Annual Report 2010/11

11. Financial statements

STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	INCOME
163,957	Revenue Crown		170,730	171,113	170,730
5,044	Revenue Departments	4	5,144	4,879	6,110
105,938	Revenue other	5	111,470	137,737	139,872
79	Finance income	6	76	335	335
275,018	Total income		287,420	314,064	317,047
	EXPENDITURE
156,758	Personnel costs	7	159,930	153,768	155,147
11,098	Depreciation and amortisation	13,14	15,073	20,541	22,227
5,173	Capital charge	8	4,906	5,896	5,012
111,639	Other operating costs	9	122,898	132,387	134,171
398	Finance expenses	10	548	-	-
285,066	Total expenditure		303,355	312,592	316,557
(10,048)	NET SURPLUS/(DEFICIT)		(15,935)	1,472	490
	OTHER COMPREHENSIVE INCOME
(9)	Property, plant and equipment revaluation gains/(losses)	13	-	-	-
(9)	Total other comprehensive income		-	-	-
(10,057)	TOTAL COMPREHENSIVE INCOME		(15,935)	1,472	490

Explanations of significant variances against budget are detailed in note 30.

The accompanying notes form part of these financial statements.

STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	ASSETS
	CURRENT ASSETS
55,767	Cash and cash equivalents		42,238	52,070	48,125
1,706	Prepayments		1,461	1,520	1,706
4,307	Debtors and other receivables	11	3,797	3,151	3,247
411	Inventories	12	342	500	411
47	Property, plant and equipment	13	642	-	-
62,238	Total current assets		48,480	57,241	53,489
	NON-CURRENT ASSETS
196	Debtors and other receivables	11	1,126	-	-
34,402	Property, plant and equipment	13	37,380	46,746	41,729
23,053	Intangible assets	14	27,484	29,884	31,424
57,651	Total non-current assets		65,990	76,630	73,153
119,889	TOTAL ASSETS		114,470	133,871	126,642
	LIABILITIES
	CURRENT LIABILITIES
37,072	Creditors and other payables	15	39,825	32,884	32,261
123	Insurance liabilities	17	96	-	-
10,095	Provision for employee entitlements	18	10,081	14,192	13,694
1,883	Other provisions	19	3,895	826	2,006
49,173	Total current liabilities		53,897	47,902	47,961
	NON-CURRENT LIABILITIES
36	Insurance liabilities	17	25	69	36
4,473	Provision for employee entitlements	18	2,709	3,750	4,473
4,509	Total non-current liabilities		2,734	3,819	4,509
53,682	TOTAL LIABILITIES		56,631	51,721	52,470
66,207	NET ASSETS		57,839	82,150	74,172
	TAXPAYERS' FUNDS
61,288	General funds	20	52,920	77,222	69,253
4,919	Property, plant and equipment revaluation reserves	20	4,919	4,928	4,919
66,207	TOTAL TAXPAYERS' FUNDS		57,839	82,150	74,172

The accompanying notes form part of these financial statements.

STATEMENT OF CHANGES IN TAXPAYERS' FUNDS

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
69,027	BALANCE AT 1 JULY	20	66,207	74,260	66,207
(10,057)	Total comprehensive income		(15,935)	1,472	490
7,345	Capital contribution		7,567	7,890	7,965
(108)	Capital withdrawal - non cash		-	-	-
-	Repayment of surplus to the Crown		-	(1,472)	(490)
66,207	BALANCE AT 30 JUNE	20	57,839	82,150	74,172

The accompanying notes form part of these financial statements.

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	CASH FLOWS FROM OPERATING ACTIVITIES
172,957	Receipts from Crown		172,408	171,113	170,730
5,044	Receipts from Departments		5,144	4,879	6,110
105,073	Other receipts		110,406	137,602	139,450
(155,828)	Payments to employees		(161,285)	(151,886)	(153,184)
(106,947)	Payments to suppliers		(118,604)	(132,905)	(140,705)
(5,173)	Payments for capital charge		(4,906)	(5,896)	(5,012)
79	Interest - non New Zealand Debt Management Office		76	335	335
(113)	Goods and services tax (net)		8	164	2,869
15,092	NET CASH FROM OPERATING ACTIVITIES	22	3,247	23,406	20,593
	CASH FLOWS FROM INVESTING ACTIVITIES
120	Receipts from sale of property, plant and equipment		110	-	-
(9,950)	Purchase of property, plant and equipment		(14,174)	(21,500)	(21,500)
(10,027)	Purchase of intangible assets		(9,753)	(14,700)	(14,700)
(19,857)	NET CASH FROM INVESTING ACTIVITIES		(23,817)	(36,200)	(36,200)
	CASH FLOWS FROM FINANCING ACTIVITIES
7,237	Capital contribution		7,567	7,890	7,965
(6,785)	Repayment of surplus		-	-	-
452	NET CASH FROM FINANCING ACTIVITIES		7,567	7,890	7,965
(4,313)	Net increase/(decrease) in cash		(13,003)	(4,904)	(7,642)
60,473	Cash at 1 July		55,767	56,974	55,767
(393)	Net foreign exchange (gain)/loss		(526)	-	-
55,767	CASH AT 30 JUNE		42,238	52,070	48,125

The GST (net) component of operating activities reflects the net GST paid and received with the Inland Revenue Department. The GST (net) component has been presented on a net basis, as the gross amounts do not provide meaningful information for financial statement purposes and to be consistent with the presentation basis of the other primary financial statements.

The accompanying notes form part of these financial statements.

STATEMENT OF COMMITMENTS

AS AT 30 JUNE 2011

Capital commitments

Capital commitments are the aggregate amount of capital expenditure contracted for the acquisition of property, plant and equipment and intangible assets that have not been paid for or not recognised as a liability at the balance sheet date.

Non-cancellable operating lease commitments

The Department leases property, plant and equipment in the normal course of its business. The majority of these leases are for premises, which have a non-cancellable leasing period ranging from three to 10 years.

Other non-cancellable commitments

The Department has entered into non-cancellable contracts for computer maintenance, cleaning services and other contracts for service.

ACTUAL 2010 $000		ACTUAL 2011 $000
	CAPITAL COMMITMENTS
-	Property, plant and equipment	1
26	Intangible assets	-
26	Total capital commitments	1
	NON-CANCELLABLE OPERATING LEASE COMMITMENTS
15,145	Not later than one year	16,471
30,792	Later than one year and not later than five years	28,410
2,324	Later than five years	4,379
48,261	Total non-cancellable operating lease commitments	49,260
	OTHER NON-CANCELLABLE COMMITMENTS
4,147	Not later than one year	29,995
7,903	Later than one year and not later than five years	10,669
-	Later than five years	1,621
12,050	Total other non-cancellable commitments	42,285
60,337	TOTAL COMMITMENTS	91,546

The total minimum future sublease payments expected to be received under non-cancellable subleases at 30 June 2011 is $19,125 (2010: $19,125).

The Department's non-cancellable operating leases have varying terms, escalation clauses and renewal rights. There are no restrictions placed on the Department by any of its leasing arrangements.

The accompanying notes form part of these financial statements.

STATEMENT OF CONTINGENT LIABILITIES AND CONTINGENT ASSETS

AS AT 30 JUNE 2011

Quantifiable contingent liabilities

ACTUAL 2010 $000		ACTUAL 2011 $000
496	Legal proceedings and disputes	1,800
20	Personal grievances	-
516	TOTAL QUANTIFIABLE CONTINGENT LIABILITIES	1,800

Legal proceedings and disputes

Legal proceedings and disputes represent amounts claimed by plaintiffs in relation to the performance of the Department's statutory role. The Department is currently disputing these claims.

Personal grievances

Personal grievances represent amounts claimed by employees for an alleged breach of contract.

Guarantees

The Department has not given any guarantees under section 65ZE of the Public Finance Act 1989 at 30 June 2011 (2010: Nil).

Contingent Assets

The Department has no contingent assets at 30 June 2011 (2010: Nil).

After Balance Date Disclosure

An additional contingent liability of $2.6 million under Legal proceedings and Disputes has been identified for disclosure. The Department is currently disputing this claim.

The accompanying notes form part of these financial statements.

STATEMENT OF DEPARTMENTAL EXPENDITURE AND CAPITAL EXPENDITURE AGAINST APPROPRIATIONS

FOR THE YEAR ENDED 30 JUNE 2011

EXP.AFTER REMEASURE 2010 $000		EXP.BEFORE REMEASURE 2011 $000	REMEASURE 2011 $000	EXP.AFTER REMEASURE 2011 $000	APPROPRIATION VOTED* 2011 $000
	DEPARTMENTAL OUTPUT EXPENSES
	VOTE LABOUR
8,983	Policy advice - labour	7,970	(5)	7,965	9,315
759	International services	917	1	918	1,002
35,904	Services to promote and support safe and healthy people and workplaces	38,893	(20)	38,873	39,521
24,026	Services to promote and support fair and productive employment relationships	24,686	(8)	24,678	25,122
5,114	Services to promote and support the safe management of hazardous substances in the workplace and amusement devices	5,084	(2)	5,082	5,338
74,786	TOTAL VOTE LABOUR	77,550	(34)	77,516	80,298
	VOTE IMMIGRATION
174,044	Services to increase the capacity of New Zealand through immigration	189,518	(723)	188,795	196,248
16,609	Services to position New Zealand as an international citizen with immigration-related interests and obligations	15,635	(22)	15,613	16,346
2,563	Immigration advisers authority	2,477	(2)	2,475	2,920
193,216	TOTAL VOTE IMMIGRATION	207,630	(747)	206,883	215,514
	VOTE EMPLOYMENT
7,269	Labour market analysis and knowledge	7,991	17	8,008	8,620
5,228	Policy, research and evaluation	4,710	(3)	4,707	5,589
12,497	TOTAL VOTE EMPLOYMENT	12,701	14	12,715	14,209
	VOTE ACC
3,313	Policy and monitoring	4,208	(2)	4,206	4,694
141	Regulatory services	161	-	161	164
3,454	TOTAL VOTE ACC	4,369	(2)	4,367	4,858
283,953	Total appropriations for output expenses	302,250	(769)	301,481	314,879
	DEPARTMENTAL OTHER EXPENSES
	VOTE LABOUR
-	Recovery from February 2011 Christchurch Earthquake	1,105	-	1,105	1,678
19,975	Departmental Capital Expenditure	23,927	-	23,927	36,200

* These amounts include adjustments made in the Supplementary Estimates and transfers under the Public Finance Act 1989.

Recovery from February 2011 Christchurch Earthquake Costs

Christchurch city suffered a 6.3 magnitude earthquake on 22 February 2011. That event, and subsequent large aftershocks prior to balance date, caused significant damage to the Department's leasehold properties at Crystal Plaza Avenue and Kilmore Street.

Those properties are both situated within the central city cordon. Access to those premises has been severely restricted due to their location. The Department has not been permitted to occupy those premises since the earthquake and therefore has decided to write off the net value of the assets situated within the premises. The Department has also incurred additional costs as a consequence of the earthquake.

All of the costs are included in the total expenditure in the Statement of Comprehensive Income.

Details of the costs appear in the following table:

	ACTUAL 2011 $000
Assets written off on property, plant and equipment	652
Operating lease payments	181
Other property related costs	52
Other operating costs	185
Information systems and communication costs	35
Total of Christchurch costs	1,105

The Department has notified claims for both properties to its insurer QBE Insurance (International) Ltd. As the claims are not sufficiently advanced at the date of publication of the Annual Report, no insurance recoveries have been disclosed as income in the Statement of Comprehensive Income.

STATEMENT OF DEPARTMENTAL UNAPPROPRIATED EXPENDITURE AND CAPITAL EXPENDITURE

FOR THE YEAR ENDED 30 JUNE 2011

The Department has not incurred unappropriated expenditure and capital expenditure for the year ended 30 June 2011 (2010: Nil).

The accompanying notes form part of these financial statements.

NOTES TO THE DEPARTMENTAL FINANCIAL STATEMENTS

STATEMENT OF ACCOUNTING POLICIES

1 Reporting entity

The Department of Labour is a government department as defined by section 2 of the Public Finance Act 1989 and is domiciled in New Zealand. The Department's principal activities are outlined in the Statement of Service Performance in section 10.

The Department also administers trust monies and memorandum accounts for the sale of visas and permits, the Immigration Advisers Authority and the provision of Health and Safety in Employment (HSE) levy-funded services. This report also covers those activities as well as various non-departmental activities as outlined in the schedules.

For the purposes of financial reporting the Department is a public benefit entity as defined in NZ IAS 1: Presentation of Financial Statements.

2 Basis of preparation

(a) Statement of compliance

These financial statements and schedules have been prepared in accordance with the requirements of the Public Finance Act 1989, which include the requirement to comply with New Zealand Generally Accepted Accounting Practice (NZ GAAP) and Treasury Instructions.

These financial statements have been prepared in accordance with NZ GAAP. They comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for public benefit entities.

(b) Changes in accounting policies

There have been no changes in accounting policies during the financial year.

The Department has adopted the following revisions to accounting standards during the financial year, which have had only a presentational or disclosure effect:

NZ IAS 24 Related Party Disclosures (Revised 2009) - The effect of early adopting the revised NZ IAS 24 is:

• more information is required to be disclosed about transactions between the Department and entities controlled, jointly controlled, or significantly influenced by the Crown;
• commitments with related parties require disclosure;
• information is required to be disclosed about any related party transactions with Ministers of the Crown.

Standards, amendments, and interpretations issued but not yet effective that have not been early adopted, and which are relevant to the Department, are:

NZ IFRS 9 Financial Instruments will eventually replace NZ IAS 39 Financial Instruments: Recognition and Measurement. NZ IAS 39 is being replaced through the following three main phases: Phase 1 Classification and Measurement; Phase 2 Impairment Methodology; and Phase 3 Hedge Accounting. Phase 1 on the classification and measurement of financial assets has been completed and has been published in the new financial instrument standard NZ IFRS 9. NZ IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in NZ IAS39. The approach in NZ IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in NZ IAS 39. The new standard is required to be adopted for the year ending 30 June 2014. The Department has not yet assessed the effect of the new standard and expects it will not be early adopted.

FRS-44 New Zealand Additional Disclosures and Amendments to NZ IFRS to harmonise with IFRS and Australian Accounting Standards (Harmonisation Amendments) - These were issued in May 2011 with the purpose of harmonising Australia and New Zealand's accounting standards with source IFRS and to eliminate many of the differences between the accounting standards in each jurisdiction. The amendments must be adopted for the year ending 30 June 2012. The Department has not yet assessed the effects of FRS-44 and the Harmonisation Amendments.

As the External Reporting Board is to decide on a new accounting standards framework for public benefit entities, it is expected that all new NZ IFRS and amendments to existing NZ IFRS with a mandatory effective date for annual reporting periods commencing on or after 1 January 2012 will not be applicable to public benefit entities. This means that the financial reporting requirements for public benefit entities are expected to be effectively frozen in the short-term. Accordingly, no disclosure has been made about new or amended NZ IFRS that exclude public benefit entities from their scope.

The financial statements were authorised for issue by the Chief Executive on 30 September 2011.

(c) Basis of measurement

The measurement base applied to the financial statements is historical cost modified by the revaluation of certain items of property, plant and equipment and the revaluation of forward exchange contracts.

(d) Reporting period and currency

The reporting period for these financial statements is the year ended 30 June 2011. The budget figures are those presented in the Main Estimates on 20 May 2010 and those amended by the Supplementary Estimates on 19 May 2011 and any transfers made by Order in Council under the Public Finance Act 1989.

The reporting currency used in the preparation of these financial statements is New Zealand dollars rounded to the nearest thousand ($000). The functional currency of the Department is New Zealand dollars (NZ$).

(e) Use of judgements and estimates

The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlining assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in the notes to the financial statements.

Note 17 provides an analysis of the Department's insurance liability in the ACC Partnership Programme.

Note 18 provides the key assumptions used in determining the estimates for long service leave and retirement leave.

Note 19 contains an estimate for redundancy, restructuring, lease make-good costs and other legal disputes which is expected to be paid out in the 2011/12 financial year.

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Revenue

Revenue is measured at the fair value of consideration received or receivable.

Crown funding

Revenue earned from the supply of outputs to the Crown is recognised as revenue when earned.

Rendering of services

Revenue from applications for processing visas and permits is recognised by reference to the stage of completion at the balance sheet date. Application fees received in advance of any service provided are recognised as deferred revenue in the Statement of Financial Position.

Interest revenue

Interest earned from Westpac Trust and overseas bank accounts is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(b) Expenses

Grants and subsidies

Where grants and subsidies are discretionary until payment, the expense is recognised when the payment is made. Otherwise, the expense is recognised when the specified criteria have been fulfilled and notice has been given to the Department.

Discretionary grants are those grants where the Department has no obligation to award on receipt of the grant application.

Capital charge

The capital charge represents a charge by the Crown on the Department's taxpayer funds as at 30 June and 31 December each year. The capital charge is recognised as an expense in the period to which the charge relates.

Income tax

The Department as a public authority is exempt from the payment of income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax is recognised.

(c) Cost accounting policies

The Department's accounting systems record costs by outputs. The costs may be direct or indirect. Costs that can be causally linked and assigned to an output economically are direct costs. Costs incurred to produce more than one output and that are shared across several work groups such as corporate costs are indirect costs. Indirect costs are allocated to outputs according to staff numbers, the amount of resource consumption, or use. There have been no changes in cost accounting policies since the date of the last audited financial statements.

(d) Goods and Services Tax (GST)

All items in the financial statements are exclusive of GST, with the exception of receivables and payables, which are stated as GST inclusive. Where GST is not recoverable as an input tax, then it is recognised as part of the related asset or expense.

The net amount of GST recoverable from, or payable to, the Inland Revenue Department (IRD) is included as part of receivables or payables in the Statement of Financial Position.

Commitments and contingencies are disclosed exclusive of GST.

(e) Foreign currency

Transactions in foreign currencies are translated to New Zealand dollars at the average rates for the month of the transaction, approximating the exchange rate at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies at balance date are translated to New Zealand dollars at the foreign exchange rate at balance date. Foreign exchange gains or losses arising from translation of monetary assets and liabilities are recognised in the Statement of Comprehensive Income.

(f) Financial instruments

Financial assets and financial liabilities are initially measured at fair value plus transaction costs, unless they are carried at fair value through surplus or deficit, in which case the transaction costs are recognised in the surplus or deficit.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, cash in transit, bank accounts and deposits with a maturity of no more than three months from the date of acquisition.

Debtors and other receivables

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method, less impairment charges. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the receivable is impaired. Impairment losses are recognised in the Statement of Comprehensive Income.

Impairment of a receivable is established when there is objective evidence that the Department will not be able to collect amounts due according to the original terms of the receivable. Significant financial difficulties of the debtor, probability that the debtor will enter into bankruptcy, and default in payments are considered indicators that the debtor is impaired. The amount of the impairment is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted using the original effective interest rate.

Creditors and other payables

Creditors and other payables represent liabilities for goods and services provided to the Department prior to the end of the financial year which are unpaid. These are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate method.

(g) Inventories

Inventories held for distribution for public benefit purposes such as freely available publications and brochures as well as the inventory of visa labels are recorded at the estimate of lower of cost or current replacement cost.

(h) Property, plant and equipment

Property, plant, and equipment consist of land, buildings, leasehold improvements, furniture and office equipment, and motor vehicles.

Items of property, plant and equipment are initially recorded at cost. Cost includes expenditure that is directly attributable to the acquisition of the item. Any borrowing costs incurred during the period required to complete and prepare the asset for its intended use are expensed. Subsequent to acquisition, items of property, plant and equipment (excluding land and buildings) are stated at cost less accumulated depreciation and impairment.

Revaluation

Subsequent to acquisition land and buildings are measured at fair value less depreciation accumulated since the assets were last revalued. The fair value of land and buildings is based on an independent valuation prepared by external valuation experts. Land and buildings are valued at least every three years or whenever the carrying amount differs materially to fair value. Unrealised gains and losses arising from changes in the fair value of land and buildings are recognised at the balance date. To the extent that a gain reverses a loss previously charged to the Statement of Comprehensive Income for the asset class, the gain is credited to the Statement of Comprehensive Income. Otherwise, gains are credited to an asset revaluation reserve for that class of asset. To the extent that there is a balance in the asset revaluation reserve for the asset class any loss is debited to the reserve. Otherwise, losses are reported in the Statement of Comprehensive Income.

Additions

The cost of an item of property, plant, and equipment is recognised as an asset if it is probable that future economic benefits or service potential associated with the item will flow to the Department and the cost of the item can be measured reliably.

Work in progress is recognised at cost less impairment and is not depreciated.

In most instances, an item of property, plant and equipment is recognised at its cost. Where an asset is acquired at no cost, or for a nominal cost, it is recognised at fair value as at the date of acquisition.

Disposals

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount of the asset. Gains and losses on disposals are included in the surplus or deficit. When a revalued asset is sold, the amount included in the property revaluation reserve in respect of the disposed asset is transferred to general funds.

Costs incurred subsequent to initial acquisition are capitalised only when it is probable that future economic benefits or service potential associated with the item will flow to the Department and the cost of the item can be measured reliably.

Depreciation

Depreciation is charged on a straight-line basis at rates calculated to allocate the cost or valuation of an item of property, plant and equipment, less any estimated residual value, over its estimated useful life. Typically, the estimated useful lives of different classes of property, plant and equipment are as follows:

• Buildings - 15 to 37 years
• Leasehold improvements - 1 to 18 years
• Motor vehicles - 4 to 6 years
• Furniture and fittings
  • Fixtures and fittings - 4 to 15 years
  • EDP Equipment - 2 to 10 years
  • Office equipment - 4 to 12 years
• Specialised equipment - 4 to 8 years

Leasehold improvements are depreciated over the unexpired period of the lease or the estimated remaining useful lives of the improvements, which ever is the shorter.

Realised gains and losses arising from the disposal of property, plant and equipment are recognised in the Statement of Comprehensive Income in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to Taxpayers' Funds.

The residual value and useful life of an asset is reviewed, and adjusted if applicable, at each financial year end.

(i) Intangible assets - computer software

Computer software is initially recorded at cost.

Software acquisition and development

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software.

The cost of internally generated computer software represents expenditure incurred in the development phase of the software only. The development phase occurs after the following can be demonstrated: technical feasibility; ability to complete the asset; intention and ability to sell or use the asset; and development expenditure can be reliably measured. Expenditure incurred on research of an internally generated intangible asset is expensed when it is incurred. Where the research phase cannot be distinguished from the development phase, the expenditure is expensed when it is incurred.

Staff training costs are recognised as an expense when incurred.

Amortisation

Subsequent to acquisition, all computer software is recorded at cost less any amortisation and impairment losses. The carrying value of an intangible asset with a finite life is amortised on a straight-line basis over its useful life. Amortisation begins when the asset is available for use and ceases at the date that the asset is derecognised.

Amortisation is charged to the Statement of Comprehensive Income over the useful life of the asset (not more than seven years).

(j) Impairment of property, plant, and equipment and intangible assets

The carrying amounts of property, plant and equipment and intangible assets are reviewed at least annually to determine if there is any indication of impairment. Where an item's recoverable amount is less than its carrying amount, it will be reported at its recoverable amount and an impairment loss will be recognised. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Value in use is depreciated replacement cost for an asset where the future economic benefits or service potential of the asset are not primarily dependent on the asset's ability to generate net cash inflows and where the Department would, if deprived of the asset, replace its remaining future economic benefits or service potential.

Intangible assets that have an indefinite useful life, or are not yet available for use, are tested annually for impairment.

Losses resulting from impairment are reported in the Statement of Comprehensive Income, unless the item is land and buildings in which case any impairment loss is treated as a revaluation decrease.

(k) Employment entitlements

Pension liabilities

Obligations for contributions to the State Services Retirement Savings Scheme and the Government Superannuation Fund are recognised in the Statement of Comprehensive Income as they fall due. Any reimbursement of these costs from the State Services Commission is recognised as revenue in the Statement of Comprehensive Income.

Other employment entitlements

Employee entitlements for salaries and wages, annual leave, long service leave, retiring leave, sick leave and other similar benefits are recognised in the Statement of Comprehensive Income when they accrue to employees. Employee entitlements to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay.

Employee benefits that are due to be settled beyond 12 months after the end of the reporting period in which the employee renders the related service, such as long service leave and retiring leave, are calculated on an actuarial basis. The liability for long-term employee entitlements is reported as the present value of the estimated future cash outflows. Expected future payments are discounted using market yields on government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows for entitlements. The inflation factor is based on the expected long-term increase in remuneration for employees.

Sick leave, annual leave, vested long service leave, and non-vested long service leave and retirement gratuities expected to be settled within 12 months of balance date are classified as a current liability. All other employee entitlements are classified as a non-current liability.

Termination benefits

Termination benefits are recognised in the Statement of Comprehensive Income only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

(l) Insurance liabilities

The Department belongs to the ACC Partnership Programme whereby the Department accepts the management and financial responsibility of work-related illnesses and accidents of employees. The liability of the ACC Partnership Programme is revalued annually based on an actuarial valuation using actuarial techniques at the present value of expected future payments to be made in respect of the employee injuries and claims up to the balance date. Consideration is given to anticipated future wage and salary levels and experience of employee claims and injuries. Expected future payments are discounted using market yields on government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows.

Obligations for managing workplace injury claims under the ACC Partnership Programme are recognised as a liability in the Statement of Financial Position. Movements in the liability are recognised in the Statement of Comprehensive Income.

(m) Leases

Finance leases transfer to the Department (the lessee) substantially all the risks and rewards incidental to the ownership of the leased items. Initial recognition of a finance lease results in an asset and liability being recognised at amounts equal to the lower of the fair value of the leased property or the present value of the minimum lease payments. The Department does not have any finance leases.

Operating leases, where the Department is a lessee, the lessor substantially retains the risk and rewards of ownership of the leased items. Leasehold improvements are capitalised and the cost is amortised over the unexpired period of the lease or the estimated useful life of the improvements, whichever is shorter. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

(n) Provisions

A provision is recognised for future expenditure of uncertain amount or timing when there is a present obligation (either legal or constructive) as a result of a past event, it is probable that an outflow of future economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.

Restructuring provisions

A provision for restructuring is recognised when the Department has developed a detailed formal plan for the restructuring and has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement the plan; or announcing its main features to those affected by it.

Redundancy Provisions

A provision for redundancy is recorded at the best estimate of the expenditure required to settle the obligation.

Other provisions

Other provisions are recorded at the best estimate of the expenditure required to settle the obligation. Liabilities and provisions to be settled beyond 12 months are recorded at their present value.

(o) Taxpayers' funds

Taxpayers' funds represent the Crown's net investment in the Department and are measured as the difference between total assets and total liabilities. Taxpayers' funds is disaggregated and classified as general funds and property, plant and equipment revaluation reserves.

Property revaluation reserves

These reserves relate to the revaluation of land and buildings to fair value.

(p) Contingent liabilities and contingent assets

Contingent liabilities and contingent assets are recorded in the Statement of Contingent Liabilities and Contingent Assets at the point when the contingency arises from past events. Contingent liabilities are disclosed if the possibility that they will crystallise is not remote. Contingent assets are disclosed if it is probable that the benefits will be realised.

(q) Commitments

Future expenses 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 there are equally unperformed obligations. Commitments relating to employment contracts are not disclosed. Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel are included in the statement of commitments at the value of that penalty or exit cost.

(r) Comparatives

When presentation or classifications of items in the financial statements are amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current period unless it is impracticable to do so.

4 Revenue Departments

ACTUAL 2010 $000		ACTUAL 2011 $000
468	Ministry of Economic Development: Energy Safe	468
2,027	State Services Commission - State Sector Retirement Savings Scheme	1,943
657	State Services Commission - KiwiSaver	833
1	Ministry of Foreign Affairs and Trade - Pacific Security Fund Project	-
771	Ministry of Foreign Affairs and Trade - Pacific Immigration Directors Conference	1,062
215	Ministry of Foreign Affairs and Trade - Consolidating Pacific States' Participation in Recognised Seasonal Employer Scheme	172
54	Ministry of Health - Partnership Resource Centre (Recovery)	-
851	Ministry of Social Development - Refugee Services	666
5,044	TOTAL REVENUE DEPARTMENT	5,144

5 Revenue other

ACTUAL 2010 $000		ACTUAL 2011 $000
104,758	Immigration fees	108,304
391	Immigration Advisers Authority	372
789	Other	2,794
105,938	TOTAL REVENUE OTHER	111,470

6 Finance income

ACTUAL 2010 $000		ACTUAL 2011 $000
79	Interest income on cash at bank	76
79	TOTAL FINANCE INCOME	76

7 Personnel costs

ACTUAL 2010 $000		ACTUAL 2011 $000
151,885	Salaries and wages	157,205
3,906	Employer contributions to defined contribution schemes	4,503
967	Increase/(decrease) in employee entitlements	(1,778)
156,758	TOTAL PERSONNEL COSTS	159,930

Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme, KiwiSaver, the Government Superannuation Fund, and the Defined Benefit Plan Contributors Scheme.

8 Capital charge

The Department pays a capital charge to the Crown on its taxpayers' funds as at 30 June and 31 December each year. The capital charge rate for the year ended 30 June 2011 was 7.5% (2010: 7.5%).

9 Other operating costs

ACTUAL 2010 $000		ACTUAL 2011 $000
286	Audit fees for the financial statement audit	286
25,571	Operating lease payments	27,111
29	Net loss on disposal of property, plant and equipment	3
4,010	Other property related costs	4,243
6	ACC Partnership Programme (note 17)	(38)
18,084	Information systems and communication costs	20,064
21,083	Professional services	26,977
16,644	Immigration services direct operating costs	17,029
411	Inventories distributed and consumed	529
25,515	Other operating costs	26,694
111,639	TOTAL OTHER OPERATING COSTS	122,898

10 Finance expenses

ACTUAL 2010 $000		ACTUAL 2011 $000
393	Net foreign exchange losses	526
5	Bad debts written off	22
398	TOTAL FINANCE EXPENSES	548

11 Debtors and other receivables

ACTUAL 2010 $000		ACTUAL 2011 $000
	CURRENT
4,316	Other debtors	3,823
4,316	Total debtors	3,823
(9)	Less: provision for doubtful debts	(26)
4,307	Total current receivables	3,797
	NON-CURRENT
196	Debtors and other receivables	1,126
196	Total non-current receivables	1,126
4,503	TOTAL DEBTORS AND OTHER RECEIVABLES	4,923

The carrying value of debtors and other receivables approximates their fair value.

The non-current portion of debtors and other receivables relate to bonds given to property owners to secure offshore rental accommodation and offices from July 2013 to October 2016.

The ageing profile of receivables at year end is detailed below:

	2010			2011
ACTUAL	GROSS $000	DOUBTFUL DEBTS $000	NET $000	GROSS $000	DOUBTFUL DEBTS $000	NET $000
Not past due	3,019	-	3,019	3,647	-	3,647
Past due 1 - 30 days	1,307	-	1,307	1,251	-	1,251
Past due 31 - 60 days	145	-	145	14	-	14
Past due 61 - 90 days	1	-	1	11	-	11
Past due > 90 days	40	(9)	31	26	(26)	-
TOTAL	4,512	(9)	4,503	4,949	(26)	4,923

The provision for doubtful debts has been calculated based on a review of specific overdue receivables. The doubtful debts provision is based on an analysis of past collection history and debt write-offs.

Movements in the provision for doubtful debts of receivables are as follows:

ACTUAL 2010 $000		ACTUAL 2011 $000
10	Balance as at 1 July	9
5	Additional provisions made	39
(6)	Receivables written off	(22)
9	CLOSING BALANCE AT 30 JUNE	26

The Department holds no collateral as security or other credit enhancements over receivables that are either past due or impaired.

12 Inventories

ACTUAL 2010 $000		ACTUAL 2011 $000
100	Publications and brochures held for distribution	80
311	Visa labels	262
411	TOTAL INVENTORIES	342

No inventories are pledged as security for liabilities (2010: Nil).

13 Property, plant and equipment

	LAND $000	BUILDINGS $000	* FURNITURE AND FITTINGS $000	SPECIALISED EQUIPMENT $000	MOTOR VEHICLES $000	TOTAL $000
COST OR VALUATION
Balance at 1 July 2009	3,302	1,687	50,553	689	7,786	64,017
Additions	-	-	15,067	72	123	15,262
Other asset movement	-	-	(5,384)	72	-	(5,312)
Revaluation increase/(decrease)	-	-	(9)	-	-	(9)
Disposals	-	-	(2,730)	(24)	(381)	(3,135)
Balance at 30 June 2010	3,302	1,687	57,497	809	7,528	70,823
Balance at 1 July 2010	3,302	1,687	57,497	809	7,528	70,823
Additions	-	22	22,786	126	26	22,960
Other asset movement	-	-	(8,785)	-	-	(8,785)
Disposals	-	-	(4,140)	(45)	(353)	(4,538)
Balance at 30 June 2011	3,302	1,709	67,358	890	7,201	80,460
ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES
Balance at 1 July 2009	-	39	28,190	408	3,213	31,850
Depreciation expense	-	97	6,739	89	589	7,514
Eliminate on disposal	-	-	(2,770)	38	(258)	(2,990)
Balance at 30 June 2010	-	136	32,159	535	3,544	36,374
Balance at 1 July 2010	-	136	32,159	535	3,544	36,374
Depreciation expense	-	96	9,043	112	572	9,823
Eliminate on disposal	-	-	(3,499)	(22)	(239)	(3,760)
Balance at 30 June 2011	-	232	37,703	625	3,877	42,437
NET BOOK VALUE
At 1 July 2009	3,302	1,648	22,363	280	4,574	32,167
At 1 July 2010	3,302	1,551	25,338	274	3,984	34,449
At 30 June 2011	3,302	1,477	29,655	264	3,324	38,022

* Furniture and fittings includes leasehold improvements, office equipment, EDP equipment and furniture.

In accordance with the Department's asset management plan at 30 June 2011, the Department intends to sell and replace various motor vehicles worth $641,740 (2010: $46,523). These vehicles do not meet the criteria for 'held for sale' as they are still in use and not yet marketed for sale. In accordance with NZ IAS 1: Presentation of Financial Statements the value of these motor vehicles has been recorded as a current asset as it is intended they will be realised within the next 12 months of the balance sheet date.

Land and buildings in Suva were revalued at fair value as at 13 May 2009, by an independent registered valuer, Ramesh Behari, of Fairview Valuations. Land and buildings at the Mangere Resettlement Centre in Auckland were revalued at fair value as at 10 February 2009, by an independent registered valuer, Richard S Arlidge, of Tse Wall Arlidge.

The total amount of property, plant and equipment in the course of construction is $5,661,000 (2010: $3,141,000).

The Christchurch earthquake on 22 February 2011 and subsequent large aftershocks, prior to balance date, caused significant damage to the Department's assets resulting in $0.652 million of assets being written off.

The net carrying amount of plant and equipment held under finance leases is Nil (2010: Nil).

14 Intangible assets

	ACQUIRED SOFTWARE $000	INTERNALLY GENERATED SOFTWARE $000	TOTAL $000
COST
Balance at 1 July 2009	13,496	38,606	52,102
Additions	9,134	891	10,025
Balance at 30 June 2010	22,630	39,497	62,127
Balance at 1 July 2010	22,630	39,497	62,127
Additions	1,616	8,137	9,753
Disposals	-	(4,519)	(4,519)
Balance at 30 June 2011	24,246	43,115	67,361
ACCUMULATED AMORTISATION AND IMPAIRMENT LOSSES
Balance at 1 July 2009	3,820	31,670	35,490
Amortisation expense	535	3,049	3,584
Balance at 30 June 2010	4,355	34,719	39,074
Balance at 1 July 2010	4,355	34,719	39,074
Amortisation expense	731	4,519	5,250
Disposals	(1,166)	(3,281)	(4,447)
Balance at 30 June 2011	3,920	35,957	39,877
NET BOOK VALUE
At 1 July 2009	9,676	6,936	16,612
At 1 July 2010	18,275	4,778	23,053
At 30 June 2011	20,327	7,158	27,484

There are no restrictions over the title of the Department's intangible assets, nor are any intangible assets pledged as security for liabilities.

15 Creditors and other payables

ACTUAL 2010 $000		ACTUAL 2011 $000
21,934	Creditors and accrued expenses	25,301
14,448	Income in advance	13,826
690	GST payable	698
37,072	TOTAL CREDITORS AND OTHER PAYABLES	39,825

Creditors and payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

16 Finance leases

The Department does not have any finance leases.

17 Insurance liabilities

ACTUAL 2010 $000		ACTUAL 2011 $000
	The total insurance liabilities is represented by:
123	Current	96
36	Non-current	25
159	TOTAL INSURANCE LIABILITIES	121

The movement in the liabilities is represented by:

ACTUAL 2010 $000		ACTUAL 2011 $000
153	Opening balance at 1 July	159
6	Movement in provisions made	(38)
159	CLOSING BALANCE AT 30 JUNE	121

Insurance risk

The Department's insurance liabilities arise from the Department's membership in the ACC Partnership Programme under the Full Self Cover Plan. Under this plan it assumes full financial and injury management responsibility for work-related injuries and illnesses for a selected management period and continuing financial liability for the life of the claim to a pre-selected limit.

The Department is responsible for managing claims for a period of up to 48 months since the lodgement date. At the end of 48 months, if an injured employee is still receiving entitlements, the financial and management responsibility of the claim will be transferred to ACC for a price calculated on an actuarial valuation basis.

The Department has chosen a stop loss limit of 192% of the industry premium for the 2011 cover year. The stop loss limit means the Department will only carry the total cost of claims of up to $338,000. Similar levels of stop loss cover apply for most previous cover years.

The Department manages its exposure arising from the programme by promoting a safe and healthy working environment by:

• implementing and monitoring health and safety policies
• improving awareness of health and safety through meetings and induction processes
• managing workplace injuries to ensure employees return to work as soon as practical
• recording and monitoring workplace injuries and near misses to identify risk areas and implementing mitigating actions
• identifying of workplace hazards and implementation of appropriate safety procedures.

The Department is not exposed to any significant concentrations of insurance risk as work related injuries are generally the result of an isolated event affecting an individual employee.

Liability valuation

An independent actuarial valuation was undertaken by Melville Jessup Weaver to calculate the Department's liability, and the valuation is effective 31 March 2011. The actuary has attested to being satisfied as to the nature, sufficiency, and accuracy of the data used to determine the outstanding claims liability. There are no qualifications contained in the actuary's report.

Central estimate

The liability has been set to achieve a 50% probability of the liability being adequate to cover the cost of injuries and illnesses that have occurred up to balance date. Accordingly, no risk margin has been included.

Key assumptions

The key assumptions used in determining the outstanding claims liability are:

• The Bornheutter-Fergusson methodology has been used and the principal assumption of the method is that the development pattern of claims payments is the same for all loss periods.
• The assumed 'loss ratio' of 0.12% of liable earnings was determined by considering the observed loss ratios for all the loss quarters.
• Allowance for claims development beyond 11 years after injury (the duration since the inception of the ACC Partnership Programme) was made by including a "tail" factor.
• Projected future payments were discounted based on Government bond rates.
• The Department will remain in the ACC Partnership Programme for the foreseeable future. If the Department was to exit immediately, a margin of 12.8% would apply.

18 Provision for employee entitlements

ACTUAL 2010 $000		ACTUAL 2011 $000
	CURRENT LIABILITIES
9,215	Annual leave	9,099
112	Sick leave	182
260	Long service leave	217
508	Retirement leave	583
10,095	Total current portion	10,081
	NON-CURRENT LIABILITIES
1,753	Long service leave	71
2,720	Retirement leave	2,638
4,473	Total non-current portion	2,709
14,568	TOTAL PROVISION FOR EMPLOYEE ENTITLEMENTS	12,790

An independent actuarial valuation was undertaken by Melville Jessup Weaver as at 30 June 2011 to estimate the present value of retirement leave and long service leave. The key assumptions used in determining the present values were:

• Discount rate for the 2011 financial year 2.82% p.a. (2010: 5.80% p.a.).
• Salary growth rate for the 2011 financial year 2.50% p.a. (2010: 3.00% p.a.).

The appropriate risk free discount rates applied were forward rates published by the Treasury for the purpose of preparing the Financial Statements of the Government of New Zealand. Any changes in these assumptions will impact on the carrying amount of the liability. The salary inflation factor has been determined after considering historical salary inflation patterns and after obtaining advice from an independent actuary.

If the discount rate were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $258,000 higher/lower.

If the salary inflation factor were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $264,000 lower/higher.

19 Other provisions

ACTUAL 2010 $000		ACTUAL 2011 $000
	OTHER PROVISIONS ARE REPRESENTED BY:
29	Refund of INZ lapsed General Skills	-
917	Redundancy costs	885
400	Restructuring costs	2,064
302	Lease make-good costs	833
235	Other legal disputes	113
1,883	TOTAL OTHER PROVISIONS	3,895

2010	REFUND OF INZ LAPSED GENERAL SKILLS APPLICATIONS $000	REDUNDANCY $000	RESTRUCTURING $000	LEASE MAKE-GOOD $000	OTHER LEGAL DISPUTES $000	TOTAL $000
Opening balance at 1 July	29	713	-	-	-	742
Amounts used	-	(596)	-	-	-	(596)
Additional provisions made	-	800	400	302	235	1,737
CLOSING BALANCE AT 30 JUNE	29	917	400	302	235	1,883

2011	REFUND OF INZ LAPSED GENERAL SKILLS APPLICATIONS $000	REDUNDANCY $000	RESTRUCTURING $000	LEASE MAKE-GOOD $000	OTHER LEGAL DISPUTES $000	TOTAL $000
Opening balance at 1 July	29	917	400	302	235	1,883
Amounts used	(29)	(32)	(11)	-	(122)	(194)
Additional provisions made	-	-	1,675	531	-	2,206
CLOSING BALANCE AT 30 JUNE	-	885	2,064	833	113	3,895

Refund of Immigration New Zealand (INZ) Lapsed General Skills applications

A provision for refunding of lapsed General Skills immigration applications was established in June 2003. Refunding has been completed.

Redundancy costs

The redundancy provision was established in 2008/09. The current redundancy relates to the Department's Corporate Model Implementation Project. These costs are expected to be paid out during 2011/12.

Restructuring costs

The provision for restructuring costs arose as a result of the Department's Corporate Model Implementation Project.

Lease make-good costs

In respect of a number of its leased premises, the Department is required at expiry of the lease term to make good any damage caused to the premises and to remove any fixtures or fittings installed by the Department. In many cases the Department has the option to renew these leases, which impacts on the timing of expected cash outflows to 'make good' the premises.

Other legal disputes

Provision has been made for the settlement of legal disputes relating to the supply of materials and human resources issues. It is anticipated that the disputes will be resolved within 12 months of the balance sheet date.

20 Taxpayers' funds

ACTUAL 2010 $000		ACTUAL 2011 $000
	GENERAL FUNDS
64,099	Balance at 1 July	61,288
7,345	Capital contribution	7,567
(108)	Capital withdrawal - non cash	-
(10,048)	Surplus/(deficit) for the year	(15,935)
61,288	General funds at 30 June	52,920
	REVALUATION RESERVES
4,928	Balance at 1 July	4,919
(9)	Revaluation gains/(losses)	-
4,919	Revaluation reserves at 30 June	4,919
66,207	TOTAL TAXPAYERS' FUNDS	57,839
	Revaluation reserves consist of:
3,016	Land	3,016
1,903	Buildings	1,903
4,919	TOTAL REVALUATION RESERVES	4,919

21 Capital management

The Department's capital is its taxpayers' funds which comprises general funds and revaluation reserves. Taxpayers' funds are represented by net assets.

The Department manages its revenues, expenses, assets, liabilities and general financial dealings prudently. The Department's equity is largely managed as a by-product of managing income, expenses, assets, liabilities and compliance with the Government Budget processes, Treasury instructions and the Public Finance Act 1989.

The objective of managing the Department's equity is to ensure the Department effectively achieves its goals and objectives for which it has been established, while remaining a going concern.

22 Reconciliation of net surplus/(deficit) to net cash flows from operating activities

ACTUAL 2010 $000		ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
(10,048)	NET SURPLUS/(DEFICIT)	(15,935)	1,472	490
	Add/(less) non-cash items:
11,098	Depreciation and amortisation	15,073	20,541	20,549
393	Net foreign exchange (gain)/loss	526	-	-
(2)	Other operating costs	-	-	-
11,489	Total non-cash items	15,599	20,541	20,549
	Add/(less) movements in working capital items:
8,137	(Increase)/decrease in debtors and receivables	(420)	(135)	1,256
(186)	(Increase)/decrease in prepayments	245	-	-
89	(Increase)/decrease in inventories	69	-	-
3,581	Increase/(decrease) in creditors and payables	2,745	706	(7,835)
(113)	Goods and services tax (net)	8	164	2,869
973	Increase/(decrease) in employee entitlements	(1,816)	993	3,599
1,141	Increase/(decrease) in other provisions	2,012	-	-
13,622	Net movements in working capital items	2,843	1,728	(111)
	Add/(less) item classified as investing activities:
29	Net loss/(profit) on sale of fixed assets	740	(335)	(335)
15,092	NET CASH FROM OPERATING ACTIVITIES	3,247	23,406	20,593

23 Financial instrument risks

The Department's activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Department has several policies to manage the risk associated with financial instruments and seeks to minimise exposure from financial instruments. These policies do not allow any transactions that are speculative in nature to be entered into.

Market risk

Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

The Department's greatest direct foreign exchange exposure arises from the offshore branch and agency network that provide immigration services. Application fees are collected in more than 30 foreign currencies through this network. The offshore branch network incurs significant local expenses, providing a natural hedge for the branch revenue. The Department's convention is for branches to retain buffers in foreign currency accounts up to the value of an average month's expenditure.

The Department's foreign exchange management policy requires the Department to manage direct foreign currency exposure by entering into forward exchange contracts when it is considered certain that currency risk will arise. As there is a natural hedge between revenue and expenditure at the Department's offshore branches, only the net exposure is covered. Net certain monthly cash surplus per currency will be identified at budget stage.

Application fees are set by regulation in New Zealand dollars, updated annually. Foreign currency equivalent fees are set by the Department to reflect the New Zealand amount. Foreign currency transaction exposure is also mitigated to some extent by the ability of the Department to initiate updates of foreign currency fees to bring them into line with prevailing market conditions.

Sensitivity analysis

At 30 June 2011, if the NZ dollar had weakened/strengthened by 5% against the US dollar with all other variables held constant, the surplus/deficit for the year would have been $60,000 (2010: $75,000) higher/lower. This movement is attributable to the foreign exchange gains and losses on translation of the US dollar currency held by the Department in its foreign currency account.

At 30 June 2011, if the NZ dollar had weakened/strengthened by 5% against the Australian dollar with all other variables held constant, the surplus/deficit for the year would have been $10,000 (2010: $143,000) higher/lower. This movement is attributable to the foreign exchange gains and losses on translation of the Australian dollar currencies held in its foreign currency account.

Interest rate risk

Interest rate risk is the risk that the fair value of a financial instrument will fluctuate or, the cash flows from a financial instrument will fluctuate, due to changes in market interest rates. The Department has no interest rate risk as it has no interest bearing financial instruments.

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Department, causing the Department to incur a loss. Financial instruments, which potentially subject the Department to credit risk, principally consist of cash on hand, bank balances, forward exchange contracts and accounts receivable. The Department's maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, net debtors (note 11), and derivative forward exchange contracts. There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired.

The Department holds cash with Westpac Bank. There are no major concentrations of credit risk with respect to accounts receivable other than the amount due to the Crown.

The risk that a bank with which funds are deposited will fail or that a party with which future or current transactions are outstanding will not meet its obligations is minimised by only opening accounts with banks following Treasury approval. The Department deals only, where there is a choice, with banks that have a high credit rating. Exposure to any counterparty is limited to NZ$5 million including unsettled forward exchange contracts, bank account balances and contracts due for settlement on the day the exposure is calculated. This limit does not apply when the counterparty is the Westpac New Zealand, New Zealand Debt Management Office (NZDMO) or the Reserve Bank of New Zealand.

Liquidity risk

Liquidity risk is the risk that the Department will encounter difficulty raising liquid funds to meet commitments as they fall due.

In meeting its liquidity requirements, the Department closely monitors its forecast cash requirements with expected cash draw downs from the NZDMO.

The table below analyses the Department's financial liabilities that will be settled based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed are on the contractual undiscounted cash flows.

Liquidity risk

	LESS THAN 6 MONTHS $000	BETWEEN 6 MONTHS AND 1 YEAR $000	BETWEEN 1 AND 5 YEARS $000	OVER 5 YEARS $000
2010
Creditors and other payables (note 15)	37,072	-	-	-
Cash and cash equivalents	55,767	-	-	-
2011
Creditors and other payables (note 15)	39,825	-	-	-
Cash and cash equivalents	42,238	-	-	-

24 Categories of financial instruments

The carrying amounts of financial assets and financial liabilities in each of the NZ IAS 39 categories are as follows:

ACTUAL 2010 $000		ACTUAL 2011 $000
	LOANS AND RECEIVABLES
55,767	Cash and cash equivalents	42,238
4,503	Debtors and other receivables (note 11)	4,923
60,270	Total loans and receivables	47,161
	FINANCIAL LIABILITIES MEASURED AT AMORTISED COSTS
37,072	Creditors and other payables (note 15)	39,825
37,072	Total financial liabilities measured at amortised cost	39,825

25 Related party information

All related party transactions have been entered into on an arm's length basis. The Department is a wholly-owned entity of the Crown.

Significant transactions with government-related entities

The Department has been provided with funding from the Crown of $170.730 million (2010: $163.957 million) and funding from Revenue Department of $5.144 million (2010: $5.044 million) for specific purposes as set out in its founding legislation and the scope of the relevant government appropriations.

Collectively, but not individually, significant, transactions with government-related entities

In conducting its activities, the Department is required to pay various taxes and levies (such as GST, FBT, PAYE, Withholding Tax and ACC levies) to the Crown and entities related to the Crown. The payment of these taxes and levies, other than income tax, is based on the standard terms and conditions that apply to all tax and levy payers. The Department matches the employee's superannuation contribution to State Sector Retirement Savings Scheme, the cost of which is funded in full by the State Services Commission. The Department is exempt from paying income tax.

The Department also purchases goods and services from entities controlled, significantly influenced, or jointly controlled by the Crown. Purchases from these government-related entities for the year ended 30 June 2011 totalled $10.3 million (2010: $9.7 million). These purchases included agencies fees for offshore posts from Ministry of Foreign Affairs and Trade, legal fees from Crown Law, air travel from Air New Zealand and postal services from New Zealand Post.

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

Key management personnel compensation

ACTUAL 2010 $000		ACTUAL 2011 $000
2,195	Salaries and other short term employee benefits	2,003
69	Other long-term benefits	99
110	Termination benefits	-
2,374	TOTAL KEY MANAGEMENT PERSONNEL COMPENSATION	2,102

The Department's key management personnel are defined as the Secretary of Labour and the Strategic Leadership Team. All these personnel have authority and the primary responsibility for planning, directing, and controlling the activities of the Department.

There were no transactions with Ministers which require disclosures under the revised NZ IAS 24.

26 Trust monies

The Department operates trust accounts as the agent under section 66 of the Public Finance Act 1989. The transactions through these accounts and their balances at 30 June 2011 are not included in the Department's own financial statements. Movements in these accounts during the year ended 30 June 2011 were as follows:

Statement of Trust Monies

For the year ended 2011

ACCOUNT	AS AT 2010 $000	CONTRIBUTION $000	DISTRIBUTION $000	REVENUE $000	EXPENSE $000	AS AT 2011 $000
Employment Relations Service Trust	27	256	(254)	-	(6)	23
Employment Relations Act Security of Costs Trust	88	14	(88)	-	-	14
NZ Immigration Trust	3,666	867	(1,990)	64	-	2,607
TOTAL	3,781	1,137	(2,332)	64	(6)	2,644

The Employment Relations Service Trust (previously called the Industrial Relations Trust) was established in September 1988 and handles trust monies received by Labour Inspectors on behalf of workers.

The Employment Relations Act Security of Costs Trust (previously called the Employment Court Trust) was established in February 1990 and handles monies held at the direction of the Employment Relations Authority.

The NZ Immigration Trust was established in 1999 to hold bonds required to be paid by visitors with a higher risk profile.

27 Memorandum account - visas and permits

ACTUAL 2010 $000		ACTUAL 2011 $000
	PROVISION FOR STATUTORY INFORMATION
10,569	Balance at 1 July	(1,369)
104,400	Revenue	107,700
(116,338)	Expenses	(129,076)
(1,369)	BALANCE AT 30 JUNE	(22,745)

This memorandum account summarises financial information relating to the accumulated financial surplus and deficits incurred in the sale of visas and permits by the Department.

Memorandum accounts are notional accounts that are not formal assets or liabilities of the Crown. The accounts record the accumulated balance of surpluses and deficits incurred in the provision of certain outputs on a full cost recovery basis. The surplus/deficit levels are dependent upon the business conditions and Government's policy settings prevailing during that period.

This memorandum account has been operating since 1 July 1999. The shortfall in revenue is primarily due to lower volume in visa applications (particularly in Student and Residence visa applications), as well as the impact of the Christchurch earthquake in February 2011.

The current deficit will be managed over a period of time through fee setting, cost structure changes and business improvements. Immigration New Zealand is working through and implementing a number of identified cost savings, as well as considering opportunities to increase revenue.

28 Memorandum account - Immigration Advisers Authority

ACTUAL 2010 $000		ACTUAL 2011 $000
	PROVISION FOR STATUTORY INFORMATION
(904)	Balance at 1 July	(1,799)
391	Revenue	372
(1,286)	Expenses	(1,242)
(1,799)	BALANCE AT 30 JUNE	(2,669)

The Immigration Advisers Authority was established in May 2007 following the implementation of the Immigration Advisers Licensing Act 2007. Mandatory licensing was in place for advisers onshore in May 2009, and offshore in May 2010.

The memorandum account records the revenue from licence fees paid by immigration advisers seeking to be licensed, fee renewals or upgrades, and the costs arising from employment of resources to carry out licensing, and educational functions. A key factor in the amount of the fee revenue is the number of licensed advisers (including offshore advisers).

The lower revenue from fees received is due to the number of license holders being lower than forecasted. The Department is reviewing the cost allocation for licensing and enforcement functions. Also, the Department will prepare a report to Ministers, which will include future options relating to fees and licensees.

29 Memorandum account - Provision for Health and Safety in Employment (HSE Levy) - Funded Services

ACTUAL 2010 $000		ACTUAL 2011 $000
	PROVISION FOR STATUTORY INFORMATION
3,494	Balance at 1 July	13,866
49,017	Revenue	43,802
(38,645)	Expenses	(41,894)
13,866	BALANCE AT 30 JUNE	15,774

This notional account was established on 1 July 2007 in accordance with the Cabinet Economic Development Committee Decision EDC Min (07) 29/14.

The account does not hold accessible funds. It records Health and Safety in Employment (HSE) levy revenue accumulated by the Crown, offset by the amount of levy revenue spent by the Department of Labour and other designated agencies (the Civil Aviation Authority and Maritime New Zealand) on appropriated HSE activity. The account balance is determined at the end of each financial year. If the balance is greater than zero it means the revenue collected to that point is higher than expenses, and conversely, a negative balance denotes higher accumulated expenses compared to revenue.

The accumulated balance in the account, the forecast revenue and known future expenses to be appropriated will be considered annually in determining changes to the HSE levy rates within set parameters. The rate of the HSE levy is currently set in the Health and Safety in Employment Regulations 1994, at 5c per $100 of leviable earnings.

30 Explanation of major variances against budget

The variance between the Main Estimates and the Supplementary Estimates are mainly due to the following items:

Item	$000
In-principle expenditure transfers from 2009/10 to 2010/11	7,278
New funding	1,000
Expenditure transfers from 2010/11 to 2011/12	(6,355)
Fiscally neutral transfers	134
Forecast changes	437
Funding change	(207)
TOTAL	2,287

VOTE	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000	VARIANCE HIGHER/ (LOWER) 2011 $000
Labour	80,201	80,298	97
Immigration	213,316	215,514	2,198
Employment	14,219	14,209	(10)
ACC	4,856	4,858	2
TOTAL FOR OUTPUT EXPENSES	312,592	314,879	2,287

For more detail of the changes in budgets between Main Estimates and Supplementary Estimates, see Statement of Objectives and Service Performance.

Explanations for major variances from the Department's Supplementary Estimates are as follows:

Expenditure

The output expenses appropriations for Vote Immigration were within appropriation by $8.631 million during 2010/11. The under-expenditure is largely due to lower volumes, savings from vacant positions and project delays in the output expense services to increase the capacity of New Zealand through immigration. 'In principle' expense transfers from 2010/11 into 2011/12 for Vote Immigration totalling $0.984 million were approved during 2010/11.

The output expenses appropriations for Vote Labour were within appropriation by $2.782 million, mainly due to the High Performance Work Initiative only commencing part way through the year. The work programmes of the policy teams were delayed due to several unexpected events (including the Pike River Coal mine tragedy), and staff vacancies. 'In principle' expense transfers from 2010/11 into 2011/12 for Vote Labour totalling $0.242 million were approved during 2010/11.

Revenue

Revenue Other received is $28 million lower than forecast primarily due to lower volume in visa applications (particularly in Student and Residence visa applications), as well as the impact of the Christchurch earthquake in February 2011.

STATEMENT OF COMPREHENSIVE INCOME

VOTE	VARIANCE TO BUDGET HIGHER/ (LOWER) $000	VARIANCE TO BUDGET %	'IN-PRINCIPLE' TRANSFERS TO 2011/12 $000
Labour	(2,782)	(3.5%)	242
Immigration	(8,631)	(4.0%)	984
Employment	(1,494)	(10.5%)	-
ACC	(491)	(10.1%)	200
TOTAL FOR OUTPUT EXPENSES	(13,398)	(4.3%)	1,426

STATEMENT OF FINANCIAL POSITION

	VARIANCE HIGHER/ (LOWER) $000
CASH AND CASH EQUIVALENTS
The variance was due to reduction on capital projects expenditure and reduction in Immigration revenue.	(5,887)
PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS
There were delays in some of the capital projects: remedial work on the Application Management System, Shanghai office fit out, Financial Management Information System and ICT infrastructure programme.	(7,647)
CREDITORS AND OTHER PAYABLES
The Department had an increase in accrued expenditure at year-end which was not included in the forecast.	7,564

STATEMENT OF CASH FLOWS

	VARIANCE HIGHER/ (LOWER) $000
NET CASH FROM OPERATING ACTIVITIES
The lower operating cash flow was due to both lower revenue and lower expenditure.	(17,346)
NET CASH FROM INVESTING ACTIVITIES
Purchases of property, EDP equipment and software were lower due to delays in the Department's capital expenditure programme.	12,383

31 Events after the balance sheet date

There were no events occurring between year-end and the signing of the financial statements that would have a significant effect on these financial statements.

NON-DEPARTMENTAL STATEMENTS AND SCHEDULES

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
63,140	Revenues and receipts	56,033	50,585	55,343
1,273,063	Expenses	1,228,895	1,256,709	1,255,439
21,350	Assets	20,492	27,229	21,891
3,071	Liabilities	1,802	3,555	3,612

The following non-departmental statements and schedules record the income, expenses, assets, liabilities, commitments, contingent liabilities and contingent assets that the Department manages on behalf of the Crown.

Further details of the Department's management of these Crown assets and liabilities are provided in the Statement of Objectives and Service Performance section of this Annual Report.

These non-department balances are consolidated into the Crown Financial Statements. Therefore, readers of these statements and schedules should also refer to the Crown Financial Statements for 2010/11.

The accompanying notes form part of these financial statements.

STATEMENT OF NON-DEPARTMENTAL EXPENDITURE AND CAPITAL EXPENDITURE AGAINST APPROPRIATIONS

FOR THE YEAR ENDED 30 JUNE 2011

EXP. AFTER REMEAS. 2010 $000		EXP. BEFORE REMEAS. 2011 $000	REMEAS. 2011 $000	EXP. AFTER REMEAS. 2011 $000	APPROPRIATION VOTED* 2011 $000
	VOTE LABOUR
	APPROPRIATION FOR OUTPUT EXPENSES
2,025	Employment Relations Education Contestable Fund	-	-	-	889
869	Health and Safety in Employment Levy - Collection Services	869	-	869	869
2,894	Total appropriations for output expenses	869	-	869	1,758
	APPROPRIATION FOR OTHER EXPENSES TO BE INCURRED BY THE CROWN
1,512	International Labour Organisation	1,381	-	1,381	1,400
943	Joint Equal Employment Opportunities Trust	943	-	943	943
15	New Zealand Industrial Relations Foundation	15	-	15	15
2,938	Employment Relations Authority Members' Salaries and Allowances (Employment Relations Act 2000, Section 171)	3,055	-	3,055	3,402
2	Bad Debt Expense	-	-	-	15
5,410	Total appropriations for other expenses to be incurred by the Crown	5,394	-	5,394	5,775
8,304	TOTAL VOTE LABOUR	6,263	-	6,263	7,533
	VOTE ACC
	APPROPRIATION FOR OUTPUT EXPENSES
59,187	Case Management and Supporting Services	64,783	-	64,783	64,783
692,729	Claim Entitlements and Services	624,392	-	624,392	649,392
241,103	Public Health Acute Services	265,847	-	265,847	265,847
-	Service for Treatment Injuries	212,069	-	212,069	212,069
993,019	Total appropriations for output expenses	1,167,091	-	1,167,091	1,192,091
	BENEFITS AND OTHER UNREQUITED EXPENSES
269,891	Other Compensation	35,771	-	35,771	35,771
-	Other Compensation - Treatment Injuries for Non-Earners'	18,959	-	18,959	18,959
269,891	Total appropriations for benefits & unrequited expenses	54,730	-	54,730	54,730
1,262,910	TOTAL VOTE ACC	1,221,821	-	1,221,821	1,246,821
	VOTE IMMIGRATION
	APPROPRIATION FOR OTHER EXPENSES TO BE INCURRED BY THE CROWN
1,849	Residence Review Board, Removal Review Authority and Refugee Status Appeals Authority Members' salaries and allowances	811	-	811	1,085
1,849	Total appropriations for other expenses to be incurred by the Crown	811	-	811	1,085
1,849	TOTAL VOTE IMMIGRATION	811	-	811	1,085
1,273,063	TOTAL APPROPRIATIONS FOR OUTPUT EXPENSES	1,228,895	-	1,228,895	1,255,439
-	Non - Departmental Capital Expenditure (Disputes Resolution Services Limited share Capital)**	1,335	-	1,335	-

The accompanying notes form part of these financial statements.

GST of $166.5 million (2010: $124.6 million) has been excluded from non-departmental expenditure and capital appropriations in accordance with the accounting policy on GST. The GST is not recoverable from the IRD and is an expense which requires no appropriation as it is funded by the Crown. The expense is therefore not included in the Statement of Non-Departmental Expenditure and Capital Appropriations.

* These amounts include adjustments made in the Supplementary Estimates and transfers under the Public Finance Act 1989.

**An item of unappropriated expenditure has been identified in Vote ACC which relates to the transfer of Disputes Resolution Services Limited (DRSL) from the ownership of Accident Compensation Corporation (ACC) to the Crown. The value of the shares transferred was $2.67 million, of which 50% ($1.335 million) is attributable to Vote ACC and 50% ($1.335 million) to Vote Finance.

On 6 April 2011, Ministers agreed (EGI Min (11) 6/10) that DSRL be transferred as a going concern from ACC ownership to the Crown, at no cost to the Crown, by mutual agreement with the ACC Board. Ministers approved this paper and stated that the transfer would be effective from 1 July 2011. In the expectation of a 1 July 2011 transfer, the appropriation for the equity transfer was approved in 2011/12. The Department actioned the share transfer on 22 June 2011 following Ministerial approval to ensure that it was effective on 1 July 2011. This means that the share transfer occurred within the 2010/11 financial year without appropriation and therefore is unappropriated non-departmental capital expenditure in 2010/11.

In accordance with Section 26C of the Public Finance Act, on 19 September 2011, the Department sought Joint ministerial approval to validate the Vote ACC portion of $1.335 million as unappropriated non-departmental capital expenditure in 2010/11.

The accompanying notes form part of these financial statements.

SCHEDULE OF NON-DEPARTMENTAL EXPENDITURE

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	VOTE LABOUR
2,894	Non-departmental output expenses	869	1,758	1,758
5,410	Other expenses to be incurred by the Crown	5,394	5,553	5,775
8,304	TOTAL NON-DEPARTMENTAL EXPENDITURE: VOTE LABOUR	6,263	7,311	7,533
	VOTE ACC
993,019	Non-departmental output expenses	1,167,091	1,192,091	1,192,091
269,891	Benefits and other unrequited expenses	54,730	54,730	54,730
1,262,910	TOTAL NON-DEPARTMENTAL EXPENDITURE: VOTE ACC	1,221,821	1,246,821	1,246,821
	VOTE IMMIGRATION
1,849	Other expenses to be incurred by the Crown	811	2,577	1,085
1,849	TOTAL NON-DEPARTMENTAL EXPENDITURE: VOTE IMMIGRATION	811	2,577	1,085
1,273,063	TOTAL NON-DEPARTMENTAL EXPENSES	1,228,895	1,256,709	1,255,439

Note: Annual and other appropriations have been classified together in the above schedule, but are separately disclosed in the Statement of Non-Departmental Expenditure and Capital Appropriations.

The accompanying notes form part of these financial statements.

SCHEDULE OF NON-DEPARTMENTAL INCOME

FOR THE YEAR ENDED 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	Administered on behalf of the Minister of Labour
189	Employment relations authority fees		163	193	193
49,017	Health and safety in employment levy		43,802	40,147	43,911
34	Health and safety fees and licences		30	33	33
37	Revenue from prior year Pay and Employment Equity Contestable Fund		35	-	-
7	Employment relations authority reimbursement of costs		1	-	-
-	Revenue from prior year Employment Relations Education Contestable Fund		164	-	-
240	Recovery of remuneration authority costs of setting local authority members' remuneration		262	250	262
7	Infringement notice fines		15	247	247
49,531	TOTAL NON-DEPARTMENTAL INCOME ADMINISTERED ON BEHALF OF THE MINISTER OF LABOUR		44,472	40,870	44,646
	Administered on behalf of the Minister of Immigration
10,391	Migrant levy		9,490	9,715	9,715
428	Immigration Adviser levy		494	-	982
828	Visitor bonds		-	-	-
1,962	Forfeited English for Speakers of Other Languages fees (ESOL)		1,577	-	-
13,609	TOTAL NON-DEPARTMENTAL INCOME ADMINISTERED ON BEHALF OF THE MINISTER OF IMMIGRATION		11,561	9,715	10,697
-	TOTAL NON-DEPARTMENTAL INCOME ADMINISTERED ON BEHALF OF THE MINISTER FOR ACC		-	-	-
63,140	TOTAL NON-DEPARTMENTAL INCOME ADMINISTERED BY THE DEPARTMENT		56,033	50,585	55,343

The accompanying notes form part of these financial statements.

SCHEDULE OF NON-DEPARTMENTAL ASSETS

AS AT 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	Current assets
7,518	Cash and cash equivalents		14,740	24,783	18,749
13,832	Receivables and prepayments	4	4,417	2,446	3,142
21,350	TOTAL CURRENT ASSETS		19,157	27,229	21,891
	Non-current assets
-	Investment in Disputes Resolution Services Limited (DRSL)		1,335	-	-
-	Total non-current assets		1,335	-	-
21,350	TOTAL NON-DEPARTMENTAL ASSETS		20,492	27,229	21,891

SCHEDULE OF NON-DEPARTMENTAL LIABILITIES

AS AT 30 JUNE 2011

ACTUAL 2010 $000		NOTE	ACTUAL 2011 $000	MAIN ESTIMATES 2011 $000	SUPP ESTIMATES 2011 $000
	CURRENT LIABILITIES
2,573	Creditors and other payables	5	1,434	2,887	3,003
346	Provision for employee entitlements	6	272	419	444
2,919	TOTAL CURRENT LIABILITIES		1,706	3,306	3,447
	Non-current liabilities
152	Provision for employee entitlements	6	96	249	165
152	TOTAL NON CURRENT LIABILITIES		96	249	165
3,071	TOTAL LIABILITIES		1,802	3,555	3,612

SCHEDULE OF NON-DEPARTMENTAL COMMITMENTS

AS AT 30 JUNE 2011

ACTUAL 2010 $000		ACTUAL 2011 $000
	OTHER NON-CANCELLABLE COMMITMENTS
1,246,843	Not later than one year	1,088,886
1,246,843	TOTAL OTHER NON-CANCELLABLE COMMITMENTS	1,088,886

The accompanying notes form part of these financial statements.

The operating commitments comprise:

• Employment Relations Education Contestable Fund contracts are $0.500 million as at 30 June 2011 (2010: $22,000).
• The 2011/12 purchase agreement with ACC. The Minister for ACC entered into a purchase agreement with ACC on 30 June 2010. The purchase agreement outlines the outputs the Minister has agreed to purchase from ACC on behalf of non-earners for 2011/12. The total cost of the outputs that the Minister committed to on 30 June 2011 was $1,088.386 million (2010: $1,246.821 million).

SCHEDULE OF NON-DEPARTMENTAL CONTINGENT LIABILITIES AND CONTINGENT ASSETS

AS AT 30 JUNE 2011

There were no non-departmental contingent liabilities or contingent assets as at 30 June 2011 (2010: Nil)

The accompanying notes form part of these financial statements.

NOTES TO THE NON-DEPARTMENTAL FINANCIAL STATEMENTS

1 Reporting entity

These non-departmental schedules and statements present financial information on public funds managed by the Department on behalf of the Crown.

These non-departmental balances are consolidated into the Financial Statements of the Government. For a full understanding of the Crown's financial position, results of operations and cash flows for the year, reference should also be made to the Financial Statements of the Government.

2 Basis of preparation

(a) Statement of compliance

The non-departmental schedules and statements have been prepared in accordance with the accounting policies of the Financial Statements of the Government, Treasury instructions and Treasury circulars.

Measurement and recognition rules applied in the preparation of these non-departmental schedules and statements are consistent with New Zealand Generally Accepted Accounting Practice (NZ GAAP) as appropriate for public benefit entities.

The schedules and statements are prepared using New Zealand International Financial Reporting Standards (NZ IFRS).

There have been no changes in accounting policies during the financial year.

(b) Reporting period and currency

The reporting period for these non-departmental financial statements is the year ended 30 June 2011. The budget figures are those presented in the Main Estimates on 20 May 2010 and those amended by the Supplementary Estimates on 19 May 2011 and any transfers made by Order in Council under the Public Finance Act 1989.

The reporting currency used in the preparation of these non-departmental financial statements is New Zealand dollars rounded to the nearest thousand ($000). The functional currency of the Department is New Zealand dollars (NZ$).

(c) Use of judgements and estimates

The preparation of financial statements in conformity with NZ IFRS requires judgements, estimates and assumptions that affect the application of policies and reported amounts of assets liabilities, income and expenses.

The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlining assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements that have a significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year are discussed in the notes to the financial statements.

Note 6 provides the key assumptions used in determining the estimates for Long Service leave and Retirement leave.

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

The following particular accounting policies have been applied:

(a) Revenue - levies

Levy revenue includes the Health and Safety in Employment Levy and the Migrant Levy, which are legislated under the Health and Safety in Employment Act 1992 (section 59) and the Immigration Act 2009 (section 399) respectively. Revenue from levies is recognised as revenue when the obligation to pay the levy is incurred.

(b) Grant expenditure

Non-discretionary grants are those grants awarded if the application meets the specified criteria and are recognised as expenditure when an application that meets the specified criteria for the grant has been received.

Discretionary grants are those grants where the Department has no obligation to award on receipt of the grant application and are recognised as expenditure when approved by the grants approvals committee and the approval has been communicated to the applicant.

(c) Goods and Services Tax (GST)

All items in the non-departmental financial statements, including appropriation statements, are stated exclusive of GST, except for receivables and payables, which are stated on a GST inclusive basis. In accordance with Treasury instructions, GST is returned on revenue received on behalf of the Crown, where applicable. However, an input tax deduction is not claimed on non-departmental expenditure. Instead, the amount of GST applicable to non-departmental expenditure is recognised as a separate expense and eliminated against GST revenue on the consolidation of the Government financial statements.

(d) Debtors and other receivables

Debtors and other receivables are recognised initially at fair value and subsequently measured at amortised cost. Allowances for estimated irrecoverable amounts are recognised when there is objective evidence that the receivable is impaired. Impairment losses are recognised in the schedule of non-departmental expenses.

(e) Equity investments

Equity Investments are initially measured at fair value plus transaction costs. After initial recognition, these investments are measured at their fair value with gains and losses recognised in other comprehensive income, except for impairment losses which are recognised in the surplus or deficit.

(f) Derivatives

Forward exchange contracts are recognised at fair value as either assets or liabilities with fair value gains or losses recognised in the non-departmental financial statements. Further details on these contracts and the objectives for entering into forward exchange contracts are provided in note 7.

(g) Employment entitlements

Other Employment entitlements

Employee entitlements for salaries and wages, annual leave, long service leave, retiring leave, sick leave and other similar benefits are recognised in the non- departmental financial statements when they accrue to employees. Employee entitlements to be settled within 12 months of balance date are measured at nominal values based on accrued entitlements at current rates of pay.

Employee benefits that are due to be settled beyond 12 months after the end of the reporting period in which the employee renders the related service, such as long service leave and retiring leave, are calculated on an actuarial basis. The liability for long-term employee entitlements is reported as the present value of the estimated future cash outflows. Expected future payments are discounted using market yields on government bonds at balance date with terms to maturity that match, as closely as possible, the estimated future cash outflows for entitlements. The inflation factor is based on the expected long-term increase in remuneration for employees.

Sick leave, annual leave, vested long service leave, and non-vested long service leave and retirement gratuities expected to be settled within 12 months of balance date are classified as a current liability. All other employee entitlements are classified as a non-current liability.

Termination benefits

Termination benefits are recognised in the non-departmental financial statements only when there is a demonstrable commitment to either terminate employment prior to normal retirement date or to provide such benefits as a result of an offer to encourage voluntary redundancy. Termination benefits settled within 12 months are reported at the amount expected to be paid, otherwise they are reported as the present value of the estimated future cash outflows.

(h) Commitments

Future expenses and liabilities to be incurred on non-cancellable contracts that have been entered into at balance date are disclosed as commitments to the extent that there are equally unperformed obligations. Cancellable commitments that have penalty or exit costs explicit in the agreement on exercising that option to cancel, are included in the statement of commitments at the value of that penalty or exit cost.

(i) Changes in accounting policies

There have been no 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 Schedules

4 Debtors and other receivables

ACTUAL 2010 $000		ACTUAL 2011 $000
12,981	Debtors and other receivables	3,622
851	Prepayments	795
13,832	TOTAL DEBTORS AND OTHER RECEIVABLES	4,417

The carrying value of debtors and other receivables approximates their fair value.

The ageing profile of receivables at year end is detailed below:

ACTUAL	2010			2011
	GROSS $000	DOUBTFUL DEBTS $000	NET $000	GROSS $000	DOUBTFUL DEBTS $000	NET $000
Not past due	12,979	-	12,979	3,614	-	3,614
Past due 1 - 30 days	1	-	1	2	-	2
Past due 31 - 60 days	-	-	-	4	-	4
Past due 61 - 90 days	-	-	-	-	-	-
Past due > 90 days	1	-	1	2	-	2
TOTAL	12,981	-	12,981	3,622	-	3,622

5 Creditors and other payables

ACTUAL 2010 $000		ACTUAL 2011 $000
1,147	Creditors and other payables	309
1,426	GST payable	1,125
2,573	TOTAL CREDITORS AND OTHER PAYABLES	1,434

Creditors and other payables are non-interest bearing and are normally settled on 30-day terms, therefore the carrying value of creditors and other payables approximates their fair value.

6 Provision for employee entitlements

ACTUAL 2010 $000		ACTUAL 2011 $000
	Current liabilities
346	Annual leave	272
346	Total current liabilities	272
	Non-current liabilities
16	Long service leave	12
136	Retirement leave	84
152	Total Non-current liabilities	96
498	TOTAL PROVISIONS FOR EMPLOYEE ENTITLEMENTS	368

An independent actuarial valuation was undertaken by Melville Jessup Weaver as at 30 June 2011 to estimate the present value of retirement leave and long service leave. The key assumptions used in determining the present values were:

• Discount rate for the 2011 financial year 2.82% p.a. (2010: 5.80% p.a.).
• Salary growth rate for the 2011 financial year 2.50% p.a. (2010: 3.00% p.a.).

The appropriate risk free discount rates applied were forward rates published by the Treasury for the purpose of preparing the Financial Statements of the Government of New Zealand. Any changes in these assumptions will impact on the carrying amount of the liability. The salary inflation factor has been determined after considering historical salary inflation patterns and after obtaining advice from an independent actuary.

If the discount rate were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $7,000 higher/lower.

If the salary inflation factor were to lower/higher by 1% from the Department's estimates, with all other factors held constant, the carrying amount of the liability would be an estimated $7,000 lower/higher.

7 Derivative financial instruments

The notional principal amount of outstanding forward exchange contracts at 30 June 2011 was Nil (2010: Nil).

The fair value of forward exchange contracts has been determined using quoted market rates provided by the New Zealand Debt Management Office.

8 Vote ACC

Funding is provided by the Government through the Department of Labour to ACC for costs relating to the Non-Earners Account. The Non-Earners Account covers all personal injuries to people not in the paid workforce-students, beneficiaries, older people and children. The Non-Earners Account also funds injuries for non-earners sustained as a result of medical treatment through the Treatment Injury Account.

For claims that originated after 1 July 2001, ACC funding is provided based on an actuarial assessment of the whole-of-life cost. This is reassessed annually and funding appropriated from the Crown and provided to ACC. This is referred to as 'fully funded' and, in 2011, cost $1,084.650 million (2010: $1,141.038 million).

For claims that originated prior to 1 July 2001, ACC funding is provided to cover the costs relating to claims in the year the costs are incurred. The cost of this is actuarial assessed and appropriation sought from the Crown and funding provided to ACC. This is referred to as 'pay as you go' and, in 2011, cost $127.246 million (2010: $121.872 million).

9 Explanation of major variances against budget

The major variance from the Supplementary Estimates in the Schedule of Non-Departmental expenditure is in the Claim Entitlements and Services ($25 million) which is due to reduced funding in the Vote ACC Non-Earners' Account. There are no major variances in the Schedule of Non-Departmental income, the Schedule of Non-Departmental Assets and the Schedule of Non-Departmental Liabilities.

10 Events after the balance sheet date

There were no events occurring between year-end and the signing of the financial statements that would have a significant effect on these financial statements.

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