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Report of the Ministry for the Environment

• Overview of the 2008/09 Year
• Statement of Service Performance for the Year Ended 30 June 2009
• Financial Statements for the Ministry for the Environment
  • Notes to the Financial Statements
• Non-Departmental Statements and Schedules for the Year Ended 30 June 2009
  • Notes to the Non-Departmental Financial Statements
  • Audit Report
• Contact information
  • Advisory Bodies 2008/09
  • Organisational Chart

Financial Statements for the Ministry for the Environment

Notes to the Financial Statements

1. Statement of accounting policies for the year ended 30 June 2009

Reporting entity

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

The financial statements of the Ministry for the Environment are for the year ended 30 June 2009. The primary objective of the Ministry is to provide services to the public rather than making a financial return. Accordingly, the Ministry has designated itself as a public benefit entity for the purposes of New Zealand equivalents to International Financial Reporting Standards (NZ IFRS).

In addition, the Ministry has reported the Crown activities, which it administers.

The financial statements were authorised for issue by the Chief Executive of the Ministry on 30 September 2009.

Basis of preparation

These financial statements have been prepared in accordance with the requirements of the Public Finance Act 1989, which includes the requirement to comply with the New Zealand generally accepted accounting practices (NZ GAAP). They also comply with New Zealand equivalents to International Financial Reporting Standards (NZ IFRS) and other applicable financial reporting standards, as appropriate for public benefit entities.

Accounting policies

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

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

The accrual basis of accounting has been used unless otherwise stated.

The financial statements are presented in New Zealand dollars and all values are rounded to the nearest thousand dollars ($’000). The functional currency of the Ministry for the Environment is New Zealand dollars.

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

• NZ IAS 1 Presentation of Financial Statements (revised 2007) replaces NZ IAS 1 Presentation of Financial Statements (issued 2004) and is effective for reporting periods beginning on or after 1 January 2009. The revised standard requires information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in equity resulting from transactions with the Crown in its capacity as ‘owner’ separately from ‘non-owner’ changes. The revised standard gives the Ministry the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The Ministry expects it will apply the revised standard for the first time for the year ended 30 June 2010, and is yet to decide whether it will prepare a single statement of comprehensive income or a separate income statement followed by a statement of comprehensive income.

(i) Budget figures

The budget figures are those amended by the 2008/09 Supplementary Estimates.

(ii) Revenue

Operations

The Ministry derived revenue through the provision of outputs to the Crown and for services to third parties. Revenue from the supply of goods and services is measured at the fair value of consideration received. Revenue earned from the supply of goods is recognised when the significant risks and rewards of ownership have been transferred to the buyer. Revenue from the supply of services is recognised at balance date on a straight-line basis over the specified period for the services unless an alternative method better represents the stage of completion of the transaction.

Rental income

Rental income is recognised in the Statement of Financial Performance on a straight-line basis over the term of the lease. Lease incentives granted are recognised evenly over the term of the lease as a reduction in total rental income.

(iii) Expenditure

Grants/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 Crown.

Cost allocation

The Ministry derived the costs of outputs using a cost allocation system. Direct costs are charged directly to the Ministry’s outputs. Indirect costs are charged to outputs based on a primary cost driver of salaried full-time equivalents. There were no material changes to the cost allocation model during the 2008/09 year.

Criteria for direct and indirect costs

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

Direct costs assigned to outputs

All direct operating costs are charged directly to outputs. Direct personnel costs are charged on the basis of the full-time equivalents that are directly attributable to an output. For the year ended 30 June 2009, direct costs accounted for 74% of the Ministry’s costs (2008: 76%).

Indirect costs assigned to outputs

All indirect costs are assigned to outputs on a percentage basis calculated on the number of full-time equivalents per output. For the year ended 30 June 2009, indirect costs accounted for 26% of the Ministry’s costs (2008: 24%).

(iv) Leases

Operating leases

An operating lease is a lease where the lessor does not transfer substantially all the risks and rewards of ownership of an asset. Lease payments under an operating lease are recognised as an expense in a systematic manner over the term of the lease. Lease incentives received are recognised evenly over the term of the lease as a reduction in rental expense.

(v) Foreign currency

Transactions in foreign currencies are initially translated at the foreign 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 Financial Performance.

(vi) Cash and cash equivalents

Cash and cash equivalents include cash on hand and funds on deposit with banks.

(vii) Debtors and other receivables

Debtors and other receivables are initially measured at fair value and subsequently measured at amortised cost using the effective interest rate, less impairment changes.

(viii) Property, plant and equipment

Property, plant and equipment consists of land, buildings, leasehold improvements, furniture and office equipment, and computer hardware.

Property, plant and equipment are shown at cost, less accumulated depreciation and impairment losses.

Additions

Individual assets, or group of assets, are capitalised if their cost is greater than $1,500. The value of an individual asset that is less than $1,500 and is part of a group of similar assets is capitalised.

Disposals

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount of the asset. Gains and losses arising from disposal of property, plant and equipment are recognised in the Statement of Financial Performance in the period in which the transaction occurs. Any balance attributable to the disposed asset in the asset revaluation reserve is transferred to retained earnings.

Depreciation

Depreciation is provided on a straight-line basis on all property, plant and equipment, other than land, at a rate that will write off the cost or valuation of the assets, over their useful lives. The useful lives and associated depreciation rates of major classes of assets have been estimated as follows:

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

(ix) Intangible assets

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.

Costs that are directly associated with acquiring software for use by the Ministry, are recognised as an intangible asset.

Amortisation

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 the asset is derecognised. The amortisation charge for each period is recognised in the Statement of Financial Performance.

Typically, the estimated useful lives and associated amortisation rates of intangible assets have been estimated as follows:

(x) Impairment of non-financial assets

Property, plant and equipment and intangible assets that have a finite useful life are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

An intangible asset that is not yet available for use at the balance date is tested for impairment annually.

(xi) Creditors and other payables

Creditors and other payables are initially measured at fair value and subsequently measured at amortised cost using the effective interest method.

(xii) Employee entitlements

Pension liabilities

Obligations for contributions to defined contribution retirement plans are recognised in the Statement of Financial Performance as they fall due. Obligations for defined benefit retirement plans are recorded at the latest actuarial value of the Crown liability. All movements in the liability, including actuarial gains and losses, are recognised in full in the Statement of Financial Performance in the period in which they occur.

Other employee entitlements

Employee entitlements to salaries and wages, annual leave, long service leave, retiring leave and other similar benefits are recognised in the Statement of Financial Performance when they accrue to employees. Employee entitlements to be settled within 12 months are reported at the amount expected to be paid. The liability for long-term employee entitlements is reported on an actuarial basis, based on the present value of the expected future entitlements.

Termination benefits

Termination benefits are recognised in the Statement of Financial Performance only when there is a demonstrable commitment to either terminate employment before 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.

(xiii) Superannuation schemes

Obligations for contributions to the Sate Sector Retirement Savings Scheme, Kiwisaver and the Government Superannuation Fund are accounted for as defined contribution schemes and are recognised as an expense in the statement of financial performance as incurred.

(xiv) Statement of cash flows

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

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

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

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

(xv) Goods and Services Tax (GST)

All items in the financial statements, including appropriation statements, are stated exclusive of GST except where otherwise stated. Creditors and other payables and Debtors and other receivables in the Statement of Financial Position are stated inclusive of GST. Where GST is not recoverable as an input tax, then it is recognised as part of the related asset or expense.

The GST payable or receivable at balance date is included in Creditors and other payables or Debtors and other receivables in the Statement of Financial Position.

(xvi) Taxation

The Ministry is exempt from income tax in terms of the Income Tax Act 2004. Accordingly, no charge for income tax has been provided for.

(xvii) Critical accounting estimates and assumptions

In preparing these financial statements the Ministry has made no significant estimates and assumptions concerning the future that affect the application of policies and reported amounts of assets and liabilities, income and expenses.

(xviii) Commitments

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

(xix) Contingencies

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

(xx) Taxpayers’ funds

Taxpayers’ funds is the Crown’s net investment in the Ministry and is measured as the difference between total assets and liabilities. Taxpayers’ funds is disaggregated and classified as general funds.

(xxi) Comparatives

When presentation or classification of items in the financial statements is amended or accounting policies are changed voluntarily, comparative figures are restated to ensure consistency with the current year.

2. Revenue other

3. Gains

4. Personnel costs

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

Employer contributions to defined contribution plans include contributions to the State Sector Retirement Savings Scheme, Kiwisaver and Government Superannuation Fund.

5. Capital charge

The Ministry 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 2009 was 7.5% (2008: 7.5%).

6. Other operating expenses

7. Debtors and other receivables

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

As at 30 June 2009 and 2008, all overdue receivables have been assessed for impairment and the appropriate provision applied, as detailed below:

No provision has been made for doubtful debts as all debtors are current. There were no indications at balance date that any of these debtors are impaired.

8. Property, plant and equipment

* The amount of work in progress as at 30 June 2009, $11,913 relates to the additions of servers (2008: $187,558 relates to the development of the Land Use and Carbon Analysis System to assist New Zealand in assessing its compliance with the Kyoto Protocol.)

There are no restrictions over the title of the Ministry’s property, plant and equipment, nor are any property, plant and equipment pledged as security for liabilities.

9. Intangible assets

** The amount of work in progress as at 30 June 2009 relates to the development of the Online Waste Levy system $149,081; upgrade of library information management system $16,140; and the development of Land Use and Carbon Analysis System $425,175 (2008: $830,287 – development of Land Use and Carbon Analysis System and Financial Management Information System.)

*** The disposals as at 30 June 2009 $763,228 relates to the Write off for the development work carried out for the Calculation and Reporting Application work not being used for the current development of Land Use and Carbon Analysis System.

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

10. Creditors and other payables

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

Provisions relate to the Mapua contaminated site clean-up project. This is a new provision made in 2008/09.

11. Repayment of surplus

The repayment of surplus is required to be paid by the 31st October of each year.

12. Employee entitlements

The retirement and long service leave were valued by AON Consulting as at 30 June 2009. The major assumptions used in the actuarial valuation were:

• a discount rate has been used by finding the weighted averages of returns on government stock of different terms as at 30 June 2009. The rates used range from 3.49% to 6.35% depending on the term of the liability for each employee (30 June 2008: 6.42% to 7.09%)
• a long-term annual salary growth rate of 3.0% (2008: 3.0%)
• a promotional salary scale derived from the experience of New Zealand superannuation schemes
• the value of the liability is not material for the Ministry’s financial statements; therefore, any changes in assumptions will not have a material impact on the financial statements.

13. Taxpayers’ funds

14. Reconciliation of net surplus to net cash from operating activities

* Creditors and accruals for capital expenditure are excluded when calculating this increase or decrease.

15. Related party transactions and key management personnel

Related party transactions

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

The Ministry enters into transactions with government departments, Crown entities and state-owned enterprises on an arm’s length basis. These transactions are not considered to be related party transactions.

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

Key management personnel compensation

Key management personnel include the Chief Executive and the seven members of the Senior Management Team (2008: The Chief Executive and the seven members of the Senior Management Team).

16. Events after the balance sheet date

No significant events which may impact on the results have occurred between year end and the signing of these financial statements.

17. Financial instruments’ risks

The Ministry’s activities expose it to a variety of financial instrument risks, including market risk, credit risk and liquidity risk. The Ministry has a series of policies to manage the risks 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 Ministry has no significant exposure to currency risk on its financial instruments. Accordingly, no sensitivity analysis has been completed.

Interest rate risk

Interest rate risk is the risk that the return on invested funds will fluctuate due to changes in market interest rates. Under the Public Finance Act 1989, the Ministry cannot raise a loan without Ministerial approval and no such loans have been raised. Accordingly, there is no interest rate exposure on funds borrowed.

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

Credit risk

Credit risk is the risk that a third party will default on its obligations to the Ministry, causing the Ministry to incur a loss.

In the normal course of its business, credit risk arises from debtors and deposits with banks.

The Ministry is only permitted to deposit funds with Westpac, a registered bank. Westpac bank has a high credit rating of AA. For its other financial instruments, the Ministry does not have significant concentrations of credit risk.

The Crown Retail Deposit Guarantee Scheme for deposits held with banks that have opted into the scheme provides a guarantee of $1million per depositor per guaranteed institution. Deposits beyond this level are not covered by this scheme.

The Ministry’s maximum credit exposure for each class of financial instrument is represented by the total carrying amount of cash and cash equivalents, and net debtors (note 7). There is no collateral held as security against these financial instruments, including those instruments that are overdue or impaired.

Liquidity risk

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

In meeting its liquidity requirements, the Ministry closely monitors its forecast cash requirements with expected cash drawdowns from the New Zealand Debt Management Office. The Ministry maintains a target level of available cash to meet liquidity requirements.

The table below analyses the Ministry’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 the contractual undiscounted cash flows.

18. Categories of financial instruments

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

19. Capital management

The Ministry’s capital is its equity (or taxpayers’ funds), which comprise general funds. Equity is represented by net assets.

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

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

20. Explanations of major variances against budget

Explanations for major variances from the Ministry’s estimated figures in the 2008/09 Main Estimates are as follows:

(i) Statement of financial performance

Crown revenue was lower than budget partly due to transfer of $3.6m from 2008/09 to 2009/10 for various work programmes. The Ministry also identified $10.546m savings in several work programmes as part of the Value For Money review. The Ministry also drew down less cash from Crown than budgeted in its Supplementary Estimates.

Personnel costs were higher than budget because of the increased staff numbers during the course of the year and includes increases in remuneration and some redundancy costs. The increase in staff numbers were in particular a result of implementing the Emission Trading Scheme and Waste Minimisation Act.

Consultancy costs (including contractors’ fees) were lower than budget partly due to the transfer of funds from 2008/09 to 2009/10 for several work programmes. Also several work programmes were completed using resources within the Ministry. The Ministry also identified $10.546m savings in several work programmes as part of the Value for Money review.

General and administration costs were also lower than budget due to the savings identified in several work programmes as part of the Value for Money review.

(ii) Statement of financial position

The higher level of Debtors and other receivables relates to amounts receivable from Crown, GST receivable and invoices raised for the recovery of Resource Management Act Call-ins costs and other costs at 30 June 2009.

The Ministry accrued many invoices due to suppliers/providers not providing invoices before the year end cut off. Hence, creditors and other payables are higher than budgeted.

Employee entitlements were higher than budget due to the year end salary accrual and also annual and other leave liabilities were higher than anticipated.

(iii) Statement of cash flows

Explanations for variances in the Statement of Cash Flows are explained above.

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