Financial statements

Comprehensive operating statement for the financial year ended 30 June 2021

The accompanying notes form part of these financial statements.

Balance sheet as at 30 June 2021

The accompanying notes form part of these financial statements.

Cash flow statement for the financial year ended 30 June 2021

The accompanying notes form part of these financial statements.

Statement of changes in equity for the financial year ended 30 June 2021

The accompanying notes form part of these financial statements.

Notes to the financial statements for the financial year ended 30 June 2021

Note 1. About this report

The Department of Premier and Cabinet (‘the department’) is a government department of the State of Victoria established pursuant to an order made by the Premier under the Administrative Arrangements Act 1983. It is an administrative agency acting on behalf of the Crown.

The principal address of the department is:

Department of Premier and Cabinet
1 Treasury Place
Melbourne VIC 3002

A description of the department’s operations and its principal activities is included in the Report of operations, which does not form part of these financial statements.

Basis of preparation

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

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

Judgements, estimates and assumptions are required to be made about financial information being presented. The significant judgements made in preparing these financial statements are disclosed in the notes where amounts affected by those judgements are disclosed. Estimates and associated assumptions are based on professional judgements derived from historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Revisions to accounting estimates are recognised in the period in which those estimates are revised and also in future periods that are affected by the revision. Judgements and assumptions made by management in applying Australian Accounting Standards that have significant effects on the financial statements and estimates are disclosed in the notes to which they relate.

These financial statements cover the department as an individual reporting entity and include all the controlled activities of the department, including the grants provided to the department’s portfolio entities. The results of the portfolio entities are not consolidated in the department’s financial statements because they prepare their own financial reports. The department’s portfolio results (including the portfolio entities) are included in Appendix 1, Budget portfolio outcomes of this annual report, which does not form part of the financial statements and is not subject to audit by the Victorian Auditor-General’s Office.

The following entities have been consolidated into the department’s financial statements pursuant to a determination made by the Assistant Treasurer under section 53(1)(b) of the Financial Management Act 1994. The department does not control these entities.

Where control of an entity is obtained during the financial period, its results are included in the comprehensive operating statement from the date on which control began. Where control ceases during a financial period, the entity’s results are included for that part of the period in which control existed.

The Victorian Multicultural Commission was established under the Multicultural Victoria Act 2011. It is included in this report until 31 January 2021, when it was transferred to the Department of Families, Fairness and Housing (DFFH) as part of machinery of government changes.

The Victorian Veterans Council is an independent statutory body established under the Veterans Act 2005. It is included until 31 January 2021, when it was transferred to DFFH as part of machinery of government changes.

The Victorian Independent Remuneration Tribunal was established in March 2019 under the Victorian Independent Remuneration Tribunal and Improving Parliamentary Standards Act 2019.

Respect Victoria was established on 5 September 2018 under the Prevention of Family Violence Bill 2018. It is included until 31 January 2021, when it was transferred to DFFH as part of machinery of government changes.

The administered activities of the department and for the above controlled entities are separately disclosed in Note 8.8 Administered items. The department remains accountable for administered items but does not recognise these in its financial statements.

In 2019–20 the Labour Hire Authority was derecognised as a section 53(1)(b) entity from the department’s financial statements. The 2019–20 comparatives in the Statement of changes in equity, Cash flow statement and Reconciliation of movements in the carrying amount of property, plant and equipment note (Note 5.1.1) separately show these derecognised amounts as line items.

All amounts in the financial statements have been rounded to the nearest $1,000 unless otherwise stated.

Compliance information

These general-purpose financial statements have been prepared on a going concern basis in accordance with the Financial Management Act 1994 and applicable Australian Accounting Standards including interpretations issued by the Australian Accounting Standards Board (AASB). They are presented in a manner consistent with the requirements of AASB 1049 Whole of Government and General Government Sector Financial Reporting.

Where appropriate, those paragraphs in the Australian Accounting Standards that apply to not-for-profit entities have also been applied. Accounting policies selected and applied in these financial statements ensure the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring the substance of the underlying transactions or other events is reported.

Other accounting policies

Other accounting policies that summarise the recognition and measurement basis used, and that are relevant to an understanding of the financial statements, are provided throughout the notes to the financial statements.

Note 2. Funding of our services

Introduction

The role of the department is to work for the people of Victoria by leading the public service and supporting the government of the day to achieve its strategic objectives.

To deliver on these strategic objectives, the department receives income predominantly in the form of accrual-based parliamentary appropriations.

Structure of this section

2.1 Income that funds the delivery of services

2.2 Summary of compliance with annual parliamentary and special appropriations

Key accounting recognition and measurement criteria

Income is recognised to the extent that it is probable the economic benefits will flow to the department and the income can be reliably measured at fair value. Where applicable, amounts disclosed as income are net of returns, allowances, duties and taxes. Amounts of income where the department does not have control are separately disclosed as administered income (see Note 8.8 Administered items).

2.1 Income that funds the delivery of services

Appropriations

Once annual parliamentary appropriations are approved by the Treasurer, they become controlled by the department and are recognised as income when applied for the purposes defined under the relevant legislation governing the use of the appropriation.

The department receives the following forms of appropriation:

• Output appropriations: Income from the outputs (i.e. services) the department provides to the government is recognised when those outputs have been delivered and the relevant minister has certified delivery of those outputs in accordance with specified performance criteria.
• Special appropriations: Income related to special appropriation is recognised when the expenditure relating to the amounts appropriated are paid by the department.

Grants

Income from grants without any sufficiently specific performance obligations, or that are not enforceable, is recognised in accordance with AASB 1058 when the department has an unconditional right to receive cash. This usually coincides with the department raising an invoice.

Income from grants or contracts that are enforceable and have sufficiently specific performance obligations are accounted for as revenue from contracts with customers under AASB 15 when those performance obligations are met by the department.

Income from grants received from other government entities for developing and constructing the Service Victoria digital services are recognised progressively as and when the asset is constructed. This aligns with the department’s obligation to construct the asset. The progressive percentage costs incurred is used to recognise income because this closely reflects the revenue earned by the department in constructing the asset.

Income received for specific purpose grants for on-passing is recognised simultaneously because the funds are immediately on passed to the relevant recipient entities on behalf of the Commonwealth Government.

Other income

Other income arises from the following transactions and other miscellaneous income and recovery of administration costs.

• Trust fund income: Trust fund income mostly includes fees collected from the Aboriginal Cultural Heritage Register and income from other external parties.
• Sponsorship income: Sponsorship income includes receipts from external parties for the Australia Day Fund and Cultural Diversity Week.
• Resources received free of charge: Resources received free of charge or for nominal consideration are recognised at fair value when control is obtained over them, irrespective of whether these contributions are subject to restrictions or conditions over their use.

DPC’s resources received free of charge are usually public records transferred to the Public Record Office Victoria (PROV). However, PROV received no public records during the current or the previous financial year due to delays in the release of their new records management system that has also been affected by COVID-19.

2.2 Summary of compliance with annual parliamentary and special appropriations

2.2.1 Summary of annual appropriations

2.2.1 Summary of annual appropriations

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2.2.1 Summary of annual appropriations

2.2.2 Summary of special appropriations

The following table discloses the details of compliance with special appropriations.

Note:

(i) The Victorian Ombudsman transferred to the Department of Justice and Community Safety as part of a machinery of government change effective from 1 May 2020 and no longer forms part of the department’s portfolio.

Note 3. Cost of delivering our services

Introduction

This section provides an account of the expenses the department incurred in delivering its services.

The funds that enable the provision of services are disclosed in Note 2 and in this section.

Structure of this section

3.1 Expenses incurred in the delivery of services

Key accounting recognition and measurement criteria

Expenses are ordinarily recognised in the comprehensive operating statement in the reporting period in which they are incurred, and the expense is paid or is payable.

Certain items such as employee expenses, grant expenses and the capital asset charge that have specific recognition criteria are further described in Note 3.1.

3.1 Expenses incurred in the delivery of services

Notes:

(i) Payments to Victorian Government entities and other non–Victorian Government entities.

(ii) Payments to Victorian public non-financial corporations and other private businesses and individuals.

Employee expenses

Employee expenses comprise all costs related to employment including wages and salaries, superannuation, fringe benefits tax, leave entitlements, redundancy payments, WorkCover premiums and other on-costs.

The amount recognised in the comprehensive operating statement in relation to superannuation includes employer contributions for members of both defined benefit and defined contribution superannuation plans paid or payable during the reporting period.

Grant expenses

Grant expenses are contributions of the department’s resources to another party for specific or general purposes where there is no expectation that the amount will be repaid in equal value (either by goods or services). Grant expenses also include grants paid to entities within the department’s portfolio. These grants are reported in specific purpose grants for on-passing.

Grants can either be operating or capital in nature. Grants can be paid as general purpose grants, which refer to grants that are not subject to conditions for their use. Alternatively, they may be paid as specific purpose grants, which are paid for a particular purpose and have conditions attached to their use.

Grant expenses are recognised in the reporting period in which they are paid or payable. Grants can take the form of money, assets, goods or services.

Details of the department’s grants payments in 2020–21 can be viewed at www.dpc.vic.gov.au. This grants payments information on the department’s internet page is not subject to audit by the Victorian Auditor-General’s Office.

Capital asset charge

A capital asset charge is a charge levied by the Department of Treasury and Finance (DTF) on the department’s budgeted written-down value of controlled non-current physical assets. It aims to attribute to the departmental outputs, a cost of capital used in service delivery. Imposing this charge provides incentives for the department to identify and dispose of under-utilised or surplus non‑current physical assets.

Other operating expenses

Other operating expenses generally represent the day-to-day running costs incurred in normal operations and are recognised as an expense in the reporting period in which they are incurred.

The following lease payments are recognised on a straight-line basis:

• short-term leases — leases with a term less than 12 months
• low-value leases — leases where the underlying asset’s fair value (when new, regardless of the age of the asset being leased) is no more than $10,000.

Note 4. Output information

Introduction

The department is predominantly funded by accrual-based parliamentary appropriations for providing outputs. This section provides a description of the departmental outputs delivered during the financial year and the costs incurred in delivering those outputs.

Structure of this section

4.1 Departmental outputs

4.2 Changes in departmental outputs

4.3 Departmental outputs — controlled income and controlled expenses

4.1 Departmental outputs

A description of the departmental outputs during the financial year ended 30 June 2021 and their objectives are summarised below.

Strong policy outcomes

The outputs under this objective pursue policy, service and administration excellence and reform. This objective leads the public sector response to significant state issues, policy challenges and projects. It supports the effective administration of government. It supports the delivery of policy and projects that enables increased productivity and competitiveness in Victoria. It includes government-wide leadership, reform and implementation; strategic advice and government support; digital government and communications; the Office of the Victorian Government Architect; and industrial relations outputs.

Engaged citizens

The outputs under this objective support and promote full participation in strong, resilient and vibrant communities. This objective empowers citizens to participate in policymaking and service design. It ensures a holistic approach to social policy and service delivery. It includes the Aboriginal policy, strengthening Aboriginal cultural heritage and communities; multicultural affairs policy and programs; support to veterans in Victoria; LGBTIQ+ equality policy and programs; women’s policy; and youth outputs.

Professional public administration

The outputs under this objective foster and promote a high-performing public service. This objective ensures effective whole of government performance and outcomes. It protects the values of good public governance in support of public trust. It includes the advice and support to the Governor; Chief Parliamentary Counsel services; management of Victoria’s public records; public administration advice and support; and state electoral roll and electoral events outputs.

4.2 Changes in departmental outputs

The following changes were made to the department’s outputs in 2020–21: the multicultural affairs policy and programs; support to veterans in Victoria; LGBTIQ+ equality policy and programs; women’s policy; and youth outputs transferred to the Department of Families, Fairness and Housing on 1 February 2021. These transactions are reflected in the outputs under the ‘Engaged citizens’ objective up to 31 January 2021.

4.3 Departmental outputs — controlled income and controlled expenses

4.3 Departmental outputs — controlled income and controlled expenses

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4.3 Departmental outputs — controlled income and controlled expenses

Note 5. Key assets to support output delivery

Introduction

The department uses land, buildings, property, plant and equipment in fulfilling its objectives and conducting its output activities. These assets represent the key resources the department uses for delivering output activities discussed in section 4 of this report.

Structure of this section

5.1 Property, plant and equipment

5.2 Intangible assets

5.3 Depreciation and amortisation

5.4 Fair value determination

Key accounting recognition and measurement criteria

Items of property, plant and equipment are measured initially at cost. Where an asset is acquired for nominal cost, the cost is its fair value at the date of acquisition. Assets transferred from/to other departments as part of a machinery of government change are transferred at their carrying amount.

The cost of leasehold improvements is capitalised and depreciated over their estimated useful lives.

The initial cost of motor vehicles under lease are measured at amounts equal to the fair value of the leased asset or, if lower, the present value of the minimum lease payments determined at the inception of the lease.

Leases recognised as right-of-use assets are initially measured at cost. This represents the present value of expected future payments resulting from the lease contract.

In reporting periods subsequent to initial recognition, property, plant and equipment are measured at fair value less accumulated depreciation and impairment. Fair value is determined based on the asset’s highest and best use (considering legal or physical restrictions imposed on the asset, public announcements or commitments made in relation to the intended use of the asset) and is summarised by asset category in the table at 5.1.

5.1 Property, plant and equipment

Notes:

(i) Land and buildings at both Government House and PROV were valued on 30 June 2017 by the Valuer-General of Victoria. The department does not hold any other land and buildings.

(ii) Public records held by PROV and other heritage assets were valued on 30 June 2017 by the Valuer-General of Victoria.

Land and buildings (including heritage buildings)

Land and buildings are classified as specialised land and specialised buildings due to restrictions on the use of these assets. They are reported at fair value. For valuation purposes, the market approach is used for specialised land, although this is adjusted for any community service obligations to reflect the specialised nature of the land being valued. Buildings are valued using the current replacement cost method. For more details refer to Note 5.4.

Leasehold improvements

Leasehold improvements are valued using the historical cost method. Historical cost is used as a close proxy to the current replacement cost due to its short useful life.

Office equipment and computer equipment

Office equipment and computer equipment are both valued using the historical cost method. Historical cost is used as a close proxy to the current replacement cost due to its short useful life.

Motor vehicles

Vehicles are valued using the current replacement cost method. The department acquires new vehicles and at times disposes of them before the end of their economic life. The process of acquisition use and disposal in the market is managed by experienced fleet managers in the department who set relevant depreciation rates during the life of the asset to reflect the use of the vehicles.

Public records and other heritage assets

These assets are reported at fair value. The valuation of these assets is based on a market approach. This involves using market prices and other relevant information generated by market transactions from comparable or similar assets (refer to Note 5.4 for details on valuation techniques).

Right-of-use assets acquired by lessees

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

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

The department subsequently depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The right-of-use assets are also subject to revaluation.

In addition, the right-of-use assets are periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liabilities.

Refer to the table at 5.1.1(a) for a reconciliation of movements in the carrying amount of the department’s right-of-use assets.

5.1.1 Reconciliation of movements in carrying amount of property, plant and equipment

5.1.1 Reconciliation of movements in carrying amount of property, plant and equipment

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5.1.1 Reconciliation of movements in carrying amount of property, plant and equipment

The following table is a subset of buildings and leased motor vehicles included in Note 5.1.1 by right-of-use assets.

5.1.1(a) Reconciliation of movements in carrying amount of right-of-use assets: buildings and vehicles

Note

(i) This balance represents the initial recognition of right-of-use assets recorded on the balance sheet at 1 July 2019 along with the transfer from finance lease assets (recognised under AASB 117 at 30 June 2019) to right-of-use assets (recognised under AASB 16 at 1 July 2019).

5.2 Intangible assets

Key accounting recognition and measurement criteria

Purchased intangible assets are initially recognised at cost. Subsequently, intangible assets with finite useful lives are carried at cost less accumulated amortisation and accumulated impairment losses. Depreciation and amortisation will begin when the asset is available for use — that is, when it is in the location and condition necessary for it to be capable of operating in the manner intended by management.

An internally generated intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all of the following are demonstrated:

• an intention to complete the intangible asset for use or sale
• the ability to use or sell the intangible asset
• the intangible asset will generate probable future economic benefits
• the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset
• the ability to measure reliably the expenditure attributable to the intangible asset during its development.

Intangible produced assets with finite useful lives are amortised on a straight-line basis over their useful lives.

Intangible assets with indefinite useful lives (and intangible assets not yet available for use) are tested for impairment annually or whenever there is an indication that the asset may be impaired.

Intangible assets with finite useful lives are tested for impairment whenever an indication of impairment is identified.

5.3 Depreciation and amortisation

The increase in intangible assets amortisation is due to the amortisation of Service Victoria’s digital services platform.

All buildings, office equipment and computer equipment, and other non-financial physical assets that have finite useful lives, are depreciated and intangible assets are amortised over their useful life.

Depreciation and amortisation are generally calculated on a straight-line basis at rates that allocate the asset’s value, less any estimated residual value, to its useful life. Depreciation and amortisation begin when the asset is first available for use in the location and condition necessary for it to be capable of operating in the manner intended by the department.

Useful life of assets

Typical estimated useful lives for the different asset classes are included in the table below.

Note:

(i) Public records are assessed to have an indefinite useful life since the records are preserved in near perfect conditions to ensure they last for an indefinite period.

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

Impairment

Non-financial assets — including items of property, plant and equipment or intangible assets — are tested for impairment whenever there is an indication that the asset may be impaired.

The assets concerned are tested as to whether their carrying value exceeds their recoverable amount. Where an asset’s carrying value exceeds its recoverable amount, the difference is considered an impairment and is written off as an ‘other economic flow’, except to the extent that it can be offset to an asset revaluation surplus amount applicable to that class of asset.

The recoverable amount for most assets is measured at the higher of current replacement cost and fair value less costs to sell.

Assets subject to restriction on use

Heritage assets held by the department generally cannot be modified or disposed of unless ministerial approval is obtained.

5.4 Fair value determination

The department determines the policies and procedures for fair value measurements such as property, plant and equipment in accordance with the requirements of AASB 13 Fair Value Measurement and the relevant Financial Reporting Directions issued by DTF.

In determining fair values, a number of inputs are used. To increase consistency and comparability in the financial statements, these inputs are categorised into three levels, also known as the fair value hierarchy:

• level 1 — quoted (unadjusted) market prices in active markets for identical assets or liabilities
• level 2 — valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
• level 3 — valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

The department determines whether transfers have occurred between levels in the hierarchy by reassessing the categorisation at the end of each reporting period (based on the lowest level input that is significant to the fair value measurement as a whole).

There have been no transfers between levels during the reporting period.

The Valuer‑General Victoria (VGV) is the department’s independent valuation agency. The department engages the VGV to carry out professional valuations on a five-year cycle. In the interim years, the department, in conjunction with the VGV, monitors changes in the fair value of each asset through relevant data sources to determine whether a revaluation is required. If a valuation is required, then the department will either carry out a managerial valuation or engage with the VGV to value those asset classes. The last such professional valuation was conducted in June 2017.

In 2020–21, where a full revaluation was not required, the department has conducted a fair value assessment using the regular indices for land and buildings from the VGV. Following this assessment, and as per FRD103I, a managerial valuation adjustment has been done due to the movement in fair value being greater than 10 per cent. The next professional valuation will be conducted in June 2022.

The carrying amounts of all non-financial physical assets approximate to level 3 fair value.

The reconciliation of all movements of level 3 fair value assets is shown in the table at 5.1.

The disclosures in connection with fair value determination for non-financial physical assets are as follows.

Land and buildings (including heritage buildings)

The department’s land and buildings are classified as specialised land and buildings for valuation purposes. The market approach is used to value specialised land, although this is adjusted for any community service obligations to reflect the use of the land being valued.

The community service obligations adjustment reflects the valuer’s assessment of the impact of restrictions associated with an asset to the extent that it is equally applicable to market participants. This approach is in light of the highest and best use consideration required for fair value measurement. Relevant valuation factors include what is physically possible, legally permissible and financially feasible. As cost and such adjustments of community service obligations are considered significant unobservable inputs, valuation of specialised land is classified as a level 3 fair value measurement.

For the department’s specialised buildings, the current replacement cost method is used, adjusting for associated depreciation. Such adjustments are considered significant unobservable inputs and specialised buildings are classified as level 3 fair value measurements.

The VGV performed an independent valuation of the department’s specialised land and specialised buildings. The effective date of the valuation was 30 June 2017.

Office equipment and computer equipment

Office equipment and computer equipment is valued using the historical cost method, which is considered a close proxy to the current replacement cost due to the short useful lives of these assets. Depreciation rates used in arriving at the current replacement costs are an unobservable input, as such these assets are classified under level 3 in the fair value measurement hierarchy.

There were no changes in valuation techniques during the current financial year.

For all assets measured at fair value, the current use is considered the ‘highest and best’ use.

Public records and other heritage assets

The valuation of public records and other heritage assets involves using market prices and other relevant information generated by market transactions involving comparable or similar assets. The assessment of similar assets in existence is performed by identifying comparable sales and undertaking research using subscription databases as well as referring to auction catalogues and other specialised libraries. Such a valuation technique will involve unobservable inputs to the fair value measurement, therefore public records and other heritage assets are classified under level 3 in the fair value measurements hierarchy.

The VGV performed an independent valuation of the department’s public records and other heritage assets. The effective date of the valuation was 30 June 2017.

Other heritage assets include artwork. For artwork, valuation of the assets is determined by a comparison to similar examples of the artist’s work in existence throughout Australia and research on recent prices paid for similar examples offered at auction or through art galleries.

Note 6. Other assets and liabilities

Introduction

This section sets out the other assets and liabilities that arose from the department’s operations and help contribute to the successful delivery of output operations.

Structure of this section

6.1 Receivables

6.2 Payables

6.3 Other non-financial assets

6.4 Employee benefits

6.5 Other provisions

Key accounting recognition and measurement criteria

Contractual receivables are classified as financial instruments and categorised as ‘financial assets at amortised cost’. They are initially recognised at fair value plus any directly attributable transaction costs. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment.

The department currently holds financial instruments that are recorded in the financial statements where the carrying amounts approximate to fair value. This is due to their short-term nature or with the expectation that they will be paid in full by the end of the 2021–22 reporting period.

Statutory receivables do not arise from contracts and are recognised and measured similarly to contractual receivables (except for impairment) but are not classified as financial instruments. Amounts recognised from the Victorian Government represent funding for all commitments incurred and are drawn from the Consolidated Fund when the commitments fall due.

Contractual payables are classified as financial instruments and measured at amortised cost. Accounts payable represent liabilities for goods and services provided to the department before the end of the financial year that are unpaid.

Statutory payables are recognised and measured similarly to contractual payables but are not classified as financial instruments and not included in the category of financial liabilities at amortised cost because they do not arise from contracts.

Deferred capital grant revenue is recognised progressively when the underlying asset is constructed because this is when the department satisfies its obligations under the asset construction contract. The progressive percentage costs incurred in constructing the asset is used to recognise income because this closely reflects the progress completion of the asset. The department will defer the recognition of a portion of the grant received as a liability for the outstanding obligations. There were no deferrals for 2020–21 or the comparative year.

6.1 Receivables

Note:

(i) Represents the balance of available appropriations relating to providing outputs as well as funds available for capital purchases, for which payments had not been disbursed at the balance date, and accordingly had not been drawn from the Consolidated Fund.

6.1.1 Ageing analysis of contractual receivables

The average credit period for sales of goods/services and for other receivables is 30 days. There are no material financial assets that are individually determined to be impaired. Currently the department does not hold any collateral as security nor credit enhancements relating to any of its financial assets.

6.2 Payables

6.3 Other non-financial assets

Prepayments represent payments in advance of receiving goods or services made in one accounting period covering a term extending beyond that period. Prepayments at the end of the financial year include accommodation, WorkCover insurance, software and information technology payments paid in advance.

6.4 Employee benefits

Key accounting recognition and measurement criteria

Provision is made for benefits payable to employees in respect of annual leave and long service leave for services rendered up to the reporting date.

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

No provision has been made for sick leave because all sick leave is non-vesting and it is not considered probable that the average sick leave taken in the future will be greater than the benefits accrued in future periods. Because sick leave is non-vesting, an expense is recognised in the comprehensive operating statement when sick leave is taken.

Unconditional long service leave is disclosed as a current liability, even where the department does not expect to settle the liability within 12 months. This is because it will not have the unconditional right to defer the settlement of the entitlement should an employee take leave within 12 months.

The components of the current long service leave liability are measured at either:

• undiscounted value — if the department expects to wholly settle within 12 months, or
• present value — if the department does not expect to wholly settle within 12 months.

Conditional long service leave is disclosed as a non-current liability. There is an unconditional right to defer the settlement of the entitlement until the employee has completed the requisite years of service. This non-current long service leave is measured at present value.

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

Employment on-costs such as payroll tax, workers compensation and superannuation are disclosed separately as a component of the provision for employee benefits.

The department does not recognise any superannuation defined benefit liabilities because it has no legal or constructive obligation to pay future benefits relating to this to its employees. Instead, DTF discloses in its annual financial statements the net defined benefit cost related to the members of these plans as an administered liability (on behalf of the State of Victoria as the sponsoring employer).

6.5 Other provisions

Other provisions are recognised when the department has a present obligation, the future sacrifice of economic benefits is probable, and the amount of the provision can be measured reliably. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, considering the risks and uncertainties surrounding the obligation.

The make-good provision is recognised in accordance with the lease agreement over the accommodation facilities. The department must remove any leasehold improvements from the accommodation facilities and restore the premises to its original condition at the end of the lease term.

Note 7. Our financing activities

Introduction

This section provides information on the sources of financing activities of the department during the financial year.

This section also includes disclosures of balances that are classified as financial instruments (including cash balances) and additional information about managing exposures to financial risks.

Structure of this section

7.1 Borrowings

7.2 Cash balances and cash flow information

7.3 Financial instruments and financial risk management

7.4 Commitments for expenditure

7.5 Trust account balances

7.1 Borrowings

Key accounting recognition and measurement criteria

Borrowings are classified as financial instruments.

All interest-bearing borrowings are initially recognised at the fair value of the consideration received, less directly attributable transaction costs. The measurement basis subsequent to initial recognition is at amortised cost. The classification depends on the nature and purpose of the interest-bearing liabilities. The department determines the classification of its interest-bearing liabilities at initial recognition.

Leases recognised under the AASB16 lease accounting standard are initially measured at the present value of the lease payments unpaid at the commencement date, discounted using an interest rate implicit in the lease if that rate is readily determinable or at the department’s incremental borrowing rate.

Interest expenses include costs incurred in connection with the borrowing of funds or the notional interest cost in leases recognised under the AASB 16 lease accounting standard. Interest expenses are recognised in the period in which they are incurred.

The department leases various properties, equipment and motor vehicles. The lease contracts are typically made for fixed periods of between one and 10 years, with an option to renew the lease after that date.

7.1(a) Right-of-use assets resulting from leases

Right-of-use assets are presented in Note 5.1.1(a).

7.1(b) Amounts recognised in the comprehensive operating statement relating to leases

The following amounts are recognised in the comprehensive operating statement relating to leases.

7.1(c) Amounts recognised in the cash flow statement relating to leases

The following amounts are recognised in the ‘Cash flow statement for the financial year ended 30 June 2021’ relating to leases.

Leases

For any new contracts entered into, the department considers whether contracts contain leases. A lease is defined as a contract that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration. To apply this definition the department assesses whether the contract meets the following three key evaluations:

• whether the contract contains an identified asset that is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the department and for which the supplier does not have substantive substitution rights
• whether the department has the right to obtain substantially all of the economic benefits from using the identified asset throughout the period of use, considering its rights within the defined scope of the contract and the department has the right to direct the use of the identified asset throughout the period of use
• whether the department has the right to make decisions in respect of ‘how and for what purpose’ the asset is used throughout the period of use.

This policy is applied to all contracts from 1 July 2019.

Separation of lease and non-lease components

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

Recognition and measurement of leases

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

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

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

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

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

Short-term leases and leases of low-value assets

The department has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss when the expenditure is incurred.

Presentation of right-of-use assets and lease liabilities

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

7.2 Cash balances and cash flow information

7.2.1 Cash balances

Cash at bank includes deposits at call held at the bank and trust balances held in the State of Victoria’s bank account (‘public account’). Cash received by the department is paid into the public account. Similarly, expenditure for payments to suppliers and creditors are made via the public account. The public account remits to the department the cash required based on payments to suppliers or creditors.

7.2.2 Reconciliation of the net result to the cash flow from operating activities

7.3 Financial instruments and financial risk management

Key accounting recognition and measurement criteria

Introduction

Financial instruments arise out of contractual agreements between entities that give rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Due to the nature of the department’s activities, certain financial assets and financial liabilities arise under statute rather than a contract. Such financial assets and financial liabilities do not meet the definition of financial instruments in AASB 132 Financial Instruments: Presentation. For example, statutory receivables do not meet the definition of financial instruments because they do not arise under contract. The department’s statutory receivables are disclosed in Note 6.1.

The department applies AASB 9 and classifies all financial assets based on the business model for managing the assets and the assets’ contractual terms.

Categories of financial assets

Financial assets at amortised cost

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

Financial assets at amortised cost include the department’s cash and deposits and trade receivables, but not statutory receivables.

Categories of financial liabilities

Financial liabilities at amortised cost

Financial liabilities are initially recognised on the date they are originated. They are initially measured at fair value plus any directly attributable transaction costs. After initial measurement, these financial instruments are measured at amortised cost using the effective interest method.

Financial liabilities measured at amortised cost include all the department’s contractual payables and lease liabilities (borrowings).

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when the rights to receive cash flows from the asset have expired.

Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.

Offsetting financial instruments

Financial instrument assets and liabilities are offset and the net amount presented in the balance sheet when, and only when, there is a legal right to offset the amounts and the department intends to settle on a net basis or to realise the asset and settle the liability simultaneously.

Categories of financial assets and liabilities

The following table shows the department’s categorisation of financial assets and financial liabilities.

The department’s main financial risks include credit risk, liquidity risk and market risk. The department manages these financial risks in accordance with its financial risk management policy.

Credit risk

Credit risk refers to the possibility that a debtor will default on its financial obligations as and when they fall due. Credit risk associated with the department’s contractual financial assets is minimal because the main debtors are other Victorian Government entities. Credit risk is measured at fair value and is monitored on a regular basis.

Considering the minimal credit risk, there is no expected credit loss for contractual receivables as per AASB 9’s Expected Credit Loss approach.

Liquidity risk

Liquidity risk arises when the department is unable to meet its financial obligations as they fall due. The department’s exposure to liquidity risk is deemed insignificant based on a current assessment of risk, the nature and the size of the department, and a review of data from previous financial periods.

The department is exposed to liquidity risk mainly through the financial liabilities as disclosed in the balance sheet. The department manages its liquidity risk by:

• maintaining an adequate level of uncommitted funds that can be drawn at short notice to meet its short-term obligations
• careful maturity planning of its financial obligations based on forecasts of future cash flows.

Market risk

The department’s exposure to market risk is primarily through interest rate risk. The department has no material exposure to foreign currency and other price risks.

Interest rate risk

The department’s exposure to interest rate risk is insignificant and arises primarily through the department’s interest-bearing liabilities. The only interest-bearing liabilities are the motor vehicle leases entered under fixed-rate contracts.

7.4 Commitments for expenditure

Commitments for future expenditure include operating and capital commitments arising from contracts. These commitments are recorded at their nominal value and include GST. Where it is considered appropriate and provides relevant information to users, the net present values of significant individual projects are stated. These future expenditures cease to be disclosed as commitments once the related liabilities are recognised in the balance sheet.

The department also has grant payment commitments. These commitments are unquantifiable since the final grant payment is based on achieving performance milestones that may or may not be met and will affect the payment of those grants.

7.5 Trust account balances

7.5 Trust account balances

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7.5 Trust account balances

Note 8. Other disclosures

Introduction

This section includes additional disclosures required by accounting standards or otherwise for the understanding of this financial report.

It also provides information on administered items.

Structure of this section

8.1 Other economic flows

8.2 Responsible persons

8.3 Executive remuneration

8.4 Related parties

8.5 Remuneration of auditors

8.6 Restructuring of administrative arrangements

8.7 Contingent assets and contingent liabilities

8.8 Administered items

8.9 Other accounting policies and Australian Accounting Standards issued but not yet effective

8.10 Subsequent events

8.1 Other economic flows

Other economic flows are changes in the value of an asset or liability that do not result from transactions. Gains/(losses) from other economic flows include the gains or losses from:

• the disposal of leased motor vehicles
• the revaluation of the present value of the long service and recreational leave liability due to changes in the bond interest rate.

8.2 Responsible persons

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

Names

The persons who held the position of Minister and Accountable Officer in the department (from 1 July 2020 to 30 June 2021 unless otherwise stated) were:

Note:

(i) On 1 February 2021 these portfolios transferred to the Department of Families, Fairness and Housing as a result of administrative restructure.

The persons who acted in positions of Minister and Accountable Officer in the department (from 1 July 2020 to 30 June 2021) were:

Remuneration

Remuneration received or receivable by the Accountable Officer in connection with managing the department during the reporting period was in the range of $630,000–$639,999 (2020: $690,000–$699,999).

8.3 Executive remuneration

The number of executive officers, other than ministers and accountable officers, and their total remuneration during the reporting period are shown in the table below. Total annualised employee equivalents provide a measure of full-time equivalent executive officers over the reporting period.

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

• short-term employee benefits include amounts such as wages, salaries, annual leave and sick leave that are usually paid or payable on a regular basis, as well as non-monetary benefits such as allowances and free or subsidised goods or services
• post-employment benefits include pensions and other retirement benefits paid or payable on a discrete basis when employment has ceased
• other long-term benefits include long service leave, other long-service benefits and deferred compensation.

Notes:

(i) Since 1 July 2019 the departmental chief financial officers are legally employed and paid by DTF. However, as per the requirements of FRD 21C, departments are still required to disclose costs of services provided by a CFO in their financial report. For the initial year of this new employment arrangement for CFOs, all departmental CFO costs were disclosed by DTF in its 2019–20 financial report.

(ii) The total number of executive officers includes persons who meet the definition of key management personnel of the entity under AASB 124 Related Party Disclosures and are also reported within the related parties note disclosure (Note 8.4).

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

8.4 Related parties

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

Related parties of the department, Office of the Victorian Information Commissioner, Victorian Multicultural Commission, Victorian Independent Remuneration Tribunal, Victorian Veterans Council and Respect Victoria include:

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

Significant transactions with government-related entities

The department received funding from the Consolidated Fund totalling $607.4 million (2020: $726.9 million).

Key management personnel

The department’s key management personnel from 1 July 2020 to 30 June 2021 include:

The Premier

• The Hon Daniel Andrews MP

Portfolio ministers

• The Hon James Merlino MP
• Gabrielle Williams MP
• Martin Foley MP
• The Hon Ros Spence MP
• The Hon Shaun Leane MP
• Tim Pallas MP
• The Hon Danny Pearson MP

Secretary

• Chris Eccles AO
• Jeremi Moule

Deputy Secretaries

• Toby Hemming
• Tim Ada
• Chris Miller
• Vivien Allimonos
• Kate Houghton
• Brigid Monagle
• Elly Patira
• Matt O’Connor
• John Batho
• Elizabeth Langdon

Executive Director, Corporate Services

• Genevieve Dolan
• Andrew Campbell
• Lynn Warneke

Key management personnel of the administrative offices included in the department’s financial statements and other statutory appointees that are material in terms of the department’s financial results include:

Administrative offices

Justine Heazlewood — The Keeper of Public Records of Public Record Office Victoria

Joanne de Morton — Chief Executive Officer of Service Victoria

The compensation detailed below excludes the salaries and benefits of portfolio ministers. Ministers’ remuneration and allowances are set by the Parliamentary Salaries and Superannuation Act 1968 and is reported by the Department of Parliamentary Services.

Transactions with key management personnel and other related parties

Given the breadth and depth of state government activities, related parties transact with the Victorian public sector on terms and conditions equivalent to those that prevail in arm’s length transactions under the State’s procurement process. Further employment of processes within the Victorian public sector occur on terms and conditions consistent with the Public Administration Act 2004, codes of conduct and standards issued by the Victorian Public Sector Commission. Procurement processes occur on terms and conditions consistent with the Victorian Government Procurement Board requirements.

During the financial year the department’s Secretary, Mr Jeremi Moule (and Mr Chris Eccles AO until 12 October 2020), was a member of the board of directors of the Australian New Zealand School of Government (ANZSOG). Since 2002 the department has transactions that occurred with ANZSOG that prevail at arm’s length under the State’s procurement processes.

Outside of normal citizen-type transactions with the department, there were no other related party transactions that involved key management personnel or their close family members. No provision has been required, nor any expense recognised, for impairment of receivables from related parties.

8.5 Remuneration of auditors

8.6 Restructuring of administrative arrangements

Transfers out of the department

On 1 July 2020 the order made under section 11 of the Public Administration Act, designated by the Premier, relinquished Bushfire Recovery Victoria to the Department of Justice and Community Safety.

In addition, Service Systems Reform was transferred to the Department of Jobs, Precincts and Regions effective from 1 July 2020.

The following transfer from the department (the transferor) was based on the declaration pursuant to section 30 of the Public Administration Act, taking effect on 1 December 2020:

• The management and development of the Jobs and Skills Exchange, a job-matching platform to support workforce mobility across the Victorian Public Sector was transferred to the Victorian Public Sector Commission.

On 1 February 2021, the order made under section 11 of the Public Administration Act, designated by the Premier, relinquished Respect Victoria, Victorian Veterans Council, Victorian Multicultural Commission, Family Violence and Fairer Victoria to the Department of Families, Fairness and Housing.

Restructuring of administrative arrangements during the year are as follows:

8.6 Restructuring of administrative arrangements

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8.6 Restructuring of administrative arrangements

8.7 Contingent assets and contingent liabilities

Key accounting recognition and measurement criteria

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

Contingent assets and liabilities are presented inclusive of GST.

Contingent assets are possible assets that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

These are classified as either quantifiable, where the potential economic benefit is known, or non-quantifiable.

Contingent liabilities are either:

• possible obligations that arise from past events, whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity, or
• present obligations that arise from past events but are not recognised because:
  • it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligations, or
  • the amount of the obligations cannot be measured with sufficient reliability.

Contingent liabilities are also classified as either quantifiable or non-quantifiable.

Contingent liabilities

Quantifiable contingent liabilities

Non-quantifiable contingent liabilities

There were nil non-quantifiable contingent liabilities at the reporting date.

At 30 June 2020 the department disclosed a non-quantifiable contingent liability related to the December 2019 to February 2020 bushfires in Victoria and the subsequent recovery activities activated by the State. These bushfire recovery activities were conducted by Bushfire Recovery Victoria, which was an administrative office of the department until 30 June 2020. On 1 July 2020 Bushfire Recovery Victoria was transferred to the Department of Justice and Community Safety as part of a machinery of government decision.

Contingent assets

There were no contingent assets at the reporting date (2020: nil).

8.8 Administered items

Key accounting recognition and measurement criteria

Administered transactions relating to income, assets and liabilities are determined on an accrual basis.

The below transactions and balances relate to administered items and are not included elsewhere in these financial statements because the department does not control these activities. However, the department is accountable to the State for the transactions involving these administered resources even though it does not have the discretion to deploy these resources for its own benefit or for achieving its objectives. Some of the activities include disposal of vehicles under leases, Public Service Commuter Club and other Treasury and departmental trusts.

Note:

(i) This includes funds in trust for the portfolio agencies held in the department’s public account.

Administered trust account balances

The table below provides additional information on individual administered trust account balances.

Administered trust account balances

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Administered trust account balances

8.9 Other accounting policies and Australian Accounting Standards issued but not yet effective

Other accounting policies — contributions by owners

In relation to machinery of government changes and consistent with the requirements of AASB 1004 Contributions, contributions by owners, contributed capital and its repayments are treated as equity transactions and do not form part of the department’s income and expenses.

Additions to net assets that have been designated as contributions by owners are recognised as contributed capital. Other transfers that are contributions to, or distributions by, owners are designated as contributions by owners.

Transfers of net assets arising from administrative restructurings are treated as distributions to, or contributions by, owners. Transfers of net liabilities arising from administrative restructurings are treated as distributions to owners.

Australian Accounting Standards issued but not yet effective

Certain new and revised accounting standards have been issued but are not effective for the 2020–21 reporting period. These accounting standards have not been applied to the department’s financial statements. The State is reviewing its existing policies and assessing the potential implications of these accounting standards, which includes:

• AASB 2020-1 Amendments to Australian Accounting Standards — Classification of Liabilities as Current or Non-Current

  This standard amends AASB 101 to clarify requirements for presenting liabilities in the statement of financial position as current or non-current. It initially applied to annual reporting periods beginning on or after 1 January 2022, with earlier application permitted. However, the AASB has recently issued AASB 2020-1 Amendments to Australian Accounting Standards — Classification of Liabilities as Current or Non-current — Deferral of Effective Date to defer the application by one year to periods beginning on or after 1 January 2023.

  The department will not early adopt the standard.

  The department is in the process of analysing the impacts of this standard. However, it is not anticipated to have a material impact.

Several other amending standards and AASB interpretations have been issued that apply to future reporting periods but are considered to have limited impact on the department’s reporting:

• AASB 1060 General Purpose Financial Statements — Simplified Disclosures for For-Profit and Not-for-Profit Tier 2 Entities (Appendix C)
• AASB 2020-3 Amendments to Australian Accounting Standards — Annual Improvements 2018–2020 and Other Amendments.

8.10 Subsequent events

No significant events have occurred since 30 June 2021 that will have a material impact on the information disclosed in the financial statements.

Accountable Officer’s and Chief Financial Officer’s declaration

The attached financial statements for the Department of Premier and Cabinet have been prepared in accordance with Direction 5.2 of the Standing Directions of the Assistant Treasurer under the Financial Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards including Interpretations, and other mandatory professional reporting requirements.

We further state that, in our opinion, the information set out in the comprehensive operating statement, balance sheet, cash flow statement, statement of changes in equity and accompanying notes presents fairly the financial transactions during the year ended 30 June 2021 and financial position of the department at 30 June 2021.

At the time of signing, we are not aware of any circumstance that would render any particulars included in the financial statements to be misleading or inaccurate.

We authorise the attached financial statements for issue on 22 September 2021.

Andrew Davis
Chief Financial Officer
Department of Premier and Cabinet
Melbourne
22 September 2021

Jeremi Moule
Secretary
Department of Premier and Cabinet
Melbourne
22 September 2021