbridged Income Statements Year ended 31 DecemberConsolidated University20062005 2006 2005$000 $000$000$000Australian Government grants54,38650,244 54,38650,244Higher Education Contribution Scheme26,59624,178 26,59624,178Fees and charges18,52716,800 18,52716,243Other 20,08218,753 20,01216,250Deferred income superannuation(7,463)(53)(7,463)(53)TOTAL REVENUE112,128 109,922112,058 106,862 Employee benefits and on-costs68,57265,296 68,17363,524Depreciation 6,054 5,4516,048 5,354Other 39,65937,903 39,49137,155Deferred expense superannuation (7,463)(53)(7,463)(53)TOTAL EXPENSES 106,822 108,597106,249 105,980 OPERATING RESULT 5,306 1,3255,809882Australian Government Grants increased due to additional base funding of $3.7 million, reflecting budgeted increases in student numbers. Fees and charges increased by $2.2 million due to increased international student fees. Other revenue of the University increased by $3.7 million, due mainly to the transfer of the printery and environmental analysis laboratory from Norsearch Limited on 1 January 2006.Deferred income and deferred expense reflect movements in the actuarially assessed employee superannuation liability for employees who are members of a State Government defined benefit superannuation plan. Because the Australian Government funds these movements, they do not impact the operating result.Abridged Balance Sheets At 31 DecemberConsolidated University20062005 2006 2005$000 $000$000$000Current assets37,72329,684 36,23227,565Non-current assets 171,965 179,681165,522 172,815TOTAL ASSETS 209,688 209,365201,754 200,380 Current liabilities 25,31116,547 25,10614,885Non-current liabilities 17,96031,654 17,95432,555TOTAL LIABILITIES 43,27148,201 43,06047,440 NET ASSETS 166,417 161,164158,694 152,940Net assets increased by $5.3 million, largely due to an increase in cash of $5.2 million. Cash holdings increased partly due to a lower than budgeted Australian Government student load and reduced capital outlay. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 27 34. Southern Cross University _________________________________________________________________________UNIVERSITY ACTIVITIESThe University is constituted under the Southern Cross University Act 1993. It mainly:provides educational facilities of university standard having particular regard to the needs of the north coast region of the State preserves, extends and disseminates knowledge through scholarship, research, creative works consultancy and internal and external teaching.For further information on the University, refer to www.scu.edu.au CONTROLLED ENTITIESNorsearch LimitedNorsearch Limited is a company limited by guarantee. It is controlled by Southern Cross University and its operations consist of conferencing and continuing education. The company transferred its printery and environmental analysis laboratory to the University on 1 January 2006.Norsearch Limited is currently negotiating the acquisition of a number of business operations from the Southern Cross University Student Union. The operations are located at the Lismore Campus. Year ended 31 December 20062005 $000 $000Revenue1,200 4,404Expenses 1,486 4,199(Loss)/profit (286)205Net assets (at 31 December)1,271 1,558Revenue and expenses decreased due to the transfer of the majority of the companys operations to the University from 1 January 2006.Australian Plant DNA Bank LimitedAustralian Plant DNA Bank Limited is a company limited by guarantee. It is controlled by Southern Cross University.The consolidated financial report of Australian Plant DNA Bank Limited includes the financial results of the company and its controlled entity, Biobank Pty Limited.Australian Plant DNA Bank Limiteds purpose is to maintain a bank of Australian native plant DNA and to perform related research and development. 28 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 35. _________________________________________________________________________ Southern Cross University Year ended 31 December ConsolidatedAustralian Plant DNA BankLimited 2006 2005 20062005 $000$000$000 $000Revenue 2 26 226Expenses 14 29 824(Loss)/profit (12)(3) (6)2Net assets (at 31 December)28 403945Revenue decreased due to less consulting fees being earned this year compared to the prior year.Biobank Pty LimitedBiobank Pty Limited is a proprietary company limited by shares. It is controlled by Australian Plant DNA Bank Limited.Biobank Pty Limiteds purpose is to hold and maintain the DNA of native Australian plants and other species of economic significance. Year ended 31 December 20062005* $000 $000Revenue----Expenses 65Loss 65Net liabilities (at 31 December)115 * period commencing 9 February 2005OTHER BODIES ASSOCIATED WITH THE UNIVERSITYNational Marine Science Centre Pty LtdRefer to the University of New England comment on page 40 for observations on the National Marine Science Centre Pty Ltd. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 29 36. The University of SydneyAUDIT OPINIONThe audit of the financial reports of the University and its controlled entities for the period or year ended 31 December 2006 resulted in unqualified Independent Audit Reports.The audit of the financial report of the Institute for Magnetic Resonance Research is still in progress. PERFORMANCE ISSUES(Comparative performance data on universities appears in the Universities Overview section earlier in this Volume. The information shown below is based on consolidated financial statements.)The Universitys current ratio (a measure of its financial liquidity) was 1.3 at 31 December 2006, a decrease on the previous years 2.2. It is marginally below the good practice parameters set by the Australian Governments Department of Education, Science and Training (DEST) and the State average of 1.4.Australian Government grants as a percentage of operating revenue decreased from 40.8 per cent in 2005 to 38.2 per cent in 2006. It is slightly lower than the States average of 38.7 per cent and within the DEST good practice parameter.Employee Benefits and on-costs as a percentage of operating revenue decreased from 53.3 per cent in 2005 to 49 per cent in 2006. This is better than the States average of 54.4 per cent and the DEST good practice parameters. CONTROL ISSUESWe identified some opportunities for the improvement in accounting and administrative procedures and have reported them to management. These include:The Universitys cultural assets have not been subject to recent comprehensive valuations. The last comprehensive valuation of the Macleay and Nicholson Museums was undertaken in 1998 and 1997 respectively while the Universitys JB Power Art Collection was last valued in 1994. The University has applied a generic index in 2003 and again in 2006 to increase the value of these assets, however these adjusted values may not reflect the fair value at balance date. Comprehensive valuations will be undertaken in 2007 and 2008. The University is planning to review its research library collection for obsolete items in 2007. This may result in a significant accounting adjustment for these items in the 2007 financial report. In 2005 and 2006 we reported that the University began identifying and writing-off obsolete items of plant and equipment. Further work is required in 2007 to complete this process. Last year we reported that a significant number of academic and general staff held leave balances in excess of the maximum accrued leave entitlements allowed under the Universitys leave policy. In 2006 these excess balances continued to increase. In May 2006, the University introduced provisions within separate staff agreements for academic and general staff to manage excess leave. The provisions require the University to notify relevant staff to reduce excess leave balances within a specified period. Leave not cleared within the timeframe would be forfeited unless special circumstances exist. We understand there has been no effective application of those provisions to date. We reported in previous years that the University had not completed a Business Continuity Plan. While there was further progress on this project in 2006, it is still to be finalised. 30 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 37. __________________________________________________________________________ The University of SydneyCOMPLIANCE ISSUESNational Government Protocols for Public Higher Education InstitutionsWe tested whether the University complied with the Australian Governments National Government Protocols for Public Higher Education Institutions. The results of our testing was satisfactory. OTHER ISSUESTransfer of Orange Campus to Charles Sturt UniversityThe Orange Campus was formally transferred from the University of Sydney to Charles Sturt University (CSU) on 1 July 2006. The transfer included land, buildings, plant, equipment, library collection, livestock and inventory with a fair value of $36.8 million and reduced the Universitys employee provisions by $1.8 million.CSU paid the University $1.0 million as consideration for the transfer of the Orange Campus, however, CSU acknowledged that the University combined book value of Orange Campus components is in excess of $10.0 million. CSU paid the University one dollar as consideration for the transfer of the Orange land.CSU has managed the campus since 1 January 2005. Legislation passed in 2006 formally enabled the transfer to take place.Capital Expenditure ProgramThe University has a major capital expenditure program in place. The capital budget for 2007 to 2009 totals $659 million. It comprises three large capital development programs: Campus 2010 and Building for the Future program; $185 million, Campus 2025' program; $222 million and 'Teaching Hospital Development program; $77.5 million, and property acquisitions $39.5 million and other capital works $135 million.Under the Campus 2010 and Building for the Future program the School of Information Technologies building was completed in March 2007 with a forecast total cost of $44.6 million. Construction commenced on two other major projects under the program, the Faculty of Law building ($93.0 million) in March 2007 and the Central Student Services building ($67.6 million) in November 2006. Both these projects are due for completion late in 2008.The Campus 2025 Program' planning has commenced and proposes expenditures of $15.0 million for 2007, $61.0 million for 2008 and $146 million in 2009.The 'Teaching Hospital Development program includes expenditures of $38.5 million for 2007, $12.0 million for 2008 and $27.0 million in 2008. The program includes capital contributions for a major research and education facility at Royal North Shore Hospital and an education and research building at Nepean Hospital. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 31 38. The University of Sydney __________________________________________________________________________FINANCIAL INFORMATIONThe consolidated financial information includes the financial reports of the University and its controlled entities.Abridged Income Statements Year ended 31 December Consolidated University200620052006 2005$000 $000 $000$000Australian Government grants 462,595421,503462,595 421,503Higher Education Contribution Scheme 123,366117,017123,366 117,017Fees and charges 223,146201,438223,146 201,438Other401,945293,910401,380 292,329Deferred income superannuation(129,419) (11,863)(129,419)(11,863)TOTAL REVENUE1,081,6331,022,0051,081,068 1,020,424 Employee benefits and on-costs 593,253550,778591,704 550,229Depreciation49,887 44,488 49,02944,488Other377,314328,626376,351 327,626Deferred expense superannuation (129,419) (11,863)(129,419)(11,863)TOTAL EXPENSES 891,035912,029887,665 910,480 OPERATING RESULT 190,598109,976193,403 109,944Fees and charges mainly comprised fee-paying overseas students $148 million ($137 million in 2005), fee-paying local students $30.4 million ($30.1 million), continuing education $11.2 million ($9.1 million), summer school fees $8.8 million ($1.5 million) and course fees $7.2 million ($7.1 million).Other income included investment income $116 million ($82.9 million), consulting and contract research income $105 million ($76.7 million), gain on disposal of assets $57.2 million ($9.3 million), contributions from organisations $31.5 million ($30.1 million) and donations and bequests $26.5 million ($28.4 million). Investment income increased mainly due to higher returns from managed funds in 2006. The gain on disposal of assets included $55.7 million recognised on sale of shares.Other expenses mainly comprised teaching and research grants $84.7 million ($63.9 million), scholarships, grants and prizes $55.7 million ($48.8 million), repairs and maintenance $35.5 million ($32.2 million), travel, related staff development and training $31.7 million ($26.8 million), consultants and contractors $26.4 million ($24.0 million) and bad and doubtful debts $6.5 million ($304,000). The increase in bad and doubtful debts of $6.2 million is mainly due to provisions provided for student union loans and a loan to the Institute of Magnetic Resonance Research.Deferred income and deferred expenses reflect movements in the actuarially assessed liability for employees who are members of the State Governments defined benefit superannuation plans. Because the Australian Government funds these movements, they do not have an impact on the operating result. The increase in deferred income and deferred expenses is mainly due to an increase in the discount rate used by the actuary from 5.3 per cent in 2005 to six per cent in 2006. 32 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 39. __________________________________________________________________________ The University of SydneyPrior period errors adjusted in the financial report included:a reduction of $20.6 million in library assets resulting from a write-down in the value of superseded items which were replaced by digitised versions of some collections an increase of $18.3 million in intangible assets due to the recognition of digitised (electronic) serial collections as an asset (previously expensed).Abridged Balance Sheets At 31 December ConsolidatedUniversity 200620052006 2005 $000 $000 $000$000Current assets177,677302,928 179,644 302,284Non-current assets3,601,2003,482,931 3,589,526 3,471,447TOTAL ASSETS3,778,8773,785,859 3,769,170 3,773,731 Current liabilities 204,961209,326204,029 208,813Non-current liabilities 449,380575,983449,380 575,948TOTAL LIABILITIES 654,341785,309653,409 784,761 NET ASSETS3,124,5363,000,550 3,115,761 2,988,970Current assets decreased by $125 million, mainly due to decreases in cash equivalents ($87.9 million). This decrease was more than offset by increased non-current assets, particularly increases in managed funds investments of $191 million.Non-current liabilities decreased by $127 million, mainly due to the decrease in defined benefit superannuation liability ($127 million).Net assets comprise statutory funds that have conditions attached to their use (for example trusts, bequests and certain grants) $590 million, asset revaluation reserves of $289 million and retained surpluses of $2.2 billion. UNIVERSITY ACTIVITIESThe University of Sydney is established by the University of Sydney Act 1989. The University creates, preserves, transmits and applies knowledge through teaching, research, creative work and other forms of scholarship.For further information on the University, refer to www.usyd.edu.au. CONTROLLED ENTITIESThree companies controlled by the University were deregistered during the year. These comprised I-Care Medical Pty Ltd (deregistered on 24 March 2006), Nucleos Pty Ltd (10 December 2006), and Ucom Seventeen Pty Ltd (26 November 2006). Three companies, the Bosch Institute, the Sydney Institutes of Health and Medical Research and the Institute for Magnetic Resonance Research came under the control of the University during 2006.Rural Australia Foundation Limited ceased to be a controlled entity of the University of Sydney upon transfer of the orange campus to Charles Sturt University from 1 July 2006. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 33 40. The University of Sydney __________________________________________________________________________Wentworth Annexe LimitedThe company was incorporated in 1987 as a company limited by guarantee. It mainly administers building projects associated with the University of Sydney Union. All costs of the company are reimbursed by the Union. Year ended 31 December 20062005 $'000 $'000Revenue24Expenses 24Surplus----Net assets (at 31 December)----I-Care Medical Pty LimitedI-Care Medical Pty Ltd was incorporated in April 2000 as a company limited by shares. The University holds 83 per cent of the equity. The company was set up to commercialise technology treatments of age-related macular ocular degeneration.The company was deregistered on 24 March 2006Period ended Six Months 24 Marchended 31 2006 December 2005 $000 $000Revenue----Expenses -- 1Deficit-- 1Net assets ----Elastagen Pty LimitedElastagen Pty Ltd was incorporated in 2003 as a company limited by shares. The Company was set up to take commercial advantage arising out of patents. The University holds 100 per cent of the equity. Year endedSix Months 31 December ended 31 2006 December 2005$000$000 Revenue10671 Expenses 184 158 Deficit 7887 Net assets 287 209 34 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 41. __________________________________________________________________________ The University of SydneyUcom Sixteen Pty LtdUcom Sixteen Pty Ltd was incorporated in November 2004 as a company limited by shares. The company was set up to take commercial advantage arising out of patents. The university holds 100 per cent of the equity. Year endedSix Months 31 December ended 31 2006 December 2005$000$000 Revenue 3746 Expenses36 (45) Surplus1 1 Net assets 2 1Institute for Magnetic Resonance ResearchThe audit of the Institute of Magnetic Resonance Research is still in progress. We have recognised a number of significant issues which we have referred to management.Non-operating Controlled EntitiesThe following controlled entities each had no activities up to 31 December 2006:Ucom Six Pty Ltd set up in 2001, its objective is to commercialise technology relating to therapy for cancer and other conditions Ucom Seven Pty Ltd set up in 2002, its objective is to take commercial advantage arising out of patents Ucom Eleven Pty Ltd set up in 2003, its objective is to take commercial advantage arising out of patents Ucom Twelve Pty Ltd set up in 2003, its objective is to take commercial advantage arising out of patents Ucom Fourteen Pty Ltd, Ucom Fifteen Pty Ltd, and Ucom Seventeen Pty Ltd set up in November 2004, their objective is to take commercial advantage arising out of patents. Ucom Seventeen was deregistered on 26 November 2006 Nucleos Pty Ltd set up in 2002, its objective is to commercialise technology that will be applied to agents that may measure and affect the ageing process. The company was deregistered on 10 December 2006 The Bosch Institute incorporated in 2006 as a public company, limited by guarantee. Its objective is the advancement of public health and medical research activities to improve the health of individuals and the community The Sydney Institutes of Health and Medical Research incorporated in 2006 as a public company, limited by guarantee. Its objective is the advancement of public health and medical research activities to improve community health. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 35 42. The University of Sydney __________________________________________________________________________OTHER BODIES ASSOCIATED WITH THE UNIVERSITYUnited States Studies Centre LtdThe company was set up on 9 November 2006. The companys objective is to deepen the appreciation and understanding of the United States (US) and to strengthen the relationship between Australia and the US through increasing awareness and promoting collaborative research. The company had no activities up to the period ended 31 December 2006.University of Sydney Professorial Superannuation SystemThe University of Sydney Professorial Superannuation System provided superannuation benefits for professorial staff. The System was closed to new members in January 1981. The System is not deemed to be a controlled entity of the University as defined by Australian Accounting Standard AAS24, Consolidated Financial Reports.The audit of the financial report for the year ended 31 December 2006 resulted in an unqualified Independent Audit Report. Year ended 31 December 20062005 $'000 $'000Net assets available to pay benefits (at 1 January) 31,743 32,156Contributions and investment revenue 9,3127,847Benefits and expenses6,8808,260Net assets available to pay benefits (at 31 December) 34,175 31,743The last triennial actuarial valuation at 31 December 2003 disclosed an unfunded superannuation liability of $27.9 million. 36 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 43. University of New EnglandAUDIT OPINIONThe audit of the financial reports of the University and its controlled entities for the year ended 31 December 2006 resulted in unqualified Independent Audit Reports. PERFORMANCE ISSUES(Comparative performance data on universities appears in the Universities Overview section earlier in this Volume. The information shown below is based on consolidated financial statements.)The Universitys current ratio (a measure of its financial liquidity) was 1.5 at 31 December 2006 (1.5 at 31 December 2005). At this level it is higher than the State average and equal to the minimum level identified by the Australian Governments Department of Education, Science and Training (DEST) good practice parameters.Australian Government grants as a percentage of operating revenue increased from 46.5 per cent in 2005 to 47.9 per cent. The University continues to have the highest level of reliance on Australian Government grants of all universities and is significantly higher than the States average of 38.7 per cent.Employee benefits and on-costs as a percentage of operating revenue increased to 58.8 per cent in 2006 (56.5 per cent). This is above the States average of 54.4 and is within the DEST good practice parameter. CONTROL ISSUESWe identified opportunities for improvement in internal controls, and reported them to management. There were no repeat issues from the previous years audit. COMPLIANCE ISSUESWe tested the Universitys compliance with the Australian Governments National Governance Protocols for Public Higher Education Institutions. The results of our testing were satisfactory. FINANCIAL INFORMATIONThe following consolidated financial information includes the financial reports of the University and its controlled entities:Agricultural Business Research Institute Ltd UNE Partnerships Pty Limited Services UNE Limited International Livestock Resources and Information Centre Ltd. Auditor-Generals Report to Parliament 2007 Volume Two ___________________________________________ 37 44. University of New England_________________________________________________________________________Abridged Income Statements Year ended 31 DecemberConsolidated University 200620052006 2005 $000 $000 $000$000Australian Government grants91,418 86,50191,41884,563Higher Education Contribution Scheme37,597 36,72437,59736,724Fees and charges45,209 46,44934,68936,494Other 18,407 16,42312,73413,519Deferred income superannuation (27,123)(384)(27,123) (384)TOTAL REVENUE165,508185,713 149,315 170,916 Employee benefits and on-costs 113,313105,084 104,92398,828Depreciation11,810 10,83711,04410,277Other 64,295 71,21058,09365,735Deferred expense superannuation(27,123)(384)(27,123) (384)TOTAL EXPENSES 162,295186,747 146,937 174,456 OPERATING RESULT3,213 (1,034)2,378(3,540)The increase in revenue excluding the $27.1 million decrease in the Australian Government deferred superannuation liability, was mainly due to a $6.9 million increase in Australian Government grants, that largely comprised the following: Australian grant schemes and other grants ($2.6 million), scholarships ($2.1 million) and higher education loans program $875,000. The decrease in expenses was due to the decrease in the Australian Government deferred superannuation liability.Abridged Balance Sheets At 31 December ConsolidatedUniversity 200620052006 2005 $000 $000 $000$000Current assets51,327 48,16241,06536,265Non-current assets 328,108348,083 317,632 339,642TOTAL ASSETS 379,435396,245 358,697 375,907 Current liabilities 48,155 46,10044,80741,651Non-current liabilities107,044136,543 106,234 135,436TOTAL LIABILITIES155,199182,643 151,041 177,087 NET ASSETS 224,236213,602 207,656 198,820 UNIVERSITY ACTIVITIESThe University is constituted under the University of New England Act 1993. It:provides facilities for educational and research at university standard disseminates and increases knowledge provides courses of study across a range of fields, and carries out research to meet community needs38 ___________________________________________ Auditor-Generals Report to Parliament 2007 Volume Two 45. _________________________________________________________________________University of New Englandparticipates in public discourse confers degrees of Bachelor, Master and Doctor and awards diplomas and other certificates provides teaching and learning that engage with advanced knowledge and inquiry, and develops and provide